-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SF2qlLbZZXavFc2xvnQNcJMdvBLBqdW7lNZPz1wkKlgd1DSGmXt3rJYOotEtZLja L4ZVCBQIeoiXS+08jIMwNw== 0000927016-99-002531.txt : 19990707 0000927016-99-002531.hdr.sgml : 19990707 ACCESSION NUMBER: 0000927016-99-002531 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990415 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990706 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGHT RESOURCE CORP CENTRAL INDEX KEY: 0000895651 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 043181524 STATE OF INCORPORATION: DE FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-21068 FILM NUMBER: 99659707 BUSINESS ADDRESS: STREET 1: 100 JEFFREY AVENUE CITY: HOLLISTON STATE: MA ZIP: 01746 BUSINESS PHONE: 5084296916 MAIL ADDRESS: STREET 1: 100 JEFFREY AVENUE CITY: HOLLISTON STATE: MA ZIP: 01746 FORMER COMPANY: FORMER CONFORMED NAME: NEWVISION TECHNOLOGY INC DATE OF NAME CHANGE: 19940224 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________ FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ______________ Date of Report (Date of earliest event reported): APRIL 15, 1999 -------------- SIGHT RESOURCE CORPORATION -------------------------- (Exact name of registrant as specified in its charter) DELAWARE 0-21068 04-3181524 - ---------------- --------------------- ------------------- (State or other (Commission File Number) (IRS Employer jurisdiction of Identification No.) incorporation) 100 JEFFREY AVENUE, HOLLISTON, MASSACHUSETTS 01746 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 429-6916 -------------- SIGHT RESOURCE CORPORATION INDEX
Item Page No. - ---- -------- Item 2. Acquisition or Disposition of Assets 3 Item 5. Other Events 3 Item 7. Financial Statements and Exhibits 4 Item 8. Change in Fiscal Year 5 Signatures 6 Exhibit Index 7
2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On April 22, 1999, a wholly-owned subsidiary of the Registrant, Kent Acquisition Corporation ("KAC"), completed its acquisition of all of the issued and outstanding shares of capital stock of Kent Optical Company, a Michigan corporation ("Kent"), Custom Optics, Inc., a Michigan corporation ("Custom"), Kent-N.W. Grand Rapids, Inc., a Michigan corporation ("Kent-N.W."), Kent- Hackley, Inc., a Michigan corporation ("Kent-Hackley"), Source Optical Supply, Inc., a Michigan corporation ("Source," and collectively with Kent, Custom, Kent-N.W. and Kent-Hackley, the "Companies"), pursuant to a Stock Purchase and Sale Agreement (the "Purchase Agreement") by and among KAC, the Registrant, the Companies and the stockholders of the Companies dated as of April 1, 1999 (the "Acquisition"). In consideration for all the issued and outstanding stock of the Companies, KAC paid $5,200,000 in cash provided pursuant to a term loan from Fleet National Bank, more particularly described in Item 5 to this Form 8-K, issued promissory notes in the aggregate amount of $1,000,000 and arranged for the issuance of 160,000 unregistered shares of Common Stock of the Registrant. The Companies are privately held primary eye care chains that operate eye care centers in Michigan. The Registrant intends to continue the business operated by the Companies. The purchase price for the Acquisition was determined by negotiation between the parties based , in part, upon a multiple of the Companies' earnings. This Acquisition was accounted for under the purchase method of accounting. The Purchase Agreement and the press release dated April 23, 1999, filed as Exhibits 2.1 and 99.8, respectively, are incorporated herein by reference. ITEM 5. OTHER EVENTS. On April 15, 1999, the Registrant entered into a Loan Agreement (the "Loan Agreement") with Fleet National Bank (the "Bank") pursuant to which the Registrant may borrow up to $7,000,000 on a term loan basis, up to $3,000,000 on a revolving credit basis and up to $10,000,000 on an acquisition credit basis, subject to certain performance criteria, which loans are secured by all of the assets of the Registrant and its wholly-owned subsidiaries. On April 22, 1999, the Registrant borrowed $7,000,000 pursuant to the term loan and $975,000 pursuant to the revolving line of credit to refinance existing debt and finance the acquisition of the Companies by KAC, a wholly owned subsidiary of the Registrant. Other amounts borrowed under the Loan Agreement in the future are expected to be used to finance future acquisitions, provide ongoing working capital and for other general corporate purposes. The Loan Agreement and the press release dated April 23, 1999, filed as Exhibits 99.1 and 99.9, respectively, are incorporated herein by reference. 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired. Attached as Exhibit 99.10 is ------------------------------------------- the audited combined balance sheet of the Companies as of March 31, 1999, and the related combined statements of operations, retained earnings and cash flows for the nine month period then ended. (b) Pro forma financial information. Attached as Exhibit 99.11 is the ------------------------------- unaudited pro forma consolidated balance sheet as of March 27, 1999 and the unaudited pro forma consolidated statements of operations for the twelve months ended December 31, 1998 and for the three months ended March 27, 1999. (c) Exhibits. -------- Exhibit No. Description ----------- ----------- 2.1* Stock Purchase and Sale Agreement by and among Kent Optical Company, Custom Optics, Inc., Kent-N.W. Grand Rapids, Inc., Kent- Hackley, Inc., Source Optical Supply, Inc., the stockholders of such companies, Kent Acquisition Corporation and Sight Resource Corporation, dated as of April 1, 1999. 99.1* Loan Agreement by and between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.2* $7,000,000 Term Loan Note between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.3* $3,000,000 Secured Revolving Line Note between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.4* $10,000,000 Secured Acquisition Term Note between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.5* Borrower Security Agreement by and between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.6* Borrower Stock Pledge Agreement by and between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.7* Trademark Security Agreement by and between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 4 99.8* Press Release dated April 23, 1999, re: Acquisition. 99.9* Press Release dated April 23, 1999, re: Loan Agreement. 99.10 Audited combined balance sheet of the Companies as of March 31, 1999, and the related combined statements of operations, retained earnings and cash flows for the nine month period then ended. 99.11 Unaudited pro forma consolidated balance sheet as of March 27, 1999 and the unaudited pro forma consolidated statements of operations for the twelve months ended December 31, 1998 and for the three months ended March 27, 1999. - ------------ * Incorporated herein by reference to the corresponding exhibit in the Company's Form 8-K filed with the Securities and Exchange Commission on May 6, 1999. ITEM 8. CHANGE IN FISCAL YEAR. On April 22, 1999, the Board of Directors of the Registrant authorized a change in the Registrant's fiscal year end from the end of the calendar year (December 31) to the last Saturday of the calendar year which, for the current fiscal year, will be December 25, 1999. The transition period covering such change in fiscal year end will be covered by the Registrant's Form 10-Q for the first quarter of 1999. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SIGHT RESOURCE CORPORATION Date: July 6, 1999 By: /s/ William T. Sullivan ----------------------- William T. Sullivan President 6 EXHIBIT INDEX ------------- Exhibit Number Description - ------ ----------- 2.1* Stock Purchase and Sale Agreement by and among Kent Optical Company, Custom Optics, Inc., Kent-N.W. Grand Rapids, Inc., Kent- Hackley, Inc., Source Optical Supply, Inc., the stockholders of such companies, Kent Acquisition Corporation and Sight Resource Corporation, dated as of April 1, 1999. 99.1* Loan Agreement by and between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.2* $7,000,000 Term Loan Note between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.3* $3,000,000 Secured Revolving Line Note between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.4* $10,000,000 Secured Acquisition Term Note between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.5* Borrower Security Agreement by and between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.6* Borrower Stock Pledge Agreement by and between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.7* Trademark Security Agreement by and between Sight Resource Corporation and Fleet National Bank, dated as of April 15, 1999. 99.8* Press Release dated April 23, 1999, re: Acquisition. 99.9* Press Release dated April 23, 1999, re: Loan Agreement. 99.10 Audited combined balance sheet of the Companies as of March 31, 1999, and the related combined statements of operations, retained earnings and cash flows for the nine month period then ended. 99.11 Unaudited pro forma consolidated balance sheet as of March 27, 1999 and the unaudited pro forma consolidated statements of operations for the twelve months ended December 31, 1998 and for the three months ended March 27, 1999. - ------------ * Incorporated herein by reference to the corresponding exhibit in the Company's Form 8-K filed with the Securities and Exchange Commission on May 6, 1999. EX-99.10 2 INDEPENDENT AUDITORS REPORT EXHIBIT 99.10 Independent Auditors' Report Board of Directors and Shareholders Kent Optical Co. and Affiliates: We have audited the accompanying combined balance sheet of Kent Optical Co. and Affiliates (the "Company"), as of March 31, 1999, and the related combined statements of operations, retained earnings (accumulated deficit), and cash flows for the nine-month period then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Kent Optical Co. and affiliates as of March 31, 1999, and the results of its operations and its cash flows for the nine-month period then ended, in conformity with generally accepted accounting principles. KPMG, L.L.P. Boston, Massachusetts July 2, 1999 KENT OPTICAL CO. AND AFFILIATES Combined Balance Sheet March 31, 1999 ASSETS Current assets: Cash and cash equivalents $ 199,840 Accounts receivable, net of allowance of $256,500 747,580 Inventories 898,898 Prepaid expenses and other current assets 34,214 ---------- Total current assets 1,880,532 ---------- Property and equipment, net 400,891 Other assets: Intangible assets, net 525,295 ---------- $2,806,718 ==========
See accompanying notes to combined financial statements. 2 KENT OPTICAL CO. AND AFFILIATES Combined Balance Sheet March 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long term debt $ 225,394 Line of credit 120,000 Accounts payable 549,402 Accrued expenses 277,641 ---------- Total current liabilities 1,172,437 Long term debt, less current maturities 1,176,076 Stockholders' equity: Common stock 36,840 Additional paid-in capital 433,136 Accumulated deficit (11,771) ---------- 458,205 ---------- $2,806,718 ==========
3 KENT OPTICAL CO. AND AFFILIATES Combined Statement of Operations For the nine-month period ended March 31, 1999 Net revenue $7,650,041 Cost of revenue 2,785,638 ---------- Gross margin 4,864,403 Selling, general and administrative expense 4,830,651 ---------- Operating income 33,752 Other income (expense): Interest expense (100,586) Other income 13,899 ---------- Total other expense (86,687) Loss before income taxes (52,935) Income tax expense -- ---------- Net loss $ (52,935) ==========
See accompanying notes to combined financial statements. 4 KENT OPTICAL CO. AND AFFILIATES Combined Statement of Retained Earnings (Accumulated Deficit) For the nine-month period ended March 31, 1999 Retained earnings (accumulated deficit) at beginning of period $405,806 Net loss (52,935) Distributions 364,642 -------- Retained earnings (accumulated deficit) at end of period $(11,771) ========
5 KENT OPTICAL CO. AND AFFILIATES Combined Statement of Cash Flows For the nine-month period ended March 31, 1999 Operating activities: Net loss $ (52,935) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 97,959 Provision for doubtful accounts 92,000 Changes in operating assets and liabilities: Accounts receivable (26,290) Inventories (26,453) Prepaid expenses and other current assets 23,207 Accounts payable and accrued expenses 275,259 --------- Net cash provided by operating activities 382,747 Investing activities: Purchases of property and equipment 43,024 --------- Net cash used in investing activities 43,024 Financing activities: Net proceeds from line of credit 120,000 Principal payments on long-term debt (240,356) Distributions to shareholders (234,460) --------- Net cash used in financing activities (354,816) Increase in cash and cash equivalents 70,955 Cash and cash equivalents, beginning of period 128,885 --------- Cash and cash equivalents, end of period $ 199,840 ========= Supplemental cash flow disclosure: Cash paid during the period for: Interest $ 73,939 ========= Income taxes $ 14,731 ========= Noncash distributions $ 130,182 =========
See accompanying notes to combined financial statements. 6 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999 (1) PRINCIPLES OF COMBINATION AND PRESENTATION Kent Optical Co. and Affiliates (the "Company") manufacture, distribute, and sell eyewear and related products and services. The combined financial statements include the accounts of Kent Optical Co. and affiliated companies after elimination of material intercompany accounts and transactions. Kent Optical Co. and affiliated companies are owned and managed by a common shareholder group who have entered into shareholder agreements restricting the transfer of shares outside the group and who have agreed to make decisions in unison. The companies include: CUSTOM OPTICS, INC. An affiliated company which manufactures eyewear. KENT OPTICAL CO., SOURCE OPTICAL SUPPLY, INC., KENT NW GRAND RAPIDS INC., KENT HACKLEY, INC., HALE OPTICAL, INC., AND JACKSON OPTICAL CO. Companies which sell eyewear and related products and services. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, cash and cash equivalents consist of cash in banks. (b) FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these items. The carrying amount of other long- term maturities approximates fair value. The carrying amount of the Company's line of credit approximated fair value because the borrowing rate changes with market interest rates. (c) REVENUE RECOGNITION Revenue and the related costs from the sale of eyewear are recognized at the time an order is complete. Revenue from eye care services is recognized when the service is performed. The Company has fee for service arrangements with most of its third party payors. Revenue is reported net of contractual allowances. (d) INVENTORIES Inventories primarily consist of the costs of eyeglass frames, contact lenses, ophthalmic lenses, sunglasses and other optical products and are valued at the lower of cost (using first-in, first-out method) or market. (Continued) 7 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999 (e) ADVERTISING Advertising costs are expensed as incurred. (f) PROPERTY AND EQUIPMENT Property and equipment is stated at cost. The Company provides for depreciation at the time the property and equipment is placed in service. The straight-line method is used over the estimated useful life of the assets ranging from 3 to 10 years. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of may not be recoverable. Recoverability of property and equipment is measured by a comparison of the carrying amount of the related asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (g) INTANGIBLE ASSETS Intangible assets resulting from business acquisitions consist of non- competition agreements, customer lists, goodwill and tradenames. Intangible assets are amortized on a straight-line basis over a period of 5 to 15 years. The Company assesses the recoverability of unamortized intangible assets on an on-going basis by comparing anticipated operating profits and future, undiscounted cash flows to net book value. In performing this analysis, management considers such factors as current results, trends, and future prospects, in addition to other economic factors. (h) INCOME TAXES Kent Optical Co., Source Optical Supply, Inc., Jackson Optical Co., and Hale Optical, Inc. are subject to federal income taxes. The remaining affiliated companies are taxed as S corporations under provisions of the Internal Revenue Code, which provides that, in lieu of corporation income taxes, the shareholders are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes is presented in these combined financial statements for the remaining affiliated companies. (i) USE OF ESTIMATES The preparation of combined financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results may differ from those estimates. (Continued) 8 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999 (3) PROPERTY AND EQUIPMENT Property and equipment consists of the following:
Leasehold improvements $ 259,373 Equipment 671,860 Office equipment 329,103 Transportation equipment 30,276 Computers and software 101,016 ---------- 1,391,628 Less accumulated depreciation (990,737) ---------- Net property and equipment $ 400,891 ==========
(4) INTANGIBLE ASSETS Intangible assets consists of the following:
Non-competition agreements $ 285,087 Customer lists 150,250 Goodwill 243,090 Tradenames 95,000 ---------- 773,427 Less accumulated amortization (248,132) ---------- Net intangible assets $ 525,295 ==========
(5) INCOME TAXES Income tax benefit attributable to loss from operations differed from the amounts computed by applying the U.S. federal income tax rate of 34 percent as a result of the following:
NINE-MONTHS ENDED 3/31/99 - ------------------------------------------------------------ --------- Computed "expected" tax benefit $ 16,963 Increase in tax benefit resulting from: "S" corporation earnings excluded from Income 127,975 Decrease in tax benefit resulting from: Other (14,805) Increase in valuation allowance for deferred tax assets (130,133) --------- $ -- =========
(Continued) 9 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999 The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset are presented below:
NINE-MONTHS ENDED 3/31/99 - ----------------------------------------------- -------- Deferred tax assets: Net operating loss carryforwards $ 88,922 Bad debt reserve 85,000 Amortization differences 18,194 --------- Gross deferred tax assets 192,116 Valuation allowance under SFAS 109 (161,201) --------- Net deferred tax assets 30,915 Less deferred tax liabilities: (30,915) --------- Net deferred tax $ -- =========
A valuation allowance in the amount of $161,201 was established on March 31, 1999. This allowance has been established due to the uncertainty in the ability of the Company to benefit from the net deferred tax assets. The net operating loss carryforwards ("NOLs") for federal tax purposes at March 31, 1999 are approximately $262,000 and expire in various amounts through 2019. (6) LINE OF CREDIT Kent Optical Co. has a $250,000 line of credit with a bank at prime plus one half percent (8.50% at March 31, 1999). The outstanding balance under the line of credit was $120,000 at March 31, 1999 and is due September 1999. Assets of the Company and personal guarantees of the shareholders secure the line of credit. (7) ACCRUED EXPENSES Accrued expenses consist of the following:
Accrued sales tax $ 72,088 Payroll and related costs 70,739 Other 134,814 ------- Total accrued expenses $277,641 =======
(Continued) 10 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999
(8) DEBT 8.35% bank note payable in monthly installments of $6,185 including interest; final payment of $142,300 due October 2003 $ 373,238 9.5% bank note payable in monthly installments of $2,424 including interest; final payment due March 2002 70,574 9.5% bank note payable in monthly installments of $2,515 including interest; final payment due July 2001 62,861 7.9%-10.5% equipment notes payable in monthly installments of $1,944 including interest; final payments due through September 2002 29,406 10% capital leases payable in monthly installments of $918 including interest; final payments due through December 2000 11,407 8% promissory note due to individual, payable in monthly installments of $3,579 including interest; final payment due April 2007 255,062 8.00% - 10% promissory notes due to individuals, payable in monthly installments of $3,141 including interest; final payments due through November 2007 213,777 8.0% promissory notes due to unaffiliated company, payable in monthly installments of $2,230 including interest; final payments due through January 2003 82,139 9% shareholder note payable in monthly installments of $3,000 plus interest; final payment due January 2002 102,000 Note payable with imputed interest at 9% in connection with the purchase of the assets of a retail optical business due 2006 41,345 Notes payable with imputed interest at 9% in connection with non-competition agree- ments with monthly installments of $2,200; final payments due through August 2010 159,661 ---------- 1,401,470 Less current maturities 225,394 ---------- Long term debt, less current maturities $1,176,076 ==========
Long-term debt is secured by substantially all the assets of the Company and is guaranteed by the shareholders of the Company. (Continued) 11 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999 Aggregate maturities of long-term debt for the years ended March 31, 1999 through 2004 and thereafter are as follows:
YEAR ENDING MARCH 31, AMOUNT ----------- ---------- 2000 $ 225,394 2001 200,331 2002 221,353 2003 176,502 2004 244,660 Thereafter 333,230 ---------- Total long-term debt $1,401,470 ==========
(9) SHAREHOLDERS' EQUITY The following is a schedule of corporate stock authorized and issued and outstanding at March 31, 1999:
COMMON STOCK SHARES ------------------- ISSUED AND AUTHORIZED OUTSTANDING PAR VALUE ---------- ----------- --------- Kent Optical Co. 50,000 21,840 $1 Custom Optics, Inc. 60,000 2,000 -- Source Optical Supply, Inc. 3,000 3,000 -- Kent NW Grand Rapids, Inc. 50,000 10,000 1 Kent Hackley, Inc. 50,000 10,000 -- Hale Optical, Inc. 60,000 1,000 -- Jackson Optical Co. 100,000 5,000 1
During the nine-month period ended March 31, 1999, the shareholders made contributions to capital in the amount of $33,640. (Continued) 12 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999 (10) COMMITMENTS AND RELATED PARTY TRANSACTIONS (a) RELATED PARTY LEASES The Company conducts certain operations in facilities owned by real estate partnerships controlled by the shareholders of the Company. The rental agreements expire at various dates through May 2003 and provide for monthly rentals of $14,500 plus occupancy expenses. Rent expense for the nine months ended March 31, 1999 was approximately $130,500. In addition, the Company leases a facility owned by a relative of the Company shareholder. This lease expires November 2007 and requires monthly rentals of $7,000 plus occupancy expenses. Rent expense for the nine months ended March 31, 1999 was $63,000. (b) OTHER LEASES The Company leases additional facilities from unrelated parties. These leases expire at various dates through October 2003 and require monthly rentals of approximately $34,300 plus occupancy expenses. Rent expense for these facilities for the nine months ended March 31, 1999 was approximately $308,500. (c) MINIMUM LEASE PAYMENTS The following is a schedule of future minimum lease payments required under the above operating leases as of March 31, 1999:
YEAR ENDING RELATED OTHER MARCH 31 TOTAL PARTIES LEASES ----------- ---------- --------- --------- 2000 $ 848,416 258,000 590,416 2001 597,975 221,700 376,275 2002 475,261 211,800 263,461 2003 311,303 192,000 119,303 2004 147,369 102,000 45,369 Thereafter 308,000 308,000 -- ---------- --------- --------- $2,688,324 1,293,500 1,394,824 ========== ========= =========
(Continued) 13 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999 (d) CONTINGENT LEASES Some of the lease agreements provide for contingent rental payments based upon 20-25 percent of revenues. Rent expense attributed to these leases for the nine months ended March 31, 1999 was approximately $213,000. (11) PENSION PLAN The Company maintains a 401(k) profit-sharing plan, covering substantially all employees, which provides for partial matching contributions of employee elective deferrals. A matching contribution of approximately $6,300 was made for the nine months ended March 31, 1999. (12) CONTINGENCIES (a) SALES TAX The State of Michigan completed an examination of Kent Optical Co., Kent NW Grand Rapids, Inc. and Kent Hackley, Inc. (Kent) tax returns for prior fiscal years ending through April 30, 1996, and the State of Michigan made a determination that Kent was liable for approximately $65,000 in sales tax and interest. Kent disagreed with the audit determination and requested an informal conference with a Department of Treasury referee. Kent received an unfavorable decision from the Department of Treasury referee. Kent has filed an appeal for which a hearing date has yet to be scheduled. The Company has provided for the aforementioned liability at March 31, 1999. (b) PURCHASE AGREEMENT The Company entered into an agreement dated August 1, 1996 to purchase the assets of a retail optical business. Terms of the agreement state that payments to the seller begin ten (10) years from the date of the contract and continue for one hundred twenty (120) months. The purchase price is determined through a formula based on the three calendar years immediately preceding the commencement of monthly payments. The seller can accelerate the start of monthly payments, but such payments shall not commence sooner than sixty (60) months from the date of the contract. The agreement states the total purchase price based upon the formula, shall in no event be less than $72,195. Also, until the purchase price is paid in full, the Company cannot engage in certain transactions if it would reduce the gross receipts for purposes of the above formula, including but not limited to, merging or consolidating with any other corporation or reorganizing its capital structure. These transactions could cause the entire purchase price to become immediately due. Based upon the above formula, for the period August 1, 1996 through March 31, 1999, the liability currently reported as $72,195 would be approximately $116,775 if the purchase price became immediately due. (Continued) 14 KENT OPTICAL CO. AND AFFILIATES Notes to Combined Financial Statements March 31, 1999 (13) CONCENTRATION OF CREDIT RISK The Company sells its products and services to customers primarily in West Michigan. The Company performs ongoing credit evauluations of it significant commercial customers and, generally, requires no collateral from its customers. The Company maintains its cash balances in one financial institution located in West Michigan. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Company's uninsured cash balances, per bank records, may exceed the FDIC limit from time to time. (14) STOCK PURCHASE AGREEMENTS There are various agreements between Kent Optical Co. and affiliates, the majority shareholders, and the minority shareholders regarding the purchase and/or sale of the outstanding stock of the companies in the event of death or disability. The agreements provide for a purchase price and payment terms over a period of five to seven years. The Company has life insurance to reduce its obligations under these agreements. The agreement also restricts the sale, transfer, pledge, or other disposal of the Company's stock by its shareholders. (15) SUBSEQUENT EVENT On April 22, 1999, Sight Resource Corporation (Sight) purchased all the stock of the Company for approximately $7,000,000. As a result, Sight assumed all of the assets and liabilities of the Company. The financial statements do not reflect any adjustments related to the acquisition. 15 EX-99.11 3 PRO FORMA CONSOLIDATED BALANCE SHEET EXHIBIT 99.11 SIGHT RESOURCE CORPORATION PROFORMA CONSOLIDATED BALANCE SHEET MARCH 27, 1999 (In Thousands, Except Share and Per Share Data)
SRC PURCHASE PRO FORMA CONSOLIDATED KENT ADJUSTMENTS (5) CONSOLIDATED ----------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 954 $ 200 $ 385 $ 1,539 Accounts receivable, net of allowance of $1,395 3,386 748 4,134 Inventories 5,007 899 (100) 5,806 Prepaid expenses and other current assets 560 34 594 ---------------------------------------------------------- Total current assets 9,907 1,881 285 12,073 ---------------------------------------------------------- Property and equipment 14,748 1,392 16,140 Less accumulated depreciation (8,700) (991) (9,691) ---------------------------------------------------------- Net property and equipment 6,048 401 0 6,449 ---------------------------------------------------------- Other Assets: Intangible assets, net 17,278 511 6,883 24,672 Other assets 967 14 981 ---------------------------------------------------------- Total other assets 18,245 525 6,883 25,653 ---------------------------------------------------------- $34,200 $2,807 $7,168 $44,175 ========================================================== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Revolver notes payable $ 745 $ 120 $ 275 $ 1,140 Current portion of long term debt 388 225 593 1,206 Current portion of capital leases 49 49 Accounts payable 2,618 550 3,168 Accrued expenses 3,540 278 565 4,383 ---------------------------------------------------------- Total current liabilities 7,340 1,173 1,433 9,946 ---------------------------------------------------------- Non-current liabilities: Long term debt, less current maturities 763 1,176 5,580 7,519 Capital leases 19 19 Other liabilities 166 166 ---------------------------------------------------------- Total non-current liabilities 948 1,176 5,580 7,704 ---------------------------------------------------------- Series B redeemable convertible preferred stock 1,452,119 shares issued 6,535 6,535 Stockholders' equity: Preferred stock, $.01 par value. Authorized 5,000,000 shares; no shares of Series A issued and outstanding. Common stock, $.01 par value. Authorized 20,000,000 shares; issued 9,091,552. 91 37 (35) 93 Additional paid-in capital 37,518 433 200 38,151 Treasury stock at cost, 30,600 shares. (137) (137) Unearned compensation (17) (17) Accumulated earnings/(deficit) (18,078) (12) (10) (18,100) ---------------------------------------------------------- Total stockholders' equity 19,377 458 155 19,990 ---------------------------------------------------------- $34,200 $2,807 $7,168 $44,175 ========================================================== See accompanying notes to the consolidated financial statements. The above unaudited pro forma financial information reflects certain adjustments, including amortization of goodwill, interest expense from acquisition-related debt, 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 acquisition taken place at the beginning of 1998 and is not necessarily indicative of results that may be obtained in the future.
1 SIGHT RESOURCE CORPORATION PROFORMA INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 27, 1999 (In Thousands, Except for Per Share Amounts)
SRC PURCHASE PRO FORMA CONSOLIDATED KENT ADJUSTMENTS CONSOLIDATED --------------------------------------------- -------------- Net Revenue $15,764 $2,555 $18,319 Cost of Revenue 5,013 1,128 6,141 ----------------------------------------- ---------------- Gross Margin 10,751 1,427 0 12,178 Selling, General and Admin Expenses 10,194 1,878 70 (2) 12,142 ----------------------------------------- ---------------- Income/(Loss) from Operations 557 (451) (70) 36 Other Income (Expense): Interest Income 42 42 Interest Expense (82) (36) (114)(1) (232) Write Off of Deferred Financing Costs (323) (323) ----------------------------------------- --------------- Total Other Income (363) (36) (114) (513) ----------------------------------------- --------------- Income/(Loss) Before Income Taxes 194 (487) (184) (477) Income Tax Expense 21 0 0 (4) 21 Net Income/(Loss) $ 173 $ (487) $(184) $ (498) ========================================= =============== Basic Loss Per Common Share $0.02 $(0.05) ================= =============== Weighted Average Number of Common Shares Outstanding 9,061 160 (3) 9,221 ================= ============ =============== See accompanying notes to the consolidated financial statements. The above unaudited pro forma financial information reflects certain adjustments, including amortization of goodwill, interest expense from acquisition-related debt, 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 acquisition taken place at the beginning of 1998 and is not necessarily indicative of results that may be obtained in the future.
2 SIGHT RESOURCE CORPORATION PROFORMA INCOME STATEMENT YEAR ENDED DECEMBER 31, 1998 (In Thousands, Except for Per Share Amounts)
SRC PURCHASE PRO FORMA CONSOLIDATED KENT ADJUSTMENTS CONSOLIDATED ---------------------------------------------------------------- ---------------- Net Revenue $54,971 $10,206 $65,177 Cost of Revenue 18,991 3,534 22,525 ----------------------------------------------------------- ---------------- Gross Margin 35,980 6,672 0 42,652 Selling, General and Admin Expenses 37,036 6,179 282 (2) 43,497 ----------------------------------------------------------- ---------------- Income/(Loss) from Operations (1,056) 493 (282) (845) Other Income (Expense): Interest Income 184 184 Interest Expense (201) (129) (457)(1) (787) Gain on Sale of Assets 158 158 ----------------------------------------------------------- ---------------- Total Other Income 141 (129) (457) (445) ----------------------------------------------------------- ---------------- Income/(Loss) Before Income Taxes (915) 364 (739) (1,290) Income Tax Expense 70 10 0 (4) 80 Net Income/(Loss) $ (985) $354 $(739) $(1,370) =========================================================== ================ Basic Loss Per Common Share $ (0.11) $ (0.15) ================= ================ Weighted Average Number of Common Shares Outstanding 8,867 160 (3) 9,027 ================= ===================== ================ See accompanying notes to the consolidated financial statements. The above unaudited pro forma financial information reflects certain adjustments, including amortization of goodwill, interest expense from acquisition-related debt, 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 acquisition taken place at the beginning of 1998 and is not necessarily indicative of results that may be obtained in the future.
3 SIGHT RESOURCE CORPORATION NOTES TO PROFORMA FINANCIAL STATEMENTS
(1) To record the interest expense on approximately $6.6 million of debt used to finance the acquisition and retire approximately $1.3 million of assumed debt. (2) To record an estimate of the amortization of the excess of purchase price over the fair market value of assets acquired of approximately $7.0 million. (3) To record additional shares issued in the acquisition as outstanding since the beginning of the period presented. (4) Any proforma taxes would primarily relate to state taxes as the Company has loss carryforwards and Kent Optical was an S Corporation. Estimate is minimal. (5) To record the acquisition of Kent Optical.
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