<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No.2)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1997 Commission File Number 0-21068
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SIGHT RESOURCE CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 04-3181524
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
67 South Bedford Street
Burlington, MA 01803
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(Address of principal executive offices)
617-229-1100
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year, if changed since the last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No___
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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:
On April 28, 1997, 8,618,704 shares of common stock, par value $0.01 per share,
were outstanding.
TOTAL PAGES 14
EXHIBIT INDEX AT PAGE 13
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SIGHT RESOURCE CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SIGHT RESOURCE CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $8,252 $9,924
Accounts receivable, net of allowance
of $381 and $353, respectively 1,875 1,405
Inventories 2,395 2,489
Prepaid expenses and other current assets 967 286
Assets held for sale 360 458
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Total current assets 13,849 14,562
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Property and equipment 6,470 6,030
Less accumulated depreciation (1,414) (1,095)
------------------------- --------------------
Net property and equipment 5,056 4,935
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Other assets:
Intangible assets, net 11,604 11,768
Other assets 847 165
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Total other assets 12,451 11,933
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$31,356 $31,430
========================= =====================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving note payable $1,475 $475
Current portion of long term debt 1,400 800
Accounts payable 1,384 1,843
Accrued expenses 4,395 3,670
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Total current liabilities 8,654 6,788
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Non-current liabilities:
Long term debt, less current maturities --- 1,600
Other liabilities 280 276
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Non-current liabilities 280 1,876
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Stockholders' equity:
Preferred Stock, $.01 par value. Authorized 5,000,000
shares; no shares issued and outstanding. --- ---
Common Stock, $.01 par value. Authorized 20,000,000
shares; issued 8,648,768 at March 31, 1997
and December 31, 1996. 86 86
Additional paid-in capital 37,690 37,510
Common stock issuable, 71,181 shares at March 31,
1997 and December 31, 1996 432 432
Treasury stock at cost
(shares at March 31, 1997: 30,600) (137) ---
Accumulated deficit (15,649) (15,262)
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Total stockholders' equity 22,422 22,766
------------------------- ---------------------
$31,356 $31,430
========================= =====================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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SIGHT RESOURCE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1997 1996
---------------------------------------------
<S> <C> <C>
Net revenue $10,440 $5,660
Cost of revenue 3,849 2,262
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Gross profit 6,591 3,398
Selling, general and administrative expenses 7,000 4,082
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Loss from operations (409) (684)
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Other income (expense)
Interest income 102 94
Interest expense (80) (58)
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Total other income (expense) 22 36
---------------- ------------
Net loss ($387) ($648)
================ ============
Net loss per common share ($0.04) ($0.10)
================ ============
Weighted average number of common
shares outstanding 8,638 6,347
================ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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SIGHT RESOURCE CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1996
---------------------- ----------------------
<S> <C> <C>
Operating activities:
Net loss ($387) ($648)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 483 435
Changes in operating assets and liabilities:
Accounts receivable (470) (378)
Inventories 94 (114)
Prepaid expenses and other current assets (681) (373)
Accounts payable and accrued expenses 266 (399)
---------------------- ----------------------
Net cash used in operating activities (695) (1,477)
---------------------- ----------------------
Investing activities:
Purchases of property and equipment (440) (229)
Proceeds from sale of assets 98 376
Other assets (502) (37)
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Net cash provided by(used in) investing activities (844) 110
---------------------- ----------------------
Financing activities:
Principal payments on long term debt --- (100)
Other liabilities 4 10
Net proceeds from exercise of warrants --- 1
Purchase of common stock for treasury (137) ---
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Net cash used in financing activities (133) (89)
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Net (decrease) in cash and cash equivalents (1,672) (1,456)
Cash and cash equivalents, beginning of period 9,924 8,035
---------------------- ----------------------
Cash and cash equivalents, end of period $ 8,252 6,579
====================== ======================
Supplemental Disclosure:
Interest paid $ 102 $ 44
====================== ======================
Equity issued associated with
credit agreement $ 180 ---
====================== ======================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) THE COMPANY
(a) Nature of Business
The business of Sight Resource Corporation is to participate in the
delivery of a complete range of eye care products and services` through
integrated networks of opticians, optometrists and ophthalmologists.
(b) US Acquisitions
During 1995, the Company acquired two primary eye care chains, effective
January 1, 1995 and July 1, 1995, respectively. The aggregate purchase
price paid in connection with the acquisitions consisted of (i) $2,660
in cash, (ii) 555,525 shares of common stock, (iii) the assumption of
approximately $1,600 of net liabilities, and (iv) $660 payable over a 3
year period and $250 payable over 18 months, contingent upon the
occurrence of certain future events. The transactions were accounted for
using the purchase method of accounting.
Effective July 1, 1996, the Company purchased certain assets and assumed
certain liabilities of The E.B. Brown Optical Company and Brown Optical
Laboratories, Inc. as well as entered into a merger with E.B. Brown
Opticians, Inc. (together "EB Brown") for approximately $4,000 in cash,
521,997 shares of common stock issued, 71,181 shares of common stock to
be issued and $1,400 in notes payable over an eighteen month period. The
total value assigned to the shares of common stock issued and to be
issued is $2,333,000. The shares issued and to be issued have been
recorded in the statement of stockholders' equity. EB Brown operates
forty-two eye care centers located throughout Ohio and western
Pennsylvania which provide optometric and audiology goods and services
to persons with vision and hearing disorders. The transaction was
accounted for using the purchase method of accounting.
The results of operations of the three acquisitions have been included
in the consolidated financial statements from their respective dates of
acquisition. The excess of the purchase price and expenses associated
with each acquisition over the estimated fair value of the net assets
acquired has been recorded as goodwill.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Company, these
consolidated financial statements contain all adjustments (consisting of
only normal, recurring adjustments) necessary to present fairly the
financial position of Sight Resource Corporation as of March 31, 1997
and the results of its operations and cash flows for the three months
ended March 31, 1997 and 1996.
The accompanying consolidated financial statements and related notes
should be read in conjunction with the audited consolidated financial
statements which are contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
6
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries and two professional
corporations ("PCs") in which the Company's subsidiaries assume the
financial risks and rewards of such PCs through a management contract and
a stock agreement. The Company has no direct equity ownership in the
PCs. All significant intercompany balances and transactions have been
eliminated.
In preparation of these consolidated financial statements in conformity
with generally accepted accounting principles, management of the Company
has made estimates and assumptions that affect the reported amounts of
assets and liabilities, such as accounts receivable, inventory impairment
of property and equipment and intangibles. Actual results could differ
from those estimates.
(c) Revenue Recognition
Revenue and the related costs from the sale of eyewear are recognized at
the time an order is placed. The revenue generated from eye care services
is recognized when the services are performed. The Company has fee for
service arrangements with all of its third party payors. Revenue is
reported net of the contractual allowances. Contractual allowances are
estimated in the period the related services are rendered and adjusted in
future periods as final settlements are determined. The provision and
related allowance are adjusted periodically, based upon an evaluation of
historical collection experience, industry reimbursement trends and other
relevant factors. The Company has not had any material settlement with
third-party payors nor is it aware of any material claims, disputes or
unsettled matters with any third-party payor.
Under revenue sharing arrangements for refractive surgery where the
Company is not responsible for patient billing, the Company receives a
specified payment from the hospital or center for each refractive
surgical procedure performed. Accordingly, the Company recognizes revenue
on a per procedure basis at the time procedures are performed. Under
revenue-sharing arrangements for refractive surgery where the Company is
responsible for the collection from the patient and payment to the
ophthalmologist and other operating costs, the total patient charge is
recorded as revenue with the corresponding expenses recorded in cost of
revenue.
(d) Inventories
Inventories primarily consist of the costs of eyeglass frames, contact
lenses, ophthalmic lenses, sunglasses and other optical products and are
valued at the lower of cost (using the first-in, first-out method) or
market.
(e) Property and Equipment
Property and equipment is stated at cost. The Company provides for
depreciation at the time the property and equipment is placed in service.
The straight-line method is used over the estimated useful life of the
assets.
7
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(f) Intangible Assets
Intangible assets resulting from the business acquisitions consist of
patient lists, trademarks, non-compete agreement and the excess cost of
the acquisition over the fair value of the net assets acquired
(goodwill). Certain values assigned are based upon independent appraisals
and are amortized on a straight line basis over a period of 5 to 25
years. The Company assesses the recoverability of unamortized intangible
assets on an ongoing basis by comparing anticipated operating profits and
future, undiscounted cash flows to net book value. If anticipated
operating profits and future, undiscounted cash flows are less than net
book value, then an impairment charge is recorded to reduce the carrying
value of the assets to fair value. In performing this analysis,
management considers such factors as current results, trends, and future
prospects, in addition to other economic factors.
(g) Deferred Revenue
The Company offers a contact lens purchasing program in which, for a set
fee, customers may purchase contacts at discounted rates for a 12 month
period. The Company recognizes revenue from the sales of its contact lens
purchasing program on a monthly basis over the life of the program.
(h) Net Loss Per Share
Net loss per share of common stock is based on the weighted average
number of common shares outstanding. Common stock equivalents are not
included in the calculation because they are antidilutive.
(3) DEBT
Debt is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
Bank term loan secured by all assets of one of the
Company's subsidiaries $ - $ 1,000
Unsecured notes payable, 7% interest rate, $400 due on
September 18, 1997 and $1,000 due on March 18, 1998;
due on demand if the Company's cash balance is less
than $2,800 1,400 1,400
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1,400 2,400
Less current maturities 1,400 800
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Long term debt, less current maturities $ 0 $ 1,600
======= =======
</TABLE>
At December 31, 1996, the Company had available a revolving credit
facility in the amount of $500 based on eligible accounts receivable and
inventory balances. As of December 31, 1996, $25 was unused.
8
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(3) DEBT (CONTINUED)
On February 20, 1997, the Company entered into a Credit Agreement (the
"Agreement") with a bank pursuant to which the Company can borrow $5,000 on
a term loan basis and $5,000 on a revolving credit basis, subject to
certain performance criteria. These loans are secured by all assets of the
Company and its wholly owned subsidiaries. As of March 31, 1997, the entire
term loan was unused and $1,475 is outstanding on the revolving note. The
revolving note bears interest at the bank's prime rate plus 1.25% (9.75% at
March 31, 1997). As part of the Agreement, the Company issued to the bank
warrants to purchase 150,000 shares of the common stock at a purchase price
of $4.625 per share. The warrants expire December 31, 2003. The warrants
were accounted for as additional paid in capital based upon the fair value
of the securities. Fair market value was determined by using the
relationship of the interest rate charged with the warrants versus the rate
to be charged without the warrants. This value approximated that obtained
using the Black Scholes Method.
9
<PAGE>
PART I:
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Statements contained in this document which are not historical fact are
forward-looking statements based upon management's current expectations that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements.
These risks are described in the Company's Form 10K for the fiscal year ended
December 31, 1996 filed with the Securities and Exchange Commission.
OVERVIEW
The Company is in business to manufacture, distribute and sell eyewear and
related products and services and, as necessary, to administer the business
functions of providing vision related medical services. The Company provides a
complete range of eye care products and services through integrated networks of
opticians, optometrists and ophthalmologists. The Company's services are
provided primarily to persons with common vision disorders, as well as to
persons with sight-threatening conditions. The Company's operations currently
consist of 72 eye care centers, a centralized optical laboratory and
distribution center, two management service organizations ("MSOs") and ten laser
vision correction ("LVC") centers which the Company has established in
association with leading hospitals, ambulatory surgery centers and
ophthalmologists.
The Company's objective is to become the leading integrated provider of eye care
products and services in select, regional markets. To develop significant
regional integrated networks, the Company's business strategy focuses on (i)
acquiring and integrating the assets of regional multi-site eye care centers and
the practices of eye care professionals (optometrists and ophthalmologists),
(ii) employing or entering into management services contracts with these
professionals, (iii) continuing to market comprehensive and competitively priced
eye care programs to leading HMOs, insurance companies and other third party
payors in the Company's regional markets, (iv) expanding strategic affiliations,
for pathology co-management opportunities, with select hospitals, ambulatory
surgery centers and eye care professionals and (v) continuing to market and
provide access to LVC services through the Company's eye care centers.
The Company believes that its integrated approach to eye care provides
significant advantages, benefits and opportunities to patients, providers and
payors. Patients benefit from the convenience of eye care products and services
delivered at a single location. Eye care professionals benefit from the
supplemental management and administrative services and resources provided by
the Company, permitting them to continue to dedicate their time and effort to
their patients and professional practices. Payors benefit from the Company's
ability to conveniently provide a complete range of eye care products and
services with the highest quality at the lowest cost.
10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NET REVENUE. The Company generated net revenue of approximately $10.4 million
during the three months ended March 31, 1997, from the operation of its 72 eye
care centers and ten laser vision correction centers as compared to net revenue
of approximately $5.7 million from its 29 eye care centers and six laser vision
correction centers for the same period in 1996. Of the $4.7 million, or 82.5%,
increase in net revenue, approximately $3.9 million relates to the additional
forty-two eye care centers acquired effective July 1, 1996. The remaining
increase is due to increases in laser vision correction services and revenue
generated in existing eye care centers.
COST OF REVENUE. Cost of revenue increased from approximately $2.3 million for
the three months ended March 31, 1996 to approximately $3.9 million for the
three months ended March 31, 1997. Cost of revenue as a percent of net revenue
decreased from 40.0% for the three months ended March 31, 1996 to 36.9% for the
three months ended March 31, 1997. The decrease as a percentage of net revenue
is attributable to reduced depreciation on ophthalmic equipment after the write
down due to the asset impairment recognized in the fourth quarter of 1996, as
well as manufacturing efficiencies realized at the Company's central lab. Cost
of revenue for the three months ended March 31, 1997 and 1996 principally
consisted of (i) the cost of manufacturing, purchasing and distributing optical
products to its customers and (ii) the cost of delivering laser vision
correction services, including depreciation and maintenance on excimer lasers.
SELLING, GENERAL AND ADMINISTRATION EXPENSES. Selling, general and
administration expenses were approximately $7.0 million for the three months
ended March 31, 1997 as compared to approximately $4.1 million for the three
months ended March 31, 1996. The increase primarily relates to payroll and
facility costs incurred in operating additional eye care centers in the first
quarter of fiscal 1997 as compared to the first quarter of fiscal 1996.
Selling, general and administrative expenses, as a percentage of net revenue,
declined from 72.1% in 1996 to 67.0% in 1997. This decrease is primarily a
result of operating efficiencies which the Company began to realize from the
acquisition and expansion of multi-site eye care centers.
OTHER INCOME AND EXPENSES. Interest income totaled $102,000 for the three
months ended March 31, 1997 as compared to $94,000 for the three months ended
March 31, 1996. This increase resulted from the investment of a higher average
cash balance during the first quarter of 1997 as compared to the same period in
1996. Interest expense totaled $80,000 for the three months ended March 31,
1997 as compared to $58,000 for the three months ended March 31, 1996. The
increase is associated with a higher average balance of debt outstanding in the
first quarter of 1997 as compared to the same period in prior year.
NET LOSS. The Company realized a net loss of $387,000 ($0.04 per share) for the
three months ended March 31, 1997, as compared to $648,000 ($0.10 per share) for
the three months ended March 31, 1996.
11
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had approximately $8.3 million in cash and cash
equivalents and working capital of approximately $5.2 million in comparison to
approximately $9.9 million in cash and cash equivalents and working capital of
approximately $7.8 million as of December 31, 1996. The decrease in working
capital is mainly due to debt becoming current as of March 31, 1997.
As of March 31, 1997, the Company had securities outstanding which provide it
with potential sources of financing as outlined below:
<TABLE>
<CAPTION>
Securities Potential
proceeds
- -------------------------------------------------- -------------------
<S> <C> <C>
Warrants 2,472,100 $14,800,000
Class A Warrants 85,000 500,000
Unit Purchase Options 215,000 3,700,000
IPO Representative Warrants 85,000 1,300,000
Creditanstalt Warrants 150,000 694,000
Representative Warrants 170,000 1,400,000
-------------------
$22,394,000
===================
</TABLE>
There can be no assurance that the Company will obtain any such proceeds from
the exercise of the above securities.
On February 20, 1997, the Company entered into a Credit Agreement (the
"Agreement") with a bank pursuant to which the Company can borrow $5 million on
a term loan basis and $5 million on a revolving credit basis, subject to certain
performance criteria. Such certain performance criteria include, among others,
financial condition covenants such as rolling EBITDA levels, indebtedness to
EBITDA ratios, current ratio of 1:1 and minimum net worth ratios. The term loan
facility bears an interest rate of prime plus 1.5% or LIBOR plus 3% at the
borrowers election and the revolving credit facility bears an interest rate of
prime plus 1.25% or LIBOR plus 2.75% at the borrowers election. These loans are
secured by all assets of the Company and its wholly owned subsidiaries. Amounts
borrowed under the Agreement will be used to finance future acquisitions,
provide ongoing working capital and for other general corporate purposes. In
addition, the Company refinanced existing bank debt using the revolving credit
facility. As part of the Agreement, the Company issued to the bank warrants to
purchase 150,000 shares of the common stock at a purchase price of $4.625 per
share. The warrants expire December 31, 2003.
The Company anticipates that its working capital and sources of capital, such as
the new credit facility, will be adequate to fund the Company's currently
proposed activities for at least the next twelve months. The Company
anticipates using financing vehicles such as bank debt and other sources of
funding, such as additional equity offerings, to achieve its business plan,
including the acquisition of multi-site eye care centers. By acquiring multi-
site eye care centers, the Company gain a critical mass of locations ensuring
that potential patients and third party payors will have convenient access to a
wider variety of eye care services. It also allows the Company to deliver these
services at considerable savings by using existing corporate and operational
infrastructure, which includes store operations, MIS, manufacturing, purchasing,
distribution and training. The Company is currently evaluating potential
acquisition candidates. Without additional funding, the Company's rate of
acquisition and size of acquisition could be limited.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits furnished as Exhibits hereto:
Exhibit 10.1 Amendment No. 1 to Employment Agreement dated
------------
January 2, 1997, among Cambridge Eye Associates, Inc., Sight
Resource Corporation and Elliot S. Weinstock, O.D.
b. On March 7, 1997, the Company filed a Form 8-K related to the
Credit Agreement, dated February 20, 1997, between the Company and
Creditanstalt Corporate Finance Corporation, Inc.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGHT RESOURCE CORPORATION
Date: July 15, 1998 By: /s/ William T. Sullivan
-----------------------
William T. Sullivan
President
14
