<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 24, 2000 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.)
100 Jeffrey Avenue
Holliston, MA 01746
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(Address of principal executive offices)
508-429-6916
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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_____
------
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 July 31, 2000, 9,225,952 shares (does not include 30,600 shares held as
treasury stock) of common stock, par value $0.01 per share, were outstanding.
1
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Sight Resource Corporation
Index
PART I. FINANCIAL INFORMATION Page
----
Item 1 Financial Statements
Consolidated Balance Sheets as of June 24, 2000 and
December 25, 1999 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 24, 2000 and June 26, 1999 4
Consolidated Statements of Cash Flows for the Three and Six
Months Ended June 24, 2000 and June 26, 1999 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
2
<PAGE>
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 24, December 25,
2000 1999
------------------ -----------------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 65 $ 166
Accounts receivable, net of allowance
of $1,962 and $1,881, respectively 3,477 3,583
Inventories 7,161 6,875
Prepaid expenses and other current assets 362 344
----------------- ----------------
Total current assets 11,065 10,968
----------------- ----------------
Property and equipment 11,075 12,396
Less accumulated depreciation (6,196) (6,662)
----------------- ----------------
Net property and equipment 4,879 5,734
----------------- ----------------
Other assets:
Intangible assets, net 22,305 23,131
Other assets 939 921
----------------- ----------------
Total other assets 23,244 24,052
----------------- ----------------
$39,188 $40,754
================= ================
Liabilities and Stockholders' Equity
Current liabilities:
Revolver notes payable $1,775 $ 975
Current portion of long term debt 6,922 1,682
Current portion of capital leases 7 28
Accounts payable 5,109 4,606
Accrued expenses 1,817 2,673
----------------- ----------------
Total current liabilities 15,630 9,964
----------------- ----------------
Non-current liabilities:
Long term debt, less current maturities 632 6,882
Capital leases --- 2
Other liabilities 22 22
----------------- ----------------
Total non-current liabilities 654 6,906
----------------- ----------------
Series B 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 of Series A issued and outstanding. --- ---
Common Stock, $.01 par value. Authorized 20,000,000
shares; issued 9,225,952 at June 24, 2000
and at December 25, 1999. 93 93
Additional paid-in capital 38,500 38,500
Treasury stock at cost, 30,600 shares at June 24,
2000 and December 25, 1999. (137) (137)
Unearned compensation --- (2)
Accumulated deficit (22,087) (21,105)
----------------- ----------------
Total stockholders' equity 16,369 17,349
----------------- ----------------
$39,188 $40,754
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SIGHT RESOURCE CORPORATION
Consolidated Statement of Operations
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- ---------------------------------
June 24, June 26, June 24, June 26,
2000 1999 2000 1999
------------------------------- ---------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenue $16,483 $17,582 $34,002 $33,346
Cost of revenue 5,120 5,827 10,522 10,840
------------ -------------- ------------- ------------
Gross profit 11,363 11,755 23,480 22,506
Selling, general and administrative expenses 11,697 11,300 23,865 21,494
------------ -------------- ------------- ------------
Income (loss) from operations (334) 455 (385) 1,012
------------ -------------- ------------- ------------
Other income (expense)
Interest income 17 19 29 61
Interest expense (296) (162) (519) (244)
Write off of deferred financing costs (60) --- (60) (323)
------------ -------------- ------------- ------------
Total other income (expense) (339) (143) (550) (506)
------------ -------------- ------------- ------------
Income (loss) before income tax expense (673) 312 (935) 506
Income tax expense 22 24 47 45
------------ -------------- ------------- ------------
Net income (loss) ($695) $ 288 ($982) $ 461
============ ============== ============= ============
Net earnings (loss) per common share:
Basic ($0.08) $ 0.03 ($0.11) $ 0.05
============ ============== ============= ============
Diluted ($0.08) $ 0.03 ($0.11) $ 0.04
============ ============== ============= ============
Weighted average number of common shares
outstanding used to compute net earnings (loss)
per common share:
Basic 9,226,000 9,214,000 9,226,000 9,137,000
============= =============== ================ ===============
Diluted 9,226,000 10,771,000 9,226,000 10,663,000
============= =============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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SIGHT RESOURCE CORPORATION
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
June 24, June 26,
2000 1999
-----------------------------------
(unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) ($982) $ 461
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,980 1,755
Amortization and write off of deferred financing costs 135 343
Amortization of unearned compensation 2 10
Loss on sale of assets 20 ---
Changes in operating assets and liabilities:
Accounts receivable 106 69
Inventories (287) (522)
Prepaid expenses and other current assets (18) (124)
Accounts payable and accrued expenses (404) (3,005)
--------- ----------
Net cash provided by (used in) operating activities 552 (1,014)
--------- ----------
Investing activities:
Purchases of property and equipment (420) (400)
Net payments for acquisitions --- (6,419)
Proceeds from sale of assets 160 ---
Other assets (152) 546
--------- ----------
Net cash used in investing activities (412) (6,273)
--------- ----------
Financing activities:
Principal payments (1,041) (2,689)
Proceeds from notes 800 9,234
Other liabilities --- (130)
--------- ----------
Net cash provided by (used in) financing activities (241) 6,415
--------- ----------
Net decrease in cash and cash equivalents (101) (872)
Cash and cash equivalents, beginning of period 166 1,860
--------- ----------
Cash and cash equivalents, end of period $ 65 $ 988
========= ==========
Supplemental cash flow information:
Interest paid $ 414 $ 115
Income taxes paid 58 89
</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
Sight Resource Corporation (the "Company") manufactures, distributes
and sells eyewear and related products and services.
(b) Acquisitions
Effective January 1, 1999, the Company acquired all of the
outstanding shares of stock of Shawnee Optical, Inc. ("Shawnee"). The
purchase price paid in connection with this acquisition was $1,750 in
cash, $300 in notes payable over three years and 70,000 shares of
common stock. Shawnee operated nine eye care centers in Pennsylvania
and Ohio. The acquisition was accounted for using the purchase method
of accounting. In connection with the acquisition, the Company
recorded purchase accounting adjustments to increase liabilities and
establish reserves for the closing of facilities and related
restructuring costs, including lease commitments and severance costs.
The Company preliminarily recorded $450 in acquisition reserves, of
which the Company provided a reserve of $400 for the potential
closing of two stores and one laboratory, and a reserve of $50 for
costs to sever administrative, store and laboratory personnel. During
1999, the Company further revised its plan and determined that no
stores or laboratories would be closed. The Company reduced these
reserves by $450 against goodwill as an adjustment to the cost of the
acquired enterprise. No amounts have been charged against the
acquisition reserves. At June 24, 2000, there were no purchase
accounting reserves for this acquisition.
Effective April 1, 1999, the Company acquired all of the outstanding
shares of stock of Kent Optical Company and its associated companies
(collectively, "Kent"). The purchase price paid in connection with
this acquisition was $5,209 in cash, $1,000 in notes payable over
three years and 160,000 shares of common stock. Kent operated 28 eye
care centers in Michigan. The acquisition was accounted for using the
purchase method of accounting. In connection with the acquisition,
the Company recorded $91.5 as a reserve for potential costs to sever
administrative and store personnel. At June 24, 2000, no amounts have
been charged against this reserve.
The following unaudited pro forma financial information for the
Company gives effect to the acquisition of Kent as if it became
effective on January 1, 1999. These pro forma results have been
prepared for comparative purposes only and do not purport to be
indicative of the results of operations which actually would have
resulted had the Kent acquisition occurred on the date indicated, or
which may result in the future.
6
<PAGE>
Sight Resource Corporation
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 24, 2000 June 26, 1999 June 24, 2000 June 26, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue........................................................... $ 16,483 $ 17,582 $ 34,002 $ 35,901
Net income/(loss)................................................. (695) 288 (982) (183)
Basic and diluted earnings/(loss) per share....................... (0.08) 0.03 (0.11) (0.02)
Weighted average number of common shares outstanding.............. 9,226,000 9,214,000 9,226,000 9,297,000
</TABLE>
The above unaudited pro forma financial information reflects certain
adjustments, including amortization of goodwill, and an increase in the
weighted average shares outstanding. This pro forma information does
not necessarily reflect the results of operations that would have
occurred had the Kent acquisition taken place at the beginning of 1999
and is not necessarily indicative of the results that may be obtained
in the future.
(2) Summary of Significant Accounting Policy
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 24, 2000 and the results of its operations and cash flows for
the periods presented.
The Company's fiscal year ends on the last Saturday in December. Each
quarter represents a thirteen-week period, except during a fifty-three
week year in which case the fourth quarter represents a fourteen-week
period. The quarters ended June 24, 2000 and June 26, 1999 were
thirteen-weeks; the six months ended June 24, 2000 and June 26, 1999
represent 26-week periods. Fiscal year 2000 is a fifty-three week
fiscal year and 1999 was a fifty-two week fiscal year.
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 25, 1999.
(3) Earnings Per Share
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations,
if applicable, for the three and six months ended June 24, 2000 and
June 26, 1999:
7
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SIGHT RESOURCE CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- ---------------------------------
June 24, June 26, June 24, June 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Income Per Share
Net income/(loss) ($695) $ 288 ($982) $ 461
---------- ----------- ---------- -----------
Net income/(loss) available to common shareholders (695) 288 (982) 461
========== =========== ========== ===========
Weighted average common shares outstanding 9,226,000 9,214,000 9,226,000 9,137,000
Net income/(loss) per share ($0.08) $ 0.03 ($0.11) $ 0.05
========== =========== ========== ===========
Diluted Income Per Share
Net income/(loss) ($695) $ 288 ($982) $ 461
---------- ----------- ---------- -----------
Net income/(loss) available to common shareholders (695) 288 (982) 461
========== =========== ========== ===========
Weighted average common shares outstanding 9,226,000 9,214,000 9,226,000 9,137,000
Convertible preferred stock --- 1,452,000 --- 1,452,000
Options and warrants --- 105,000 --- 74,000
---------- ----------- ---------- -----------
Weighted average common shares outstanding and
potential diluted shares 9,226,000 10,771,000 9,226,000 10,663,000
========== =========== ========== ===========
Net income/(loss) per share ($0.08) $ 0.03 ($0.11) $ 0.04
========== =========== ========== ===========
</TABLE>
The options, warrants and convertible preferred stock were not included in the
computation of diluted earnings per share for the three and six months ended
June 24, 2000 since they would have been antidilutive.
8
<PAGE>
Sight Resource Corporation
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(4) Operating Segment and Related Information
The following tables present certain operating segment information.
For the three months ended June 24, 2000 and June 26, 1999:
<TABLE>
<CAPTION>
Eye Care Laser Vision Consolidated
Centers Correction All Others Totals
------- ---------- ---------- ------
2000 1999 2000 1999 2000 1999 2000 1999
---- ----- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
External customers $16,279 $16,927 $204 $655 $ 0 $ 0 $16,483 $17,582
Interest:
Interest income 0 0 0 0 17 19 17 19
Interest expense (9) (8) 0 (1) (347) (153) (356) (162)
-------- -------- ----- ----- ------ ------ -------- --------
Net interest income/
(expense) (9) (8) 0 (1) 330 (134) 339 (143)
Depreciation and
amortization 974 875 1 34 50 37 1,025 946
Income/(loss) from
operations 752 1,194 50 273 (1,136) (1,012) (334) 455
Identifiable assets 29,333 31,522 15 651 9,840 10,329 39,188 42,503
Capital expenditures 143 145 0 0 30 62 173 207
</TABLE>
For the six months ended June 24, 2000 and June 26, 1999:
<TABLE>
<CAPTION>
Eye Care Laser Vision Consolidated
Centers Correction All Others Totals
------- ---------- ---------- ------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
External customers $33,628 $32,027 $374 $1,319 $ 0 $ 0 $34,002 $33,346
Interest:
Interest income 0 0 0 0 29 61 29 61
Interest expense (14) (33) 0 (3) (565) (531) (579) (567)
------- ------- ---- ------ ----- ----- ------- -------
Net interest income/
(expense) (14) (33) 0 (3) 536 (470) (550) (506)
Depreciation and
amortization 1,882 1,616 4 67 94 72 1,980 1,755
Income/(loss) from
operations 1,845 2,627 50 516 (2,280) (2,131) (385) 1,012
Identifiable assets 29,333 31,522 15 651 9,840 10,329 39,188 42,503
Capital expenditures 373 338 2 0 44 62 419 400
</TABLE>
9
<PAGE>
Sight Resource Corporation
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
Each operating segment is individually managed and has separate financial
results that are reviewed by the Company's chief operating decision-makers.
Each segment contains closely related products that are unique to the
particular segment.
The principal products of the Company's eye care centers are eyeglasses,
frames, ophthalmic lenses and contact lenses.
Profit from operations is net sales less cost of sales and selling, general
and administrative expenses, but is not affected by non-operating
charges/income or by income taxes.
Non-operating charges/income consists principally of net interest expense.
In calculating profit from operations for individual operating segments,
certain administrative expenses incurred at the operating level that are
common to more than one segment are not allocated on a net sales basis.
All intercompany transactions have been eliminated, and intersegment
revenues are not significant.
(5) Other Information
The Company has been notified that the Nasdaq National Market ("Nasdaq")
has determined that the Company no longer meets the criteria to continue
its listing on Nasdaq for the following reasons: (1) the Company does not
meet the minimum net tangible assets requirement of $4,000 and (2) the
Company has not maintained a minimum bid price per share of Common Stock of
$1.00 during the 30 trading days preceding the date of Nasdaq's notice. The
Company has filed an appeal of Nasdaq's determination and a hearing on the
matter has been scheduled for August 31, 2000.
10
<PAGE>
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 25, 1999 filed with the Securities and Exchange Commission.
Overview
Sight Resource Corporation (the "Company") manufactures, distributes and sells
eyewear and related products and services. As of June 24, 2000, the Company's
operations consisted of 128 eye care centers, with two regional optical
laboratories and three distribution centers, making the Company one of the
fifteen 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, Kent
Optical, Shawnee Optical, 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.
The Company operates two regional optical laboratories and three 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.
Results of Operations
Three Months and Six Months Ended June 24, 2000 and June 26, 1999
Net Revenue. During the three months ended June 24, 2000, the Company generated
net revenue of approximately $16.3 and $0.2 million from the operation of its
128 eye care centers and laser vision correction affiliation, respectively, as
compared to net revenue of approximately $16.9 and $0.7 million from its 130 eye
care and two LVC centers, respectively, for the three months ended June 26,
1999. Net revenue for the first six months of fiscal 2000 were approximately
$33.6 million and $0.4 million from the operations of its eye care centers and
laser vision correction affiliation, respectively, as compared to net revenue of
approximately $32.0 million and $1.3 million from its eye
11
<PAGE>
care centers and LVC centers for the comparable period of fiscal 1999. The $1.1
million, or 6.3% decrease in total net revenue for the three months ended June
24, 2000 relates to lower average net sales per store. The $0.7 million or 2.0%
increase in total net revenue for the first six months of fiscal 2000 relates
primarily to the additional 37 eye care centers acquired since January 1, 1999,
offset somewhat by reduced laser vision correction revenues.
Cost of Revenue. Cost of revenue decreased from approximately $5.5 million and
$0.3 million from the operation of the 130 eye care centers and two LVC centers,
respectively, for the three months ended June 26, 1999 to approximately $4.9
million and $0.2 million from the operation of the 128 eye care centers and the
Company's laser vision correction affiliation, respectively, for the three
months ended June 24, 2000. Total cost of revenue as a percentage of net revenue
decreased from 33.1% for the three months ended June 26, 1999 to 31.1% for the
three months ended June 24, 2000. Cost of revenue increased from approximately
$10.1 million from the operation of the eye care centers for the first six
months of 1999 to approximately $10.2 million for the first six months of 2000.
Cost of revenue decreased from approximately $0.7 million from the operation of
the Company's LVC centers for the first six months of 1999 to approximately $0.3
million from its laser vision correction affiliation for the first six months of
2000. Cost of revenue as a percentage of net revenue decreased from 32.5% for
the six months ended June 26, 1999 to 30.9% for the six months ended June 24,
2000. The improvement as a percentage of net revenue primarily reflects the
realization of purchasing economies, less sales price discounting, and, to a
lesser extent, some small retail price increases. Cost of revenue principally
consisted of (i) the cost of manufacturing, purchasing and distributing optical
products to customers of the Company and (ii) the cost of delivering LVC
services, including depreciation and maintenance on excimer lasers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $11.7 million and $23.9 million for
the three months and six months ended June 24, 2000 as compared to approximately
$11.3 million and $21.5 million for the three and six months ended June 26,
1999. The increase primarily relates to inflationary pressures that increased
payroll and occupancy costs. Selling, general and administrative expense, as a
percentage of net revenue, increased from 64.3% to 71.0% for the three months
ended June 24, 2000, and increased from 64.5% to 70.2% for the six months ended
June 24, 2000 as compared to the corresponding periods in 1999. The increase
relates to inflationary pressures that increased payroll and occupancy cost as
well as payroll and facility costs incurred in operating additional eye care
centers in the first quarter of 2000 as compared to the corresponding period in
fiscal 1999.
Other Income and Expense. Interest income totaled $17,000 and $29,000 for the
three months and six months ended June 24, 2000, respectively, as compared to
$19,000 and $61,000 for the three and six months ended June 26, 1999,
respectively. This decrease resulted from the investment of a lower average cash
and cash equivalents balance during the first and second quarters of 2000 as
compared to the same period in 1999. Interest expense totaled $296,000 and
$519,000 for the three and six months ended June 24, 2000, respectively, as
compared to $162,000 and $244,000 for the three and six months ended June 26,
1999, respectively. The increase resulted from higher interest rates and a
higher average balance of debt outstanding during the first and second quarters
of 2000 as compared to the same periods in 1999. The non-cash write-off of
deferred financing costs for the three months ended June 24, 2000 resulted from
the costs associated with the Company's credit facility that are required by
GAAP to be written off in connection with the execution of the loan modification
dated March 31, 2000.
12
<PAGE>
Income Taxes. The effective tax rate includes the utilization of net operating
loss carry forwards and the amounts for state income taxes.
Net Income (Loss). The Company realized a net loss of $695,000, or ($0.08) per
share on a basic and diluted weighted average basis, for the three months ended
June 24, 2000 as compared to net income of $288,000, or $0.03 per share on a
basic and diluted basis, for the same period last year. The Company realized a
net loss of $982,000 or ($0.11) per share basic and diluted for the six months
ended June 24, 2000, as compared to net income of $461,000 or $0.05 per share
basic and $0.04 on a diluted basis for the same period last year.
Liquidity and Capital Resources
At June 24, 2000, the Company had approximately $0.065 million in cash and cash
equivalents and a working capital deficit of approximately ($4.6) million, in
comparison to approximately $0.2 million in cash and cash equivalents and
working capital of approximately $1.0 million as of December 25, 1999. As
compared to December 25, 1999, current assets have increased by $0.1 million and
current liabilities have increased by $5.7 million. The decrease in working
capital and increase in current liabilities is primarily due to the bank debt of
$6.3 million which is now classified as current with a maturity date of March
31, 2001.
To date the Company has financed its capital expenditures, operating
requirements, growth and acquisitions primarily through cash from operations,
bank borrowings, the public and private sale of its equity securities and lease
financing. On March 31, 2001, the Company's bank debt, which has an outstanding
balance of approximately $6.3 million as of July 31, 2000, will mature. The
Company is presently in discussions with potential lenders to pursue a
refinancing of the existing bank debt. If the Company is unable to refinance the
bank debt before it matures, the Company's financial condition could be
materially adversely affected. In addition to pursuing the refinancing, the
Company has retained Paine Webber Incorporated as its financial advisor to work
with management in exploring strategic alternatives for the Company, including
mergers, joint ventures, strategic partnerships and equity or debt financing.
Effective April 1, 1999, the Company acquired all of the outstanding shares of
stock of Kent Optical Company and its affiliates (collectively, "Kent"). The
purchase price of this acquisition was $5.2 million in cash, $1.0 million in
notes payable in annual substantially equal installments commencing April, 2000
and continuing until April, 2002, and 160,000 shares of common stock. Kent
operated 28 eye care centers in central and southwest Michigan. The acquisition
was accounted for using the purchase method of accounting.
As of June 24, 2000, the Company had securities outstanding which provide it
with potential sources of financing as outlined below:
Securities Securities Potential
Outstanding Proceeds
-------------------------------------------------------------------------------
Class II Warrants 290,424 $2,032,968
Representative Warrants 170,000 1,400,000
Bank Austria AG, f/k/a Creditanstalt, Warrants 150,000 693,750
----------
$4,126,718
==========
As of June 24, 2000, the Company also has outstanding 374,582 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 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.
13
<PAGE>
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 "1997
Agreement") with a bank pursuant to which the Company could 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. As part of the 1997 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. As noted in the next paragraph below, the Company has entered into a new
credit facility and retired the 1997 Agreement.
On April 15, 1999, the Company entered into a Credit Agreement (the "1999
Agreement") with a bank pursuant to which the Company could borrow $10.0 million
on an acquisition line of credit, $7.0 million on a term loan basis and $3.0
million on a revolving line of credit basis, subject to certain performance
criteria and a asset-related borrowing base for the revolver. The performance
criteria include, among others, financial condition covenants such as net worth
requirements, indebtedness to net worth ratios, debt service coverage ratios,
funded debt coverage ratios, and pretax profit, net profit and EBITDA
requirements. The acquisition line facility bore interest at either the bank's
prime rate, or LIBOR plus 2.25%, or at a comparable interest swap rate at the
Company's election. The term loan facility bore interest at LIBOR plus 2.25% or
at a comparable interest swap rate at the Company's election. The revolving
credit facility bore interest at the bank's prime rate or LIBOR plus 2.0% at the
Company's election. As of June 24, 2000, $6.3 million was borrowed on the term
loan and $1.775 million was borrowed on the revolving credit facility.
At December 25, 1999, the Company was not in compliance with the following
financial covenants of the 1999 Agreement: minimum net worth, minimum debt
service coverage, maximum funded debt service coverage and minimum net profit.
However, on March 31, 2000, the Company and the bank entered into a modification
agreement that amended the 1999 Agreement in order to, among other things, waive
the Company's default, adjust certain covenants to which the Company is subject
and terminate the acquisition line of credit. In addition, the modification
agreement limits the revolving line note to $2.5 million and the term loan to
$6.75 million and establishes the maturity date for each of these credit lines
as March 31, 2001. Also, the modification agreement establishes the following
interest rates for both the revolving line note and term loan: (i) from the
closing date of the agreement through August 31, 2000 - prime rate + 1.0%; (ii)
from September 1, 2000 through October 31, 2000 - prime rate + 2.0%; and (iii)
from November 1, 2000 through March 31, 2001 - prime rate + 3.0%. The scheduled
monthly principal payments for the term loan have been adjusted to $83,333.33
from April, 2000 through July, 2000, $100,000.00 from August, 2000 through
December, 2000 and $125,000.00 from January, 2001 through March, 2001. The
Company intends to consider and pursue alternative lenders to refinance this
credit arrangement on a long-term basis. In addition, the Company has retained
PaineWebber Incorporated as its financial advisor to work with management in
exploring strategic alternatives, including mergers, joint ventures, strategic
partnerships and equity or debt financing, to support the future growth of the
business and maximize shareholder value.
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
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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 from time to
time will evaluate potential acquisition candidates. Without additional funding,
the Company's rate of acquisition and size of acquisition could be limited.
Recent Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
"derivatives") and for hedging activities, and required adoption in periods
beginning after June 15, 2000. SFAS 133 was subsequently amended by Statement of
Financial Accounting Standards No. 137 ("Accounting for Derivative Instruments
and Hedging Activities"). SFAS No. 137 will be effective for fiscal years
beginning after June 15, 2000. SFAS 137, which becomes effective for the Company
in its year ending December 31, 2001, is not expected to have a material impact
on the consolidated financial statements of the Company.
Year 2000 Issue
The Company did not experience any difficulties related to the Year 2000 problem
on December 31, 1999, and we are not aware of any such difficulties since that
date. The Company's operations have not, to date, been adversely affected by any
difficulties experienced by suppliers or customers in connection with the Year
2000 problem. The Company's Year 2000 Compliance Plan also addressed issues
related to the date February 29, 2000, and management will continue to monitor
systems for potential difficulties through the remainder of calendar year 2000.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into any transactions using derivative financial
instruments or derivative commodity instruments and believes that its exposure
to market risk associated with other financial instruments (such as investments)
is not material.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 25, 2000. Of the 10,678,071
shares issued and outstanding and eligible to vote as of the record date of
March 31, 2000, a quorum of 8,209,663 shares or 76.9% of the eligible shares
were present in person or represented by proxy.
The following actions were taken at such meeting:
(a) The reelection of Mr. Blinn and the election of Mr. Schwarz as Class A
Directors:
Stephen M. Blinn For = 7,560,698 Withheld Authority = 648,965
Ryan M. Schwarz For = 7,561,198 Withheld Authority = 648,465
Continuing Class B Directors (terms to expire 2001):
Russell E. Taskey
William T. Sullivan
Continuing Class C Directors (terms to expire 2002):
Christian E. Callsen
William G. McLendon
(b) The approval of the proposal to amend the Company's 1992 Employee, Director
and Consultant Stock Option Plan to increase the maximum number of shares for
which stock options may be granted to any participant during any consecutive
three year period from 350,000 shares to 400,000 shares (6,828,944 shares for
approval, 1,358,894 shares against approval and 21,825 shares abstaining).
(c) The ratification of the appointment of KPMG, LLP as the Company's
independent public accountants for the fiscal year ending December 30, 2000
(7,533,540 shares for approval, 644,914 shares against approval and 11,209
shares abstaining).
Item 5. Other Information
The Company has been notified that The Nasdaq National Market ("Nasdaq") has
determined that the Company no longer meets the criteria to continue its listing
on Nasdaq for the following reasons: (1) the Company does not meet the minimum
net tangible assets requirement of $4 million, and (2) the Company has not
maintained a minimum bid price per share of Common Stock of $1.00 during the 30
trading days preceding the date of Nasdaq's notice. The Company has filed an
appeal of Nasdaq's determination and a hearing on the matter has been scheduled
for August 31, 2000.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No. Title
--- -----
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter covered by
this report.
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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 4, 2000 By: /S/ WILLIAM T. SULLIVAN
---------------------------
William T. Sullivan
President and Chief Executive
Officer
(principal executive officer)
Date: August 4, 2000 By: /S/ JAMES NORTON
--------------------
James Norton
Chief Financial Officer
(principal financial officer)
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Exhibit Index
Exhibit No. Title
----------- --------------------------------------------------------
27 Financial Data Schedule
19
