<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1998 Commission File Number 0-21068
------------- --------
SIGHT RESOURCE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-3181524
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Jeffrey Avenue
Holliston, MA 01746
- --------------------------------------------------------------------------------
(Address of principal executive offices)
508-429-6916
- --------------------------------------------------------------------------------
(Issuer's telephone number)
N/A
- --------------------------------------------------------------------------------
(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
------ ------
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 August 5, 1998, 8,885,730 shares of common stock, par value $0.01 per
share, were outstanding.
TOTAL PAGES 18
EXHIBIT INDEX AT PAGE 17
<PAGE>
SIGHT RESOURCE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
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>
June 30, December 31,
1998 1997
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,350 $ 6,076
Accounts receivable, net of allowance
of $376 and $478, respectively 2,524 1,781
Inventories 4,718 4,434
Prepaid expenses and other current assets 396 377
------------- --------------
Total current assets 8,988 12,668
------------- --------------
Property and equipment 12,264 10,070
Less accumulated depreciation (6,189) (4,406)
------------- --------------
Net property and equipment 6,075 5,664
------------- --------------
Other assets:
Intangible assets, net 17,292 14,898
Other assets 1,211 1,277
------------- --------------
Total other assets 18,503 16,175
------------- --------------
$ 33,566 $ 34,507
============= ==============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 117 $ 1,000
Accounts payable 2,321 1,797
Accrued expenses 4,257 5,628
------------- --------------
Total current liabilities 6,695 8,425
------------- --------------
Non-current liabilities:
Long term debt, less current 233 ---
maturities
Other liabilities 95 101
------------- --------------
Total non-current liabilities 328 101
------------- --------------
Redeemable convertible preferred stock
1,452,119 shares issued 6,535 6,535
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 8,885,730 at June
30, 1998
and 8,756,500 at December 31, 90 88
1997.
Additional paid-in capital 36,799 36,329
Common stock issuable, 71,181 shares
at June 30, 1998 and December 31, 1997 432 432
Treasury stock at cost
(30,600 shares in 1998 and 1997) (137) (137)
Accumulated deficit (17,176) (17,266)
------------- --------------
Total stockholders' equity 20,008 19,446
------------- --------------
$ 33,566 $ 34,507
============= ==============
</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 Six Months Ended
--------------------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
--------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $14,498 $10,027 $28,078 $20,467
Cost of revenue 5,071 3,746 9,823 7,595
--------- --------- --------- --------
Gross profit 9,427 6,281 18,255 12,872
Selling, general and
administrative expenses 9,311 6,738 18,206 13,738
--------- --------- --------- --------
Income (loss) from operations 116 (457) 49 (866)
--------- --------- --------- --------
Other income (expense)
Interest income 57 121 128 223
Interest expense (45) (92) (96) (172)
Gain on sale of assets - 223 69 223
--------- --------- --------- --------
Total other income 12 252 101 274
--------- --------- --------- --------
Income (loss) before
income tax expense 128 (205) 150 (592)
Income tax expense 51 - 60 -
--------- --------- --------- --------
Net income (loss) $ 77 $ (205) $ 90 $ (592)
========= ========= ========= ========
Basic and diluted earnings (loss)
per common share and
potential common share $ 0.01 $ (0.02) $ 0.01 $ (0.07)
========= ========= ========= ========
Weighted average number of
common shares outstanding 8,885 8,618 8,791 8,628
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SIGHT RESOURCE CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 June 30, 1997
-------------- --------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 90 $ (592)
Adjustments to reconcile net income
(loss) to net cash used
in operating activities:
Depreciation and amortization 1,277 962
Gain on sale of assets (69) (223)
Changes in operating assets and
liabilities:
Accounts receivable (612) (410)
Inventories 30 (91)
Prepaid expenses and other
current assets (51) (503)
Accounts payable and accrued
expenses (1,690) 60
-------------- --------------
Net cash used in operating
activities (1,025) (797)
-------------- --------------
Investing activities:
Purchases of property and equipment (603) (638)
Payments for acquisitions (2,351) ---
Proceeds from sale of assets 99 411
Other assets 40 (545)
-------------- --------------
Net cash used in investing (2,815) (772)
activities -------------- --------------
Financing activities:
Principal payments on long term debt (1,000) ---
Other liabilities (7) (3)
Proceeds from issuance of stock 121 ---
Purchase of common stock for treasury --- (137)
-------------- --------------
Net cash used in financing
activities (886) (140)
-------------- --------------
Net decrease in cash and cash
equivalents (4,726) (1,709)
Cash and cash equivalents, beginning of
period 6,076 9,924
-------------- --------------
Cash and cash equivalents, end of period $ 1,350 $ 8,215
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) THE COMPANY
(a) Nature of Business
Sight Resource Corporation (the "Company") manufactures, distributes and
sells eyewear and related products and services.
(b) 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. As of December 31, 1997, these chains operated 30
eye care centers. 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 $7,733, consisting
of: $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. When the common stock to be issued is issued, the $432 of
common stock issuable will be reclassed into common stock and additional
paid in capital. As of December 31, 1997, EB Brown operated thirty-nine 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.
Effective July 1, 1997, the Company acquired one hundred percent of the
outstanding shares of stock of Vision Holdings, Ltd. (formerly known as Dr.
Greenberg, an Optometry Corporation d/b/a Vision Plaza) ("Vision Plaza").
The purchase price paid in connection with this acquisition was $2,000 in
cash and the assumption and repayment of notes payable outstanding as of
July 1, 1997 of approximately $800. As of December 31, 1997, Vision Plaza
operated 14 primary eye care centers and three specialty eyewear centers in
southeast Louisiana and Mississippi. The acquisition was accounted for
using the purchase method of accounting.
Effective April 1, 1998, the Company acquired one hundred percent of the
outstanding shares of stock of Eye Glass Emporium, Inc. ("Eyeglass
Emporium"). The purchase price paid in connection with this acquisition was
$2,309 of cash on hand, $350 in notes payable in twelve equal quarterly
installments commencing June 30, 1998, and 87,940 shares of common stock.
As of April 1, 1998, Eyeglass Emporium operated nine eye care centers in
Indiana. The acquisition was accounted for using the purchase method of
accounting.
6
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The results of operations of the five 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. As a result of the acquisition, the Company
has also recorded adjustments to increase liabilities and establish
reserves for the closing of stores and related restructuring costs,
including lease commitments and severance costs. Total acquisition
related reserves at June 30, 1998 and December 31, 1997 were $285 and
$2,066, respectively.
(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 June 30, 1998 and
the results of its operations and cash flows for the three and six months
ended June 30, 1998 and 1997.
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, 1997.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and three professional
corporations ("PC's") in which the Company's subsidiaries assume the
financial risks and rewards of such entities through a management contract
and a stock agreement. The Company has no direct equity ownership in the
PC's. 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 complete. Revenue from eye care services is
recognized when the service is performed. The Company has fee for service
arrangements with all of its third party payors. Revenue is reported net
of contractual allowances.
7
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 settlements 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 existing
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. The Company assesses the recoverability of the undepreciated
property and equipment on an ongoing basis by comparing anticipated
profits and future, undiscounted cash flows to net book value. In
performing this analysis, management considers such factors as current
results, trends, and future prospects, in addition to other economic
factors.
(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
8
<PAGE>
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Company recognizes revenue from the sales of its contact lens purchasing
program on a monthly basis over the life of the program.
(h) Net Earnings (Loss) Per Share
Earnings per share are computed based on Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted
earnings per share ("Diluted EPS") by all entities that have publicly
traded common stock or potential common stock (options, warrants,
convertible securities or contingent stock arrangements). Basic EPS is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
The computation of Diluted EPS does not assume conversion, exercise or
contingent exercise of securities that would have an antidilutive effect
on earnings.
The following table provides a reconciliation of the numerators and denominators
of the basic and diluted earnings (loss) per share computations for the three
and six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
BASIC INCOME (LOSS) PER SHARE
Net income (loss) 77 (205) 90 (592)
------- ------- ------- -------
Net income (loss) available to common shareholders 77 (205) 90 (592)
======= ======= ======= =======
Weighted average common shares outstanding 8,885 8,618 8,791 8,628
Net income (loss) per share $ 0.01 $(0.02) $ 0.01 $(0.07)
======= ======= ======= =======
DILUTED INCOME PER SHARE
Net income 77 90
------- -------
Net income available to common shareholders 77 90
======= ======
Weighted average common shares outstanding 8,885 8,791
Convertible preferred stock 1,452 1,452
Options 55 63
------- ------
Weighted average common shares outstanding and potential
shares 10,392 10,306
======= ======
Net income per share $ 0.01 $ 0.01
======= ======
</TABLE>
9
<PAGE>
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
(3) DEBT
Debt consists of the following:
JUNE 30, DECEMBER 31,
1998 1997
---------- --------------
<S> <C> <C>
Unsecured note payable, 7% interest
rate, payable in equal quarterly
installments of $29 principal plus
accrued interest commencing June 30, 1998 $350 $ -
Unsecured notes payable, 7% interest
rate, $1,000 paid on March 18, 1998;
due on demand if the Company's cash
balance is less than $2,800 - 1,000
---------- --------------
350 1,000
Less current maturities 117 1,000
---------- --------------
Long term debt, less current maturities $233 $ -
========== ==============
</TABLE>
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. The 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 requirements. The term loan
facility bears interest at the bank's prime rate plus 1.5% or LIBOR plus 3% at
the Company's election and the revolving credit facility bears interest at the
bank's prime rate plus 1.25% or LIBOR plus 2.75% at the Company's election.
These loans are secured by all assets of the Company and its wholly owned
subsidiaries. As of June 30, 1998, there were no borrowings under the term
loan and revolving note. Amounts borrowed under the agreement will be used to
finance future acquisitions, provide ongoing working capital and for other
general corporate purposes. 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.
10
<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 10-K for the fiscal year ended
December 31, 1997 filed with the Securities and Exchange Commission.
OVERVIEW
Sight Resource Corporation (the "Company") manufactures, distributes and sells
eyewear and related products and services. The Company's operations currently
consist of 93 eye care centers, with three regional optical laboratories and
distribution centers, and is one of the seventeen largest providers in the
United States' primary eye care industry based upon sales. The Company's eye
care centers operate primarily under the brand names Cambridge Eye Doctors, E.B.
Brown Opticians, Eyeglass Emporium, Vision Plaza, and Vision World. The Company
also provides, or where necessary to comply with applicable law administers the
business functions of optometrists, ophthalmologists and professional
corporations that provide, vision related professional services. In addition, as
of June 30, 1998 the Company operated three laser vision correction ("LVC")
centers.
The Company operates three regional optical laboratories and distribution
centers. The regional optical laboratories provide complete laboratory services
to the Company's eye care centers, including polishing, cutting and edging,
tempering, tinting and coating of ophthalmic lenses. The distribution centers
provide and maintain an inventory of all accessories and supplies necessary to
operate the primary eye care centers in their regions, as well as "ready made"
eye care products, including contact lenses and related supplies. The inventory
of eyeglass lenses, frames, contact lenses, accessories and supplies is acquired
through a number of sources, domestic and foreign. Management believes that the
regional optical laboratories and distribution centers have the capacity to
accommodate additional multi-site eye care centers.
Based on review to date, the Company does not believe that the impact of any
Year 2000 issue will be material because its principal information systems
appear to correctly define the year 2000 and only the Company's point of sale
system needs to be made year 2000 compliant. The Company expects to complete
such compliance as part of the installation of a new point of sale system which
is scheduled to be completed during 1998.
11
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET REVENUE. The Company generated net revenue of approximately $14.5 million
and $28.1 million during the three and six months ended June 30, 1998,
respectively, from the operation of its 93 eye care centers and three laser
vision correction centers as compared to net revenue of approximately $10.0
million and $20.5 million from its 71 eye care centers and nine laser vision
correction centers for the same period in 1997. The $4.5 million, or 44.6%,
increase in net revenue for the three months ended June 30, 1998 as compared to
the three months ended June 30, 1997, primarily relates to the additional
seventeen eye care centers acquired effective July 1, 1997 and the nine eye care
centers acquired effective April 1, 1998. The $7.6 million, or 37.2%, increase
in net revenue for the six months ended June 30, 1998 as compared to the six
months ended June 30, 1997, also relates primarily to the additional seventeen
eye care centers acquired effective July 1, 1997 and the nine eye care centers
acquired effective April 1, 1998.
COST OF REVENUE. Cost of revenue increased from approximately $3.7 million for
the three months ended June 30, 1997 to approximately $5.1 million for the three
months ended June 30, 1998. Cost of revenue as a percentage of net revenue
decreased from 37.4% for the three months ended June 30, 1997 to 35.0% for the
three months ended June 30, 1998. Cost of revenue increased from approximately
$7.6 million for the six months ended June 30, 1997 to approximately $9.8
million for the six months ended June 30, 1998. Cost of revenue as a percentage
of net revenue decreased from 37.1% for the six months ended June 30, 1997 to
35.0% for the six months ended June 30, 1998. The improvement as a percentage of
net revenue is primarily due to the improved profit margin resulting from sales
from both the additional seventeen eye care centers acquired effective July 1,
1997 and the nine eye care centers acquired effective April 1, 1998, and the
reduced percentage of revenue derived from the LVC centers. For the three and
six months ended June 30, 1997, the LVC centers represented approximately 6% of
the Company's net revenue; for the three and six months ended June 30, 1998, the
LVC centers generated less than 3% of the Company's net revenue. Cost of
revenue for the three and six months ended June 30, 1998 and 1997 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 ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $9.3 million and $18.2 million for
the three and six months ended June 30, 1998 as compared to approximately $6.7
million and $13.7 million for the three and six months ended June 30, 1997. The
increase primarily relates to payroll and facility costs incurred in operating
additional eye care centers in the first and second quarter of fiscal 1998 as
compared to the same periods in fiscal 1997. Selling, general and
administrative expenses, as a percentage of net revenue, declined from 67.2% and
67.1% for the three and six months ended June 30, 1997, respectively, to 64.4%
and 64.8% for the three and six months ended June 30, 1998, respectively. This
decrease is primarily a result of (I) the seventeen eye care centers acquired
effective July 1, 1997 and the nine eye care centers acquired effective April 1,
1998, all of which operate with a level of selling, general and administrative
expenses as a percentage of net revenue that is
12
<PAGE>
lower than that of the Company and its other subsidiaries, and (ii) the
Company's ability to better leverage its fixed expenses in connection with the
acquisition of multi-site eye care centers.
OTHER INCOME AND EXPENSE. Interest income totaled $57,000 and $128,000 for the
three and six months ended June 30, 1998, respectively, as compared to $121,000
and $223,000 for the three and six months ended June 30, 1997, respectively.
This decrease resulted from the investment of a lower average cash balance
during the first and second quarter of 1998 as compared to the same periods in
1997. Interest expense totaled $45,000 and $96,000 for the three and six months
ended June 30, 1998, respectively, as compared to $92,000 and $172,000 for the
three and six months ended June 30, 1997, respectively. The decrease is
associated with a higher average balance of debt outstanding during the first
and second quarter of 1997 as compared to the same periods in 1998. The sale of
certain ophthalmic equipment during the six months ended June 30, 1998
generated a gain of approximately $69,000. The sale of certain opthalmic
equipment during the three and six months ended June 30, 1997 generated a gain
of approximately $223,000.
NET INCOME (LOSS). The Company realized net income of $77,000, or $0.01 per
share, and $90,000 or $0.01 per share, on a basic and fully diluted basis, for
the three and six months ended June 30, 1998, respectively, as compared to a net
loss of $205,000, or ($0.02) per share, and $592,000, or ($0.07) for the three
and six months ended June 30, 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had approximately $1.3 million in cash and cash
equivalents and working capital of approximately $2.3 million, in comparison to
approximately $6.0 million in cash and cash equivalents and working capital of
approximately $4.2 million as of December 31, 1997. The decrease in working
capital is primarily due to the purchase of the nine eye care centers on April
1, 1998, the payment in March 1998 of the $1.0 million note payable, and an
increase in accounts receivable.
As of June 30, 1998, the Company had securities outstanding which provide it
with potential sources of financing as outlined below:
Securities Potential
proceeds
- ------------------------------------ ------------------
Warrants 2,472,100 $14,800,000
Class A Warrants 85,000 500,000
Class II Warrants 290,424 2,032,968
Unit Purchase Options 215,000 3,700,000
Creditanstalt Warrants 150,000 694,000
Representative Warrants 170,000 1,400,000
------------------
$23,126,968
==================
The Company also has 842,294 Class I Warrants. The Class I Warrants entitle the
holder to purchase an amount of shares of the Company's common stock equal to an
aggregate of up to 19.9% of the shares of common stock purchasable under the
Company's outstanding
13
<PAGE>
warrants and options on the same terms and conditions of existing warrant and
option holders. The purchaser is obligated to exercise these warrants at the
same time the options and warrants of existing holders are exercised, subject to
certain limitations. The amount of proceeds from the exercise of these warrants
cannot be estimated at this time.
There can be no assurance that the Company will obtain any such proceeds from
the exercise of the above securities.
In connection with the acquisition of Eyeglass Emporium, the Company issued an
unsecured note payable for $350,000. The note bears interest at 7% and is
payable in twelve equal quarterly installments of $29,000 principal plus
accrued interest commencing June 30, 1998.
On February 20, 1997, the Company entered into a Credit Agreement (the
"Agreement") with a bank pursuant to which the Company can borrow up to $5.0
million on a term loan basis and up to $5.0 million on a revolving credit basis,
subject to certain performance criteria. Such 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 interest at the bank's prime rate plus
1.5% or LIBOR plus 3% at the Company's election, and the revolving credit
facility bears interest at the bank's prime rate plus 1.25% or LIBOR plus 2.75%
at the Company's election. These loans are secured by all assets of the Company
and its wholly owned subsidiaries. Amounts borrowed under the Agreement have
been and will continue to be used to refinance existing debt, finance future
acquisitions, provide ongoing working capital and for other general corporate
purposes. 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 existing 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 eye care centers.
The Company has an acquisition strategy to acquire and integrate the assets of
multi-site eye care centers and the practices of eye care professionals and to
employ or enter into management services contracts with these professionals.
This strategy includes both expanding existing regional markets and entering new
regional markets. The Company will also target acquisitions in strategic markets
that will serve as platforms from which the Company can consolidate a given
service area by making and integrating additional "in-market" acquisitions. The
Company is currently evaluating potential acquisition candidates. Without
additional funding, the Company's rate of acquisition and size of acquisition
could be limited.
NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting standards for
derivative instruments,
14
<PAGE>
including certain derivative instruments embedded in other contracts
(collectively referred to as "derivatives") and for hedging activities. This
statement requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The statement also sets forth the criteria for determining whether a derivative
may be specifically designated as a hedge of a particular exposure with the
intent of measuring the effectiveness of that hedge in the statement of
operations. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management does not believe that the adoption of
this statement will have a material impact on the Company's consolidated
financial position, results of operations or cash flows as the
Company does not utilize derivative instruments.
15
<PAGE>
PART II. OTHER INFORMATION
Item 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) (1) Securities sold. On April 8, 1998 the Company issued an aggregate of
87,940 shares (the "Shares") of its Common Stock, par value $.01 per
share.
(2) Underwriters and other purchasers. No underwriters were involved in
the transaction. The Company issued 43,970 Shares to each of Mr. Atse
Krstevski and Mrs. Paulette Krstevski.
(3) Consideration. The Shares were issued to Mr. and Mrs. Krstevski as
partial payment of the consideration due in connection with the
acquisition by the Company of all of the issued and outstanding
capital stock of Eye Glass Emporium, Inc.
(4) Exemption from registration claimed. The Company relied upon Section
4(2) of the Securities Act of 1933, as amended, because the
transaction did not involve any public offerings by the Company.
(5) Terms of conversion or exercise. Not applicable.
(6) Use of Proceeds. Not applicable.
(d) Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 28, 1998. Of the 10,249,909
shares isssued and outstanding and eligible to vote as of the record date of
April 1, 1998, a quorum of 8,946,221 shares or 87.3 % of the eligible shares
were present in person or represented by proxy.
The following actions were taken at such meeting:
(a) The reelection of the following Class B Directors:
<TABLE>
<CAPTION>
Number of Shares
--------------------
Withheld
For Authority
--------- ---------
<S> <C> <C>
Gary Jacobson, M.D. 8,878,360 67,861
Russell E. Taskey 8,879,210 67,011
William T. Sullivan 8,879,810 66,411
</TABLE>
Continuing Class C Directors (terms to expire 1999):
Dr. Elliot Weinstock, O.D.
William G. McLendon
J. Mitchell Reese
Continuing Class A Directors (terms to expire 2000):
Stephen M. Blinn
Allen R. Kirkpatrick
Richard G. Darman
16
<PAGE>
(b) The ratification of the appointment of KPMG Peat Marwick, LLP as the
Company's independant public accountants for the fiscal year ending December 31,
1998 (8,901,521 shares for approval, 16,710 shares against approval, 27,990
shares abstaining).
Item 5. OTHER INFORMATION
To be considered for inclusion in the proxy statement relating to the
Annual Meeting of stockholders to be held in 1999, stockholder proposals must be
received no later than December 24, 1998. To be considered for presentation at
the Annual Meeting, although not included in the proxy statement, proposals must
be received no later than March 29, 1999. All stockholder proposals should be
marked for the attention of Secretary, Sight Resource Corporation, 100 Jeffrey
Avenue, Holliston, Massachusetts 01746.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
No. Title
------- -----
27 Financial Data Schedule
(b) Reports on Form 8-K
On April 24, 1998, the Company filed a current report on Form 8-K with
respect to the acquisition of Eyeglass Emporium, Inc.
17
<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: August 5, 1998 By: /s/ William T. Sullivan
-------------- ------------------------
William T. Sullivan
President and Chief Executive Officer
(principal executive officer)
Date: August 5, 1998 By: /s/ Amy Feldman
-------------- -----------------------
Amy Feldman
Corporate Controller
(principal financial and accounting
officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIGHT
RESOURCE CORPORATION'S BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AS REPORTED ON FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,350
<SECURITIES> 0
<RECEIVABLES> 2,900
<ALLOWANCES> 376
<INVENTORY> 4,718
<CURRENT-ASSETS> 8,988
<PP&E> 12,264
<DEPRECIATION> 6,189
<TOTAL-ASSETS> 33,566
<CURRENT-LIABILITIES> 6,695
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,008
<TOTAL-LIABILITY-AND-EQUITY> 33,566
<SALES> 14,498
<TOTAL-REVENUES> 14,498
<CGS> 5,071
<TOTAL-COSTS> 5,071
<OTHER-EXPENSES> 9,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 128
<INCOME-TAX> 51
<INCOME-CONTINUING> 77
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
