<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 September 30, 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
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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 November 10, 2000, 9,230,952 shares (does not include 30,600 shares held as
treasury stock) of common stock, par value $0.01 per share, were outstanding.
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SIGHT RESOURCE CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 2000 and
December 25, 1999 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and September 25, 1999 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and September 25, 1999 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 20
Item 3 Defaults Upon Senior Securities 20
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
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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>
September 30, December 25,
2000 1999
-------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 618 $ 166
Accounts receivable, net of allowance
of $1,853 and $1,881, respectively 3,186 3,583
Inventories 6,505 6,875
Prepaid expenses and other current assets 376 344
-------------- --------------
Total current assets 10,685 10,968
-------------- --------------
Property and equipment 11,007 12,396
Less accumulated depreciation (6,597) (6,662)
-------------- --------------
Net property and equipment 4,410 5,734
-------------- --------------
Other assets:
Intangible assets, net 21,875 23,131
Other assets 198 921
-------------- --------------
Total other assets 22,073 24,052
-------------- --------------
$ 37,168 $ 40,754
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolver notes payable $ 2,500 $ 975
Current portion of long term debt 6,570 1,682
Current portion of capital leases 6 28
Accounts payable 3,644 4,606
Accrued expenses 2,127 2,673
-------------- --------------
Total current liabilities 14,847 9,964
-------------- --------------
Non-current liabilities:
Long term debt, less current maturities 633 6,882
Capital leases 27 2
Other liabilities --- 22
-------------- --------------
Total non-current liabilities 660 6,906
-------------- --------------
Series B redeemable convertible preferred stock
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; 9,230,952 at September 30, 2000 and 9,225,952 at
December 25, 1999 issued and outstanding 93 93
Additional paid-in capital 38,503 38,500
Treasury stock at cost, 30,600 shares at September 30,
2000 and December 25, 1999 (137) (137)
Unearned compensation --- (2)
Accumulated deficit (23,333) (21,105)
-------------- --------------
Total stockholders' equity 15,126 17,349
-------------- --------------
$ 37,168 $ 40,754
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
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SIGHT RESOURCE CORPORATION
Consolidated Statement of Operations
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
September 30, September 25, September 30, September 25,
2000 1999 2000 1999
---------------------------- ---------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenue $ 16,885 $ 18,160 $ 50,887 $ 51,506
Cost of revenue 5,574 5,871 16,096 16,711
------------- ------------ ----------- ------------
Gross profit 11,311 12,289 34,791 34,795
Selling, general and administrative expenses 11,387 12,136 35,232 33,630
------------- ------------ ----------- ------------
Income (loss) from operations (76) 153 (441) 1,165
------------- ------------ ----------- ------------
Other income (expense)
Interest income 15 16 44 77
Interest expense (366) (203) (885) (447)
Gain (loss) on disposal of assets (89) 58 (109) 58
Write off of deferred financing costs --- --- (60) (323)
Reserve for note receivable (714) --- (714) ---
------------- ------------ ----------- ------------
Total other income (expense) (1,154) (129) (1,724) (635)
------------- ------------ ----------- ------------
Income (loss) before income tax expense (1,230) 24 (2,165) 530
Income tax expense 16 21 63 66
------------- ------------ ----------- ------------
Net income (loss) $ (1,246) $ 3 $ (2,228) $ 464
============= ============ =========== ============
Net earnings (loss) per common share:
Basic $ (0.14) $ 0.00 $ (0.24) $ 0.05
============= ============ =========== ============
Diluted $ (0.14) $ 0.00 $ (0.24) $ 0.04
============= ============ =========== ============
Weighted average number of common shares
outstanding used to compute net earnings (loss)
per common share:
Basic 9,229,000 9,224,000 9,227,000 9,166,000
============= ============ =========== ============
Diluted 9,229,000 10,800,000 9,227,000 10,704,000
============= ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
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SIGHT RESOURCE CORPORATION
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 30, September 25,
2000 1999
-------------------------------
(unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) $ (2,228) $ 464
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,900 2,688
Amortization and write-off of deferred financing costs 234 347
Amortization of unearned compensation 2 15
(Gain)/loss on sale of assets 109 (58)
Reserve for note receivable 714 ---
Changes in operating assets and liabilities:
Accounts receivable 397 25
Inventories 370 (1,103)
Prepaid expenses and other current assets (32) (149)
Accounts payable and accrued expenses (1,525) (2,755)
-------- --------
Net cash provided by/(used in) operating activities 941 (526)
-------- --------
Investing activities:
Purchases of property and equipment (576) (855)
Net payments for acquisitions --- (6,419)
Proceeds from sale of assets 162 ---
Other assets (224) 370
-------- --------
Net cash used in investing activities (638) (6,904)
-------- --------
Financing activities:
Principal payments (1,357) (2,770)
Proceeds from notes 1,525 9,234
Proceeds from issuance of stock 3 2
Other liabilities (22) (122)
-------- --------
Net cash provided by financing activities 149 6,344
-------- --------
Net increase/(decrease) in cash and cash equivalents 452 (1,086)
Cash and cash equivalents, beginning of period 166 1,860
-------- --------
Cash and cash equivalents, end of period $ 618 $ 774
======== =======
Supplemental cash flow information:
Interest paid $ 678 $ 351
Income taxes paid 63 102
</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. With
respect to the shares of common stock issued, the Company agreed to
issue additional consideration to the sellers if the Market Price (as
defined in the applicable Stock Purchase and Sale Agreement) of the
Company's common stock does not equal or exceed $5.00 per share at any
time during the period from January 22, 2000 to January 22, 2001. The
amount of additional consideration due to the sellers for each share of
common stock issued in the acquisition and held by the sellers on
January 22, 2001 is equal to the difference between $5.00 and the
greater of (a) the Market Price on January 22, 2001 or (b) $2.45, which
was the Market Price as defined. At the time of acquisition, the Company
included the value of this additional consideration in its determination
of the purchase price. At the Company's option, the additional
consideration may be paid to the sellers in cash or in additional shares
of the Company's common stock valued at the Market Price on January 22,
2001. 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 September
30, 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. With respect to the shares of common
stock issued, the Company agreed to issue additional consideration to
the sellers if the Market Price (as defined in the applicable Stock
Purchase and Sale Agreement) of the Company's common stock does not
equal or exceed $5.00 per share at any time during the period from April
23, 2000 to April 23, 2001. The amount of additional consideration due
to the sellers for each share of common stock issued in the acquisition
and held by the sellers on April 23, 2001 is equal to the difference
between $5.00 and the greater of (a) the Market Price on April 23, 2001
or (b) $2.73, which was the Market Price as defined. At the time of
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
acquisition, the Company included the value of this additional
consideration in its determination of the purchase price. At the Company's
option, the additional consideration may be paid to the sellers in cash or
in additional shares of the Company's common stock valued at the Market
Price on April 23, 2001. If the Company elects to pay the additional
consideration in the form of shares of its common stock, the sellers will
be entitled to further additional consideration if the Market Price of the
Company's common stock does not equal or exceed $5.00 per share at any time
during the period from April 23, 2002 to April 23, 2003. The amount of
further additional consideration due to the sellers for each share of
common stock issued as additional consideration shall be determined in a
manner substantially similar to that used for the original shares issued in
connection with the acquisition, subject to adjustment, except that the
Company may be required to pay up to $100 which has been accrued and
included in the purchase price. 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 September 30, 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.
Nine Months Ended
-----------------
Sept. 25, 1999
--------------
Revenue.................................................... $ 54,061
Net income/(loss).......................................... (180)
Basic and diluted earnings/(loss) per share................ (0.02)
Weighted average number of common shares outstanding....... 9,326,000
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 September 30, 2000
and the results of its operations and cash flows for the periods presented.
7
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 one quarter represents a fourteen week period. The
quarter ended September 30, 2000 was fourteen weeks and the quarter ended
September 25, 1999 was thirteen weeks; the nine months ended September 30,
2000 represents a forty week period and the nine months ended September 25,
1999 represents a thirty-nine week period. Fiscal year 2000 is a fifty-
three week fiscal year and 1999 was a fifty-two week fiscal year. The
financial impact of the extra week was approximately an additional $1.2
million of net revenue, $0.1 million of net income and a decrease to the
loss per share of $0.01 for the periods ended September 30, 2000.
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 nine months ended September 30, 2000 and
September 25, 1999:
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
Sept. 30, Sept. 25, Sept. 30, Sept. 25,
2000 1999 2000 1999
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
BASIC INCOME PER SHARE
Net income/(loss) $ (1,246) $ 3 $ (2,228) $ 464
---------- ------------ ----------- -------------
Net income/(loss) available to common shareholders (1,246) 3 (2,228) 464
========== ============ =========== =============
Weighted average common shares outstanding 9,229,000 9,224,000 9,227,000 9,166,000
Net income/(loss) per share $ (0.14) $ 0.00 $ (0.24) $ 0.05
========== ============ =========== =============
DILUTED INCOME PER SHARE
Net income/(loss) $ (1,246) $ 3 $ (2,228) $ 464
---------- ------------ ----------- -------------
Net income/(loss) available to common shareholders (1,246) 3 (2,228) 464
========== ============ =========== =============
Weighted average common shares outstanding 9,229,000 9,224,000 9,227,000 9,166,000
Convertible preferred stock --- 1,452,000 --- 1,452,000
Options and warrants --- 124,000 --- 86,000
---------- ------------ ----------- -------------
Weighted average common shares outstanding and
potential diluted shares 9,229,000 10,800,000 9,227,000 10,704,000
========== ============ =========== =============
Net income/(loss) per share $ (0.14) $ 0.00 $ (0.24) $ 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 nine months ended
September 30, 2000 since they would have been antidilutive.
9
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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 September 30, 2000 and September 25, 1999:
<TABLE>
<CAPTION>
EYE CARE CENTERS LASER VISION CORRECTION ALL OTHERS CONSOLIDATED TOTALS
------------------- ----------------------- ------------------ -------------------
2000 1999 2000 1999 2000 1999 2000 1999
------- ------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
External customers $16,774 $17,619 $ 111 $ 541 $ 0 $ 0 $16,885 $18,160
Interest:
Interest income 0 0 0 0 15 16 15 16
Interest expense (5) (9) 0 (2) (361) (192) (366) (203)
------- ------- ------ ------ ------- ------- ------- -------
Net interest (5) (9) 0 (2) (346) (173) (351) (187)
income/(expense)
Depreciation 900 865 2 29 51 39 953 933
and amortization
Income/(loss) 1,032 1,236 (8) 173 (1,100) (1,256) (76) 153
from operations
Identifiable assets 27,660 31,703 0 437 9,755 10,458 37,415 42,598
Capital expenditures 129 404 0 0 7 50 136 454
</TABLE>
For the nine months ended September 30, 2000 and September 25, 1999:
<TABLE>
<CAPTION>
EYE CARE CENTERS LASER VISION CORRECTION ALL OTHERS CONSOLIDATED TOTALS
------------------- ----------------------- ------------------ -------------------
2000 1999 2000 1999 2000 1999 2000 1999
------- ------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
External customers $50,402 $49,646 $ 485 $1,860 $ 0 $ 0 $50,887 $51,506
Interest:
Interest income 0 0 0 0 44 77 44 77
Interest expense (19) (41) 0 (5) (926) (401) (945) (447)
------- ------- ------ ------ ------- ------- ------- -------
Net interest
income/(expense) (19) (41) 0 (5) (882) (324) (901) (370)
Depreciation
and amortization 2,749 2,480 6 97 145 111 2,900 2,688
Income/(loss)
from operations 2,897 3,861 42 690 (3,380) (3,386) (441) 1,165
Identifiable assets 27,660 31,703 0 437 9,755 10,458 37,415 42,598
Capital expenditures 523 743 2 0 51 112 576 855
</TABLE>
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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) RESERVE FOR NOTE RECEIVABLE
In connection with the exercise of stock options to purchase 138,332 shares
(the "Option Shares") of the Company's common stock during fiscal 1997,
Stephen M. Blinn, a Director of the Company, executed a promissory note
(the "Note") in favor of the Company for the aggregate exercise price of
$594,111. The Note is due on the earlier of September 2, 2007 or the date
upon which Mr. Blinn receives the proceeds of the sale of not less than
20,000 of the Option Shares (the "Maturity Date"). Interest accrues at the
rate of 6.55%, compounding annually, and is payable on the earlier of the
Maturity Date of the Note or upon certain Events of Default as defined in
the Note. The principal balance of the Note, together with accrued and
unpaid interest, was approximately $714,000 as of September 30, 2000.
During the third quarter of fiscal 2000, Mr. Blinn informed the Company
that he understood that the terms of the Note permitted Mr. Blinn to
satisfy in full his obligations under the Note by either (a) returning the
Option Shares to the Company or (b) turning over to the Company any cash
proceeds received by Mr. Blinn upon a sale of the Option Shares. The
Company has informed Mr. Blinn that the Note is a full recourse promissory
note, and that Mr. Blinn remains personally liable for all unpaid principal
and interest under the Note. Due to Mr. Blinn's position regarding the Note
and his failure to provide the Company or the Company's accountants with a
copy of his personal financial statements or any other evidence of his
ability to pay the amounts due under the Note, the Company has established
a $714,000 reserve for notes receivable in respect of the Note.
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SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(6) OTHER INFORMATION
On September 11, 2000, The Nasdaq National Market ("Nasdaq") terminated the
Company's listing on Nasdaq. The Company's common stock is now traded on
the over-the-counter bulletin board under the symbol "VISN".
As of September 30, 2000, the Company was in default for non-compliance
with the following financial covenants of its bank financing agreement:
minimum debt service coverage, maximum funded debt service coverage and
minimum net profit. The Company has received a written waiver of its
default resulting from the Company's noncompliance with the covenants. The
Company is currently pursuing alternative lenders and is in discussions
with its primary lender to renegotiate the terms of its existing debt.
12
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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 September 30, 2000, the
Company's operations consisted of 127 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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 25, 1999
NET REVENUE. During the three months ended September 30, 2000, the Company
generated net revenue of approximately $16.8 and $0.1 million from the operation
of its 127 eye care centers and laser vision correction affiliation,
respectively, as compared to net revenue of approximately $17.6 and $0.5 million
from its 131 eye care and two LVC centers, respectively, for the three months
ended September 25, 1999. Net revenue for the first nine months of fiscal 2000
were approximately $50.4 million and $0.5 million from the operations of its eye
care centers and laser vision correction affiliation, respectively, as compared
to net revenue of approximately $49.6 million and $1.9 million from its eye
13
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care centers and LVC centers for the comparable period of fiscal 1999. The $1.2
million, or 7.0% decrease in total net revenue for the three months ended
September 30, 2000 and the $0.6 million or 1.2% decrease in total net revenue
for the first nine months of fiscal 2000 relates to the lower average net sales
per store and lower laser vision revenues offset somewhat by the fourteen week
and forty week fiscal periods ended September 30, 2000, as compared to the
thirteen week and thirty-nine week fiscal periods ended September 25, 1999, and,
for the nine month period ended September 30, 2000, also offset somewhat by the
additional 37 eye care centers acquired since April 1, 1999. The financial
impact of the extra week was approximately an additional $1.2 million of net
revenue.
COST OF REVENUE. Cost of revenue decreased from approximately $5.6 million and
$0.3 million from the operation of the 131 eye care centers and two LVC centers,
respectively, for the three months ended September 25, 1999 to approximately
$5.5 million and $0.1 million from the operation of the 127 eye care centers and
the Company's laser vision correction affiliation, respectively, for the three
months ended September 30, 2000. Total cost of revenue as a percentage of net
revenue increased from 32.3% for the three months ended September 25, 1999 to
33.0% for the three months ended September 30, 2000. The increase in the cost
of revenue percentage for the quarter ended September 30, 2000 relates primarily
to additional price promotions as compared to the same period in 1999. Cost of
revenue remained the same at approximately $15.7 million from the operation of
the eye care centers for the first nine months of 1999 and 2000. Cost of
revenue decreased from approximately $1.0 million from the operation of the
Company's LVC centers for the first nine months of 1999 to approximately $0.4
million from its laser vision correction affiliation for the first nine months
of 2000. Total cost of revenue as a percentage of net revenue decreased from
32.4% for the nine months ended September 25, 1999 to 31.6% for the nine months
ended September 30, 2000. The improvement as a percentage of net revenue for
the nine months ended September 30, 2000 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 $11.4 million and $35.2million for
the three months and nine months ended September 30, 2000 as compared to
approximately $12.1 million and $33.6 million for the three and nine months
ended September 25, 1999. The decrease for the three months ended September 30,
2000 as compared to the three months ended September 25, 1999, relates primarily
to reductions in allowances for bad debts, lower marketing expenditures and
reduced staffing levels, offset somewhat by inflationary pressures that
increased payroll and occupancy costs and by the fourteen week fiscal quarter
versus a thirteen week fiscal quarter in 1999. The increase for the nine months
ended September 30, 2000 as compared to the nine months ended September 25, 1999
relates primarily to inflationary pressures that increased payroll and occupancy
costs, facility costs incurred in operating additional eye care centers in the
first quarter of 2000 as compared to the corresponding period in 1999 and the
forty week fiscal period in 2000 versus a thirty-nine week period in 1999,
offset somewhat by reductions in allowances for bad debts, lower marketing
expenditures and reduced staffing levels. Selling, general and administrative
expense, as a percentage of net revenue, increased from 66.8% to 67.5% for the
three months ended September 30, 2000, and increased from 65.3% to 69.3% for the
nine months ended September 30, 2000 as compared to the corresponding periods in
1999. The increase resulted primarily from lower average net sales per store,
inflationary
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pressures that increased payroll and occupancy costs 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 and the
increase was offset somewhat by the reduction in allowance for bad debts, lower
marketing expenditures and reduced staffing levels.
OTHER INCOME AND EXPENSE. Interest income totaled $15,000 and $44,000 for the
three months and nine months ended September 30, 2000, respectively, as compared
to $16,000 and $77,000 for the three and nine months ended September 25, 1999,
respectively. This decrease resulted from the investment of a lower average
cash and cash equivalents balance during 2000 as compared to 1999. Interest
expense totaled $366,000 and $885,000 for the three and nine months ended
September 30, 2000, respectively, as compared to $203,000 and $447,000 for the
three and nine months ended September 25, 1999, respectively. For the three
months ended September 30, 2000, the increase in interest expense relates to
higher interest rates and additional amortization of deferred financing costs
than in the three months ended September 25, 1999. The increase in interest
expense for the nine months ended September 30, 2000 as compared to the nine
months ended September 25, 1999 resulted from higher interest rates and a higher
average balance of debt outstanding during 2000 as compared to 1999. The non-
cash write-off of deferred financing costs in 2000 resulted from the second
quarter costs associated with the Company's credit facility that were required
by GAAP to be written off in connection with the execution of the loan
modification dated March 31, 2000. The non-cash write-off of deferred financing
costs in 1999 resulted from the write-off in the first quarter of 1999 in
connection with the execution of a new credit facility in April 1999.
The loss on disposal of assets for the three months ended September 30, 2000
resulted from the write-off of assets relating to store relocations and
closures. The gain on disposal of assets for the three months ended September
25, 1999 resulted primarily from the sale of assets, offset somewhat by the
write-off of assets relating to store relocations and closures.
The reserve for notes receivable of $714,000 resulted from the Company providing
a reserve for the amount of a note due from a former employee and current member
of the Board of Directors.
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 $1,246,000 or ($0.14) per
share on a basic and diluted weighted average basis, for the three months ended
September 30, 2000 as compared to net income of $3,000, or $0.00 per share on a
basic and diluted basis, for the same period last year. The Company realized a
net loss of $2,228,000 or ($0.24) per share basic and diluted for the nine
months ended September 30, 2000, as compared to net income of $464,000 or $0.05
per share basic and $0.04 on a diluted basis for the same period last year. The
financial impact of the extra week was approximately an additional $0.1 million
of net income and $0.01 reduction of loss per share.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had approximately $0.6 million in cash and
cash equivalents and a working capital deficit of approximately ($4.2) million,
in comparison
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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 decreased by $0.3 million and current liabilities
have increased by $4.9 million. The decrease in working capital and increase in
current liabilities is primarily due to the bank debt of $6.0 million which is
now classified as current with a maturity date of March 31, 2001. The Company is
in discussions with potential lenders to refinance the existing credit facility.
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 $1.75 million in cash, $0.3 million in
notes payable over three years and 70,000 shares of common stock. 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 million in
cash, $1 million in notes payable over three years and 160,000 shares of common
stock. With respect to the shares of common stock issued in each of these
transactions, the Company agreed to issue additional consideration to the
sellers if the Market Price (as defined in the applicable Stock Purchase and
Sale Agreement) of the Company's common stock does not equal or exceed $5.00 per
share at any time (a) in the case of Shawnee, during the period from January 22,
2000 to January 22, 2001 and (b) in the case of Kent, during the period from
April 23, 2000 to April 23, 2001.
The Market Price of the Company's common stock was $0.30 per share on November
3, 2000 and has not been as high as $5.00 per share since either closing. The
amount of additional consideration due to the sellers of Shawnee for each share
of common stock issued in the acquisition and held by the sellers on January 22,
2001 is equal to the difference between $5.00 and the greater of (a) the Market
Price on January 22, 2001 or (b) $2.45, which was the Market Price as defined.
At the time of acquisition, the Company included the value of this additional
consideration in its determination of the purchase price. The amount of
additional consideration due to the sellers of Kent for each share of common
stock issued in the acquisition and held by the sellers on April 23, 2001 is
equal to the difference between $5.00 and the greater of (a) the Market Price on
April 23, 2001 or (b) $2.73, which was the Market Price as defined. At the time
of acquisition, the Company included the value of this additional consideration
in its determination of the purchase price. As of November 3, 2000, the
aggregate additional consideration estimated to be payable to the Shawnee
sellers on January 22, 2001 was $178,500 and the aggregate additional
consideration estimated to be payable to the Kent sellers on April 23, 2001 was
$363,200. At the Company's option, the additional consideration may be paid to
the sellers in cash or in additional shares of the Company's common stock valued
at the Market Price on the date that the additional consideration becomes
payable.
In connection with the exercise of stock options to purchase 138,332 shares (the
"Option Shares") of the Company's common stock during fiscal 1997, Stephen M.
Blinn, a Director of the Company, executed a promissory note (the "Note") in
favor of the Company for the aggregate exercise price of $594,111. The Note is
due on the earlier of September 2, 2007 or the date upon which Mr. Blinn
receives the proceeds of the sale of not less than 20,000 of the Option Shares
(the "Maturity Date"). Interest accrues at the rate of 6.55%, compounding
annually, and is payable on the earlier of the Maturity Date of the Note or upon
certain Events of Default as defined in the Note. The principal balance of the
Note, together with accrued and unpaid interest, was approximately $714,000 as
of September 30, 2000. During the third quarter of fiscal 2000, Mr. Blinn
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<PAGE>
informed the Company that he understood that the terms of the Note permitted Mr.
Blinn to satisfy in full his obligations under the Note by either (a) returning
the Option Shares to the Company or (b) turning over to the Company any cash
proceeds received by Mr. Blinn upon a sale of the Option Shares. The Company
has informed Mr. Blinn that the Note is a full recourse promissory note, and
that Mr. Blinn remains personally liable for all unpaid principal and interest
under the Note. Due to Mr. Blinn's position regarding the Note and his failure
to provide the Company or the Company's accountants with a copy of his personal
financial statements or any other evidence of his ability to pay the amounts due
under the Note, the Company has established a $714,000 reserve for notes
receivable in respect of the Note.
As of September 30, 2000, the Company had securities outstanding which provide
it with potential sources of financing as outlined below. However, given the
current market value of the Company's stock, it is unlikely that any significant
proceeds may be realized.
<TABLE>
<CAPTION>
Securities Securities Potential
Outstanding Proceeds
--------------------------------------------- ----------- -----------
<S> <C> <C>
Class II Warrants 290,424 $2,032,968
Representative Warrants 170,000 1,436,500
Bank Austria AG, f/k/a Creditanstalt, Warrants 150,000 693,750
Sovereign Warrants 50,000 25,500
-----------
$4,188,718
===========
</TABLE>
As of September 30, 2000, the Company also has outstanding 383,537 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.
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
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<PAGE>
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 September 30, 2000, $6.0 million was borrowed on the
term loan and $2.5 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 (the "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. In August 2000, as a result of a bank merger,
Sovereign Bank of New England ("Sovereign") became the successor party to Fleet
in the Modification Agreement. As of September 30, 2000, the Company was in
default for non-compliance with certain negative covenants contained in the
Modification Agreement relating to minimum debt service coverage, maximum funded
debt service coverage and minimum net profit. The Company has received from
Sovereign a written waiver of its default resulting from the Company's
noncompliance with the covenants. The Company is currently pursuing alternative
lenders and is in discussions with Sovereign to renegotiate the terms of the
Modification Agreement.
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 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
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<PAGE>
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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<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 July 28, 2000 the Company issued a total
of 5,000 shares (the "Option Shares") of its Common Stock,
par value $0.01 per share.
(2) Underwriters and other purchasers. No underwriters were
involved in the transaction listed above. The Company issued
the Option Shares pursuant to the exercise of a stock option
held by a former member of the Board of Directors.
(3) Consideration. The Option Shares were issued at an exercise
price of $0.43 per share for an aggregate exercise price of
$2,150.
(4) Exemption from registration claimed. The Option Shares were
issued in reliance upon Section 4(2) of the Securities Act of
1933, as amended, because the above transaction did not
involve any public offering by the Company.
(5) Terms of conversion or exercise. Not applicable.
(6) Use of proceeds. Not applicable.
(d) Not applicable.
Item 3. DEFAULT UPON SENIOR SECURITIES
On March 31, 2000, the Company entered into a modification agreement
(the "Modification Agreement") with Fleet National Bank ("Fleet") which
amended a credit agreement dated April 15, 1999. In August 2000, as a
result of a merger between Fleet and BankBoston, Sovereign Bank of New
England ("Sovereign") became the successor party to Fleet in the
Modification Agreement. As of September 30, 2000, the Company had $6.05
million outstanding on the term note and $2.5 million outstanding on
the revolving line of credit under the Modification Agreement. At that
time, the Company was in default for non-compliance with certain
negative covenants contained in the Modification Agreement relating to
minimum debt service coverage, maximum funded debt service coverage and
minimum net profit. The Company has received from Sovereign a written
waiver of its default resulting from the Company's noncompliance with
the covenants. The Company is currently pursuing alternative lenders
and is in discussions with Sovereign to renegotiate the terms of the
Modification Agreement.
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Item 5. OTHER INFORMATION
On September 11, 2000, The Nasdaq National Market ("Nasdaq") terminated
the Company's listing on Nasdaq. The Company's common stock is now
traded on the over-the-counter bulletin board under the symbol "VISN".
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: November 14, 2000 By: /S/ WILLIAM T. SULLIVAN
---------------------------
William T. Sullivan
President and Chief Executive Officer
(principal executive officer)
Date: November 14, 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
23
