As filed with the Securities and Exchange Commission on November 20, 2001
Registration No. _____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUPER VISION INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Delaware 7389 59-3046866
- ------------------------------ ------------------------------ ----------------
(State or Jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) I. D. number)
Super Vision International, Inc.
8210 Presidents Drive
Orlando, Florida 32809
(407) 857-9900
(Address and telephone number
of principal executive offices and
principal place of business)
----------
Brett M. Kingstone, President
Super Vision International, Inc.
8210 Presidents Drive
Orlando, Florida 32809
(407) 857-9900
(Name, address and telephone number
of agent for service)
----------
Copies to:
Suzan A. Abramson, Esquire
Katz, Kutter, Haigler, Alderman Bryant & Yon, P.A.
111 N. Orange Avenue, Suite 900
Orlando, Florida 32801
(407) 841-7100
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number or the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number or the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Title of Each Amount to be Proposed Proposed Amount of
------------- ------------ -------- -------- ---------
Class of Registered Maximum Maximum Registration Fee
-------- ---------- ------- ------- ----------------
Securities to be Offering Price Per Aggregate Offering
---------------- ------------------ ------------------
Registered Share Price
---------- ----- -----
Class A Common 249,480 $ 5.53/(1)/ $1,379,624.40 $ 344.91
Stock, $.001 Par 28,918 $ 5.53/(2)/ $ 159,916.54 $ 39.98
Value 149,688 $ 8.02/(2)/ $1,200,497.80 $ 300.12
------- ------------- --------
Total 428,086 $2,740,038.70 $ 685.01
(1) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act based upon the average of
the high and low sales prices of our Class A Common Stock on November 15,
2001, as reported by the Nasdaq SmallCap Market.
(2) Reflects shares of Class A Common Stock issuable upon exercise of warrants.
The proposed maximum offering price per share was calculated in accordance
with Rule 457(g) under the Securities Act.
Pursuant to Rule 416, this Registration Statement includes such
indeterminate number of additional shares as may be required for issuance upon
the exercise of the warrants as a result of any adjustment in the number of
shares issuable by reason of the anti-dilution provisions of the warrants.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[SUBJECT TO COMPLETION - DATED NOVEMBER 20, 2001]
SUPER VISION INTERNATIONAL, INC.
428,086 SHARES OF CLASS A COMMON STOCK
_______________
The Super Vision International, Inc. stockholder listed in the table
included in the "Selling Stockholder" section of this prospectus, which begins
on page 32, is offering for sale all of the shares of our Class A Common Stock,
par value $.001 per share, covered by this prospectus. The 428,086 shares of
Class A Common Stock covered by this prospectus include both outstanding shares
and shares issuable pursuant to the exercise of warrants held by the selling
stockholder. The selling stockholder must first exercise the warrants and
acquire the underlying shares of Class A Common Stock before they can resell
those shares under this prospectus.
The prices at which the selling stockholder may sell the shares will be
determined by the prevailing market prices for the shares or in negotiated
transactions. Super Vision will not receive any of the proceeds from the sale of
the shares of Class A common stock by the selling stockholder. We will, however,
receive an indeterminate amount of proceeds if all of the warrants issued to the
selling stockholder are exercised.
We have two classes of common stock outstanding, Class A common stock and
Class B common stock. The Class A common stock and Class B common stock are
identical in all respects except that the Class B common stock has five votes
per share while the Class A common stock has one vote per share. Further, the
Class B common stock is convertible into Class A common stock on a share-for-
share basis and has limited transferability.
INVESTMENT IN OUR CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Trading in our Class A common stock is conducted on the Nasdaq SmallCap
Market under the symbol "SUPVA". On November 15, 2001, the closing price of the
Class A common stock on the Nasdaq SmallCap Market was $5.60.
_______________
The date of this prospectus is ________________, 2001.
_______________
TABLE OF CONTENTS
-----------------
ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION................................ 2
PROSPECTUS SUMMARY........................................................................... 3
RISK FACTORS................................................................................. 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................................ 11
USE OF PROCEEDS.............................................................................. 12
MARKET PRICES OF CLASS A COMMON STOCK........................................................ 12
CAPITALIZATION............................................................................... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 13
DESCRIPTION OF BUSINESS...................................................................... 17
MANAGEMENT................................................................................... 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................... 29
DESCRIPTION OF SECURITIES.................................................................... 31
SELLING STOCKHOLDER.......................................................................... 32
PLAN OF DISTRIBUTION......................................................................... 34
LEGAL MATTERS................................................................................ 35
EXPERTS...................................................................................... 35
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus constitutes an offer to sell or a
solicitation to buy shares only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery or of any sale
of Class A common stock.
ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION
-------------------------------------------------------------
In this prospectus, unless the context otherwise requires, "Super Vision,"
"we," "our," "us," the "company" and similar expressions refer to Super Vision
International, Inc., a Delaware corporation, and its subsidiary, but not to the
selling stockholder identified under the caption "Selling Stockholder."
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or the SEC. You may
inspect and copy these materials at the public reference facilities maintained
by the SEC at:
Judiciary Plaza Citicorp Center
Room 1024 500 West Madison Street
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
You also may obtain copies of these materials from the SEC at prescribed
rates by writing to the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more
information on the operation of the public reference rooms. You also can find
our SEC filings at the SEC's website at http://www.sec.gov.
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, or the Securities Act, with respect to the
shares of Class A common stock offered in this prospectus. This prospectus is
part of that registration statement and, as permitted by the SEC's rules, does
not contain all of the information set forth in the registration statement. For
further information about our common stock, and us, we refer you to those copies
of contracts or other documents that have
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been filed as exhibits to the registration statement. Statements relating to
such documents are qualified in all respects by such reference. You can review
and copy the registration statement and its exhibits and schedules from the SEC
at the addresses listed above or from its Internet site.
PROSPECTUS SUMMARY
------------------
This summary highlights certain information we present more fully in the
rest of this prospectus. We encourage you to read the entire prospectus
carefully.
Super Vision International, Inc.
We are a world leader in the design and manufacture of LED and fiber optic
lighting products, signs and displays for applications in the signage, swimming
pool, architectural, and retail industries. We derive our revenues primarily
from sales of SIDE-GLOW(R) and END-GLOW(R) fiber optic lighting cables, and
fiber optic lighting sources, accessories, endpoint signs and displays. We also
design, market and sell fiber optically lit waterfalls and water features. We
market and distribute our products primarily through a network of independent
sales representatives and distributors.
Our SIDE-GLOW(R) fiber optic lighting cable utilizes a patented center
core in the manufacturing process to produce a plastic cable which, used in
conjunction with a halogen or metal-halide light source, emits light along its
entire length. We market our SIDE-GLOW(R) cable as an alternative to neon
lighting for indoor and outdoor architectural accents and large signs and
displays. Our SIDE-GLOW(R) fiber optic lighting cable is flexible and easy to
install, is not prone to the breakage associated with glass neon tubes and is
energy efficient, providing significant savings in electrical costs. In
addition, unlike neon, which remains a constant color, the light source for our
fiber optic lighting cable makes the cable capable of changing color. While our
fiber optic lighting products cannot yet achieve neon's level of brightness and
are generally more costly to purchase and install, we believe the benefits of
our SIDE-GLOW(R) cable outweigh these factors for a large segment of the current
neon market.
During the first half of 2001, we introduced a new line of lighting
products using LED technology for signs, safety/warning lamps, lighting strips,
swimming pools and spas, architectural lighting, or wherever a small light
source is required. Our FlexLED product was designed specifically for
illuminating channel letters.
Our "point-to-point" fiber optic lighting products employ fiber optic
strands to create signs and other types of displays in virtually unlimited
shapes, sizes, designs and colors using fiber optic end points to illuminate a
logo or other image. These products have been incorporated in point of purchase
signs, outdoor advertising, trade shows and interior displays by numerous
theatres, restaurants, nightclubs, hotels and other businesses.
Super Vision was incorporated in Delaware in December 1993 and is the
successor by merger to a Florida corporation of the same name which was
incorporated in January 1991. Our principal executive offices are located at
8210 Presidents Drive, Orlando, Florida 32809, and our telephone number is (407)
857-9900.
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The Offering
Class A Common Stock Offered.............. 428,086 shares/(1)/
Class A Common Stock Outstanding as of
September 30, 2001...................... 2,082,610 shares/(2)/
NASDAQ SmallCap Symbol.................... Class A Common Stock SUPVA
/(1)/ Of the shares of Class A common stock being offered by the selling
stockholder, an aggregate of 178,606 shares are subject to warrants under
which we will receive an indeterminate amount of proceeds if all of the
warrants are exercised in full.
/(2)/ Does not include an aggregate of 438,875 shares issuable upon the exercise
of warrants. There can be no assurance that any such warrants will be
exercised. Does not include (i) 450,000 shares issuable upon the exercise
of options granted or available for grant under the Company's 1994 Stock
Option Plan, as amended and restated or (ii) 483,264 shares of Class B
common stock automatically convertible into an equivalent number of shares
of Class A common stock upon the sale or transfer of the Class B shares.
Summary Consolidated Financial Data
The following table sets forth our summary consolidated financial data.
This table does not represent all of our financial information. You should read
this information together with our financial statements and the notes to those
statements beginning on page F-1 of this prospectus and the information under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.
Statement of Operations Data
Year Ended December 31, Nine Months Ended September 30,
----------------------- -------------------------------
2000 1999 2001 2000
---- ---- ---- ----
(unaudited) (unaudited)
Revenues $ 11,654,167 $ 9,809,260 $8,786,708 $7,648,531
Costs and expenses (11,696,267) (9,849,860) 9,268,486 7,857,323
Net loss (259,211) (355,741) (698,842) (333,902)
Net loss per common share (0.10) (0.14) (0.27) (0.13)
Balance Sheet Data:
December 31, 2000 September 30, 2001
----------------- ------------------
(unaudited)
Working Capital $ 6,010,293 $ 5,584,301
Total Assets 12,511,760 11,653,555
Total Liabilities 4,558,622 4,336,068
Stockholders' equity 7,953,138 7,317,487
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RISK FACTORS
------------
Any investment in our Class A common stock involves a high degree of risk.
You should carefully consider the following risks relating to our business and
our Class A common stock, together with the other information described
elsewhere in this prospectus. If any of the following risks actually occur, our
business could be materially affected, the trading price of our Class A common
stock could decline, and you might lose all or part of your investment. The
risks and uncertainties described below are, however, not the only ones facing
us. Additional risks and uncertainties not currently known to us or that we
currently consider immaterial may also impair our operations.
We Have a History of Operating Losses and May Not be Able to Operate Profitably
We have experienced annual losses of ($259,211), ($355,741) and
($1,541,478) for each of the years ended December 31, 2000, 1999 and 1998,
respectively. Our net loss for the nine months ended September 30, 2001 was
($698,842). Our company faces significant challenges in order to reach
profitability. Some of these challenges are discussed in detail in these Risk
Factors. In order for our company to be successful and to grow, we will need to
successfully address these challenges. Most of our expenses are fixed in nature,
and we generally are unable to reduce our expenses significantly in the short-
term to compensate for any unexpected delay or decrease in anticipated revenues.
As a result, we may continue to experience losses on a quarterly or annual
basis, which could cause the market price of our Class A common stock to
decline.
General Economic and Industry Conditions May Effect Our Business
Any general economic, business or industry conditions that cause customers
or potential customers to reduce or delay their purchases of lighting products,
signs or displays could have a material adverse effect on our business,
prospects and financial performance. Worldwide economic conditions could have an
effect on the demand for our products and could result in declining revenue and
earnings. The U.S. economy has been softening since the end of 2000. If this
trend continues, as appears likely, we may experience difficulties collecting
accounts receivable, sales and demand for our products may decrease, and our
operating results will probably suffer.
Our Quarterly Operating Results Fluctuate as a Result of Many Factors
Our quarterly revenues and operating results have fluctuated and are likely
to continue to vary from quarter to quarter due to a number of factors, many of
which are not within our control. Factors that could affect our revenues
include, among others, the following:
. competitive factors, such as competitive pricing pressure and the
potential introduction of new products by competitors;
. manufacturing factors, including constraints in our manufacturing and
assembly operations and shortages or increases in the prices of raw
materials and components;
. sales and distribution factors, such as changes in product mix or
distribution channels resulting in lower margins, increases in sales and
marketing expenses, the loss of a significant distributor or sales
representative, and seasonality of sales;
. product development and introduction problems, such as increased
research, development and marketing expenses associated with new product
introductions, delays in the introduction of new products and
technologies, and adverse effects on sales of existing products;
. our ability to control costs, including levels of expenses relative to
revenue levels;
-5-
. our ability to develop, introduce, market and gain market acceptance of
new products and product enhancements in a timely manner;
. the size, timing, rescheduling or cancellation of significant customer
orders;
. changes in our pricing policies and the pricing policies of our
suppliers and competitors, pricing concessions on volume sales, as well
as increased price competition in general;
. our success in expanding and implementing our sales and marketing
programs;
. our relatively small level of backlog at any given time;
. the mix of sales among our products;
. deferrals of customer orders in anticipation of new products, or product
enhancements;
. risks and uncertainties associated with our international business;
. expenses that may be incurred in litigation;
. personnel changes;
. currency fluctuations and our ability to get currency out of certain
foreign countries; and
. general economic and market conditions, including housing market trends,
interest rates and the weather.
In addition, our sales in any quarter may consist of a relatively small
number of large customer orders. As a result, the timing of a small number of
orders may impact our quarter-to-quarter results. The loss of, or a substantial
reduction in, orders from any significant customer could seriously harm our
business, financial condition and results of operations.
Our quarterly operating results are also substantially affected by the
market's acceptance of our products and the level and timing of orders received.
Significant portions of our expenses are relatively fixed in advance based upon
our forecasts of future sales. If sales fall below expectations in any given
quarter, our operating results will be adversely affected. In addition, certain
product development and marketing expenditures may vary significantly from
quarter to quarter and are made well in advance of potential resulting revenue.
Due to all of the factors listed above and other risks discussed in this
prospectus, our future operating results could be below the expectations of
securities analysts or investors. If that happens, the trading price of our
Class A common stock could decline. As a result of these quarterly variations,
you should not rely on quarter-to-quarter comparisons of our operating results
as an indication of our future performance.
If Fiber Optic Lighting Products Do Not Gain Wider Market Acceptance Our
Business and Financial Performance May Suffer
We derive our net sales and income primarily from selling SIDE-GLOW(R) and
END GLOW(R) fiber optic cables, light sources, lighting accessories, endpoint
signs and displays, and fiber optically lit waterfalls and water features. Our
fiber optic lighting products compete with traditional lighting technologies
such as neon and florescent lighting. Traditional lighting technologies have the
advantage of a long history of market acceptance and familiarity as compared to
our products. The initial purchase price of our fiber optic lighting products is
typically higher than conventional lighting, and our products tend to be less
bright than conventional alternatives. Our continued success will depend upon
increased acceptance of fiber optic lighting products as an alternative to neon
and other traditional lighting technologies. Our future results are dependent
upon continued growth of the fiber optic lighting market.
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As part of our sales and marketing strategy, we actively seek to educate our
target markets as to the advantages of fiber optic lighting systems. We believe
that achievement of this objective is critical to our future success. Fiber
optic lighting products may not continue to gain market share within the overall
lighting market or competitors may introduce better lighting technologies,
displacing fiber optic lighting products in the market. As a growth company,
either of these occurrences could have a material adverse effect on our
business, results of operations, and the value of our securities.
Our Sales are Dependent Upon New Construction Levels and are Subject to Seasonal
Trends
Sales of our lighting products depend significantly upon the level of new
building construction and renovation. Construction levels are affected by
housing market trends, interest rates and the weather. Sales of our pool and spa
lighting products depend substantially upon the level of new pool construction.
Because of the seasonality of construction, our sales of swimming pool and
lighting products, and thus our overall revenues and income, have tended to be
significantly lower in the first quarter of each year. Various economic and
other trends may alter these seasonal trends from year to year, and we cannot
predict the extent to which these seasonal trends will continue.
Our Future Success Depends on the Successful Development and Market Acceptance
of New Products.
We believe our revenue growth and future operating results will depend in
part on our ability to complete development of new products and enhancements to
existing products, introduce these products in a timely, cost-effective manner,
achieve broad market acceptance of these products and enhancements, and reduce
our product costs. We may not be able to introduce any new products or any
enhancements to our existing products on a timely basis, or at all. In addition,
the introduction of any new products could adversely affect the sales of certain
of our existing products. Market acceptance of our new products depends upon
many factors, including our ability to accurately predict market requirements
and evolving industry standards, our ability to resolve technical challenges in
a timely and cost-effective manner and achieve manufacturing efficiencies, the
perceived advantages of our new products over traditional products, and the
marketing capabilities of our independent distributors and strategic partners.
We Have Significant International Sales and Are Subject to Risks Associated with
Operating in International Markets
International product sales represented approximately 17% of our total
revenues for the year ended December 31, 2000 and approximately 26% for the year
ended December 31, 1999. We believe our international distributors are better
able to service international markets due to their understanding of local market
conditions and best business practices. International business operations are
subject to inherent risks, including, among others:
. unexpected changes in regulatory requirements, tariffs and other trade
barriers or restrictions;
. longer accounts receivable payment cycles;
. difficulties in managing and staffing international operations;
. potentially adverse tax consequences;
. the burdens of compliance with a wide variety of foreign laws;
. import and export license requirements and restrictions of the United
States and each other country in which we operate;
. exposure to different legal standards and reduced protection for
intellectual property rights in some countries;
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. currency fluctuations and restrictions; and
. political, social and economic instability.
Any of these factors may adversely effect our future international sales
and, consequently, our business and operating results. Furthermore, as we
increase our international sales, our total revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower sales that
typically occur during the summer months in Europe and other parts of the world.
We believe that international sales will continue to represent a
significant portion of our revenues, and that continued growth and profitability
may require further expansion of our international operations. Many of our
international sales are currently denominated in U.S. dollars. As a result, an
increase in the relative value of the dollar could make our products more
expensive and potentially less price competitive in international markets. We do
not engage in any transactions as a hedge against risks of loss due to foreign
currency fluctuations.
Competition is Increasing In a Number of Our Markets
The lighting industry is highly competitive. Our product lines span
major segments within the lighting industry and, accordingly, our products
compete in a number of different markets with a number of different competitors.
We compete with independent distributors, importers, manufacturers, and
suppliers of lighting fixtures and other consumer products. Our competitors
include some very large and well-established companies. Many of our competitors
have far greater name recognition and greater financial, technological,
marketing and customer service resources than we do. This may allow them to
respond more quickly to new or emerging technologies and changes in customer
requirements. It may also allow them to devote greater resources to the
development, promotion, sale and support of their products than we can. Our
competitors market products that compete with our products on the basis of price
and other factors. Some of these competitors do not maintain warehouse
operations or do not perform all of the services we provide, which requires us
to charge higher prices. The relatively low barriers to entry into the lighting
industry and the limited proprietary nature of many lighting products also
permit new competitors to enter the industry easily. Our ability to compete
successfully in this highly competitive market depends upon our ability to
manufacture and purchase quality components on favorable terms, ensure our
products meet safety standards, deliver our products promptly at competitive
prices, and provide a wide range of services. We anticipate that any future
growth in fiber optic lighting will be accompanied by continuing increases in
competition. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our business, financial condition and results of operations.
We May Not be Able to Adequately Protect or Enforce Our Intellectual Property
Rights
We consider our technology and procedures proprietary. If we are not
able to adequately protect or enforce the proprietary aspects of our technology,
competitors could be able to access our proprietary technology and our business,
financial condition and results of operations could be harmed. We currently
attempt to protect our technology through a combination of patent, copyright,
trademark and trade secret laws, employee and third party nondisclosure
agreements and similar means. Despite our efforts, other parties may attempt to
disclose, obtain or use our technologies. Our competitors may also be able to
independently develop products that are substantially equivalent or superior to
our products or design around our patents. In addition, the laws of some foreign
countries do not protect our proprietary rights as fully as do the laws of the
United States. As a result, we may not be able to protect our proprietary rights
adequately in the United States or abroad.
We may receive notices that claim we have infringed upon the
intellectual property of others. Even if these claims are not valid, they could
subject us to significant costs. We have engaged in litigation in the past, and
litigation may be necessary in the future to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. Litigation may also be necessary to defend against claims of
infringement or invalidity by others. An adverse outcome in litigation or any
similar proceedings could subject us to significant liabilities to third
parties, require us to license disputed
-8-
rights from others or require us to cease marketing or using certain products or
technologies. We may not be able to obtain any licenses on terms acceptable to
us, or at all. We also may have to indemnify certain customers or strategic
partners if it is determined that we have infringed upon or misappropriated
another party's intellectual property. Any of these results could adversely
affect our business, financial condition and results of operations. In addition,
the cost of addressing any intellectual property litigation claim, both in legal
fees and expenses, and the diversion of management resources, regardless of
whether the claim is valid, could be significant and could seriously harm our
business, financial condition and results of operations.
We Rely on Third Parties for a Significant Portion of Our Sales; Terms and
Conditions of Sales are Subject to Change With Very Little Notice
We rely significantly on indirect sales channels to market and sell our
products. Most of our products are sold through independent distributors and
agents. Our current agreements with indirect sales channels are non-exclusive
with regard to lighting products in general, but exclusive with respect to fiber
optic and LED lighting products. We anticipate that any such agreements we enter
into in the future will be on similar terms. Furthermore, our agreements are
generally short-term, and can be cancelled by these sales channels without
significant financial consequence. We cannot control how these sales channels
perform and cannot be certain that either our customers or we will be satisfied
by their performance. If these distributors and agents significantly change
their terms with us, or change their historical pattern of ordering products
from us, there could be a significant impact on our revenues and profits.
We Depend on Third-Party Suppliers
We depend on others to manufacture a significant portion of the component
parts we incorporate into our products. We purchase our component parts from
numerous third-party manufacturers and believe that numerous alternative sources
of supply are readily available for most component parts. We depend on our
suppliers to satisfy performance and quality specifications and to dedicate
sufficient production capacity for components within scheduled delivery times.
We do not maintain contracts with any of our suppliers; instead, we purchase our
components pursuant to purchase orders placed from time to time in the ordinary
course of business. This means we are vulnerable to unanticipated price
increases.
We purchase fiber optic strands from a single Japanese supplier. While we
believe alternative sources for fiber optic strands are available to enable us
to produce our endpoint signs and displays, the SIDE-GLOW(R) and END GLOW(R)
cables require fiber optic material of a higher quality than we believe is
currently available elsewhere. Accordingly, the loss of this supplier or delays
in obtaining shipments could have a material adverse effect on our operations
until such time as an alternative supplier could be found.
We may be subject to various import duties applicable to materials
manufactured in foreign countries and, in addition, may be affected by various
other import and export restrictions, as well as other considerations or
developments impacting upon international trade, including economic or political
instability, shipping delays and product quotas. These international trade
factors will, under certain circumstances, have an impact both on the cost of
components (which will, in turn, have an impact on the cost to us of the
manufactured product) and the wholesale and retail prices of our products.
We Depend on Key Employees in a Competitive Market for Skilled Personnel; the
Loss of the Services of any of our Key Employees Could Materially Affect our
Business
Our future success will depend to a large extent on the continued
contributions of certain key employees, many of whom would be difficult to
replace. Our success depends upon the continued contributions of Brett
Kingstone, our Chairman of the Board, President and Chief Executive Officer. Our
future success also will depend on our ability to attract and retain qualified
technical, sales, marketing and management personnel, for whom competition is
intense. The loss of, or failure to attract and retain, any such persons could
delay product development cycles, disrupt our sales and marketing functions,
disrupt our operations, or otherwise harm our business or results of operations.
-9-
Our Business is Subject to Additional Risks that Could Materially and Adversely
Affect Our Future Business, Including:
. manufacturing risks, including the risks of shortages in materials or
components necessary to our manufacturing and assembly operations, and
the risks of increases in the prices of raw materials and components;
. sales and distribution risks, such as risks of changes in product mix or
distribution channels that result in lower margins;
. risks of the loss of a significant customer;
. risks of the effects of volume discounts that we grant from time to time
to our larger customers, including reduced profit margins; and
. risks of product returns and exchanges; we cannot be assured that we
will not experience component problems in the future that could require
increased warranty reserves and manufacturing costs.
Our President and Chief Executive Officer Controls a Significant Percentage of
Our Common Stock
On September 30, 2001, Brett M. Kingstone, our Chairman of the Board,
President and Chief Executive Officer, owned beneficially approximately 14% of
our outstanding common stock, including all of the outstanding shares of our
Class B Common Stock. Mr. Kingstone has approximately 57% of the voting power of
our outstanding shares and is able to control all matters requiring stockholder
approval, including election of directors and approval of significant corporate
transactions. This concentration of ownership, which is not subject to any
voting restrictions, could limit the price that investors might be willing to
pay for our Class A common stock. In addition, Mr. Kingstone is in a position to
impede transactions that may be desirable for other stockholders. He could, for
example, make it more difficult for anyone to take control of us.
The Trading Price of Our Class A Common Stock is Volatile
The trading price of our Class A common stock has been subject to wide
fluctuations in the past. Since January 2000, our Class A common stock has
traded at prices as low as $5.50 per share and as high as $9.88 per share. We
may not be able to increase or sustain the current market price of our Class A
common stock in the future. As such, you may not be able to resell your shares
of Class A common stock at or above the price you paid for them. The market
price of our Class A common stock could continue to fluctuate in the future in
response to various factors, including, but not limited to:
. quarterly variations in operating results;
. our ability to control costs and improve cash flow;
. shortages announced by suppliers;
. acquisitions of businesses, products or technologies;
. changes in pending litigation or new litigation;
. changes in investor perceptions;
. introduction of new products or product enhancements by us or by our
competitors; and
. changes in earnings estimates or investment recommendations by
securities analysts.
-10-
The stock market in general has recently experienced volatility, which has
particularly affected the market prices of equity securities of many high
technology companies. This volatility has often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our Class A common stock. In the past, companies that
have experienced volatilities in the market price of their securities have been
the subject of securities class action litigation. If we were to become the
subject of a class action lawsuit, it could result in substantial losses and
divert management's attention and resources from other matters.
Our Stock Structure and Certain Anti-Takeover Provisions May Affect the Price of
Our Common Stock
Certain provisions of our certificate of incorporation could make it
difficult for a third party to acquire us, even though an acquisition might be
beneficial to our stockholders. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
Our Class A common stock entitles the holder to one vote per share and our Class
B common stock entitles the holder to five votes per share. The disparity in the
voting rights between our common stock, as well as Mr. Kingstone's beneficial
ownership of all of the Class B common stock, could discourage a proxy contest
or make it more difficult for a third party to effect a change in our management
and control. In addition, our Board of Directors is authorized to issue, without
stockholder approval, up to 5,000,000 shares of preferred stock with voting,
conversion and other rights and preferences superior to those of our common
stock, as well as additional shares of Class B common stock. Our future issuance
of preferred stock or Class B common stock could be used to discourage an
unsolicited acquisition proposal.
We Do Not Pay Cash Dividends
We have never paid cash dividends on our common stock and do not anticipate
paying any cash dividends on either class of our common stock in the foreseeable
future.
We May Be Subject to Additional Risks
The risks and uncertainties described above are not the only ones facing
our company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also adversely affect our business
operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
-------------------------------------------------
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "intend," "estimate" and "continue" or similar words.
You should read statements that contain these words carefully for the following
reasons:
. the statements discuss our future expectations;
. the statements contain projections of our future earnings or of our
financial condition; and
. the statements state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed above, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our class A common stock, you should be aware
that the occurrence of any of the events described in the above risk factors,
elsewhere in this prospectus and other events that we have not predicted or
assessed could have a material adverse effect on our earnings, financial
condition and business. If the events described above or other
-11-
unpredicted events occur, then the trading price of our Class A common stock
could decline and you may lose all or part of your investment.
USE OF PROCEEDS
---------------
The shares of our Class A common stock offered under this prospectus are
for the account of the selling stockholder. We will not receive any of the
proceeds from sales of the shares by the selling stockholder. However, 178,606
of the shares covered by this prospectus are subject to issuance by us pursuant
to the exercise of warrants. Warrants to purchase up to 149,688 shares have an
exercise price of $8.02 per share. We will not receive any proceeds from the
exercise of the remaining 28,918 warrants. Any cash proceeds we receive from the
exercise of these warrants would be used for general corporate purposes.
MARKET PRICES OF CLASS A COMMON STOCK
-------------------------------------
Our Class A common stock has been quoted in the Nasdaq SmallCap Market
under the symbol SUPVA since March 1994. The following table sets forth the high
and low bid prices for our Class A common stock as reported by the Nasdaq
SmallCap Market for the periods indicated.
Bid Prices
----------
High Low
---- ---
Year Ending
-----------
December 31,
------------
2001
----
First Quarter 7 5-1/2
Second Quarter 7-3/5 6-1/8
Third Quarter 7 5-3/4
Year Ended
----------
December 31,
------------
2000
----
First Quarter 9-7/8 6
Second Quarter 8-3/8 7-5/8
Third Quarter 8 7
Fourth Quarter 7-3/4 5-1/2
Year Ended
----------
December 31,
------------
1999
----
First Quarter 6-1/8 3-7/8
Second Quarter 6 4-5/8
Third Quarter 5-1/8 3-3/4
Fourth Quarter 6-1/2 4-1/8
As of November 7, 2001, we believe that there were approximately 575 holdes
of record of our Class A common stock.
We have never paid any cash dividends, and we do not intend to pay any cash
dividends on our Class A common stock for the foreseeable future. We intend to
reinvest our earnings, if any, in the growth and expansion of our business.
There are no restrictions that limit our ability to pay dividends or that are
likely to do so in the future.
-12-
CAPITALIZATION
--------------
The following table sets forth our capitalization as of September 30,
2001. The table should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
September 30, 2001
------------------
(unaudited)
Obligation under capital lease $ 2,994,419
Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued
Class A common stock, $.001 par value, authorized 16,610,866 shares,
2,082,610 issued and outstanding
at September 30, 2001 2,083
Class B common stock, $.001 par value, 3,389,134 shares
authorized, 483,264 issued and outstanding at
September 30, 2001 483
Accumulated other comprehensive loss (23,292)
Additional paid-in capital 10,597,336
Accumulated deficit (3,259,123)
--------------
Total stockholders' equity $ 7,317,487
--------------
Total capitalization $ 11,653,555
==============
===================================================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion and analysis should be read in conjunction
with our consolidated financial statements and notes thereto appearing elsewhere
in this prospectus.
Results of Operations
Year Ended December 31, 2000 compared to December 31, 1999
Revenues
Our revenues are derived primarily from sales of SIDE-GLOW(R) and END
GLOW(R) fiber optic cables and light sources, LED lighting products, lighting
accessories, endpoint signs and displays, and fiber optically lit waterfalls and
water features. Revenues for the year ended December 31, 2000 were approximately
$11,654,000 as compared to $9,809,000 during the preceding year, an increase of
approximately $1,845,000 or 19%. This increase was primarily the result of sales
growth in the pool and spa market, and the architectural market, which increased
87% and 29%, respectively, over 1999 levels. Both international and sign
revenues decreased 23% as compared to 1999.
We derived approximately 28% of our total revenues from Hayward Pool
Products, Inc. in 2000 compared to approximately 19% in 1999. Previously,
Hayward was the exclusive worldwide distributor of our fiber optic lighting
products in the swimming pool and spa market. On August 15, 2001, we reached an
agreement with Hayward terminating Hayward's exclusive distribution rights as of
September 30, 2001. Our agreement with Hayward allowed us to commence direct
selling of our fiber optic lighting products in the swimming pool and spa market
worldwide, except in the United States and Canada, as of August 15, 2001, and
within the United States and Canada as of October 1, 2001. Pursuant to our
agreement, Hayward has requested us to repurchase certain fiber optic lighting
products previously sold by us to Hayward. We are obligated to repurchase the
inventory at Hayward's cost of $300,000. We have agreed to pay Hayward $150,000
on or before December 31, 2001 and $150,000 on or before January 1, 2002. In
connection with exercising its option to request us to repurchase certain
inventory, Hayward has elected to forfeit and cancel warrants covering 49,896
shares of our Class A common stock.
-13-
The termination of Hayward's exclusive distribution rights also released Hayward
from any annual minimum purchase commitments for 2001 and beyond.
Gross Margin
Gross margin for the year ended December 31, 2000 increased to
approximately $3,736,000, a 7% increase over 1999. Our gross margin percentage
was 32% for the year ended December 31, 2000 as compared to 36% for 1999. Gross
margin is dependent, in part, on product mix, as well as our mix of customers,
which fluctuates from time to time. Our decrease in gross margin percentage was
mainly due to a lower mix of fiber optic cable sales and an increase in the
reserve for potentially slow moving or obsolete inventory. Cable sales accounted
for approximately 40% of total revenues for 2000, as compared to 49% for 1999.
The margin decline was further impacted by sales of approximately $1,318,000, or
28% of cable related products, to Hayward. As part of the now terminated
distribution agreement between our company and Hayward, Hayward received a
significant discount from list price. Excluding the increase in the inventory
reserve of approximately $111,000, gross margin for the year ended December 31,
2000 was approximately $3,847,000 or 33%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended
December 31, 2000 were approximately $3,323,000, or 29% of revenues, compared to
approximately $2,978,000, or 30% of revenues, for 1999, an increase of
approximately $345,000, or 12% over the preceding year. An increase in legal
fees relating to our prosecution of a patent infringement action with respect to
our fiber optic cable was the major contributing factor to the expense increase
over 1999.
Research and Development
Research and development costs were approximately $455,000 for the year
ended December 31, 2000 compared to approximately $544,000 for 1999, a decrease
of 16%. Research and development costs are expensed as incurred, primarily in
advance of any related sales and in some cases may not ultimately generate
sales. The decline from 1999 was primarily due to the cancellation of product
development efforts in mid 1999. Research and development expense represented
approximately 4% of revenues in 2000 as compared to 6% in 1999.
Interest
We had interest income for the year ended December 31, 2000 of
approximately $187,000 compared to approximately $131,000 for 1999 due to higher
average cash balances during the year. Interest expense of approximately
$439,000 for the year ended December 31, 2000 compared to approximately $444,000
for 1999 related to the capital lease for our facility in Orlando, Florida.
-14-
Income Tax
We have a full valuation allowance against income tax benefits
resulting from losses incurred on operations and, as a result, there was no
provision for income tax in 2000 or 1999.
Net Loss
Our net loss for the year ended December 31, 2000 was approximately
$(259,000), or $(0.10) per basic and diluted share, compared to a net loss of
approximately $(356,000), or $(0.14) per basic and diluted share, for 1999. The
decrease in the net loss was due to the increase in gross margin offset by
higher selling, general and administrative expense and lower non-operating
expenses.
Nine Months Ended September 30, 2001 compared to September 30, 2000
Total revenues for the nine months ended September 30, 2001 were
approximately $8,787,000 as compared to approximately $7,649,000 for the nine
months ended September 30, 2000 an increase of approximately $1,138,000 or 15%.
The increase was primarily the result of growth in the domestic architectural
lighting and international markets, up approximately $1,648,000 and $311,000,
respectively. Increased revenues in the architectural and international markets
were principally offset by reductions in the pool and sign markets of
approximately $1,080,000 and $298,000, respectively.
Gross margin for the nine months ended September 30, 2001 was
approximately $2,937,000 or 33% as compared to approximately $2,295,000 or 30%
for the nine months ended September 30, 2000. The increase in the amount of
gross margin over the comparable period in 2000 was mainly due to the increased
volume of domestic architectural lighting products. The increase in the gross
margin percentage from 30% to 33% was the result of enhancements to our sales
process, a lower mix of sales of pool related products to Hayward, and the
implementation of cost reductions in material components.
Going forward our focus continues to be on improving gross margin and
profitability. To that end, we intend to continue aggressively pursuing reducing
the cost of our key material components. We are in the process of sourcing
assembly of illuminators overseas, which we expect to have a favorable impact on
our overall gross margin after 2001. We also expect that the assembly of
illuminators overseas will yield excess manufacturing space that we are seeking
to sublease.
Selling, general and administrative expenses were approximately
$3,095,000 for the nine months ended September 30, 2001 as compared to
approximately $2,169,000 for the same period in 2000, an increase of
approximately $927,000 or 43%. The increase was primarily due to additional
sales and marketing related expenses to support our sales in the domestic
architectural lighting market. We currently expect that selling, general and
administrative expense will continue to increase in absolute dollars in order to
support the distribution of our products in the domestic architectural lighting
market.
Research and development costs were approximately $324,000 for the nine
months ended September 30, 2001 as compared to approximately $335,000 for the
same period in 2000.
Interest expense of approximately $324,000 for the nine months ended
September 30, 2001, as compared to approximately $330,000 for the same period in
2000, relates to the capital lease for our facility in Orlando, Florida.
We have a full valuation allowance against income tax benefits
resulting from losses incurred on operations and as a result there was no
provision for income tax for the nine months ended September 30, 2001 or 2000.
The net loss for the nine months ended September 30, 2001 was
approximately $(699,000), or $(0.27) per basic and diluted common share, as
compared to a net loss of approximately $(334,000), or $(0.13) per basic and
diluted common share, for the nine months ended September 30, 2000. The increase
in loss is primarily due to higher selling, general and administrative expenses
partially offset by
-15-
increased gross margin, as well as a reduction in other income we had been
receiving from the sublease of the warehouse portion of our facility. For the
nine months ended September 30, 2000, other income also included funds received
in connection with a supplier settlement in favor of our company.
Liquidity and Capital Resources
Historically, we have financed our operations primarily with cash flow
from operations and equity capital.
At September 30, 2001, the Company had working capital of approximately
$5,584,000, a decrease of approximately 7.1% over working capital of
approximately $6,010,000 at December 31, 2000.
Nine months ended September 30, 2001 compared to September 30, 2000
Net cash used in operations amounted to approximately $425,000 for the
nine months ended September 30, 2001 compared to approximately $152,000 of cash
provided by operating activities for the nine months ended September 30, 2000.
The most significant source of cash provided by operating activities was
generated by a decrease in accounts receivable of approximately $223,000, mainly
due to the timing of customer payments. Cash used in operations during the first
nine months of 2001 was mainly attributable to a decrease in accounts payable
due to the timing of supplier payments, which amounted to $105,233 and a net
increase in inventory of approximately $97,000. The net increase in inventory
was the result of an increase of approximately $239,000 primarily due to initial
stocking levels of LED products to support the launch of our LED product line
offset by a reduction in inventory of approximately $142,000, related to the
write off of products associated with litigation that was settled in May 2001.
Net cash provided by investing activities for the nine months ended
September 30, 2001 amounted to approximately $271,000. Proceeds from the sale of
investments in the amount of approximately $1,002,000 resulted from the maturity
of U.S. Corporate Securities. The most significant use of cash for investing
activities was the purchase for investment of a fixed income security, which
amounted to approximately $501,000. Other uses of cash for investing activities
included the purchase of property and equipment for prototype and design, and
the purchase of computer hardware, software, furniture, fixtures, and tooling in
the amount of approximately $219,000.
Net cash provided by financing activities for the nine months ended
September 30, 2001 amounted to approximately $29,000. Proceeds in the amount of
approximately $77,000 from the exercise of employee stock options were offset by
payments of approximately $48,000 on the capital lease obligation related to our
facility.
Year ended December 31, 2000 compared to December 31, 1999
Net cash provided by operations amounted to approximately $799,000 for
the year ended December 31, 2000 as compared to approximately $58,000 for the
year ended December 31, 1999. The increase in cash provided by operations was
primarily the result of an increase in accounts payable in 2000 of approximately
$395,000, due to the timing of payments to suppliers, which was partially offset
by increases in prepaid expenses and inventory of approximately $69,000 and
$158,000, respectively.
Net cash used by investing activities for the years ended December 31,
2000 and 1999 amounted to approximately $310,000 and $1,675,000, respectively.
Capital expenditures of approximately $247,000 for tooling, leasehold
improvements in connection with the construction of our new showroom, computer
and office equipment and trade show fixtures accounted for most of the investing
activities for 2000.
The purchase of long-term investments in corporate bonds (approximately
$997,000) and short term fixed income mutual fund (approximately $370,000)
accounted for the primary use of cash from investing activities in 1999. The
corporate bonds matured on August 1, 2001 and earned interest at the rate of 7%.
The short term fixed income fund earns a fixed rate of interest at the current
level of 7.56%.
-16-
We also used cash in the amount of approximately $284,000 in 1999 principally to
upgrade manufacturing tooling and equipment.
Payments on capital lease obligations in the amount of approximately
$47,000 were offset by approximately $58,000 in proceeds from the exercise of
employee stock options in 2000.
Our company had available a $1,000,000 line of credit during the first
half of 1999. Amounts under the line were due on demand with interest payable
monthly at the prime rate. Certain securities served as collateral for this line
of credit. On July 15, 1999 we terminated the line of credit arrangement.
Borrowings and repayments under the line of credit amounted to approximately
$405,000 during 1999.
We believe that available cash, together with funds expected to be
generated from operations, will be sufficient to finance our working capital
requirements, as well as planned expansion, for the next twelve months as
currently contemplated.
DESCRIPTION OF BUSINESS
-----------------------
General
Our company is a world leader in the design and manufacture of energy
efficient LED and fiber optic lighting products, signs and displays for
applications in the signage, swimming pool, architectural, and retail
industries.
Products and Services
SIDE-GLOW(R)END GLOW(R)
Our SIDE-GLOW(R) fiber optic lighting cables are marketed as an
alternative to neon and other conventional lighting products, for use in accent
lighting, theme lighting and lighting areas where maintenance and breakage are
of concern to the end user. SIDE-GLOW(R) fiber optic lighting cable is flexible
and easy to install, is not prone to the breakage associated with glass neon
tubes and is energy efficient, providing significant savings in electrical costs
and maintenance. In addition, the cables can be combined with standard or custom
manufactured light sources and control systems to create color-changing patterns
and unique lighting systems. The cables are offered in a variety of diameters
with a wide range of light sources.
END GLOW(R) cables are utilized to transmit cool, ultra violet and heat
free light from a remote light source to the object or area being lighted. We
market our END GLOW(R) cables in conjunction with our line of light sources and
lighting accessories for a variety of applications from swimming pool and spa
lighting to display case lighting and residential landscape lighting. END
GLOW(R) cables allow for unique lighting of areas or objects with the added
benefits of fiber optics. Utilizing our state of the art fiber optic cabling
systems, we are able to custom manufacture END GLOW(R) cables to user
specifications, in order to deliver the required amount of light to the object
at the most affordable cost.
Our SIDE-GLOW(R) and END GLOW(R) cables have been incorporated in
diverse locations worldwide. Applications of these products can be found in the
following places: the world's largest fiber optically lit pool in the Westin
Hotel, St. John's, U.S. Virgin Islands; Universal Studios CityWalk, Florida; the
Coca-Cola sign in New York Times Square; and the Pepsi Cola sign in Caracas,
Venezuela.
During 2000, our SIDE-GLOW(R) and END GLOW(R) cable products accounted
for approximately 40% of our total revenues. We believe that this product area
offers our largest growth potential and, therefore, we intend to devote the
majority of our engineering, sales and marketing efforts to expand this area of
our business and the related light source product lines described below.
-17-
Light Sources
We manufacture a variety of light sources used in conjunction with our
SIDE-GLOW(R) and END GLOW(R) fiber optic cables and lighting accessories to
create full lighting systems. Each line of light sources was created to meet
specific market needs and applications. The light sources are manufactured to
meet the standards established by Underwriters Laboratories and comparable
certifying bodies worldwide. We currently manufacture numerous standard catalog
light sources for the following: endpoint fiber optic applications and certain
SIDE-GLOW(R) applications; swimming pool and residential applications; display
case and interior theme lighting industries; and commercial lighting and
signage. We also manufacture a wide variety of custom light sources for specific
market needs based on a survey of a customer's lighting applications.
We utilize control systems with our light sources to allow for
customization of lighting systems. All of our light sources are designed to
accept a variety of unique controller options, allowing the basic light sources
to meet a wide variety of market needs. Multiple light sources can be sequenced
using our proprietary control systems to create special lighting effects.
Light source product lines represented approximately 43% of our total
revenue during 2000. We believe that maintaining a competitively priced and
commercially superior line of light sources is critical to continued growth in
all of our product lines and markets. We plan to devote significant resources to
continue development of these products and markets.
Endpoint Signs and Displays
We design, manufacture, and install endpoint fiber optic signs and
custom displays for advertising, signage and point of purchase displays. Custom
patterns are created using sophisticated design tools and software, which are
then tailored to customer specifications. These patterns are fed into automated
equipment to produce drilled patterns in the subject material. Fiber optic
filaments are then placed, treated and gathered to a light source. Utilizing a
variety of techniques, the fibers are then ordered within the light source and
computer generated color disk assembly to create the desired visual effects.
During 2000, endpoint signs and displays accounted for approximately 5% of our
total revenues.
Lighting Accessories
We sell a variety of lighting accessories and fixtures for use with our
fiber optic cables and light sources. These fixtures include underwater lens
assemblies, display case fixtures, downlights and landscape accessories. The
accessories and fixtures are used to provide direct object lighting, decorative
accent lighting and special effect lighting. We believe that providing these
fixtures and accessories to the market enhances our ability to market our fiber
optic products as a full lighting package, as opposed to a component line.
During 2000, lighting accessories accounted for approximately 8% of our total
revenues.
LED Lighting Systems
During the first half of 2001, we introduced a line of lighting
products using LED technology for signs, safety/warning lamps, lighting strips,
swimming pools and spas, architectural lighting, or wherever a small light
source is required. Our FlexLED product was designed specifically for
illuminating channel letters.
Waterfalls
We design and manufacture fiber optically lit waterfalls and water
features primarily used in swimming pools and spas, through our wholly-owned
subsidiary, Oasis Waterfalls LLC. During 2000, Oasis Waterfalls LLC accounted
for approximately 4% of our total revenue.
-18-
Sales and Marketing
Our products are utilized in a wide variety of applications;
consequently, we use numerous marketing channels and strategies to reach target
customers.
From November 1998 to October 2000, we had an exclusive distribution,
sales and marketing agreement with Cooper Lighting, Inc. and Cooper Industries
(Canada), Inc. pursuant to which Cooper acquired the North American rights to
market, sell and distribute our products to certain markets including the
architectural lighting market. In consideration for these rights, Cooper agreed
to purchase up to $47,075,000 of our products over a five-year period. Cooper
did not meet its minimum purchase commitments. Effective October 31, 2000, we
mutually agreed to terminate our distribution agreement with Cooper. We derived
approximately 13% of our total revenue from Cooper during 2000, compared to
approximately 26% in 1999. Separate from the distributorship agreement with
Cooper, we received an order from Regent Lighting Corporation, an affiliate of
Cooper, to supply outdoor lighting products. We derived approximately
$1,525,000, or 13% of our total revenues from Regent Lighting Corporation in
2000.
We currently market and distribute our architectural lighting products
in North America through a network of approximately 90 lighting agencies
covering the United States and Canada. These independent lighting agencies
provide assistance in the lighting specification process and direct customers to
purchase our products.
From September 1996 to October 2001, we had an exclusive distribution
agreement with Hayward Pool Products, Inc., the world's largest swimming pool
products supplier, pursuant to which Hayward acquired the worldwide rights to
market and sell our fiber optic lighting products in the swimming pool and spa
market. On August 15, 2001, we reached an agreement with Hayward terminating
Hayward's exclusive distribution rights, as of September 30, 2001. Our agreement
with Hayward allowed us to commence direct selling of our fiber optic lighting
products in the swimming pool and spa market worldwide, except in the United
States and Canada, as of August 15, 2001, and within the United States and
Canada as of October 1, 2001. The termination of Hayward's exclusive
distribution rights also released Hayward from any annual minimum purchase
commitments for 2001 and beyond. We derived approximately 28% of our total
revenues from Hayward in 2000 compared to approximately 19% in 1999.
We currently market and sell our lighting products in the swimming pool
and spa market through a network of independent manufacturer's representatives.
We believe our new direct distribution channels will allow us to more closely
serve our customers as well as offer new services such as the bundling of
product and installation.
International sales accounted for approximately 17% of our total
revenue for 2000 compared to approximately 26% in 1999. We have entered into
exclusive and non-exclusive marketing and sales arrangements with leading
lighting companies in international territories. We provide technical expertise
and limited marketing support, while our international distributors provide
sales staff, local marketing, and product service. We believe our international
distributors are better able to service international markets due to their
understanding of local market conditions and best business practices.
We use a combination of direct marketing and manufacturer's
representatives for our signage product lines in order to reduce end user costs.
We also market endpoint signs and displays directly to end users, principally
Fortune 500 companies worldwide. We also utilize direct sales efforts to create
specific applications for our lighting products for large national commercial
and retail lighting projects, including original equipment manufacturer (OEM)
opportunities.
-19-
Manufacturing and Suppliers
The fiber optic strands used in our endpoint signs and displays, as
well as the production of our SIDE-GLOW(R) and END GLOW(R) cables, are purchased
from a key Japanese supplier. While we believe there are alternative sources for
the fiber optic strands used in the production of our endpoint signs and
displays, we believe our SIDE-GLOW(R) and END GLOW(R) cables require fiber optic
material of a higher quality than is available elsewhere.
We use customized cabling and extrusion equipment to internally produce
our SIDE-GLOW(R) and END GLOW(R) cables. In August 1997, simultaneously with
relocating to our current facility, we upgraded and retrofitted our cabling and
extrusion equipment to increase quality and production capability. Monitoring
and, when desirable, revising our manufacturing process has allowed us to
increase quality, improve capabilities and maintain process control. In November
1998, we made process modifications, which yielded a 68% improvement in light
output of our SIDE-GLOW(R) cables, which we began shipping in February 1999. We
believe that as production volume increases, our equipment may further reduce
the manufacturing costs of our SIDE-GLOW(R) and END GLOW(R) cables, and
therefore allow us to offer our products to the market at prices equivalent to
neon lighting. In the event our cabling and extrusion equipment is ever disabled
for any significant period of time, we could outsource the manufacturing of our
products.
We manufacture the light sources and control systems used with our
SIDE-GLOW(R) and END GLOW(R) cables and endpoint signs and displays in our
facility in Orlando, Florida. The designs of the light sources are considered
proprietary, and we have U.S. patents issued with respect to certain designs.
All endpoint signs and displays are manufactured directly by us based on the
clients' specifications, or designed jointly by our client and our highly
experienced personnel. We believe our ability to offer a full range of products,
and design, engineering and support services, are unique in the market place,
and are important to our prospects for future growth.
Our production strategy is to continue to reduce materials costs. We
intend to reduce our dependence on outside suppliers by expanding our
manufacturing capabilities and engineering our products around off the shelf
components combined with proprietary designs. We intend to continue research and
development to further reduce production costs of existing products.
Research and Product Development
We constantly strive to enhance our existing products. We also plan to
develop additional products and identify new markets and distribution channels.
We consider our ability to constantly improve existing products, rapidly
introduce new products to fill identified needs, and design solutions for custom
applications to be critical to our growth. We believe our responsiveness to the
market to be an important differentiating factor, and we will continue to
provide rapid response to market trends. We believe that the increasing market
for fiber optic lighting products in general may attract larger companies into
the market with more capital and technical personnel than we currently employ.
Accordingly, we plan to continue to explore joint product development activities
with our marketing partners to maintain our competitive advantage and defend our
market position.
During 2000, we spent approximately $455,000 on engineering and product
development activities, as compared to approximately $544,000 in 1999. The
decline is mainly due to the cancellation of several product development
efforts. We feel our success will depend, in large part, on our ability to
continue to improve and enhance our existing products as well as develop new
products and applications for our technologies. In addition, we believe we must
improve gross margins on all product lines through engineering and research.
We believe increased levels of spending on research and development may
be necessary to successfully develop a product which has the brightness of neon
and which can be sold at a comparable price. Additionally, as new market
opportunities are found, increased levels of product development may be
warranted to rapidly design, engineer and produce products to fill these market
needs.
-20-
Competition
We currently face competition from both traditional lighting
technologies such as neon and florescent lighting and from competitors
specifically engaged in fiber optic lighting. Several larger companies which are
currently engaged in traditional lighting technologies or lighting component
manufacturing have announced their intention of entering the fiber optic
lighting market through acquisition or formation of divisions or subsidiaries
dedicated to penetrating the fiber optic lighting market. There can be no
assurance that a large conventional lighting company will not enter the market
and utilize its resources to capture significant market share and adversely
affect our operating results.
Traditional lighting technologies have the advantage of a long history
of market acceptance and familiarity as compared to our fiber optic products. We
actively seek to educate our target markets as to the advantages of fiber optic
lighting systems and believe that achievement of this objective is critical to
our future.
We must also compete with traditional lighting on the issues of
maintenance costs, safety issues, energy usage, price and brightness. We believe
our products can effectively compete against traditional lighting in the areas
of maintenance costs, safety and energy consumption. Our lighting systems offer
the advantage of centralized light source maintenance for lamp replacement. This
feature is superior to other lighting systems, such as neon, which require
maintenance throughout the lighting system. Additionally, the SIDE-GLOW(R) and
END GLOW(R) cables are virtually maintenance and breakage free, as opposed to
neon and other comparable lighting products which experience high breakage rates
both in the field and in shipment. This reduced breakage also results in an
additional advantage in the area of safety. Further, our products result in a
voltage free light, which is particularly beneficial in wet and underwater
applications, where risk of shock from electricity in the lighted path is an
issue. Our products also eliminate the majority of heat and radiation at the
light output, which can be advantageous in applications where these factors may
not be desirable, particularly with respect to lighting accessories such as task
lighting and display case lighting.
Our products may not favorably compete with traditional lighting on the
basis of price for smaller lighting systems and in particular with neon systems
in smaller scale applications, which comprise a large portion of the available
market. Additionally, fiber optic lighting systems do not equal neon's
brightness in a cost-effective manner for many applications. In applications
calling for maximum brightness and competitive cost, our products may not be
able to compete effectively with traditional lighting products.
Our company currently faces competition from a defined number of
companies directly involved in the field of fiber optic lighting addressed by
our SIDE-GLOW(R) and END GLOW(R) cables and light source products. These
companies utilize a technology similar to ours and compete generally on the
basis of price and quality. We believe our company may compete favorably in
markets where price is the central issue. Our quality control system also allows
us to compete on the basis of quality of product and services delivered. There
can be no assurance, however, that the current competitors directly involved in
this industry or a new competitor will not develop processes or technology which
will allow them to decrease their costs, and consequently, erode our price
advantage.
-21-
Patents and Proprietary Rights
We consider our technology and procedures proprietary and rely
primarily on patent and trade secret laws and confidentiality agreements to
protect our technology and innovations. Employees of our company, as well as
technical consultants who may be hired from time to time, enter into
confidentiality and/or invention assignment agreements and non-competition
agreements providing for non-disclosure of our proprietary and trade secret
information and the assignment to the company of all inventions, improvements,
technical information and suggestions relating in any way to our business
(whether patentable or not) which the employee or consultant develops during the
period of their employment or association with our company. Despite these
restrictions, it may be possible for competitors or customers to copy one or
more aspects of our products or obtain information that we regard as
proprietary. Furthermore, there can be no assurance that others will not
independently develop products similar to those sold by us. We therefore believe
that producing the highest possible quality products, at the most competitive
prices, is the best means to protect against competitive innovations.
We have been issued a United States patent relating to the reflective
center core used in the process of manufacturing our SIDE-GLOW(R) cables and
have received Patent Cooperation Treaty protection of this patent overseas. We
also have two United States patents on methods of manufacturing alternative
versions of fiber optic cables. Additionally, we have acquired a United States
patent related to the method of manufacturing a fiber optic image magnification
device. While there is no guarantee that this patent can be developed into a
commercially viable product, we believe that expansion of the applications for
our fiber optic technologies are important to the possible achievement of future
growth objectives. We have a fifth patent related to our light source technology
and a device for connecting fiber optic cables to the light source. We also have
several patent applications pending with respect to a variety of new product
innovations and manufacturing methods.
We intend to continue to seek patent protection where appropriate for
future developments, improvements and enhancements to our technology. There can
be no assurance, however, that our existing patents or patents that may be
issued in the future, will provide us with sufficient protection in the case of
an infringement of our technology or that others will not independently develop
technology comparable or superior to our technology. Although we believe that
the products sold by us do not and will not infringe upon the patents or violate
the proprietary rights of others, it is possible that such infringement or
violation has occurred or may occur. In the event that products sold by us are
deemed to infringe upon the patents or proprietary rights of others, we could be
required to modify our products or obtain a license for the manufacture and/or
sale of such products.
We have obtained approval for a registered trademark for the "Super
Vision" name, and have filed for a European community trademark. Additionally,
we have obtained registered trademarks on the brand names SIDE-GLOW(R) and END
GLOW(R) related to our fiber optic cables, and European community trademark
applications have been filed as well. We believe the trademarks may help in our
efforts to achieve brand recognition, although there can be no assurance that
our efforts will be successful.
Employees
At September 30, 2001, we had 62 full-time employees, including 5 in
research and development, 14 in sales, marketing and customer service, 13 in
finance and administration and 30 in production and quality control. None of our
employees are currently covered by a collective bargaining agreement and we
consider our employee relations to be good. We also utilize temporary and part
time employees as required by the volume of business, primarily in the area of
production.
-22-
Property
Our executive offices and manufacturing facility are located in
approximately 70,000 square feet of leased space in Orlando, Florida. The lease
expires in June 2012, and provides for a base monthly rental. Rental payments
amounted to approximately $582,000 for the year ended December 31, 2000. Max
King Realty, an entity controlled by Brett Kingstone, owns the building that
houses our facilities.
Legal Proceedings
On November 18, 1999, we filed a lawsuit (case number CI-99-9392) in
the Circuit Court of the 9th Judicial Circuit in and for Orange County Florida
against the following defendants: Jack Caruso, Samson Mong Wu, Susan Sumida Wu,
Debbie Wu, Thomas Wu, Lily Cheung, Ruby Lee, James C. Lee, Tony Lee, Optic-Tech
International Corporation, Shanghai Qiaolong Optic-Tech International Company,
Ltd., Marsam Trading Corporation, Marsam Trading Corporation (HK) Ltd., David
Winkler, Gitto/Global Corp., James J. Grimley, Nick Semenza, Rami Yosefian,
Sanford Properties, Inc., Jose Rosario Cruz, Ronald Elgin Simon, and Travis
Pochintesta. This is an industrial espionage action in state court. We have made
various allegations against the twenty-two defendants, individually and
collectively. These allegations include fraud, breach of contract, breach of
fiduciary duty, tortious interference with existing business relationships,
tortious interference with contractual relationships, tortious interference with
prospective business advantage, unjust enrichment, violations of Florida's
Uniform Trade Secrets Act, civil conspiracy, violations of Florida's RICO Act
and other conduct sufficient to provide grounds for equitable relief (for
example, replevin, accounting, constructive trust and injunctive relief). The
defendants have been enjoined from further violating their respective
non-compete and confidentiality agreements with Super Vision. They are also
prohibited from the exploitation of our business opportunities or prospective
business opportunities, and enjoined from any and all acts, omissions or
behavior which in any way has an adverse effect on our property interests. At
this time, defendants Jack Caruso, Samson Wu, Susan Wu, Thomas Wu, David
Winkler, Optic-Tech International Corporation and Tony Lee have invoked their
Fifth Amendment right to protection from self-incrimination. These defendants
attempted to stay the civil action pending the resolution of pending criminal
charges against them, but their motion to stay was denied. Discovery (subject to
the limitations prescribed by the Fifth Amendment privilege) and investigation
is ongoing. On September 19, 2000 the Fifth District Court of Appeal ruled
against the defendants in their appeal regarding their motion to dissolve the
temporary injunction order. As of September 30, 2001, defendants Gitto/Global
Corporation, Nick Semenza, James Grimely, Jose Rosario Cruz and Ronald Elgin
Simon have been dismissed as parties in the case, while New England Electric
Wire Corporation and WPI Group, Inc. a/k/a WPI Electronics, Inc. were added as
parties for breaches of contract, which relate to the claims against the other
party defendants. The case has not yet been scheduled for trial. Plans are to
vigorously pursue this lawsuit.
-23-
MANAGEMENT
----------
Our executive officers and directors, their ages, and positions with
the company, as of September 30, 2001 are as follows:
Name Age Position
---- ----- --------
Brett M. Kingstone 41 Chief Executive Officer,
President and Chairman of the
Board
Edgar Protiva 61 Director
Brian McCann 36 Director
Anthony T. Castor 49 Director
Fritz Zeck 60 Director
Robert Wexler 41 Director
Larry Calise 43 Chief Financial Officer
Each of our directors currently holds office until the next annual
meeting of shareholders and until his successor is duly elected and qualified.
Our officers serve at the discretion of the Board of Directors.
The principal occupation and business experience for each of our
executive officers and directors for at least the last five years is as follows:
Brett M. Kingstone is our founder. He has been employed by us in a
senior executive capacity and has been chairman of the company's board of
directors since our formation in 1991. Since July 1999, Mr. Kingstone has been
our Chairman of the Board, Chief Executive Officer and President. From November
1997 to July 1999, Mr. Kingstone served as our Chairman and Chief Executive
Officer. From our inception to November 1997, he was Chairman, Chief Executive
Officer and President. From October 1985 until January 1991, Mr. Kingstone
served as an independent consultant in the area of fiber optic technology. Prior
to that, from December 1988 until October 1989, he served as President of
Fibermedia Corporation in Boulder, Colorado. From January 1984 to August 1985,
he was a partner in Kingstone Prato, Inc., a venture capital partnership in
Boulder, Colorado. From August 1981 through December 1983, he served as Vice
President of Sales of Gekee Fiber Optics, Inc. in Palo Alto, California. Mr.
Kingstone is a graduate of Stanford University and the author of two books - The
Student Entrepreneur's Guide (McGraw-Hill) and The Dynamos (John Wiley & Sons;
Koksaido Press).
Edgar Protiva became a director of Super Vision in March 1994. From
1980 to present, Mr. Protiva has been engaged in merchant banking with K.C.L.
Associates
Brian McCann became a director of Super Vision in October 1995. From
February 1998 until present, Mr. McCann has served as the President of ADVA
Optical Networking, Inc., which provides optical networking solutions for
computer operating systems. From 1996 to 1998, Mr. McCann was the Vice President
of North American Business Development for ADVA GmbH Optical Solutions of
Munich, Germany.
Anthony T. Castor III became a director of Super Vision in September
1996. Currently, Mr. Castor is serving as Vice Chairman and Director of Lynch
Corporation, a producer of adhesive and coating systems as well as capital
equipment for the electronic display and consumer tableware industries. He is
-24-
also serving as President and Chief Executive Officer of Spinnaker Corporation,
which is a subsidiary of Lynch Corporation. Mr. Castor also serves as President,
Chief Executive Officer and a director of the Morgan Group, Inc., a specialty
transportation company. From January 1998 until January 2000, Mr. Castor was
President and Chief Executive Officer of Precision Industrial Corporation, a
worldwide supplier of capital equipment for processing sheet metal. From 1994
until December 1997, Mr. Castor was the President and Chief Executive Officer of
Hayward Industries, Inc., a supplier of pumps, filters, heaters and other
accessories for the pool and spa industries and industrial equipment. From 1987
to 1993, Mr. Castor was Corporate Vice President of Crompton & Knowles
Corporation, a supplier of specialty chemicals and process equipment and
President of its wholly-owned subsidiary, Ingredient Technology Corporation.
Fritz Zeck became a director of Super Vision in January 1999.
Since 1994, Mr. Zeck has served as President of Cooper Lighting, Inc., a
manufacturer of lighting products. From 1985 until 1994, he served as Vice
President of Sales for Cooper Lighting. Mr. Zeck joined Metalux in 1976 where he
was Regional Sales Manager for the Central portion of the United States. He
founded Lumark Lighting in 1978, which was a division of Metalux. Mr. Zeck
serves as Cooper Lighting's designee to our Board of Directors.
Robert Wexler became a director of Super Vision in September 2001. From
1993 to present, Mr. Wexler has been a partner in the corporate department of
the law firm of Krugman & Kailes LLP in Saddle Brook, New Jersey. Krugman &
Kailes LLP serves as the general counsel for Hayward Industries, Inc. Mr. Wexler
serves as Hayward Industries' designee to our Board of Directors.
Larry Calise became our Chief Financial Officer in February 2000. Prior
to this he served as Vice President of Finance for nStor Corporation, a
manufacturer of information storage and RAID solutions. From 1986 through 1996,
he held positions of Controller, VP and Corporate Controller, and VP Finance and
Administration for Philip Crosby Associates, which was later acquired by
Alexander Proudfoot PLC, a multinational management consulting firm specializing
in productivity and quality management. From 1982 to 1986, Mr. Calise was an
Audit Supervisor for the CPA firm PricewaterhouseCoopers LLP.
Executive Compensation
The following table summarizes the compensation paid to our Chief
Executive Officer during the years ended December 31, 2000, 1999 and 1998. Super
Vision did not have any other executive officer or employee serving at the end
of 2000 whose total annual salary and bonus exceeded $100,000.
Summary Compensation Table
Annual compensation
-------------------
All other
Year Salary Bonus Compensation(1)
---- ------ ----- ---------------
Brett M. Kingstone(2) 2000 $131,192 $8,010 $16,176
1999 $127,154 $ 258 $15,822
1998 $129,846 -- $15,473
- ----------
(1) Includes a monthly allowance of $1,000 for automobile and other related
expenses as well as the vested portion of Super Vision's 401(k) plan employer
match.
(2) Mr. Kingstone is our President and Chief Executive Officer and serves
as the Chairman of our Board of Directors.
Mr. Kingstone was not awarded any options during the year ended
December 31, 2000.
-25-
Employment Agreements
In January 1994, we entered into a three-year employment agreement
with Brett Kingstone, our Chairman of the Board, Chief Executive Officer and
President. The agreement with Mr. Kingstone is renewable automatically for
successive one year terms and provides for a base annual salary (subject to
annual increases and bonuses at the discretion of the Board of Directors) and a
monthly automobile allowance of $1,000.
In the event we terminate Mr. Kingstone's agreement, other than for
cause, we have agreed to pay him severance in an amount equal to the annual base
salary in effect for the balance of the term of the agreement plus six months.
The agreement contains confidentiality and non-competition provisions.
We have no other employment agreements with our employees, although
all employees sign confidentiality and non-competition agreements.
We have entered into indemnification agreements with certain of our
directors and executive officers which provide that we will indemnify our
directors and executive officers against expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by a director or
executive officer in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties as an
officer, director, employee or agent of our company.
Aggregate Option Exercises During Fiscal Year 2000 and Year-End Option Values
None of the options held by Mr. Kingstone, our only executive officer
listed in the "Summary Compensation Table" above, were exercised during the year
ended December 31, 2000. The following table shows information about the value
of Mr. Kingstone's unexercised stock options at December 31, 2000.
Number of Securities Under- Value of Unexercised In-
lying Unexercised Options the-Money Options at
at December 31, 2000 December 31, 2000(1)
----------------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Brett M. Kingstone 54,000 10,000 -- --
- ----------
(1) The dollar values of any In-the-Money Options would be calculated by
determining the difference between $6.25 per share, the closing bid price of our
Class A common stock on December 29, 2000, and the exercise price of the stock
options. "In-the-Money" stock options are options for which the exercise price
is less than the market price of the underlying stock on a particular date. Mr.
Kingstone does not currently have any In-the-Money options.
Director Compensation
We compensate directors who are not employees of Super Vision with an
annual fee of $1,000 and an annual grant of 1,000 stock options for serving on
our Board of Directors. For each Board or Committee meeting attended in person,
directors also receive $500. For meetings attended via telephone, directors
receive $250. We reimburse all directors for travel and other related expenses
incurred in attending stockholder, Board and committee meetings. We do not
compensate our employees for service as a director. We do, however, reimburse
them for travel and other related expenses
During the year ended December 31, 2000, pursuant to our 1994 Stock
Option Plan, we granted options to purchase 1,000 shares of Class A common stock
to Messrs. Edgar Protiva, Brian McCann, Anthony Castor, and Fritz Zeck, all
directors of Super Vision. The options were granted on June 20, 2000 at an
exercise price of $7.63 and vested on December 20, 2000. In September 2001, we
granted options to purchase 5,000 shares of our Class A Common Stock to Mr.
Robert Wexler when he became a director of our company. These options may not be
exercised until March 2002.
-26-
Stock Option Plan
In January 1994, we adopted our 1994 Stock Option Plan covering 150,000
shares of our Class A Common Stock, pursuant to which our officers, directors
and key employees are eligible to receive incentive and/or non-qualified stock
options. The plan was subsequently amended and restated to increase the number
of shares reserved for issuance from 150,000 to 450,000. The plan expires in
January 2004, and is administered by the Board of Directors or a committee
designated by the Board of Directors. The purposes of the plan are to ensure the
retention of our existing executive personnel, key employees and consultants, to
attract and retain new executive personnel, key employees and consultants and to
provide additional incentive by permitting such individuals to participate in
the ownership of our company. Criteria utilized by the Board of Directors or
committee in granting options pursuant to the plan is consistent with these
purposes.
Incentive stock options granted under the plan are exercisable for a
period of up to 10 years from the date of grant at an exercise price which may
not be less than the fair market value of the Class A Common Stock on the date
of the grant, except that the term of an incentive stock option granted under
the plan to a stockholder owning more than 10% of the outstanding Class A Common
Stock may not exceed five years and its exercise price may not be less than 110%
of the fair market value of the Class A Common Stock on the date of the grant.
Upon the exercise of an option, payment may be made by cash, check or if
provided in the option agreement, in shares of our Class A Common Stock having a
fair market value equal to the exercise price of the options, or any other means
that the Board or the committee determines. The options are non-transferable
during the life of the option holder.
-27-
Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information regarding our common
stock owned as of September 30, 2001, for the following (a) all persons we know
to be "beneficial owners" of more than five percent of the outstanding common
stock of Super Vision, and (b) the common stock owned beneficially by Super
Vision directors and named executive officers and all executive officers and
directors as a group. Each person has sole voting and sole investment power with
respect to the shares shown, except as noted.
Shares Beneficially Owned (2)
------------------------------------------------------------------------
Beneficial Owners (1) Number Percent Ownership Total
------------------------- ------------------------ Voting
Class A Class B Class A Class B Power
--------- ----------- --------- ---------- ------------
Brett M. Kingstone(3).............. 345,387 483,264 14.24% 100% 57.03%
Kingstone Family Ltd Partnership II (4) 291,387 483,264 12.28% 100% 56.55%
Edgar Protiva(5)................... 13,498 -- * -- *
Brian McCann(6).................... 11,000 -- * -- *
Anthony Castor III(6).............. 10,000 -- * -- *
Fritz Zeck (6)..................... 7,000 -- * -- *
Robert Wexler (9) -- -- -- -- --
Hayward Industries, Inc.(7)........ 399,168 -- 17.88% -- 8.59%
Cooper Lighting, Inc. (8).......... 250,369 -- 12.02% -- 5.56%
All executive officers and
directors as a group (seven 386,885 483,264 15.69% 100% 57.42%
persons) (10)....................
- ---------------------
* Represents a percentage of beneficial ownership that is less than 1%.
(1) Unless otherwise stated, the address for all persons listed above is
Super Vision International, Inc., 8210 Presidents Drive, Orlando,
Florida 32809.
(2) "Beneficial ownership" is a technical term broadly defined by the
Securities and Exchange Commission to mean more than ownership in the
usual sense. For example, you "beneficially" own Super Vision common
stock not only if you hold it directly, but also if you indirectly
(through a relationship, a position as a director or trustee, or a
contract or understanding) have or share the power to vote the stock,
or to sell it, or if you have the right to acquire it within 60 days.
The percent of shares beneficially owned as of September 30, 2001 was
calculated based upon 2,565,874 outstanding shares, consisting of
2,082,610 shares of Class A common stock and 483,264 shares of Class B
common stock outstanding and includes, for each person or group, any
securities that person or group has the right to acquire within 60 days
pursuant to options, warrants, conversion privileges or other rights.
(3) This amount includes the following shares owned by the Kingstone Family
Limited Partnership II (KFLPII), of which Mr. Kingstone controls and is
the general partner: (i) 483,264 shares of Class B common stock; (ii)
289,187 shares of Class A common stock that may be acquired upon the
exercise of warrants that were exercisable as of (or will become
exercisable within 60 days after) September 30, 2001; and (iii) 2,200
shares Class A Common stock. In addition, this amount includes 54,000
shares of Class A common stock which may be acquired upon the exercise
of options granted pursuant to the company's stock option plan.
(4) The Kingstone Family Limited Partnership II (KFLPII) was formed in 1998
by Mr. Kingstone, and he is the general partner. KFLPII has granted
Hayward Industries, Inc. an option to purchase up to 28,918 shares of
Class A common stock that may be acquired upon exercise of the KFLPII
warrants to purchase 289,187 shares of Class A common stock. These
warrants granted to Hayward will vest only if the KFLPII fully or
partially exercises the option to purchase 289,187 shares of Class A
common stock. Similarly, KFLPII has granted Cooper Lighting, Inc. an
option to purchase up to 28,918 shares of Class A common stock that may
be exercised upon exercise of
-28-
the KFLPII warrants to purchase 289,187 shares of Class A common stock.
These warrants granted to Cooper will vest only if the KFLPII fully or
partially exercises the option to purchase the 289,187 shares of Class
A common stock.
(5) This amount includes 1,498 shares of Class A common stock. The balance
of 12,000 shares of Class A common stock may be acquired upon the
exercise of options granted for serving as a director of Super Vision
that were exercisable as of September 30, 2001, or that will become
exercisable within 60 days after September 30, 2001.
(6) All of these shares consist of Class A common stock, and all may be
acquired upon the exercise of options granted for serving as a director
of Super Vision that were exercisable as of September 30, 2001, or that
will become exercisable within 60 days after September 30, 2001.
(7) The address of Hayward Industries, Inc. is 900 Fairmont Avenue,
Elizabeth, New Jersey 07207. This amount represents 249,480 shares of
Class A common stock, and also includes 149,688 warrants to purchase
Class A common stock that were exercisable as of September 30, 2001.
However, this amount does not include up to 28,918 shares that may be
acquired upon exercise of the options owned by Hayward Industries
described in footnote (4) above.
(8) The address of Cooper Lighting, Inc. is 1121 Highway 74 South,
Peachtree City, Georgia 30269. This amount represents shares of Class
A common stock, but does not include 28,918 shares that may be
acquired upon exercise of the options owned by Cooper Lighting Inc.,
in footnote (4) above.
(9) Does not include options to purchase 5,000 shares of Class A Common
Stock granted to Mr. Wexler when he became a director of the company.
These options may not be exercised until March 2002.
(10) This amount includes shares that may be acquired upon exercise of
options and warrants held by directors and executive officers of Super
Vision that were exercisable as of September 30, 2001, or that will
become exercisable within 60 days after September 30, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On September 27, 1996, Super Vision entered into a lease agreement with
Max King Realty, an entity controlled by Mr. Kingstone, our President, Chief
Executive Officer and Chairman of the Board, for approximately 70,000 square
feet of warehouse and office space. We began occupying this facility in August
1997. The lease term expires in June 2012. Rental payments for the year ended
December 31, 2000 amounted to approximately $581,520.
On November 23, 1998, we entered into a Stock Purchase Agreement with
Cooper Lighting, Inc., a subsidiary of Cooper Industries, Inc. (a New York Stock
Exchange company trading under the symbol "CBE") pursuant to which we sold
Cooper 250,369 shares of our Class A common stock for a purchase price of
$2,000,000. In addition, we entered into a distributorship agreement with two of
Cooper's subsidiaries pursuant to which they were granted certain exclusive
distribution rights in the United States and Canada to market and sell our fiber
optic lighting products in certain markets including the architectural market.
Cooper was also granted a ten-year warrant to purchase an additional 250,369
shares of our Class A Common Stock at $8.02 per share. Vesting of this warrant
was tied to Cooper's achievement of certain annual minimum purchase commitments.
Cooper did not meet its minimum purchase commitments. Effective as of October
31, 2000, we mutually agreed to terminate our distribution agreement with
Cooper. As a result, no shares may be purchased under this warrant. In addition,
we issued Cooper a warrant to purchase up to 517,950 shares of our Class A
Common Stock at fair market value if the number of our outstanding shares of
Class A Common Stock increased as a result of the exercise of other outstanding
warrants to purchase our stock. This warrant expired unexercised in May 1999.
The Kingstone Family Limited Partnership II, which is controlled by Brett
Kingstone, our president, chairman of the board and chief executive officer,
also granted Cooper an option to purchase up to 28,918 shares our Class A common
stock that may be acquired upon exercise of warrants to purchase 289,187 shares
of Class A common stock held by the partnership. These warrants will vest only
if the partnership fully or partially exercises its warrant to purchase 289,187
shares of our Class A common stock. We have agreed to register under the
Securities Act of 1933, at our expense, all of the shares of Class A Common
Stock owned by Cooper, and the shares Cooper may purchase upon exercise of the
warrants described above. Cooper also has the right to designate one director to
our Board of
-29-
Directors. Its current designee is Fritz Zeck. We derived approximately 13% of
our total revenues from Cooper in 2000 and approximately 26% in 1999.
On September 25, 1996, we entered into a Stock Purchase Agreement with
Hayward Industries, Inc. pursuant to which we sold Hayward 249,480 shares of our
Class A common stock at a purchase price of $8.02 per share. In addition, we
entered into a distributorship agreement with Hayward pursuant to which Hayward
was granted certain exclusive worldwide distribution rights to sell our fiber
optic lighting products in the swimming pool and spa market. On August 15, 2001,
we reached an agreement with Hayward terminating Hayward's exclusive
distribution rights, as of September 30, 2001. Our agreement with Hayward
allowed us to commence direct selling of our fiber optic lighting products in
the swimming pool and spa market worldwide, except in the United States and
Canada, as of August 15, 2001, and within the United States and Canada as of
October 1, 2001. The termination of Hayward's exclusive distribution rights also
released Hayward from any annual minimum purchase commitments for 2001 and
beyond.
Also, as part of the September 1996 transaction with Hayward, we
granted Hayward a ten-year warrant to purchase an additional 249,480 shares of
our Class A Common Stock at $8.02 per share. Vesting of this warrant was tied to
achievement of certain annual minimum purchase commitments by Hayward. As of
December 2000, warrants to purchase 199,584 shares were vested under this
warrant. As part of our August 2001 agreement with Hayward, Hayward has
relinquished its rights to 20% of the warrants to purchase 249,480 shares by
requesting us to repurchase certain inventory previously purchased from Super
Vision and has further agreed that an additional 20% of these warrants would be
canceled. In the event we do not timely pay Hayward for the returned inventory,
20% of the warrants canceled or relinquished by Hayward will be reinstated. In
September 1996, we also issued Hayward a warrant to purchase up to 522,000
shares of our Class A Common Stock at fair market value if the number of our
outstanding shares of Class A Common Stock increased as a result of the exercise
of other outstanding warrants to purchase our stock. This warrant expired
unexercised in May 1999. The Kingstone Family Limited Partnership II, which is
controlled by Brett Kingstone, our president, chairman of the board and chief
executive officer, also granted Hayward an option to purchase up to 28,918
shares of our Class A common stock that may be acquired upon exercise of
warrants to purchase 289,187 shares of Class A common stock held by the
partnership. These warrants will vest only if the partnership fully or partially
exercises its warrant to purchase 289,187 shares of our Class A common stock. We
have agreed to register under the Securities Act of 1933, at our expense, all of
the shares of Class A common stock owned by Hayward, and the shares Hayward may
purchase upon exercise of the warrants described above. Hayward has the right to
designate one director to our Board of Directors. Its current designee is Robert
Wexler. We derived approximately 28% of our total revenues from Hayward in 2000
and approximately 19% in 1999.
-30-
DESCRIPTION OF SECURITIES
-------------------------
Authorized Stock
Our authorized capital consists of 20,000,000 shares of common stock,
par value $.001 per share, and 5,000,000 shares of preferred stock, par value
$.001 per share. None of the preferred stock is outstanding. Our common stock is
divided into two classes, Class A common stock and Class B common stock.
Common Stock
Class A Common Stock
Of our authorized common stock, 16,610,866 shares are classified as
Class A common stock of which 2,082,610 shares were issued and outstanding as of
September 30, 2001. Each outstanding share of Class A common stock is entitled
to one vote, either in person or by proxy, on all matters that may be voted upon
by the owners thereof at meetings of the shareholders. Our Class A common stock
and Class B common stock vote together as a single class on all matters on which
stockholders may vote, except when class voting is required by applicable law.
Holders of our Class A common stock are entitled to dividends, together
with the holders of Class B common stock, pro rata based on the number of shares
held, when, as and if declared by the Board of Directors, from funds legally
available therefore. In the case of dividends or other distributions payable in
our stock, including distributions pursuant to stock splits or division of our
stock, only shares of Class A common stock will be distributed with respect to
Class A common stock. In the event of the liquidation, dissolution or winding up
of the affairs of the company, all assets and funds of the company remaining
after the payment to creditors and to holders of preferred stock, if any, will
be distributed, pro rata, among the holders of the Class A common stock and
Class B common stock. Holders of Class A common stock are not entitled to
preemptive, subscription, cumulative voting, or conversion rights, and there are
no redemption or sinking fund provisions applicable to the Class A common stock.
The rights of the holders of our Class A common stock will be subject to, and
may be adversely affected by, the rights of the holders of any series of
preferred stock that may be issued in the future, including voting, dividend,
and liquidation rights.
Class B Common Stock
Super Vision is authorized to issue 3,389,134 shares of Class B common
stock, of which 483,264 shares are issued and outstanding as of September 30,
2001 and held by one holder of record. Each share of Class B common stock is
entitled to five votes on all matters on which stockholders may vote, including
the election of directors. The Class A common stock and Class B common stock
vote together as a single class on all matters on which stockholders may vote,
except when class voting is required by applicable law.
Holders of Class B common stock are entitled to participate together
with the holders of Class A common stock, pro rata based on the number of shares
held, in the payment of cash dividends and in the liquidation, dissolution and
winding up of the company subject to the rights of holders of preferred stock,
if any. In the case of dividends, or other distributions payable in stock of the
company, including distributions pursuant to stock splits or divisions of our
stock , only shares of Class B common stock shall be distributed with respect to
Class B common stock.
Shares of Class B common stock are automatically convertible into an
equivalent number of fully paid and non-assessable shares of Class A common
stock upon the sale or transfer of such shares by the original record holder
thereof except to another holder of Class B common stock. Each share of Class B
common stock also is convertible at any time upon the option of the holder into
one share of Class A common stock. There are no preemptive, redemption,
conversion or cumulative voting rights applicable to the Class B common stock.
-31-
The disparity in the voting rights between our common stock, as well as
Mr. Kingstone's beneficial ownership of all of the Class B common stock, could
discourage a proxy contest or make it more difficult for a third party to effect
a change in our management and control.
Options and Convertible Securities Presently Outstanding
The following options and convertible securities are currently
outstanding: (i) 438,875 shares issuable upon the exercise of warrants, (ii)
450,000 shares issuable upon the exercise of options granted or available for
grant under Super Vision's 1994 Stock Option Plan, and (ii) 483,264 shares of
Class B common stock automatically convertible into an equivalent number of
shares of Class A common stock upon the sale or transfer of the Class B shares.
Preferred Stock
Our Board of Directors has the authority to issue 5,000,000 shares of
preferred stock, $.001 par value, none of which is issued and outstanding. The
Board of Directors has authority to issue the preferred stock in one or more
series and to fix, by resolution, conditional, full, limited or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, if any, as the Board may deem advisable. The Board may
also set the qualifications, limitations or restrictions of the preferred stock,
if any, including the number of shares in a series (which the Board may increase
or decrease as permitted by Delaware law), liquidation preferences, dividend
rates, conversion or exchange rights, redemption provisions of the shares
constituting any series, and such other special rights and protective provisions
with respect to any class or series as the Board may deem advisable without any
further vote or action by the stockholders. Any shares of preferred stock so
issued would have priority over the common stock with respect to dividend or
liquidation rights or both and could have voting and other rights of
stockholders. The issuance of preferred stock with voting or conversion rights
may adversely affect the voting rights of the holders of common stock. We have
no present plans to issue shares of preferred stock.
Transfer Agent and Registrar
Our transfer agent and registrar for our securities is American Stock
Transfer & Trust Company located at 59 Maiden Lane, New York, New York, 10038.
Reports to Security Holders
We will furnish to our stockholders annual reports containing audited
financial statements. We may issue other unaudited interim reports to our
stockholders as we deem appropriate.
SELLING STOCKHOLDER
-------------------
The following table provides:
. The name of the selling stockholder;
. The number of shares beneficially owned by the selling stockholder
before the offering; and
. The number of shares being offered by the selling stockholder under
this prospectus;
The table has been prepared on the basis of information furnished to us
by or on behalf of the selling stockholder. Because the selling stockholder may
offer all or some of the shares pursuant to this offering, no estimate can be
given regarding the amount of shares that will be held by the selling
stockholder after this offering. The table assumes that the selling stockholder
will sell all of the shares it is offering under this prospectus, and that the
selling stockholder will not acquire additional shares of our Class A common
stock before the completion of this offering. Assuming all of the shares offered
under
-32-
this prospectus are sold, the selling stockholder will own less than 1% of
the total number of shares of our Class A common stock outstanding after this
offering.
Except as described below, the selling stockholder does not have,
nor within the past three years has it had, any position, office or other
material relationship with us or any of our predecessors or affiliates.
The information in this table is as of the date of this prospectus.
Information concerning the selling stockholder may change from time to time and
any such changed information will be described in supplements to this prospectus
if and when necessary.
Shares
Beneficially
Owned Before Shares
Name Offering Offered
- ---- -------- -------
Hayward Industries, Inc. 428,086(1) 428,086
(1) Includes (i) 149,688 shares of our Class A common stock that are
subject to warrants currently exercisable, and (ii) 28,918 shares of
our Class A common stock that are subject to warrants that may only be
exercised if all or part of an option to purchase 289,187 shares of our
Class A common stock is exercised by the Kingstone Family Limited
Partnership II.
In March 1997, we granted a 10-year warrant to purchase 289,187 shares
of Class A Common Stock at $7.00 per share to Brett Kingstone, our president,
chairman of the board and chief executive officer. Mr. Kingstone subsequently
assigned this warrant to the Kingstone Family Limited Partnership II, which Mr.
Kingstone controls and is the general partner.
On September 25, 1996, we entered into a Stock Purchase Agreement with
Hayward Industries, Inc., pursuant to which we sold Hayward 249,480 shares of
our Class A common stock at a purchase price of $8.02 per share. In addition, we
entered into a distributorship agreement with Hayward pursuant to which it was
granted certain exclusive worldwide distribution rights to market and sell our
fiber optic lighting products in the swimming pool and spa market. On August 15,
2001, we reached an agreement with Hayward terminating Hayward's exclusive
distribution rights as of September 30, 2001.
As part of the September 1996 transaction, Hayward was also granted a
ten-year warrant to purchase an additional 249,480 shares of our Class A Common
Stock at $8.02 per share. Vesting of this warrant was tied to achievement of
certain annual minimum purchase commitments by Hayward. As of December 2000,
warrants to purchase 199,584 shares were vested under this warrant. As part of
our August 2001 agreement with Hayward, Hayward has relinquished its rights to
20% of the warrants to purchase 249,480 shares by requesting us to repurchase
certain inventory previously purchased from Super Vision and has further agreed
that an additional 20% of these warrants would be canceled. In the event that we
do not timely pay Hayward for the returned inventory, 20% of the warrants
canceled or relinquished by Hayward will be reinstated. Certain other warrants
granted to Hayward as part of the September 1996 transaction have terminated or
expired unexercised. The Kingstone Family Limited Partnership II, which is
controlled by Brett Kingstone, our president, chairman of the board and chief
executive officer, also granted Hayward an option to purchase up to 28,918
shares of our Class A common stock that may be acquired upon exercise of
warrants to purchase 289,187 shares of Class A common stock held by the
partnership. These warrants will vest only if the partnership fully or partially
exercises its warrant to purchase 289,187 shares of our Class A common stock. We
have agreed to register, at our expense, all of the shares of Class A common
stock owned by Hayward, and the shares Hayward may purchase upon exercise of the
warrants described above, under the Securities Act of 1933. Hayward has the
right to designate one director to our Board of Directors. Its current designee
is Robert Wexler.
-33-
PLAN OF DISTRIBUTION
--------------------
The selling stockholder, or its pledges, transferees or other
successors in interest, may sell the shares of Class A common stock covered by
this prospectus from time to time in public or private transactions occurring on
or off NASDAQ, at prevailing market prices or at negotiated prices. Sales may be
made directly to purchasers or through brokers or to dealers, who are expected
to receive customary commissions or discounts. To this end, the selling
stockholder may offer its shares for sale in one or more of the following
transactions:
. in the over-the-counter market;
. through the facilities of any national securities exchange or United
States automated inter-dealer quotation system of a registered national
securities association on which any of the shares of Class A common
stock are then listed, admitted to unlisted trading privileges, or
included for quotation in privately negotiated transactions;
. in transactions other than on such exchanges or in the over-the-counter
market;
. in connection with short sales of our Class A common stock;
. by pledge to secure debts and other obligations;
. in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options; or
. in a combination of any of the above transactions.
If the selling stockholder sells its shares directly, or indirectly
through underwriters, broker-dealers or agents acting on its behalf, in
connection with such sales, the broker-dealers or agents may receive
compensation in the form of commissions, concessions, allowances or discounts
from the selling stockholder and/or the purchasers of the shares for whom they
may act as agent or to whom they sell the shares as principal or both. Such
commissions, concessions, allowances or discounts might be in excess of
customary amounts. To comply with the securities laws of certain jurisdictions,
the securities offered in this prospectus will be offered or sold in those
jurisdictions only through registered or licensed broker-dealers. In addition,
in certain jurisdictions the securities offered in this prospectus may not be
offered or sold unless they have been registered or qualified for sale in those
jurisdictions, or unless an exemption from registration or qualification is
available and is complied with. We are not aware of any definitive selling
arrangement at the date of this prospectus between the selling stockholder and
any broker-dealer or agent. We will not receive any of the proceeds from the
resale of the shares by the selling stockholder, but may receive certain funds
as described under "Use of Proceeds."
In connection with the distribution of its shares, the selling
stockholder may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares in the course of hedging the positions they assume with the selling
stockholder.
The selling stockholder may also sell the shares short and redeliver
the shares to close out the short positions.
The selling stockholder may also enter into option or other
transactions with broker-dealers that require the delivery of the shares to the
broker-dealer.
The selling stockholder may also loan or pledge its shares to a
broker-dealer. The broker-dealer may then sell the loaned shares or, upon a
default, may sell the pledged shares.
The selling stockholder and any dealer acting in connection with the
offering or any broker executing a sell order on behalf of the selling
stockholder may be deemed to be an "underwriter" within the
-34-
meaning of the Securities Act of 1933. In that case, any profit on the sale of
shares by the selling stockholder and any commissions or discounts received by
any such broker or dealer may be deemed to be underwriting compensation under
the Securities Act of 1933. Any such broker or dealer may be required to deliver
a copy of this prospectus to any person who purchases any of the shares from or
through such broker or dealer. These shares may later be distributed, sold,
pledged, hypothecated or otherwise transferred. In addition to any other
applicable laws or regulations, the selling stockholder must comply with
regulations relating to distributions by the selling stockholder, including
Regulation M under the Securities Exchange Act of 1934, as amended.
We have agreed to pay all fees and expenses incident to the
registration of the shares, except commissions and discounts of underwriters,
brokers, dealers or agents and fees and expenses of counsel or any other
professionals or other advisors, if any, to the selling stockholder. The selling
stockholder may indemnify any broker, dealer, agent or underwriter that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act of 1933.
If shares are sold in an underwritten offering, the shares may be
acquired by the underwriters for their own account and may be further resold
from time to time in one or more transactions, including negotiated
transactions, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, at negotiated prices, or at fixed prices. The
names of the underwriters with respect to any such offering and the terms of the
transactions, including any underwriting discounts, concessions or commissions
and other items constituting compensation of the underwriters and
broker-dealers, if any, will be set forth in a supplement to this prospectus
relating to such offering. Any public offering price and any discounts,
concessions or commissions allowed or reallowed or paid to broker-dealers may be
changed from time to time. Unless otherwise set forth in a supplement to this
prospectus, the obligations of the underwriters to purchase the shares will be
subject to certain conditions precedent and the underwriters will be obligated
to purchase all of the shares specified in such supplement if any such shares
are purchased.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and both we and the selling stockholder qualify for the
exemption.
LEGAL MATTERS
-------------
Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A., Orlando, Florida,
will pass on the validity of the Class A common stock offered under this
prospectus for us.
EXPERTS
-------
The consolidated financial statements of Super Vision International,
Inc. at December 31, 1999 and 2000, and for each of the two years in the period
ended December 31, 2000, appearing in this prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
-35-
Super Vision International, Inc
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Ernst & Young LLP F-2
Financial Statements
Annual Financial Statements
Consolidated balance sheets as of December 31,
2000 and 1999 F-3
Consolidated statements of operations for years
ended December 31, 2000 and 1999 F-4
Consolidated statements of stockholders' equity for
years ended December 31, 2000 and 1999 F-5
Consolidated statements of cash flows for years
ended December 31, 2000 and 1999 F-6
Notes to consolidated financial statements for years
ended December 31, 2000 and 1999 F-8
Interim Financial Statements
Condensed consolidated balance sheets as of
September 30, 2001 (unaudited) and December 31, 2000 F-21
Condensed consolidated statements of operations for
nine months ended September 30, 2001 and 2000 (unaudited) F-22
Condensed consolidated statements of cash flows for
nine months ended September 30, 2001 and 2000 (unaudited) F-23
Notes to condensed consolidated financial statements for
nine months ended September 30, 2001 and 2000 (unaudited) F-24
F-1
Report of Independent Certified Public Accountants
Board of Directors
Super Vision International, Inc.
We have audited the accompanying consolidated balance sheets of Super Vision
International, Inc. and its subsidiary as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Super Vision
International, Inc. and its subsidiary as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
Ernst & Young LLP
Orlando, Florida
March 7, 2001
F-2
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2000 1999
----------- -----------
Current Assets:
Cash and cash equivalents $ 1,673,639 $ 1,172,855
Investments 1,398,517 369,916
Trade accounts receivable, less allowance for
Doubtful accounts of $146,693 and $133,819 at
December 31, 2000 and 1999, respectively 2,024,701 2,039,042
Inventories, less reserve of $411,474 and $300,686
at December 31, 2000 and 1999, respectively 2,302,154 2,254,533
Advances to employees - 3,081
Prepaid expense 83,348 14,251
Other assets 26,000 12,557
----------- -----------
Total current assets 7,508,359 5,866,235
----------- -----------
Property and Equipment:
Machinery and equipment 1,641,962 1,573,769
Furniture and fixtures 453,661 423,466
Computers 768,476 735,655
Vehicles 36,620 16,581
Leasehold improvements 976,646 909,246
Property held under capital lease 3,081,000 3,081,000
----------- -----------
6,958,365 6,739,717
Accumulated depreciation and amortization (2,271,136) (1,641,034)
----------- -----------
Net property and equipment 4,687,229 5,098,683
Investments - 997,740
Goodwill, less accumulated amortization of $4,679 and $936 at
December 31, 2000 and 1999, respectively 21,524 25,268
Patents and trademarks less amortization of $41,028 and
$29,441 at December 31, 2000 and 1999, respectively 134,321 113,456
Other assets 160,327 172,273
----------- -----------
$12,511,760 $12,273,655
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 1,317,007 $ 922,245
Accrued compensation and benefits 86,918 69,104
Deposits 25,753 30,542
Current portion of obligation under capital lease 68,388 46,788
----------- -----------
Total current liabilities 1,498,066 1,068,679
Obligation under capital lease 3,060,556 3,128,944
Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000 shares
Authorized, none issued - -
Class A common stock, $.001 par value, authorized
16,610,866 shares, 2,065,543 and 2,054,102 issued and
outstanding at December 31, 2000 and 1999, respectively 2,066 2,054
Class B common stock, $.001 par value, 3,389,134 shares
Authorized, 483,264 issued and outstanding at
December 31, 2000 and 1999, respectively 483 483
Accumulated other comprehensive loss (9,938) -
Additional paid-in capital 10,520,808 10,374,565
Accumulated deficit (2,560,281) (2,301,070)
----------- -----------
Total stockholders' equity 7,953,138 8,076,032
----------- -----------
$12,511,760 $12,273,655
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
December 31,
2000 1999
----------- ----------
Revenues $11,654,167 $9,809,260
Cost and Expenses:
Cost of sales 7,918,273 6,327,123
Selling, general and administrative 3,322,547 2,978,481
Research and development 455,447 544,256
----------- ----------
Total costs and expenses 11,696,267 9,849,860
----------- ----------
Operating loss (42,100) (40,600)
Non-operating income (expense):
Interest income 186,693 131,283
Other Income 34,023 -
Gain on sale of investments 15,725 -
Interest expense (438,792) (443,930)
Loss on disposal of property and equipment (14,760) (2,494
----------- ----------
Total non-operating expense (217,111) (315,141)
----------- ----------
Loss before income taxes (259,211) (355,741)
Income taxes - -
----------- ----------
Net loss $ (259,211) $ (355,741)
=========== ==========
Loss Per Common Share:
Basic $ (0.10) $ (0.14)
=========== ==========
Diluted $ (0.10) $ (0.14)
=========== ==========
See accompanying notes to consolidated financial statements.
F-4
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
----------------------------------- Accumulated
Class A Class B Additional Other
------------------ --------------- Paid-in Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit Loss
--------- ------- ------- ------ ----------- ------------ -------------
Balance, January 1, 1999 2,020,418 $2,020 483,264 $483 $10,236,139 $(1,945,329) $ -
Issuance of common stock warrants - - - - (4,377) - -
Common stock issued in connection
with acquisition 31,250 31 - - 132,781 - -
Exercise of employee stock options 2,434 3 10,022 -
Net loss - - - - - (355,741) -
--------- ------- ------- ------ ----------- ------------ -------------
Comprehensive loss
Balance, December 31, 1999 2,054,102 $2,054 483,264 $483 $10,374,565 $(2,301,070) $ -
Issuance of common stock warrants - - - - 87,816 - -
Exercise of employee stock options 11,441 12 - - 58,427 - -
Net Loss - - - - - (259,211) -
Unrealized loss on available-for-sale
securities - - - - - - $ (9,938)
--------- ------- ------- ------ ----------- ------------ -------------
Comprehensive loss
Balance, December 31, 2000 2,065,543 $2,066 483,264 $483 $10,520,808 $(2,560,281) $ (9,938)
========= ======= ======= ====== =========== ============ =============
Total
Stockholders' Comprehensive
Equity Loss
------------- -------------
Balance, January 1, 1999 $8,293,313 $ -
Issuance of common stock warrants (4,377) -
Common stock issued in connection
with acquisition 132,812 -
Exercise of employee stock options 10,025 -
Net loss (355,741) (355,741)
------------- -------------
Comprehensive loss $(355,741)
=============
Balance, December 31, 1999 $8,076,032
Issuance of common stock warrants 87,816
Exercise of employee stock options 58,439
Net Loss (259,211) (259,211)
Unrealized loss on available-for-sale
securities (9,938) (9,938)
------------- -------------
Comprehensive loss $(269,149)
=============
Balance, December 31, 2000 $7,953,138
=============
See accompanying notes to consolidated financial statements.
F-5
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 31,
2000 1999
---------- -----------
Cash Flows from Operating Activities:
Net loss $ (259,211) $ (355,741)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 642,966 595,998
Net loss on disposal of property and equipment 14,760 2,494
Amortization of intangible assets and goodwill 15,331 10,225
Increase in inventory reserve 110,788 144,871
Increase in other assets (10,362) (64,663)
Unrealized loss on available-for-sale securities (9,938) -
Common stock warrants expense 87,816 -
Changes in operating assets and liabilities, net of effects of acquisition in 1999:
(Increase) decrease in:
Accounts receivable, net 14,341 (1,123,472)
Inventory (158,409) 199,609
Prepaid expense (69,097) 86,558
Other assets and advances to employees 11,946 17,378
Increase (decrease) in:
Accounts payable 394,762 583,545
Accrued compensation and benefits 17,814 (65,319)
Deposits (4,789) 26,091
---------- -----------
Total adjustments 1,057,929 413,315
---------- -----------
Net cash provided by operating activities 798,718 57,574
---------- -----------
Cash Flows from Investing Activities:
Purchase of investments (30,861) (1,367,656)
Purchase of property and equipment (247,204) (283,773)
Proceeds from disposal of equipment and furniture 932 1,327
Acquisition of patents and trademarks (32,452) (25,124)
---------- -----------
Net cash used in investing activities (309,585) (1,675,226)
---------- -----------
Cash Flows from Financing Activities:
Cost of issuance of common stock warrants - (4,377)
Proceeds from exercise of employee stock options 58,439 10,025
Payments on capital lease obligation (46,788) (13,283)
Proceeds from short term borrowings - 404,715
Payments on short term borrowings - (404,715)
---------- -----------
Net cash provided by (used in) financing activities 11,651 (7,635)
---------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 500,784 (1,625,287)
Cash and Cash Equivalents, beginning of period 1,172,855 2,798,142
---------- -----------
Cash and Cash Equivalents, end of period $1,673,639 $ 1,172,855
========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest $ 438,722 $ 432,645
========== ===========
See accompanying notes to consolidated financial statements.
F-6
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Year Ended
December 31,
2000 1999
-------- ---------
Supplemental Disclosure of Cash Flow Information Continued:
Non-Cash Investing Activities:
Assets acquired through issuance of common stock - $132,812
======== =========
See accompanying notes to consolidated financial statements.
F-7
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS - Super Vision International, Inc. (the "Company") is engaged in
--------
the design, manufacture and marketing of SIDE-GLOW/(R)/ and END GLOW/(R)/
fiber optic lighting cables, light sources and "point-to-point" fiber optic
signs and displays. The Company's products have a wide variety of
applications in the signage, swimming pool, architectural, advertising and
retail industries.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
----------------------
accounts of Super Vision International, Inc. and its wholly owned
subsidiary Oasis Waterfalls, LLC (collectively, the "Company"). All
significant inter-company balances and transactions have been eliminated.
On October 18, 1999, Super Vision International, Inc. entered into an Asset
Purchase Agreement with Oasis Falls International, Inc. and Maas Industries
to acquire substantially all of the assets of these businesses in the
amount of $132,812, in exchange for 31,250 shares of the Company's Class A
Common Stock, par value $.001 per share. The assets acquired included
inventory, tooling, machinery and certain intangible assets relating to
tooling and intellectual property rights.
Proforma consolidated results of operations were not prepared as if the
acquisition had occurred at the beginning of fiscal year 1999 since the
acquisition was not significant. The acquisition has been accounted for
under the purchase method of accounting with assets acquired recorded at
fair market value as of the effective acquisition date, and the operating
results of the acquired business included in the Company's consolidated
financial statements from that date. The excess of the purchase price over
the fair value of the net assets acquired (goodwill) aggregated
approximately $26,000, and is being amortized on a straight-line basis over
7 years.
REVENUE RECOGNITION - Generally, the Company recognizes revenue for its
-------------------
products upon delivery to customers, provided no significant obligation
remain and collection is probable.
CASH EQUIVALENTS - Temporary cash investments with an original maturity of
----------------
three months or less are considered to be cash equivalents.
INVESTMENTS - Marketable equity securities and debt securities are
-----------
classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, net of tax, reported
in a separate component of shareholders' equity. The amortized costs of
debt securities in this category is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
investment income. Realized gains and losses and declines in value judged
to be other-than-temporary on available-for-sale securities are included in
investment income. The cost of securities sold are based on the specific
identification method. Interest and dividends on securities classified as
available-for-sales are included in investment income.
At December 31, 2000 and 1999 investments were comprised of U.S. Corporate
Securities and equity securities of approximately $1,008,000 and $391,000,
respectively as compared to $1,021,000 and $371,000, respectively at
December 31, 1999. The investment in U.S. Corporate Securities matures in
2001.
F-8
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
INVESTMENTS - continued
-----------------------
The amortized cost, unrealized losses, and fair values of the Company's
available-for-sale securities held at December 31, 2000 are summarized as
follows:
Gross Estimated
Amortized Unrealized Fair
Costs Costs Losses Value
----------- ----------- ----------- -----------
Available-for-sale securities $ 400,634 $ 400,634 $(9,938) $ 390,696
Hold-to-maturity securities $1,007,821 $1,033,200 $(7,620) $1,000,201
There were no material unrealized gains or losses on securities at December
31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS - In December 1999, the Securities and
--------------------------------
Exchange Commission ("SEC") issued Staff Accounting Bulletin No. ("SAB
101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes
the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company adopted SAB 101
in the fourth quarter of fiscal 2000. The adoption of SAB 101 did not have
a material effect on the Company's operations or financial position.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25." Among other issues,
that interpretation clarifies the definition of employees for purposes of
applying Opinion No. 25, the criteria for determining whether a plan
qualifies as a non-compensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award and
the accounting for an exchange of stock compensation awards in a business
combination. This interpretation is effective July 1, 2000, but certain
conclusions in the interpretation cover specific events that occur after
either December 15, 1998 or January 12, 2000. To the extent that this
interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000,
the effect of applying this interpretation is recognized on a prospective
basis from July 1, 2000. The implementation of this interpretation does not
have a material impact on the Company's financial statements.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
is required to be adopted in years beginning after June 15, 2000. Because
of the Company's minimal use of derivatives, management does not anticipate
that the adoption of the new Statement will have a significant effect on
operating results or the financial position of the Company.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-
-----------
out method), or market. Provision is made for any inventory deemed
excessive or obsolete.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
----------------------
Depreciation is computed by the straight-line method and is charged to
operations over the estimated useful lives of the assets. The estimated
useful lives of the property and equipment range from 3 to 20 years.
Property held under capital lease is amortized over the life of the lease.
Related amortization expense is included with depreciation in the
accompanying consolidated statements of operations and accumulated
depreciation in the accompanying consolidated balance sheets. Maintenance
and repairs are charged to expense as incurred. The carrying amount and
accumulated depreciation of assets sold or retired are removed from the
accounts in the year of disposal and any resulting gain or loss is included
in results of operations.
F-9
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
INTANGIBLE ASSETS AND GOODWILL - Intangible assets, which are recorded at
------------------------------
cost, consist of patents and trademarks which are owned by the Company and
are being amortized over their contractual lives using the straight-line
method. Goodwill represents the excess cost of the acquired business over
the fair value of net assets acquired and is being amortized on a straight
line basis over 7 years. At each balance sheet date, management assesses
whether there has been any permanent impairment in the value of
intangibles. The factors considered by management include trends and
prospects as well as the effects of obsolescence, demand, competition and
other economic factors. No impairment losses have been recognized in any of
the periods presented.
LONG-LIVED ASSETS - The Company periodically evaluates the recoverability
-----------------
of its long-lived assets based on expected undiscounted cash flows and will
recognize impairment of the carrying value of long-lived assets, if any is
indicated, based on the fair value of such assets.
DEPOSITS - Payments received by the Company for services to be provided in
---------
the following year are deferred and recognized as revenue in the period the
services are provided.
RESEARCH AND DEVELOPMENT - Research and development costs to develop new
------------------------
products are charged to expense as incurred.
ADVERTISING - Advertising costs, included in selling, general and
-----------
administrative expenses, are expensed when the advertising first takes
place.
INCOME TAXES - Income taxes are provided for the tax effects of
------------
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes resulting from temporary differences.
Such temporary differences result from differences in the carrying value of
assets and liabilities for tax and financial reporting purposes. The
deferred tax assets and liabilities represent the future tax consequences
of those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
USE OF ESTIMATES - The preparation of financial statements in conformity
----------------
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
EARNINGS PER SHARE - Basic loss per share is computed by dividing net loss
------------------
available to common stockholders by the weighted average common shares
outstanding for the period. Diluted loss per share is computed giving
effect to all potentially dilutive common shares. Potentially dilutive
common shares may consist of incremental shares issuable upon the exercise
of stock options, adjusted for the assumed repurchase of the Company's
common stock, at the average market price, from the exercise proceeds and
also may include incremental shares issuable in connection with convertible
securities. In periods in which a net loss has been incurred, all
potentially dillutive common shares are considered antidilutive and thus
are excluded from the calculation.
STOCK-BASED COMPENSATION - The Company follows Accounting Principles Board
------------------------
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock-based compensation plans rather
than the alternative fair value accounting provided under SFAS No. 123
"Accounting for Stock-Based Compensation."
F-10
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
COMPREHENSIVE INCOME - Pursuant to SFAS No. 130, "Reporting Comprehensive
--------------------
Income," the Company is required to report comprehensive income and its
components in its financial statements.
BUSINESS SEGMENTS - Pursuant to SFAS No. 131, "Disclosure About Segments of
-----------------
a Business Enterprise and Related Information," the Company is required to
report segment information. As the Company only operates in principally
one business segment, no additional reporting is required.
2. INVENTORIES:
Inventories consist of the following:
December 31,
2000 1999
-------------- ----------------
Raw materials $1,759,504 $1,770,519
Work in process 12,461 105,428
Finished goods 941,663 679,272
-------------- ----------------
2,713,628 2,555,219
Less: Reserve for inventories (411,474) (300,686)
-------------- ----------------
Net inventories $2,302,154 $2,254,533
============== ================
3. CAPITAL LEASE OBLIGATION:
The Company leases its operating facility from a corporation owned by the
Company's chief executive officer. The lease has a fifteen-year term
extending through June 15, 2012. Assets recorded under capital lease and
included in property and equipment are as follows:
Office/Warehouse building $3,081,000
Less accumulated amortization (718,900)
-----------
$2,362,100
===========
At December 31, 2000, future minimum lease payments for the capital lease
are as follows:
Year ending December 31:
2001 $ 598,481
2002 610,596
2003 628,404
2004 641,127
2005 659,821
2006 and thereafter 4,604,030
-----------
Minimum lease payments 7,742,459
Less amount representing interest
and executory costs (4,613,515)
-----------
Present value of net minimum lease
payments under capital lease $ 3,128,944
===========
Deposits paid under this lease agreement totaled $58,167 at December 31,
2000 and 1999. The Company's lease payments, including interest and
executory costs were $581,520 and $553,097 in 2000 and 1999, respectively.
F-11
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
4. FINANCIAL INSTRUMENTS AND CREDIT RISKS:
The Company's financial instruments that are exposed to concentrations of
credit risk consist of cash, cash equivalents and investments. The Company
places its cash, cash equivalents and investments with high credit quality
institutions. At times such investments may be in excess of the FDIC
insurance limit. The Company also places its cash, cash equivalents and
investments in money market funds, and debt securities with a major
brokerage firm. These funds are uninsured. The total amount invested in
money market funds at December 31, 2000 and 1999 was $1,035,817 and
$820,047 respectively. The carrying values of cash equivalents, accounts
receivable and accounts payable approximate fair value due to their short-
term nature.
The Company relies on several Japanese companies as suppliers for fiber
optics. While the Company believes alternative sources for fiber optics are
available, the loss of these suppliers or significant delays in obtaining
shipments could have a material adverse effect on the Company's operations
until such time as alternative suppliers could be found or the Company
could implement its own production capabilities.
5. INCOME TAXES:
As of December 31, 2000, the Company had approximately $1,662,000 in net
operating loss carryforwards for federal and state income tax purposes,
which expire between 2010 and 2019.
Components of deferred tax assets (liabilities) are as follows:
December 31,
2000 1999
----------- -----------
Accounts receivable $ 55,201 $ 50,356
Inventories 208,015 161,294
Accrued expenses 52,194 20,701
Depreciation (58,439) (79,330)
Stock warrants 71,579 40,181
Other 10,344 7,423
Tax credits 11,157 11,157
Net operating loss carry forwards 625,250 675,519
----------- ----------
975,301 887,301
Valuation allowance (975,301) (887,301)
----------- ----------
$ - $ -
=========== ==========
In accordance with SFAS No. 109, "Accounting for Income Taxes", valuation
allowances are provided against deferred tax assets if, based on the weight
of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company has evaluated the
realizability of the deferred tax assets on its balance sheet and has
established a valuation allowance in the amount of $ 975,301 at December
31, 2000.
F-12
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
5. INCOME TAXES (continued):
The following is a reconciliation of tax computed at the statutory federal
rate to the income tax expense in the statements of operations for the
years ended December 31, 2000 and 1999:
2000 1999
---------------------- -----------------------
Amount % Amount %
---------- ----------- ----------- -----------
Tax benefit computed at statutory federal
rate $(88,131) (34.00)% $ (120,952) (34.00)%
(8,432) (3.25) (12,158) (3.42)
State tax benefit
88,000 33.95 126,041 35.43
Change in valuation allowance
9,694 3.74 7,069 1.99
Non-deductible expenses
Other, net (1,131) (.44) -
---------- ----------- ----------- -----------
Income tax expense $ - - $ - -
========== =========== =========== ===========
F-13
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
6. CAPITAL STOCK:
CLASS A COMMON STOCK - At December 31, 2000 the Company has reserved Class
--------------------
A Common Stock for issuance in relation to the following:
Employee Stock Options 450,000
Conversion of Class B Common Stock 483,264
CLASS B COMMON STOCK - Each share of Class B Common Stock is entitled to
--------------------
five votes on all matters on which stockholders may vote, including the
election of directors. Shares of Class B Common Stock are automatically
convertible into an equivalent number of shares of Class A Common Stock
upon the sale or transfer of such shares.
STOCK WARRANTS AND UNIT PURCHASE OPTIONS - The Company had warrants and
----------------------------------------
unit purchase options to purchase shares of Class A Common Stock and Units
as originally offered in the Company's initial public offering in March,
1994. The Class A Warrants for 1,639,500 had an exercise price of $7.50 and
the Class B Warrants had an exercise price of $10.50, both expired as of
March 29, 1999. No warrants were exercised in the year ended December 31,
1999.
The Unit Purchase Option had an exercise price of $7.50 per Unit, and
expired March 22, 1999. The options were not exercised. The Unit Purchase
Option was held by the Underwriter of the Company's initial public offering
or the Underwriter's designees as defined in the initial offering. The
units consisted of a share of Class A Common Stock, a Class A Warrant and a
Class B Warrant.
In addition, the Company has 567,504 warrants outstanding in connection
with the capital transactions described below.
The Company has granted a 10-year warrant for 289,187 shares of Class A
Common Stock to the Kingstone Family Limited Partnership II ("KFLP II"), of
which Chairman and Chief Executive Officer of the Company, Brett Kingstone,
controls and is the general partner. The warrant was granted on March 31,
1997, and expires March 31, 2007. KFLP II has granted an option to
purchase up to 28,918 shares of the Class A Common Stock underlying the
warrant upon the warrant's full or partial exercise to Cooper Lighting,
Inc. ("Cooper"). KFLP II has also granted an option to purchase up to
28,918 shares of the Class A Common Stock underlying the warrant upon the
warrant's full or partial exercise to Hayward Industries, Inc. ("Hayward").
CAPITAL STOCK TRANSACTIONS - On November 23, 1998, the Company entered into
--------------------------
a Stock Purchase Agreement with Cooper Lighting, Inc. ("Cooper"), a
subsidiary of Cooper Industries, Inc. (a New York Stock Exchange Company
trading under the symbol "CBE") pursuant to which the Company sold to
Cooper 250,369 shares of its Class A Common Stock, for a purchase price of
$2,000,000. The Company incurred issuance costs associated with this
transaction of $4,377 in 1999. In addition, the Company entered into a
Distributorship Agreement (the "Distributorship Agreement") with Cooper and
Cooper Industries (Canada), Inc. ("Cooper Canada"), another subsidiary of
Cooper Industries, Inc., pursuant to which Cooper and Cooper Canada were
collectively granted the exclusive distribution rights in the United States
and Canada to the Company's fiber optic products in the commercial,
residential, industrial, institutional and public transportation markets,
including, but not limited to, any and all lighting applications in or
related to architectural lighting, accent lighting, down lighting, display
cases, landscaping, confinement, explosion-proof, clean rooms, traffic
signals, signage, outdoor area and emergency/exit lighting. In
consideration for these rights, Cooper and Cooper Canada have collectively
agreed, in accordance with the terms of the Distributorship Agreement, to
purchase up to $47,075,000 of the Company's products over a five year
period, renewable after such period. Cooper was also granted a ten year
warrant to purchase an additional 250,369 shares of Class A Common Stock of
the Company at $8.02 per share. The warrant expires November 23, 2008.
Vesting of these warrants is tied to achievement of annual minimum purchase
commitments as defined in the Distributorship Agreement.
F-14
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
6. CAPITAL STOCK (continued):
Effective July 10, 2000, Cooper notified the Company that Cooper did not
meet its minimum purchase commitment for the year ended December 31, 1999
and would not meet its purchase commitment for the year ending December 31,
2000, and further advised the Company that Cooper will not make up the
deficiencies pursuant to its option in the Distributorship Agreement to
maintain its exclusive sales rights in the Territory's Exclusive Market for
the Company's products. Upon this notification, the Company exercised its
option to not excuse the deficiency and terminate Cooper's exclusive rights
to distribute, market and sell the Company's products within the
Territory's' Exclusive Market. Effective midnight on October 31, 2000,
Cooper's exclusive rights for sale of the Company's products in the
Territory's Exclusive Market terminated. As of December 31, 2000, Cooper
did not have any vested warrants in relation to achievement of annual
minimum purchase commitments.
Additionally, the Company issued 517,950 warrants to Cooper to purchase
shares of Class A Common Stock at fair market value if the number of
outstanding shares of Class A Common Stock of the Company is increased as a
result of the exercise of the Company's currently outstanding warrants (the
"Warrants"). The warrant for 517,950 shares expired on March 29, 1999.
Cooper also has the right to designate one director to the Company's Board
of Directors.
The Company had sales to Cooper and Cooper Canada in the amount of
$1,372,493 and $106,458 respectively during 2000, as compared to $2,327,392
and $274,603 respectively during 1999. Trade accounts receivable from
Cooper and Cooper Canada amounted to $29,920 and $73,506 respectively as of
December 31, 2000, as compared to $350,563 and $202,166 respectively as of
December 31, 1999.
On September 25, 1996, the Company entered into a Stock Purchase Agreement
and Distributorship Agreement with Hayward. Under the terms of the Stock
Purchase Agreement, Hayward purchased 249,480 shares of the Company's Class
A Common Stock from the Company, at a price of $8.02 per share, the
approximate market value of the Class A Common Stock at the time. In
addition, the Company granted 249,480 matching warrants for the purchase of
additional shares, at an exercise price of $8.02 per share. Vesting of the
warrants is tied to achievement of annual minimum purchase commitments
contained in the Distributorship Agreement. The warrants have a 10-year
life and expire September 25, 2006. As of December 31, 2000, total vested
warrants in relation to Hayward's achievement of annual minimum purchase
commitments is 199,584. Additionally, the Company issued 522,000 warrants
to Hayward, as well as certain other pre-emptive rights, intended to ensure
that Hayward's ownership of the Company does not fall below 10% of the
Company's publicly traded shares. These warrants expired in May 1999. As
of December 31, 1999, 28,837 warrants were exercisable as defined in the
Stock Purchase Agreement.
The Company had sales of $3,290,337 and $1,858,884 to Hayward during 2000
and 1999, respectively. Trade accounts receivable includes $458,919 and
$444,908 due from Hayward at December 31, 2000 and 1999, respectively.
The Company derived approximately 28% of its total revenues from Hayward in
2000 compared to approximately 19% in 1999. The Company was recently
notified by Hayward of an alleged intentional violation by the Company of
the distributorship agreement to which the Company and Hayward are parties
as a result of the Company's sale of its products into the exclusive
swimming pool, spa and hot tub market granted to Hayward thereunder.
Hayward has informed the Company that it believes that the alleged
violation is a material and non-curable breach of the distributorship
agreement. As a result, the Company and Hayward have commenced
negotiations with respect to the alleged breach and the terms of their
relationship. The Company expects that these negotiations will lead to the
termination of this relationship and the distributorship agreement.
F-15
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
6. CAPITAL STOCK (continued):
ESCROWED SHARES - In connection with the Company's initial public offering,
---------------
certain stockholders agreed to place an aggregate of 2,891,870 shares of
their Class B Common Stock and 26,130 shares of Class A Common Stock into
escrow. The escrowed shares would be transferred to the Company for no
consideration if future earnings thresholds or stock bid price levels were
not achieved. In the event the Company attained any of the earnings
thresholds or stock bid prices for the release of escrowed shares to such
stockholders, the Company would recognize compensation expense at such time
based on the fair market value of the shares released to directors and
employees. During 1997, 2,891,870 shares of Class B Common Stock held in
escrow were voluntarily retired and returned to the Company treasury. Until
March 29, 1999, 26,130 shares of Class A Common Stock were held in escrow.
These shares were returned to the Company and retired in 1999.
7. STOCK OPTION PLAN:
The Company adopted a stock option plan that provides for the grant of
incentive stock options and nonqualified stock options, and reserved
450,000 shares of the Company's Class A Common Stock for future issuance
under the plan. The option price must be at least 100% of market value at
the date of the grant and the options have a maximum term of 10 years.
The following table summarizes activity of the stock option plan for the
years ended December 31, 2000 and 1999:
Options Number of Weighted
Available for Shares Average
Future Grant Under Option Option Price
-------------------- ---------------- ----------------
Balance, January 1, 1999 110,368 284,429
Options granted (111,500) 111,500 $4.58
Options exercised - (2,434) $4.15
Options cancelled 105,116 (105,116) $7.15
-------------------- ----------------
Balance, December 31, 1999 103,984 288,379
Options granted (86,650) 86,650 $7.23
Options exercised - (11,441) $5.12
Options cancelled 36,587 (36,587) $5.86
-------------------- ----------------
Balance, December 31, 2000 53,921 327,001
==================== ================
F-16
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
7. STOCK OPTION PLAN (continued):
The weighted average fair value of options granted during 2000 and 1999 was
$3.25 and $1.69 per option, respectively. At December 31, 2000, the 327,001
options outstanding under the plan are summarized in the following table:
Weighted Weighted
Option Range of Average Average
Shares Exercise Prices Exercise Price Remaining Life
------------ ----------------- -------------- --------------
125,101 $3.28 - $5.25 $4.45 7.19
74,250 $5.31 - $7.25 $6.37 7.08
127,650 $7.38 - $9.31 $8.25 7.22
Options granted vest ratably over a three-year period or vest based on
achievement of performance criteria. As of December 31, 2000, 213,639
options were vested and exercisable. These options are summarized below:
Weighted Weighted
Option Range of Average Average
Shares Exercise Prices Exercise Price Remaining Life
------------ ----------------- -------------- --------------
88,035 $3.28 - $5.25 $4.52 7.65
46,452 $5.31 - $7.25 $6.50 7.22
79,152 $7.38 - $9.31 $8.30 6.57
The Company applies the disclosure-only provisions of SFAS No. 123, but
applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, no compensation
expense has been recognized for stock options granted under the plan. If
the Company had elected to recognize compensation expense for stock options
based on the fair value at grant date, consistent with the method
prescribed by SFAS No. 123, net loss and loss per share would have been
increased to the proforma amounts shown below:
2000 1999
---------- ----------
Net loss:
As reported $(259,211) $(355,741)
Proforma loss $(408,929) $(548,437)
Basic EPS:
As reported $ (0.10) $ (0.14)
Proforma loss $ (0.16) $ (0.22)
Diluted EPS:
As reported $ (0.10) $ (0.14)
Proforma loss $ (0.16) $ (0.22)
These proforma amounts were determined using the Black-Scholes Valuation
model with the following key assumptions: (a) an average discount rate of
6.17%; (b) a volatility factor of 35% based upon volatility of a comparable
group of companies; and (c) an average expected option life of 7 years.
F-17
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
8. SIGNIFICANT CUSTOMERS/EXPORT SALES:
Sales to foreign markets and significant customers as a percentage of the
Company's total revenues were as follows:
2000 1999
----------- -----------
Foreign markets 25% 26%
Significant customers 41% 45%
9. LOSS PER SHARE:
The following table sets for the computation of basic and diluted earnings
per share:
2000 1999
--------------- ---------------
Numerator:
Net loss (numerator for basic and
Diluted loss per share) $ (259,211) $ (355,741)
=============== ===============
Denominator:
Denominator for basic loss per share
-weighted average shares 2,544,005 2,504,583
Effect of dilutive securities:
Options - -
Warrants - -
--------------- ---------------
Dilutive potential shares - -
--------------- ---------------
Denominator for diluted loss per share
-adjusted weighted average shares 2,544,005 2,504,583
=============== ===============
Basic loss per share $ (0.10) $ (0.14)
=============== ===============
Diluted loss per share $ (0.10) $ (0.14)
=============== ===============
The employee stock options and certain warrants issued to Hayward (see
Notes 6 and 7) are not included in the computation of loss per share for
2000 and 1999 because the related shares are contingently issuable or to do
so would have been anti-dilutive. The Class A and Class B warrants,
employee stock options, certain warrants issued to Hayward and the escrowed
shares (see Notes 6 and 7) are not included in the computation of loss per
share for 2000 and 1999 because the related shares are contingently
issuable or to do so would have been anti-dilutive.
F-18
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2000
10. BENEFIT PLANS:
The Company has established a profit sharing plan that permits participants
to make contributions by salary reduction pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended. The Company made matching
contributions equal to 50%, of the participants' contributions, to a
maximum of 3% of the participants' salary, totaling $37,463 and $29,874 for
2000 and 1999, respectively.
The Company has established a bonus plan, based on targeted sales levels,
which provides incentive compensation for sales employees. Amounts charged
to expense for bonuses to these employees were $65,029 and $33,049 for 2000
and 1999, respectively.
11. ADVERTISING COSTS:
The Company promotes its product lines primarily through print media. Such
media includes trade publications, trade shows and promotional brochures.
Advertising expenses included in selling, general and administrative
expenses were approximately $206,400 and $193,300 for the years ended
December 31, 2000 and 1999, respectively.
12. CONTINGENCIES:
In September 1999, WPI Electronics ('WPI") filed a lawsuit against the
Company for breach of contract in the United States District court for the
District of New Hampshire (Case number C-99-426-B) relating to the delivery
of goods and claiming approximately $576,000 in damages. The Company filed
a motion to dismiss this action and a separate action against WPI in the
U.S. District Court for the Middle District of Florida claiming that the
goods delivered by WPI were defective and claiming approximately $1,646,000
in damages including recovery of inventory on hand and goods previously
returned but already paid approximating $198,000. The Company intends to
defend the lawsuit vigorously. Due to the status of the litigation
proceedings management is unable to estimate the possible loss or recovery
or range of loss or recovery, if any at this time.
F-19
INTERIM FINANCIAL STATEMENTS
F-20
SUPER VISION INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2001 2000
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,548,916 $ 1,673,639
Investments 897,556 1,398,517
Trade accounts receivable, less allowance for doubtful
accounts of $112,721 at September 30, 2001 and $146,693
at December 31, 2000 1,802,004 2,024,701
Inventories, less reserve of $293,575 at September 30,
2001 and $411,474 at December 31, 2000 2,517,174 2,302,154
Prepaid expense 129,781 83,348
Other assets 30,519 26,000
------------ -----------
Total current assets 6,925,950 7,508,359
------------ -----------
Property and Equipment 7,177,696 6,958,365
Accumulated depreciation and amortization (2,769,586) (2,271,136)
------------ -----------
Net property and equipment 4,408,110 4,687,229
Goodwill, less accumulated amortization of $7,487 at
September 30, 2001 and $4,679 at December 31, 2000 18,717 21,524
Patents and trademarks, less amortization of $51,398 at
September 30, 2001 and $41,028 at December 31, 2000 134,371 134,321
Other Assets 166,407 160,327
------------ -----------
$11,653,555 $12,511,760
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,211,774 $ 1,317,007
Accrued compensation and benefits 7,362 86,918
Deposits 35,811 25,753
Current portion of obligation under capital lease 86,702 68,388
------------ ------------
Total current liabilities 1,341,649 1,498,066
Obligation Under Capital Lease less current portion 2,994,419 3,060,556
Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued -- --
Class A common stock, $.001 par value, authorized
16,610,866 shares, 2,082,610 and 2,065,543 issued
and outstanding at September 30, 2001 and December 31, 2,083 2,066
2000, respectively
Class B common stock, $.001 par value, authorized
3,389,134 shares, 483,264 issued and outstanding 483 483
Accumulated other comprehensive loss (23,292) (9,938)
Additional paid-in-capital 10,597,336 10,520,808
Accumulated deficit (3,259,123) (2,560,281)
------------ -----------
Total stockholders' equity 7,317,487 7,953,138
------------ -----------
$11,653,555 $12,511,760
============ ===========
See accompanying notes to unaudited condensed consolidated financial statements.
F-21
SUPER VISION INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Nine Months
Ended September 30,
2001 2000
------------------ -----------------
Revenues $8,786,708 $7,648,531
Cost and Expenses:
Cost of sales 5,849,474 5,353,641
Selling, general and administrative 3,095,439 2,168,859
Research and development 323,573 334,823
---------- ----------
Total costs and expenses 9,268,486 7,857,323
Operating Loss (481,778) (208,792)
Non-Operating Income (Expense):
Interest income 102,659 133,437
Interest expense (324,453) (329,721)
Other income 12,550 83,570
Gain (Loss) on sale of investments (7,820) 3,135
Loss on disposal of fixed assets - (15,531)
---------- ----------
Total net non-operating expense (217,064) (125,110)
Loss Before Income Taxes (698,842) (333,902)
Income Tax Expense - -
---------- ----------
Net Loss $ (698,842) $ (333,902)
========== ==========
Net Loss Per Common Share:
Basic $ (0.27) $ (0.13)
========== ==========
Diluted $ (0.27) $ (0.13)
========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
F-22
SUPER VISION INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Nine Months
Ended September 30,
2001 2000
---------- -----------
Cash Flows from Operating Activities:
Net loss $ (698,842) $ (333,902)
Adjustments to reconcile net loss to net cash (used in) provided by
Operating activities:
Depreciation and amortization 522,926 531,051
Loss on disposal of fixed assets -- 15,531
(Decrease) increase in inventory reserve (117,899) 147,262
Changes in operating assets and liabilities:
Unrealized loss on available for sale securities (13,354) --
(Increase) decrease in:
Trade accounts receivable, net 222,697 515,724
Inventories (97,122) (366,209)
Prepaid expense (46,433) (61,753)
Other assets (21,897) 43,828
Increase (decrease) in:
Accounts payable (105,233) (262,583)
Accrued compensation and benefits (79,556) (69,104)
Deposits 10,058 (7,922)
---------- ----------
Total adjustments 274,187 485,825
---------- ----------
Net cash (used in) provided by operating activities (424,655) 151,923
Cash Flows from Investing Activities:
Purchase of property and equipment (219,331) (114,213)
Proceeds from sale of investments 1,001,910 --
Purchase of investments (500,949) (16,884)
Acquisition of patents and trademarks (10,420) (2,028)
Deposits on equipment -- (12,559)
Proceeds from disposal of equipment and furniture -- 4,118
---------- ----------
Net cash provided by (used in) investing activities 271,210 (141,566)
Cash Flows from Financing Activities:
Cost on issuance of common stock -- 36,174
Payments on capital lease obligation (47,823) (34,478)
Proceeds from exercise of employee stock options 76,545 58,577
---------- ----------
Net cash provided by financing activities 28,722 60,273
---------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents (124,723) 70,630
Cash and Cash Equivalents, beginning of period 1,673,639 1,172,855
---------- ----------
Cash and Cash Equivalents, end of period $1,548,916 $1,243,485
========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
F-23
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Summary of Significant Accounting Policies:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Super Vision
International, Inc. and its wholly owned subsidiary Oasis Waterfalls, LLC
(collectively, the "Company"). All significant inter-company balances and
transactions have been eliminated.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only
of normal recurring accruals necessary to present fairly the Company's
consolidated financial position, results of operations and cash flows for
the periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for
the full year.
The condensed consolidated financial statements should be read in
conjunction with the financial statements and the related disclosures
contained in the Company's Form 10-KSB dated March 22, 2001, filed with the
Securities and Exchange Commission.
Business
The Company is engaged in the design, manufacture and marketing of SIDE-
GLOW/(R)/ and END GLOW/(R)/ fiber optic lighting cables, light sources,
waterfalls and "point-to-point" fiber optic signs and displays as well as
LED lighting products. The Company's products have a wide variety of
applications in the signage, swimming pool, architectural, advertising and
retail industries.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Research and Development
Research and development costs to develop new products are charged to
expense as incurred.
Advertising
Advertising costs, included in selling, general and administrative
expenses, are expensed when the advertising first takes place.
F-24
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
1. Summary of Significant Accounting Policies (Continued:
Cash Equivalents
Temporary cash investments with an original maturity of three months or
less are considered to be cash equivalents.
Investments
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair
value, with the unrealized gains and losses, net of tax, reported as
comprehensive income (loss) and in a separate component of stockholders'
equity. The amortized costs of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in investment income. Realized
gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income. The cost
of securities sold are based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are
included in investment income. Unrealized losses on securities at
September 30, 2001 or December 31, 2000 were $23,292 and $9,938
respectively.
At September 30, 2001, investments were comprised of equity securities of
$904,903. The investment in U.S. Corporate Securities matured in August
2001.
Derivative Investments and Hedging Activities
As of January 1, 2001, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities. FASB Statement 133 requires the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If a derivative
is a hedge, depending on the nature of the hedge, changes in the fair value
of the derivative will either offset against the change in fair value of
the hedged item through earnings or be recognized in comprehensive income
until the hedged item is recognized in earnings. As of and since the
adoption of FASB 133, the Company has not entered into any derivative
instruments, as defined in the statement.
F-25
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
2. Inventories:
Inventories consisted of the following components:
(Unaudited)
September 30, December 31,
2001 2000
---------------- --------------
Raw materials $ 1,990,971 $ 1,759,504
Work in progress 8,083 12,461
Finished goods 811,695 941,663
---------------- --------------
2,810,749 2,713,628
Less: Reserve for excess inventory (293,575) (411,474)
---------------- --------------
$ 2,517,174 $ 2,302,154
================ ==============
3. Capital Lease:
The Company leases its operating facility from a corporation owned by the
Company's Chief Executive Officer. The lease has a fifteen-year term, and
became effective June 15, 1997, extending through June 15, 2012.
Assets recorded under capital lease and included in property and equipment
are as follows:
Office/Warehouse building $3,081,000
Less accumulated amortization (872,950)
----------
$2,208,050
----------
Future minimum annual lease payments for remainder of 2001 and years
subsequent thereto in the aggregate are as follows:
2001 $ 154,249
2002 610,596
2003 628,404
2004 641,127
2005 659,821
2006 and thereafter 4,604,030
-----------
Minimum lease payments 7,298,227
Less amount representing interest and executory costs (4,217,106)
-----------
Present value of net minimum lease payments under capital lease $ 3,081,121
===========
Deposits paid under this lease agreement totaled $59,167 at September 30,
2001.
F-26
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
4. Stock Option Plan:
The Company has a stock option plan that provides for the grant of incentive
stock options and nonqualified stock options for up to 450,000 shares of the
Company's Class A common stock under the plan. The option price must be at
least 100% of market value at the date of the grant.
The following table summarizes activity of the stock option plan for the
nine-month period ended September 30, 2001:
Number
Options Of Option
Available for Shares Price
Future Grant Under Option Per Share
------------ ------------- -------------
Balance, January 1, 2001 53,921 327,001 $3.28 - $9.31
Options granted (40,100) 40,100 $5.88 - $7.63
Options exercised - (17,067) $3.28 - $6.00
Options cancelled 24,050 (24,050) $5.94 - $9.31
------------ -------------
Balance, September 30, 2001 37,871 325,984
============ =============
Options granted vest ratably over a three-year period or vest based on
achievement of certain performance criteria. As of September 30, 2001,
241,023 options were vested and exercisable.
F-27
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
5. Loss Per Share:
The following table sets forth the computation of basic and diluted loss
per share in accordance with SFAS No. 128, "Earnings per Share."
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
----------- ----------- ----------- ------------
Numerator:
Net loss (numerator for basic and
diluted earnings per share) $ (418,804) $ (68,870) $ (698,842) $ (333,902)
Denominator:
Denominator for basic earnings per share
-weighted average shares 2,565,582 2,572,095 2,558,735 2,568,556
Effect of dilutive securities:
Options - - - -
Warrants - - - -
----------- ----------- ----------- ------------
Dilutive potential shares - - - -
Denominator for diluted earnings per share 2,565,582 2,572,095 2,558,735 2,568,556
-adjusted weighted average shares
=========== =========== =========== ============
Basic loss per share $ (0.16) $ (0.03) $ (0.27) $ (0.13)
=========== =========== =========== ============
Diluted loss per share $ (0.16) $ (0.03) $ (0.27) $ (0.13)
=========== =========== =========== ============
Certain warrants are not included in the computation of loss per share
because the related shares are contingently issuable or to do so would have
been anti-dilutive for the periods presented.
6. Contingencies
Effective as of July 26, 2001, the Company and Hayward Industries, Inc.
("Hayward") entered into an agreement (the "Primary Agreement") resolving
primary issues relating to the distribution relationship between the
parties, including the Distributorship Agreement between the Company and
Hayward dated as of September 25, 1996 (the "Distributorship Agreement").
Effective August 15, 2001 the Company and Hayward executed a Confidential
Resolution Agreement incorporating the terms and conditions of the Primary
Agreement and resolving all of the remaining issues relating to their
business relationships.
Pursuant to the terms of the Confidential Resolution Agreement, Hayward has
requested the Company to repurchase (at Hayward's cost of $300,000) certain
fiber optic lighting products previously sold by the Company to Hayward.
The Company is obligated to deliver $150,000 to Hayward on or before
December 31, 2001 and $150,000 on or before January 1, 2002. In connection
with exercising this option to request the company to repurchase certain
inventory, Hayward has elected to forfeit warrants covering 49,896 shares
of the Company's class A common stock. The shares underlying Hayward's
remaining warrants and other shares of the Company's stock owned by Hayward
are subject to certain registration rights.
F-28
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
6. Contingencies (Continued):
In accordance with the Confidential Resolution Agreement, the Company has
dismissed all of it's litigation against Hayward for alleged violations of
previous contracts and relationships and Hayward has released claims,
rights and causes of action it has alleged against the Company as outlined
in the Confidential Resolution Agreement. Under the Confidential Resolution
Agreement the Distributorship Agreement terminated effective September 30,
2001, including Hayward's exclusive worldwide rights to sell the Company's
pool related products.
As part of the Confidential Resolution Agreement, Hayward has agreed not to
sell fiber optic pool lighting products to customers in the United States
or Canada, and the Company has agreed to pay Hayward royalties on gross
sales of fiber optic pool lighting products sold by the Company to
customers in the United States and Canada over a term of five years, at the
rate of 5% of gross sales in the first year, 3% in the second and third
years, and 2% in the fourth and fifth years; with a $100,000 minimum
payment during each of years one and two.
Pursuant to the terms of the Confidential Resolution Agreement, Hayward has
requested the Company to repurchase (at Hayward's cost of $300,000) certain
fiber optic lighting products previously sold by the Company to Hayward.
The Company is obligated to deliver $150,000 to Hayward on or before
December 31, 2001 and $150,000 on or before January 1, 2002. In connection
with exercising this option to request the company to repurchase certain
inventory, Hayward has elected to forfeit warrants covering 49,896 shares
of the Company's class A common stock. The shares underlying Hayward's
remaining warrants and other shares of the Company's stock owned by Hayward
are subject to certain registration rights.
F-29
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, Super Vision
can indemnify its directors and officers against liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933, as
amended, or the Securities Act. Our Certificate of Incorporation and Bylaws
provide that we will indemnify our directors and officers to the fullest extent
permitted by Delaware law. Our Certificate of Incorporation also includes a
provision limiting director liability to us, or our stockholders, for monetary
damages arising from certain acts or omissions in a director's capacity as a
director. In addition, we have the ability to maintain insurance on behalf of
our directors and officers to insure them against any liability asserted against
them in their capacities as directors or officers or arising out of such status.
Our registration rights agreement with the selling stockholder contains
reciprocal agreements of indemnity between us and the selling stockholders as to
certain liabilities, including liabilities under the Securities Act and in
certain circumstances could provide for indemnification of our directors and
officers.
We have entered into indemnification agreements with each of our
directors and executive officers which provide that we will indemnify our
directors and executive officers against expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by a director or
executive officer in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties as an
officer, director, employee or agent of our company.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses of this offering, all of which are to be paid by
the Registrant, are as follows:
SEC Registration Fee $ 685.01
Printing Expenses 1,000.00
Accounting Fees and Expenses 20,000.00
Legal Fees and Expenses 25,000.00
Miscellaneous Expenses 1,500.00
Total $48,185.01
Item 26. Recent Sales of Unregistered Securities
During the past three years, the Registrant has sold the following
securities pursuant to exemptions form registration under the Securities Act of
1933, as amended:
1. On November 23, 1998, we entered into a Stock Purchase Agreement
with Cooper Lighting, Inc., a subsidiary of Cooper Industries, Inc. (a New York
Stock Exchange Company trading under the symbol "CBE") pursuant to which we sold
to Cooper Industries, Inc. 250,369 shares of our Class A common stock, for a
purchase price of $2,000,000. In addition, we entered into a distributorship
agreement with two of Cooper's subsidiaries pursuant to which they were granted
certain exclusive distribution rights in the United States and Canada to market
and sell our fiber optic lighting products in certain markets including the
architectural market. Cooper was also granted a ten-year warrant to purchase an
additional 250,369 shares of Class A
II-1
Common Stock of the Company at $8.02 per share. Vesting of this warrant was tied
to achievement of certain annual minimum purchase commitments by Cooper. Cooper
did not meet its minimum purchase commitments. As of a result, Cooper cannot
purchase any shares under this warrant. In addition, we issued 517,950 warrants
to Cooper to purchase shares of our Class A common stock at fair market value if
the number of our outstanding shares of Class A common stock increased as a
result of the exercise of other outstanding warrants to purchase our stock. This
warrant expired unexercised in May 1999.
On March 27, 1997, we granted a 10-year warrant for 289,187 shares of our
Class A common stock to the Kingstone Family Limited Partnership II ("KFLP II"),
of which our Chairman and Chief Executive Officer, Brett Kingstone, controls and
is the general partner. As part of the November 1998 transaction with Cooper,
KFLP II granted an option to purchase up to 28,918 shares of the Class A common
stock underlying the warrant upon the warrant's full or partial exercise to
Cooper.
KFLP II has also granted an option to purchase up to 28,918 shares of the
Class A common stock underlying the warrant upon the warrant's full or partial
exercise to Hayward Industries, Inc.
The foregoing sales were made in reliance on Section 4(2) of the Securities
Act of 1933. No general advertisement or solicitation of offerees was made and
all purchasers signed and delivered to the Registrant agreements wherein they
represented, among other things, that the securities would be held for their own
account for investment only and not with the intent to engage in a distribution
of such securities. The certificates representing such securities bear legends
restricting transferability in transactions not registered under the Securities
Act of 1933, and the securities registers of the Registrant bear stop transfer
legends.
Item 27. Exhibits
3.1 Certificate of Incorporation of the Company/(1)/
3.2 Amendment to Certificate of Incorporation/(1)/
3.3 Amendment to Certificate of Incorporation/(8)/
3.4 Amendment to Certificate of Incorporation/(7)/
3.5 Bylaws/(1)/
4.1 Form of Class A Common Stock Certificate*
5.1 Opinion of Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A.*
10.1 Super Vision International, Inc. 1994 Stock Option Plan, as
amended and restated/(7)/
10.2 Employment Agreement between the company and Brett M.
Kingstone/(1)/
10.3 Form of Indemnification Agreement/(1)/
10.4.1 Lease for Presidents Drive facility*
10.4.2 Amendment to lease for Presidents Drive facility*
10.5 Warrant Agreement dated as of March 31, 1997 between the
company and Brett M. Kingstone/(2)/
10.6 Stock Purchase Agreement between the company and Hayward
Industries, Inc. dated as of September 25, 1996, including
exhibits/(3)/
10.7 Stock Purchase Agreement between the company and Cooper
Lighting, Inc. dated as of November 23, 1998, including
exhibits/(4)/
10.8 Agreement between the Kingstone Family Limited Partnership II
and Hayward Industries, Inc. dated as of March 9, 1999*
10.9 Amendment to Registration Rights Agreement between the company
and Hayward Industries, Inc. dated as of March 9, 1999*
21.1 Subsidiaries of the Registrant/(9)/
23.1 Consent of Ernst & Young LLP (included in Part II of the
Registration Statement)*
II-2
23.2 Consent of Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A.
(included in its opinion filed as Exhibit 5.1 hereto)*
24.1 Power of Attorney (included on signature page of Registration
Statement)*
- -------------------------
*Filed herewith
/(1)/ Incorporated by Reference to the Registrant's Registration Statement on
Form SB-2 (File No. 33-74742)
/(2)/ Incorporated by Reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarter ended June 30, 1997
/(3)/ Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 25, 1996
/(4)/ Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarter ended September 30, 1997
/(5)/ Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1997
/(6)/ Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarter ended September 30, 1998
/(7)/ Incorporated by reference to the Registrant's Definitive Proxy Statement
filed April 29, 1997
/(8)/ Incorporated by reference to the Registrant's Definitive Proxy Statement
filed April 22, 1998
/(9)/ Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 2000
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions, or otherwise, the company has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the company of expenses incurred or paid by a
director, officer or controlling person of the company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes:
II-3
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
2. That, for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Orlando, State of Florida, on the 19th day of
November 2001.
SUPER VISION INTERNATIONAL, INC.
By: /s/ Brett M. Kingstone
-----------------------------
Brett M. Kingstone, Chairman
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signatures" constitutes and appoints Brett M. Kingstone
his true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, acting alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully for all intents and purposes as he might or could
do in person hereby ratifying and confirming all that said attorney-in-fact and
agent, acting alone, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated:
Signatures Title Date
- ---------- ----- --------
/s/ Brett M. Kingstone
- -----------------------------------
Brett M. Kingstone Chairman of the Board and Chief November 19, 2001
Executive Officer (Principal Executive
Officer)
/s/ Larry J. Calise
- -----------------------------------
Larry J. Calise Chief Financial Officer (Principal November 19, 2001
Financial and Accounting Officer)
/s/ Anthony T. Castor
- -----------------------------------
Anthony T. Castor Director November 19, 2001
/s/ Brian McCann
- -----------------------------------
Brian McCann Director November 19, 2001
II-5
/s/ Edgar Protiva
- ----------------------------------
Edgar Protiva Director November 19, 2001
/s/ Robert Wexler
- ----------------------------------
Robert Wexler Director November 19, 2001
/s/ Fritz Zeck
- ----------------------------------
Fritz Zeck Director November 19, 2001
II-6
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 7, 2001, with respect to the financial statements
of Super Vision International, Inc. included in the Registration Statement (Form
SB-2 No. 333-00000) and related Prospectus of Super Vision International, Inc.
for the registration of 428,086 shares of its common stock.
/s/ Ernst & Young LLP
Orlando, Florida
November 19, 2001
II-7
EXHIBIT INDEX.doc
EXHIBIT INDEX
-------------
4.1 Form of Class A Common Stock Certificate
5.1 Opinion of Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A.
10.4.1 Lease for Presidents Drive facility
10.4.2 Amendment to lease for Presidents Drive facility
10.8 Agreement between the Kingstone Family Limited Partnership II and
Hayward Industries, Inc. dated as of March 9, 1999
10.9 Amendment to Registration Rights Agreement between the company and
Hayward Industries, Inc. dated as of March 9, 1999
23.1 Consent of Ernst & Young LLP (included in Part II of the Registration
Statement)
23.2 Consent of Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A.
(included in its opinion filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (included on signature page of Registration
Statement)