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 29, 2001 Commission File Number 0-
21068
SIGHT RESOURCE CORPORATION
--------------------------
(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 Identification No.)
incorporation or organization)
6725 Miami Avenue, Suite 102
Cincinnati, OH 45243
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(Address of principal executive offices)
513-527-9700
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(Registrant's telephone number, including area code)
100 Jeffrey Avenue
Holliston, MA 01746
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(Former name, former address and former fiscal year, if changed since the last
report)
Indicate by check mark 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 14, 2001, 29,567,113 shares (does not include 30,600 shares held as
treasury stock) of common stock, par value $0.01 per share, were outstanding.
1
SIGHT RESOURCE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements 3
Consolidated Balance Sheets as of September 29, 2001 and
December 30, 2000 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 29, 2001 and September 30, 2000 4
Consolidated Statements of Cash Flows for the Three and Nine
Months Ended September 29, 2001 and September 30, 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Sight Resource Corporation
Consolidated Balance Sheets
Amounts in Thousands, except Share and Per Share Data
As of As of
September 29, December 30,
2001 2000
-------------- --------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,119 $ 532
Accounts receivable, net of allowance
of $1,807 and $1,897, respectively 2,546 2,587
Inventories 4,965 5,977
Prepaid and other current assets 200 457
-------------- --------------
Total current assets 9,830 9,553
Property and equipment 11,238 11,044
Less accumulated depreciation (8,259) (7,060)
-------------- --------------
Net property and equipment 2,979 3,984
Other assets:
Intangibles assets, net 20,202 21,444
Other assets 2,062 158
-------------- --------------
TOTAL ASSETS $ 35,073 $ 35,139
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolver notes payable $ 2,500 $ 2,500
Current portion of long-term debt 6,547 6,540
Accounts payable 4,705 4,721
Accrued expenses and other current liabilities 2,421 2,068
-------------- --------------
Total current liabilities 16,173 15,829
Non-current liabilities:
Long-term debt, less current maturities 355 451
Capital leases 22 25
-------------- --------------
Total non-current liabilities 710 476
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 50,000,000
shares; 29,312,154 at September 29, 2001 and 9,261,552
at December 30, 2000 shares issued and outstanding 293 93
Additional paid-in capital 41,195 38,452
Treasury shares at cost, 30,600 shares at September 29,
2001 and December 30, 2000 (137) (137)
Accumulated deficit (29,363) (26,109)
-------------- --------------
Total stockholders' equity 11,988 12,299
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,073 $ 35,139
-------------- --------------
See accompanying notes to consolidated financial statements.
3
Sight Resource Corporation
Consolidated Statements of Operations
Amounts in Thousands, Except Share and Per Share Data
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Net revenue $ 15,290 $ 16,885 $ 45,859 $ 50,887
Cost of revenue 4,877 5,574 14,612 16,096
----------- ----------- ----------- -----------
Gross profit 10,413 11,311 31,247 34,791
Selling, general and administrative expenses 11,231 11,387 33,825 35,232
----------- ----------- ----------- -----------
Loss from operations (818) (76) (2,578) (441)
Other expense - (803) (22) (883)
Interest expense, net (158) (351) (587) (841)
----------- ----------- ----------- -----------
Loss before taxes (976) (1,230) (3,187) (2,165)
Income tax expense 18 16 67 63
----------- ----------- ----------- -----------
Net loss $ (994) $ (1,246) $ (3,254) $ (2,228)
----------- ----------- ----------- -----------
Dividends on redeemable convertible preferred stock 366 - $ 625 -
----------- ----------- ----------- -----------
Net loss attributable to common stockholders $ (1,360) $ (1,246) $ (3,877) $ (2,228)
----------- ----------- ----------- -----------
Basic and diluted loss per common share $ (0.05) $ (0.14) $ 0.26 $ (0.24)
----------- ----------- ----------- -----------
Weighted average number of common shares outstanding 24,821,000 9,229,000 14,781,000 9,227,000
See accompanying notes to consolidated financial statements.
4
Sight Resource Corporation
Consolidated Statements of Cash Flows
Amounts in Thousands
(Unaudited)
Nine Months Ended
---------------------
September 29, September 30,
2001 2000
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OPERATING ACTIVITIES:
Net loss $(3,254) $ (2,228)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,630 2,900
Amortization and write-off of deferred financing costs 105 234
Amortization of unearned compensation - 2
Loss on disposal of assets 27 109
Reserve for note receivable - 714
Changes in operating assets and liabilities:
Accounts receivable 41 397
Inventories 1,012 370
Prepaid expenses and other current assets (liabilities) 257 (32)
Accounts payable and accrued expenses (218) (1,525)
------- --------
Net cash provided by operating activities 600 941
INVESTING ACTIVITIES:
Purchases of property and equipment (347) (576)
Proceeds from sale of assets 2 162
Other liabilities (9) (224)
------- --------
Net cash used in investing activities (354) (638)
FINANCING ACTIVITIES:
Principal payments (165) (1,357)
Proceeds from notes 76 1,525
Other liabilities - (22)
Merger expenses 323 -
Net proceeds from issuance of stock 1,753 3
------- --------
Net cash provided by financing activities 1,341 149
Net increase in cash and cash equivalents 1,587 452
Cash and cash equivalents, beginning of period 532 166
------- --------
Cash and cash equivalents, end of period $ 2,119 $ 618
------- --------
Supplementary cash flow information:
Interest paid $ 603 $ 678
Taxes paid 67 63
See accompanying notes to consolidated financial statements.
5
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Company
Sight Resource Corporation (the "Company") manufactures, distributes and sells
eyewear and related products and services.
(2) Summary of Significant Accounting Policies
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 Company's financial
position as of September 29, 2001 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 13-week period, except during a 53-week year in which case one
quarter represents a 14-week period. The quarter ended September 29, 2001 was
13 weeks and the quarter ended September 30, 2000 was 14 weeks; the nine months
ended September 29, 2001 was 39 weeks and the nine months ended September 30,
2000 was 40 weeks. Fiscal year 2001 is a 52-week fiscal year and fiscal year
2000 was a 53-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, as amended on Form 10-
K/A, for the year ended December 30, 2000.
(3) Merger with Eyeshop and Related Transactions
On May 23, 2001, the Company entered into a common stock purchase agreement by
and among the Company, eyeshop.com inc. ("Eyeshop") and certain investors
associated with Eyeshop (the "First Stock Purchase Agreement"), pursuant to
which the Company agreed to sell, in two tranches, an aggregate of 5,000,000
shares of its common stock at a price of $0.20 per share for an aggregate
purchase price of $1,000,000, to persons associated with Eyeshop. The Company
closed on the sale of the first tranche of 1,250,000 shares for $250,000 on May
23, 2001. The second tranche of 3,750,000 shares for $750,000 closed on July 20,
2001.
On May 31, 2001, the Company entered into a common stock purchase agreement by
and among the Company and certain investors associated with Eyeshop, to sell an
aggregate of 6,569,500 shares of its common stock at a price of $0.20 per share
for an aggregate purchase price of $1,313,900. The Company closed on the sale of
the 6,569,500 shares on July 20, 2001.
Contemporaneously with the closing of the Merger, the Company and Carlyle
Venture Partners, L.P., C/S Venture Investors, L.P., Carlyle U.S. Venture
Partners, L.P. and Carlyle Venture Coinvestment, L.L.C. (collectively, the
"Investors") entered into an agreement which provides for, among other things,
the following terms:
. that upon conversion of the Series B redeemable convertible preferred
stock, par value $0.01 per share (the "Preferred Stock"), the Investors
will be entitled to receive 3,176,511 shares of the Company's common stock
in satisfaction of the Investors' rights to receive anti-dilution
protection in connection with the financings and the Merger;
. that the Investors waive their rights to anti-dilution protection with
respect to future obligations of the Company to issue securities;
. that the Investors waive their rights to receive additional shares of
common stock pursuant to the Class I Warrants with respect to future
issuances of warrants and options by the Company, all in exchange for a
warrant to purchase 1,000,000 shares of common stock at an exercise price
of $0.20 per share;
. that the Company satisfy its obligations to pay dividends on the Preferred
Stock for the calendar year 2001 by issuing an aggregate of 1,221,999
shares of common stock in installments of 364,723 shares, 318,947 shares
and 283,380 shares, all of which were issued on August 30, 2001, and
254,949 shares, which were issued effective as of November 1, 2001;
. that dividends accruing on the Preferred Stock after November 1, 2001 will
accrue as cash dividends and be paid promptly in cash upon the earliest to
occur of
o the merger, consolidation, reorganization, recapitalization, dissolution
or liquidation of the Company where the stockholders of the Company
immediately following the consummation of the merger no longer own more
than 50% of the voting securities of the Company,
o the sale, lease, exchange or other transfer of all or substantially all
of the assets of the Company,
o the consummation of an equity financing by the Company in which proceeds
to the Company, net of transaction costs, are greater than or equal to
$10 million,
o the end of the first twelve month period in which earnings before income
taxes, depreciation and amortization are equal to or greater than $5
million dollars or
o the refinancing of the Company's outstanding indebtedness to Fleet Bank;
o and that the Investors waive their right to more than one designee on
the Company's board of directors.
The estimated fair value of the warrant was $240,000 and has been allocated to
"dividend to preferred shareholders" during the three month period ended
September 29, 2001.
On July 20, 2001, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 23, 2001 by and among the Company, Eyeshop
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
the Company ("EAC"), and Eyeshop, EAC merged with and into Eyeshop (the
"Merger") and Eyeshop became a wholly-owned subsidiary of the Company.
Pursuant to the Merger Agreement, Eyeshop stockholders exchanged their Eyeshop
stock for the following at the closing of the Merger:
. Each outstanding share of Eyeshop common stock was exchanged for 4.52
shares of the Company's common stock;
. Each outstanding share of Eyeshop Series A Preferred Stock was exchanged
for 9.79 shares of the Company's common stock; and
. Each outstanding share of Eyeshop Series B Preferred Stock was exchanged
for 33.72 shares of the Company's common stock.
Pursuant to the Merger Agreement, former Eyeshop stockholders are also entitled
to receive additional shares of the Company's common stock if and when the
options, warrants and other rights to receive the Company's common stock that
were held by the Company's security holders as of May 23, 2001 are exercised.
The Company issued a total of 7,306,662 shares of common stock to former Eyeshop
stockholders in connection with the Merger. At the close of the Merger, former
Eyeshop stockholders and purchasers of the Company's common stock pursuant to
the First Stock Purchase Agreement held approximately 50% of the issued and
outstanding common stock of the Company.
Collectively, the former stockholders of Eyeshop together with the common stock
purchasers associated with Eyeshop held approximately 18,876,162 shares of the
Company's common stock immediately after the Merger and the common stock
financings, or approximately 64% of the Company's issued and outstanding common
stock and approximately 61% of the Company's issued and outstanding voting
securities.
The Company has completed its accounting for the Merger. The treatment, for
accounting purposes, was considered to be a purchase of Eyeshop's assets and
assumption of Eyeshop's liabilities by the Company. The aggregate purchase price
was $1,784,000 and the costs of the assets acquired and liabilities assumed have
been allocated on the basis of the estimated fair value of the net assets
acquired. There was no additional goodwill provided in the transaction.
As of September 29, 2001, the Company had not finalized its plans to relocate
its headquarters from Holliston, Massachusetts to Cincinnati, Ohio. Since
September 29, 2001, the Company has finalized its plan and is currently
operating from its Cincinnati, Ohio headquarters while maintaining certain
functions, not yet transitioned, from Holliston, Massachusetts.
6
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) Earnings Per Share
The following table provides a reconciliation of the numerators and denominators
of the basic and diluted loss per share computations for the three months and
nine months ended September 29, 2001 and September 30, 2000:
Three Months Ended Nine Months Ended
------------------ -----------------
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(In thousands, except share and per share data)
BASIC AND DILUTED LOSS PER SHARE
Net loss $ (994) $ (1,246) $ (3,254) $ (2,228)
----------- ---------- ----------- ----------
Net loss attributable to common stockholders (1,360) (1,246) (3,877) (2,228)
=========== ========== =========== ==========
Weighted average common shares outstanding 24,821,000 9,229,000 14,781,000 9,227,000
Net loss per share $ (0.05) $ (0.14) $ (0.26) $ (0.24)
=========== ========== =========== ==========
Outstanding 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 29, 2001, because they would have been
antidilutive. The following table presents the number of outstanding
options, warrants and convertible preferred stock shares not included in
the computation of diluted loss per share.
Three Months Ended Nine Months Ended
------------------ -----------------
September 29, September 30, September 29, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Options - 7,135 - 6,017
Warrants 1,005,463 1,420 1,005,108 1,197
Convertible preferred stock 1,452,119 1,452,119 1,452,119 1,452,119
--------- --------- --------- ---------
Total 2,457,582 1,460,674 2,457,227 1,459,333
========= ========= ========= =========
(5) Operating Segment and Related Information
The following tables represent certain operating segment information (in
thousands).
For the three months ended September 29, 2001 and September 30, 2000.
Totals Eye Care Centers Laser Vision Correction All Other Consolidated Totals
---------------- ----------------------- --------- -------------------
2001 2000 2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ---- ---- ----
Revenues:
External customers $15,246 $16,774 $ 44 $ 111 $ - $ - $15,290 $16,885
Interest:
Interest income - - - - 12 15 12 15
Interest expense (7) (5) - - (163) (361) (170) (366)
Net interest expense (7) (5) - - (151) (346) (158) (351)
Depreciation and amortization 764 900 1 2 47 51 812 953
Income (loss) from operations 271 1,032 13 (8) (1,089) (1,100) (818) (76)
Identifiable assets 30,555 27,660 34 - 4,484 9,755 35,073 37,415
Capital expenditures 70 129 - - 37 7 107 136
7
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the nine months ended September 29, 2001 and September 30, 2000.
Totals Eye Care Centers Laser Vision Correction All Other Consolidated Totals
---------------- ----------------------- --------- -------------------
2001 2000 2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ---- ---- ----
Revenues:
External customers $45,640 $50,402 $ 219 $ 485 $ -- $ -- $45,859 $50,887
Interest:
Interest income -- -- -- -- 23 44 23 44
Interest expense (13) (19) -- -- (547) (926) (610) (945)
------- ------- ----- ----- ------- ------- ------- -------
Net interest expense (13) (19) -- -- (574) (882) (587) (901)
Depreciation and amortization 2,492 2,749 2 6 138 145 2,632 2,900
Income (loss) from operations 738 2,897 38 42 (3,316) (3,380) (2,578) (441)
Identifiable assets 30,555 27,660 34 -- 4,484 9,755 35,073 37,415
Capital expenditures 261 523 -- 2 86 51 347 576
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.
8
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 and are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by such forward-looking
statements. Such forward-looking statements are identified by words such as
"expects", "anticipates", "intends", "will" and other similar expressions which
express management's present belief, expectations or intentions regarding the
Company's future performance. Forward-looking statements include those
statements relating to the expected costs savings and better business controls
resulting from the consolidation of optical laboratories. Risks and additional
factors affecting the Company's business include, without limitation, those
described under "Business Risks and Cautionary Statements" in the Company's Form
10-K, as amended on Form 10-K/A, for the fiscal year ended December 30, 2000,
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 29, 2001, the
Company's operations consisted of 119 eye care centers with two regional optical
laboratories and three distribution centers. Based upon annual sales, the
Company is one of the fifteen largest providers in the United States primary eye
care industry. 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.
Prior to October 2001, the Company operated two regional optical laboratories
and three distribution centers. During October 2001, the Company consolidated
the two regional optical laboratories and three distribution centers and
operates, as of November 2001, one regional optical laboratory and one
distribution center. The regional optical laboratory provides 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 laboratory and distribution
center have the capacity to accommodate additional multi-site eye care centers.
RESULTS OF OPERATIONS
Three Months and Nine Months Ended September 29, 2001 and September 30, 2000
Net Revenue. During the three months ended September 29, 2001, the Company
generated net revenue of approximately $15.3 and $0.1 million from the operation
of its 119 eye care centers and its affiliated laser vision correction ("LVC")
services, respectively, as compared to net revenue of approximately $16.8 and
$0.1 million from its 126 eye care centers and its affiliated laser vision
correction services, respectively, for the three months ended September 30,
2000. Net revenue for the first nine months of fiscal 2001 was approximately
$45.7 million and $0.2 million from the operations of its eye care centers and
laser vision correction affiliation, respectively, as compared to net revenue of
approximately $50.4 million and $0.5 million from its eye care centers and its
affiliated laser vision correction services for the first nine months ended
September 30, 2000. The $1.6 million, or 9.4% decrease in total net revenue for
the three months ended September 29, 2001 is primarily attributable to a
fourteen week reporting period in 2000 versus the thirteen week reporting period
in 2001 and the closing of seven stores net of store additions. Same store sales
were 3% higher for the thirteen week reporting period in 2001 versus the same
thirteen week reporting period in 2000, despite a temporary slowdown in sales
that immediately followed the unfortunate events of September 11, 2001. The $5.0
million or 10.4% decrease in total net revenue for the nine months ended
September 29, 2001 is primarily due to lower average net sales per store, the
closing of seven stores net of store additions and the reduction of sales to the
Company's largest managed care plan customer in New England.
Cost of Revenue. Cost of revenue decreased from approximately $5.5 million and
$0.1 million from the operation of the 126 eye care centers and laser vision
correction affiliation, respectively, for the three months ended September 30,
2000 to approximately $4.8 million and $0.1 million from the operation of the
119 eye care centers and the Company's laser vision correction affiliation,
respectively, for the three months ended September 29, 2001. Total cost of
revenue as a percentage of net revenue decreased from 33.0% for the three months
ended September 30, 2000 to 31.9% for the three months ended September 29, 2001.
The decrease during the quarter is primarily due to efficiencies at the regional
optical laboratories. Cost of revenue decreased from approximately $16.1 million
from the operation of the eye care centers for the nine months ended September
29, 2000 to approximately $14.6 million for the nine months ended September 29,
2001. Cost of revenue as a
9
percentage of net revenue increased slightly from 31.6% for the nine months
ended September 30, 2000 to 31.9% for the nine months ended September 29, 2001.
The increase as a percentage of net revenue primarily reflects more sales price
discounting, offset somewhat by the consolidation of optical laboratory
operations. Cost of revenue principally consisted of the cost of manufacturing,
purchasing and distributing optical products to customers of the Company and the
cost of delivering LVC services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $11.2 million and $33.8 million for
the three months and nine months ended September 29, 2001 as compared to
approximately $11.4 million and $35.2 million for the three and nine months
ended September 30, 2000. The decrease primarily relates to reductions in bad
debt expense, lower store operating costs due to the closure of nine stores net
of store additions, offset somewhat by inflationary pressures that increased
payroll costs. Selling, general and administrative expense, as a percentage of
net revenue, increased from 67.4% to 73.5% for the three months ended September
29, 2001, and increased from 69.2% to 73.8% for the nine months ended September
29, 2001 as compared to the three and nine months ended September 30, 2000.
The increase in selling, general and administrative expenses as a percentage of
sales for the three and nine month periods ending September 29, 2001 is mainly
due to low sales levels.
Other Income and Expense. Interest expense totaled $158,000 and $587,000 for the
three and nine months ended September 29, 2001, respectively, as compared to
$351,000 and $841,000 for the three and nine months ended September 30, 2000,
respectively. The decrease resulted from lower interest rates and lower average
outstanding debt during the periods. Other income (expense) during the 2000
periods reflects the reserve for notes receivable of $714,000 from a former
executive officer and member of the Board of Directors, Stephen M. Blinn.
Net Loss. The Company realized a net loss of $994,000, or $0.05 per share on a
basic and diluted basis, for the three months ended September 29, 2001 as
compared to a net loss of $1.2 million, or $0.14 per share on a basic and
diluted basis, for the three months ended September 30, 2000. The Company
realized a net loss of $3.3 million, or $0.25 per share on a basic and diluted
basis, for the nine months ended September 29, 2001, as compared to a net loss
of $2.2 million, or $0.24 per share on a basic and diluted basis, for the nine
months ended September 30, 2000. The decrease in net loss per share is
primarily attributable to a significant increase in the number of shares of
common stock outstanding in the 2001 period.
Liquidity and Capital Resources
At September 29, 2001, the Company had approximately $2.1 million in cash and
cash equivalents and working capital deficit of approximately $6.3 million, in
comparison to approximately $0.5 million in cash and cash equivalents and
working capital deficit of approximately $6.7 million as of December 30, 2000.
The improvement in the Company's cash position is due to the proceeds received
from the sales of common stock, which were completed concurrently with the
closing of the merger with Eyeshop on July 20, 2001. The working capital
deficit is primarily due to the bank debt of approximately $8.3 million with
Fleet National Bank ("Fleet") which was classified on September 29, 2001 and on
December 30, 2000 as current. The maturity date of the bank debt has been
extended to December 31, 2002. The bank debt continues to be classified as
current because the Company cannot forecast with reasonable certainty that the
Company will be in compliance with future bank covenants. Barring any
compliance defaults with future bank covenants, which could accelerate the
maturity of the loan and accelerate the repayment of the loan, the
Company believes it has sufficient cash to operate in the near term.
The Company may need to raise additional funds in the near term and may seek to
raise those funds through additional financings, including public or private
equity offerings. There can be no assurance that funds will be available for
the contemplated financings or otherwise on terms acceptable to the Company, if
at all. If adequate funds are not available, the Company may be required to
limit its operations, which would have a material and adverse affect on the
Company.
Effective January 1, 1999, the Company acquired all of the outstanding shares of
capital 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. The Company
has failed to make required note payments to Shawnee noteholders in the amount
of $100,000 that were due on January 22, 2001.
Effective April 1, 1999, the Company acquired all of the outstanding shares of
capital 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, $1.0 million in notes payable over three
years and 160,000 shares of common stock. In addition, the Company offered to
issue additional consideration to the Kent stockholders if the market price of
the Company's common stock did not equal or exceed $5.00 per share at any time
during the period from April 23, 2000 to April 23, 2001. The market price of the
Company's common stock did 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 Kent stockholders for each share of common
stock issued in the acquisition and held by them on April 23, 2001 is equal to
the difference between $5.00 and the greater of (a) the market price of the
common stock on April 23, 2001 or (b) $2.73. As of April 23, 2001, the aggregate
additional consideration payable to the Kent sellers was $363,200 (the
"Additional Consideration"). At the Company's option, the Additional
Consideration may be paid to the Kent stockholders in cash or in additional
shares of the Company's common stock valued at its market price on the date that
the Additional Consideration becomes payable to the Kent stockholders. At the
time of the acquisition, the Company included the
10
value of the Additional Consideration in its determination of the purchase
price. In addition, the Company has failed to make required note payments to
Kent noteholders in the amount of $333,333 that were due on April 23, 2001. On
July 27, 2001, the Company was served with a complaint filed by John Cress and
Timothy Westra (together, the "Plaintiffs") in Muskegon County Circuit Court in
Michigan on July 6, 2001 against the Company and Kent Acquisition Corporation (a
subsidiary of the Company, "KAC"). The complaint alleges two counts. In the
first count, the Plaintiffs allege that KAC and the Company failed to make
payments under certain promissory notes (the "Kent Notes") issued to the
Plaintiffs as part of consideration due to a Stock Purchase Agreement dated
April 1, 1999 by and among KAC, Kent Optical Company and its related entities
(the "Kent Stock Purchase Agreement") and that such nonpayment constitutes an
event of default under the Kent Notes. Plaintiffs seek relief in the form of
payment of amounts due on the Kent Notes, including all applicable interest,
costs and attorney fees. In the second count, the Plaintiffs allege that KAC
and the Company failed to make payments of certain additional consideration due
pursuant to the Kent Stock Purchase Agreement when the market price of certain
shares of the Company's common stock held by the Plaintiffs did not equal or
exceed $5.00 per share at any time during the period from April 23, 2000 to
April 23, 2001. Plaintiffs seek relief in the form of payment of the additional
consideration due pursuant to the Kent Stock Purchase Agreement, including all
applicable interest, costs and attorney fees. This matter is subject to
mediation scheduled in late November 2001. The outcome of this matter is
uncertain and the Company and its legal advisors are in discussions with the
Plaintiffs and their legal advisors regarding the scheduled mediation.
In connection with the exercise of stock options to purchase 138,322 shares (the
"Option Shares") of the Company's common stock during fiscal 1997, Stephen M.
Blinn, a former executive officer and former 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, is
approximately $714,000. 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 and, subsequent to the establishment of the reserve, the Company no
longer recognizes as interest income accrued interest related to the Note.
As of September 29, 2001, the Company had warrants outstanding which provide it
with potential sources of financing as outlined below. However, because of the
current market value of the Company's common stock, it is unlikely that any
subsequent material proceeds from the exercise of the warrants may be realized
by the Company.
Number Potential
Securities Outstanding Proceeds
----------- ----------
Class II Warrants 290,424 $2,613,816
Bank Austria AG, f/k/a Creditanstalt, Warrants 150,000 693,750
Sovereign Warrants 50,000 25,500
Sovereign Warrants 50,000 7,810
Carlyle Warrants 1,000,000 200,000
--------- ----------
$3,545,876
==========
As of September 29, 2001, the Company also has outstanding 227,125 Class I
Warrants. The Class I Warrants originally entitled their holders 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 then
outstanding warrants and options on the same terms and conditions applicable to
then existing warrant and option holders. Such Class I Warrants have since been
amended to set the maximum number of shares purchaseable under the Class I
Warrants at 227,125 pursuant to a Letter Agreement, dated May 21, 2001, between
and among the Company and Carlyle Venture Partners, L.P., C/S Venture Investors,
L.P., Carlyle U.S. Venture Partners, L.P. and Carlyle Venture Coinvestment,
L.L.C., as more fully described below. The holders of the Class I Warrants are
obligated to exercise them at the same time the corresponding options and
warrants of existing holders are exercised, subject to certain limitations. The
amount of potential proceeds from the exercise of the Class I Warrants cannot be
estimated at this time; however, for the reasons stated above it is unlikely
that any proceeds will be realized by the Company.
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.
11
On April 15, 1999, the Company entered into a Credit Agreement (the "1999
Agreement") with Fleet National Bank ("Fleet") pursuant to which the Company
could borrow $10.0 million on an acquisition line of credit, of which $7.0
million is on a term loan basis and $3.0 million is on a revolving line of
credit basis, subject to certain performance criteria and an 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.
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 Fleet entered into a modification
agreement (the "Original 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 Original Modification Agreement limited the
revolving line note to $2.5 million and the term loan to $6.75 million and
established the maturity date for each of these credit lines as March 31, 2001.
The scheduled monthly principal payments for the term loan were 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. As
part of the Original Modification Agreement, the Company issued to Fleet
warrants to purchase 50,000 shares of the Company's common stock at an exercise
price of $0.51 per share which was equal to the average closing price of the
common stock for the last five trading days for the month of August 2000, and
warrants to purchase 50,000 shares of the Company's common stock at an exercise
price of $0.156 per share which was equal to the average closing price of the
Company's common stock for the last five trading days for the month of December
2000. In August 2000, as a result of a bank merger, Sovereign Bank of New
England ("Sovereign") became the successor party to Fleet in the Original
Modification Agreement.
On November 30, 2000, the Company and Sovereign entered into a second
modification agreement (the "Second Modification Agreement") that amended the
terms of the Original Modification Agreement in order to, among other things,
defer certain payments required under the term note and amend certain terms and
conditions of the 1999 Agreement. Sovereign deferred the required principal
payments due on December 1, 2000 in the amount of $100,000 and on January 1,
2001 in the amount of $125,000 until March 1, 2001 and March 22, 2001,
respectively. At December 30, 2000, the Company was in default for non-
compliance with certain negative covenants contained in the Second Modification
Agreement relating to minimum net worth, minimum debt service coverage, maximum
funded debt service coverage and minimum net profit.
On March 26, 2001, the Company and Sovereign entered into the Third Modification
Agreement (the "Third Modification Agreement") that amended the terms of the
Original Modification Agreement and the Second Modification Agreement in order
to, among other things, waive the Company's default, adjust or delete certain
covenants to which the Company was subject, change the repayment terms and
extend the maturity date of the loans to December 31, 2002. In addition, the
Third Modification Agreement required that the Company close an equity financing
of at least $1.0 million with third party investors on or before May 31, 2001.
The Third Modification Agreement establishes the following annual interest rates
for both the revolving line and term loans: (i) from February 1, 2001 through
September 30, 2001 - 6%; (ii) from October 1, 2001 through December 31, 2001 -
7%; (iii) from January 1, 2002 through December 31, 2002 - prime rate subject to
a minimum rate of 8% and a maximum rate of 11%. The scheduled monthly principal
payments did not begin until July 1, 2001 and are $30,000 from July 1, 2001
through December 31, 2001, and $100,000 from January 1, 2002 through December
31, 2002. As of September 29, 2001, $5.8 million was borrowed on the term loan
and $2.5 million was borrowed on the revolving credit facility.
On May 14, 2001, the Company and Sovereign amended and restated the Third
Modification Agreement (the "Amended and Restated Third Modification
Agreement"). The Amended and Restated Third Modification Agreement contains the
same terms as the Third Modification Agreement, except that the Amended and
Restated Third Modification Agreement requires the Company to close a financing
or series of financings, either through the issuance of equity or debt
subordinate to Sovereign, of at least $2.3 million with third party investors on
or before July 15, 2001.
On May 23, 2001, the Company entered into a common stock purchase agreement by
and among the Company, eyeshop.com inc. ("Eyeshop") and certain investors
associated with Eyeshop (the "Stock Purchase Agreement"), pursuant to which the
Company agreed to sell, in two tranches, an aggregate of 5,000,000 shares of its
common stock at a price of $0.20 per share for an aggregate purchase price of
$1,000,000, to persons associated with Eyeshop. The Company closed on the sale
of the first tranche of 1,250,000 shares for $250,000 on May 23, 2001 and on the
second tranche of 3,750,000 shares for $750,000 on July 20, 2001.
On July 20, 2001, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 23, 2001 by and among the Company, Eyeshop
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
the Company ("EAC"), and Eyeshop, EAC merged with and into Eyeshop (the
"Merger") and Eyeshop became a wholly-owned subsidiary of the Company.
Pursuant to the Merger Agreement, Eyeshop stockholders exchanged their Eyeshop
stock for the following at the closing of the Merger:
12
. Each outstanding share of Eyeshop common stock was exchanged for
4.52 shares of the Company's common stock;
. Each outstanding share of Eyeshop Series A Preferred Stock was
exchanged for 9.79 shares of the Company's common stock; and
. Each outstanding share of Eyeshop Series B Preferred Stock was
exchanged for 33.72 shares of the Company's common stock.
Pursuant to the Merger Agreement, former Eyeshop stockholders are also entitled
to receive additional shares of the Company's common stock if and when the
options, warrants and other rights to receive the Company's common stock that
were held by the Company's security holders as of May 23, 2001 are exercised.
The Company issued a total of 7,306,662 shares of Common Stock to former Eyeshop
stockholders in connection with the Merger.
In conjunction with the Merger, the Company is currently in the process of
relocating its headquarters from Holliston, Massachusetts to Cincinnati, Ohio.
The Company is presently operating significantly from its Cincinnati, Ohio
headquarters while maintaining certain functions not yet transitioned from
Holliston, Massachusetts.
On May 31, 2001, the Company entered into a common stock purchase agreement by
and among the Company and certain investors associated with Eyeshop, to sell an
aggregate of 6,569,500 shares of its common stock at a price of $0.20 per share
for an aggregate purchase price of $1,313,900. The Company closed on the sale of
the 6,569,500 shares on July 20, 2001.
Contemporaneously with the closing of the Merger, the Company and Carlyle
Venture Partners, L.P., C/S Venture Investors, L.P., Carlyle U.S. Venture
Partners, L.P. and Carlyle Venture Coinvestment, L.L.C. (collectively, the
"Investors") entered into an agreement which provides for, among other things,
the following terms:
. that upon conversion of the Series B redeemable convertible preferred
stock, par value $0.01 per share (the "Preferred Stock"), the Investors
will be entitled to receive 3,176,511 shares of the Company's common
stock in satisfaction of the Investors' rights to receive anti-dilution
protection in connection with the financings and the Merger;
. that the Investors waive their rights to anti-dilution protection with
respect to future obligations of the Company to issue securities;
. that the Investors waive their rights to receive additional shares of
common stock pursuant to the Class I Warrants with respect to future
issuances of warrants and options by the Company, all in exchange for a
warrant to purchase 1,000,000 shares of common stock at an exercise
price of $0.20 per share;
. that the Company satisfy its obligations to pay dividends on the
Preferred Stock for the calendar year 2001 by issuing an aggregate of
1,221,999 shares of common stock in installments of 364,723 shares,
318,947 shares and 283,380 shares, all of which were issued on August
30, 2001, and 254,949 shares, which were issued effective as of
November 1, 2001;
. that dividends accruing on the Preferred Stock after November 1, 2001
will accrue as cash dividends and be paid promptly in cash upon the
earliest to occur of
. the merger, consolidation, reorganization, recapitalization,
dissolution or liquidation of the Company where the stockholders of
the Company immediately following the consummation of the merger no
longer own more than 50% of the voting securities of the Company,
. the sale, lease, exchange or other transfer of all or substantially
all of the assets of the Company,
. the consummation of an equity financing by the Company in which
proceeds to the Company, net of transaction costs, are greater than
or equal to $10 million,
. the end of the first twelve month period in which earnings before
income taxes, depreciation and amortization are equal to or greater
than $5 million dollars or
. the refinancing of the Company's outstanding indebtedness to Fleet
Bank;
. and that the Investors waive their right to more than one designee on
the Company's board of directors.
The estimated fair value of the warrant was $240,000 and has been allocated to
"dividend to preferred shareholders" during the three month period ended
September 29, 2001.
13
Recent Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies the
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which has been superseded by Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
The Company adopted the provisions of Statement 141 and will adopt the
provisions of statement 142 on January 1, 2002. Furthermore, any goodwill and
any intangible assets determined to have an indefinite useful life that are
acquired in a purchase business combination completed after June 30, 2001 will
not be amortized, but will continue to be evaluated for impairment in accordance
with the appropriate pre-Statement 142 accounting literature. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 will continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation, Statement
142 will require the Company to perform an assessment of whether there is an
indication that goodwill (and equity-method goodwill) is impaired as of the date
of adoption. To accomplish this the Company must identify its reporting units
and determine the carrying value of each reporting unit by assigning the assets
and liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. The Company will then have up to
six months from the date of adoption to determine the fair value of each
reporting unit and compare it to the reporting unit's carrying amount. To the
extent a reporting unit's carrying amount exceeds its fair value, an indication
exists that the reporting unit's goodwill may be impaired and the Company must
perform the second step of the transitional impairment test. In the second
step, the Company must compare the implied fair value of the reporting unit's
goodwill, determined by allocating the reporting unit's fair value to all of its
assets (recognized and unrecognized) and liabilities in a manner similar to a
purchase price allocation in accordance with Statement 141, to its carrying
amount, both of which would be measured as of the date of adoption. This second
step is required to be completed as soon as possible, but no later than the end
of the year of adoption. Any transitional impairment loss will be recognized as
the cumulative effect of a change in accounting principle in the Company's
statement of earnings.
And finally, any unamortized negative goodwill (and negative equity-method
goodwill) existing at the date Statement 142 is adopted must be written off as
the cumulative effect of a change in accounting principle.
As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of $14.3 million unamortized identifiable intangible assets in the
amount of $5.3 million and unamortized negative goodwill in the amount of $0,
all of which will be subject to the transition provisions of Statements 141 and
142. Amortization expense related to goodwill was $1.1 million and $797,000 for
the year ended December 30, 2000 and the nine months ended September 29, 2001,
respectively. Because of the extensive effort needed to comply with adopting
Statement 142, it is not practicable to reasonably estimate the full impact of
adopting these Statements on the Company's financial statements at the date of
this report, including whether any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
Statement of Financial Accounting Standards No. 143, "Accounting For Asset
Retirement Obligations" ("SFAS 143"), issued in August 2001, addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets, and for the associated retirement costs. SFAS 143
which applied to all entities that have a legal obligation associated with the
retirement of a tangible long-lived asset is effective for fiscal years
beginning after June 15, 2002. The Company does not expect the implementation of
SFAS 143 to have a material impact on its financial condition or results of
operations.
SFAS 144, issued in October 2001, addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS 144, which applies to
all entities, is effective for fiscal years beginning after December 15, 2001.
The Company does not expect the implementation of SFAS 144 to have a material
impact on its financial condition or results of operations.
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.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 27, 2001, the Company was served with a complaint filed by John Cress
and Timothy Westra (together, the "Plaintiffs") in Muskegon County Circuit Court
in Michigan on July 6, 2001 against the Company and Kent Acquisition Corporation
(a subsidiary of the Company, "Kent"). The complaint alleges two counts. In
the first count, the Plaintiffs allege that Kent and the Company failed to make
payments under certain promissory notes (the "Kent Notes") issued to the
Plaintiffs as part of consideration due pursuant to a Stock Purchase Agreement
dated April 1, 1999 by and among Kent, Kent Optical Company and its related
entities (the "Kent Stock Purchase Agreement") and that such nonpayment
constitutes an event of default under the Kent Notes. Plaintiffs seek relief in
the form of payment of amounts owed on the Kent Notes, including all applicable
interest, costs and attorney fees. In the second count, the Plaintiffs allege
that Kent and the Company failed to make payments of certain additional
consideration due pursuant to the Kent Stock Purchase Agreement when the market
price of certain shares of the Company's common stock held by the Plaintiffs did
not equal or exceed $5.00 per share at any time during the period from April 23,
2000 to April 23, 2001. Plaintiffs seek relief in the form of payment of the
additional consideration due pursuant to the Kent Stock Purchase Agreement,
including all applicable interest, costs and attorney fees.
This matter is subject to mediation scheduled in late November 2001. The
outcome of this matter is uncertain and the Company and its legal advisors are
in discussions with the Plaintiffs and their legal advisors regarding the
scheduled mediation.
Item 2. Changes in Securities and Use of Proceeds
On May 23, 2001, the Company entered into a common stock purchase agreement by
and among the Company, Eyeshop and certain investors associated with Eyeshop
pursuant to which the Company agreed to sell, in two tranches, an aggregate of
5,000,000 shares of its common stock at a price of $0.20 per share for an
aggregate purchase price of $1,000,000, to persons associated with Eyeshop. The
Company closed on the sale of the first tranche of 1,250,000 shares for $250,000
on May 23, 2001. The second tranche of 3,750,000 shares for $750,000 closed on
July 20, 2001. In addition, on May 31, 2001, the Company entered into a second
common stock purchase agreement by and among the Company and certain investors
associated with Eyeshop to sell an aggregate of 6,569,500 shares of its common
stock at a price of $0.20 per share for an aggregate purchase price of
$1,313,900. The Company closed on the sale of the 6,569,500 shares on July 20,
2001.
Pursuant to the Merger Agreement, Eyeshop stockholders exchanged their Eyeshop
stock for the following at the closing of the Merger:
. Each outstanding share of Eyeshop common stock was exchanged for 4.52
shares of the Company's common stock;
. Each outstanding share of Eyeshop Series A Preferred Stock was exchanged
for 9.79 shares of the Company's common stock; and
. Each outstanding share of Eyeshop Series B Preferred Stock was exchanged
for 33.72 shares of the Company's common stock.
Additionally, pursuant to the Merger Agreement, former Eyeshop stockholders are
entitled to receive additional shares of the Company's common stock if and when
the options, warrants and other rights to receive the Company's common stock
that were held by the Company's security holders as of May 23, 2001 are
exercised. The Company issued a total of 7,306,662 shares of common stock to
former Eyeshop stockholders in connection with the Merger.
No underwriters were involved in the transactions listed above. The shares were
issued in connection with the merger with Eyeshop. The Company relied upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended, because the above transactions did not involve any public
offering by the Company.
15
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held at 9:00 a.m. on July
13, 2001. Of the 12,201,671 shares, including 10,749,552 shares of common stock
and 1,452,119 shares of preferred stock, issued and outstanding and eligible to
vote as of the record date of June 11, 2001, a quorum of 11,807,840 shares or
96.8% of the eligible shares were present in person or represented by proxy.
The following actions were taken at such meeting:
(a) The election of E. Dean Butler, Christian E. Callsen and Russell E.
Taskey to the Company's Board of Directors to serve for a term ending in
2004 and until a successor is duly elected and qualified.
For Withheld
--- --------
Butler 10,821,190 927,610
Callsen 10,821,190 927,610
Taskey 10,820,690 928,110
(b) The ratification of the appointment of KPMG LLP as the Company's
independent public accountants for the fiscal year ending December 29,
2001.
For Against Abstain
--- ------- -------
11,321,620 341,490 85,690
Upon a motion by a stockholder to adjourn the Annual Meeting, more than a
majority of the votes cast approved the adjournment of the Annual Meeting until
12:00 p.m. on July 13, 2001. At the continuation of the Annual Meeting on July
13, 2001, more than a majority of the votes cast were voted to approve a motion
by a stockholder to adjourn the Annual Meeting until July 20, 2001 to achieve
the goal of obtaining votes with respect to the following additional proposals
in as an open and democratic method as practicable: to amend the Company's
Certificate of Incorporation to increase the number of authorized shares of
common stock from 20,000,000 shares to 50,000,000 shares and to increase the
number of shares of common stock authorized under the Company's 1992 Employee,
Director and Consultant Stock Option Plan from 1,850,000 to 6,500,000 shares.
The reconvened Annual Meeting was held on July 20, 2001. Of the 12,201,671
shares issued and outstanding and eligible to vote as of the record date of June
11, 2001, a quorum of 11,807,840 shares or 96.8% of the eligible shares were
present in person or represented by proxy. At the reconvened Annual Meeting, the
following actions were taken:
(a) The approval of a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of common stock
from 20,000,000 shares to 50,000,000 shares.
For Against Abstain
--- ------- -------
6,215,717 1,254,005 141,452
(b) The approval of a proposal to increase the number of shares of common
stock authorized under the Company's 1992 Employee, Director and Consultant
Stock Option Plan from 1,850,000 to 6,500,000 shares.
For Against Abstain
--- ------- -------
6,215,148 1,649,644 146,382
(c) The approval of the proposal to amend the Company's 1992 Employee,
Director and Consultant Stock Option Plan to increase from 400,000 to
2,250,000 shares the maximum number of shares for which stock options may
be granted to any participant in any consecutive three year period.
For Against Abstain
10,492,781 1,165,929 90,090
16
Item 5. Other Information
On August 30, 2001, the Company appointed Duane D. Kimble, Jr., of Cincinnati,
Ohio, to the position of Chief Financial Officer. Prior to joining the Company,
Mr. Kimble was Chief Financial Officer of the Baldwin Piano and Organ Company.
Mr. Kimble replaces James W. Norton, who resigned from the Chief Financial
Officer position that he held for three years.
As of September 29, 2001, the Company had not finalized its plans to relocate
its headquarters from Holliston, Massachusetts to Cincinnati, Ohio. Since
September 29, 2001, the Company has finalized its plan to relocate and is
currently operating from its Cincinnati, Ohio headquarters while maintaining
certain functions, not yet transitioned, from Holliston, Massachusetts.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Title
----------- -----
3.1 Restated Certificate of Incorporation of the Company, as
amended
10.1 Lease Agreement, between Park Place, LLC and the Company,
dated July 9, 2001
(b) The Company filed the following reports on Form 8-K during the quarter
ended September 29, 2001:
(1) Form 8-K filed on July 17, 2001, to report events under Items 5 and
7, relating to the Company's annual meeting.
(2) Form 8-K filed on August 6, 2001, to report events under Items 1, 5
and 7, relating to the merger between eyeshop.com inc. and the Company,
the common stock financings and the Company's annual meeting.
17
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 19, 2001 By: /s/ CARENE S. KUNKLER
----------------- -------------------------
Carene S. Kunkler
President and Chief Executive Officer
(principal executive officer)
Date: November 19, 2001 By: /s/ DUANE D. KIMBLE, JR.
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Duane D. Kimble, Jr.
Chief Financial Officer
(principal financial officer)
18
Exhibit Index
Exhibit No. Title
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3.1 Restated Certificate of Incorporation of the Company as,
amended
10.1 Lease Agreement, between Park Place, LLC and the Company,
dated July 9, 2001
19