U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 0-23590
SUPER VISION INTERNATIONAL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 59-3046866
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
8210 PRESIDENTS DR., ORLANDO, FLORIDA 32809
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(Address of Principal Executive Offices) (Zip Code)
(407) 857-9900
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12 (b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
CLASS A COMMON STOCK, $.001 PAR VALUE
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YES
[X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $11,785,237.
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant computed by reference to the last sales price
at which the stock was sold on March 15, 2002 was $7,897,815.
As of March 15,2002, there were issued and outstanding: 2,083,110 shares of
Class A Common Stock, $.001 par value and 483,264 shares of Class B Common
Stock, $.001 par value
Transitional Small Business Disclosure form (check one):
Yes[ ] No [X]
Documents Incorporated by Reference:
Portions of the Company's definitive proxy statement in connection with its
Annual Meeting of stockholders scheduled to be held on May 14, 2002 are
incorporated by reference in Part III. The Company's definitive proxy statement
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 2001.
PART I
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Item 1. Description of Business.
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GENERAL
Super Vision International, Inc. (the "Company") is a designer and
manufacturer of LED and fiber optic lighting products, signs and displays for
applications in the signage, swimming pool, architectural, and retail
industries. The Company derives its 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. The Company also
designs, markets and sells fiber optically lit waterfalls and water features.
The Company markets and distributes products primarily through a network of
independent sales representatives and distributors.
The Company was incorporated in Delaware on December 16, 1993 and is
the successor by merger to a Florida corporation of the same name, which was
incorporated in January 1991. The Company's executive offices are located at
8210 Presidents Dr., Orlando, Florida 32809 and its telephone number is (407)
857-9900.
PRODUCTS AND SERVICES
SIDE-GLOW(R)AND END GLOW(R)CABLES
The Company's SIDE-GLOW(R)fiber optic lighting cables utilize a
patented center core in the manufacturing process to produce a plastic cable
which, when used in conjunction with halogen or metal -halide light source,
emits light along its entire length. The Company markets SIDE-GLOW(R) cable as
an alternative to neon lighting for indoor and outdoor architectural accents and
large signs and displays. The 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, the Company
believes the benefits of its SIDE-GLOW(R) cable outweigh these factors for a
large segment of the current neon market. 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.
The Company markets its END GLOW(R) cables in conjunction with its 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 its state of the art fiber optic
cabling systems, the Company is 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.
The Company's 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 2001, the Company's SIDE-GLOW(R) and END GLOW(R) cable products
accounted for approximately 35% of the Company's total revenues. The Company
believes that this product area offers the largest growth potential and,
therefore, the Company intends to devote the majority of its engineering, sales
and marketing efforts to expand this area of its business and the related light
sources product line described below.
2
LIGHT SOURCES
The Company manufactures a variety of light sources used in
conjunction with its 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. The Company currently manufactures
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. The Company also manufactures a wide
variety of custom light sources for specific market needs based on a survey of
the customer's lighting application.
The Company utilizes control systems with its light sources to allow
for customization of lighting systems. All of the Company's 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 the Company's proprietary control systems to create special
lighting effects.
Light source product lines represented approximately 39% of the
Company's total revenue during 2001. The Company believes that maintaining a
competitively priced and commercially superior line of light sources is critical
to continued growth in all of the Company's product lines and markets. The
Company plans to devote significant resources to continue development of these
products and markets.
ENDPOINT SIGNS AND DISPLAYS
The Company designs, manufactures, and installs 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 2001, endpoint signs and displays accounted for
approximately 5% of the Company's total revenues.
LIGHTING ACCESSORIES
The Company sells a variety of lighting accessories and fixtures for
use with its 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. The Company
believes that providing these fixtures and accessories to the market enhances
the Company's ability to market its fiber optic products as a full lighting
package, as opposed to a component line. During 2001, lighting accessories
accounted for approximately 9% of the Company's total revenues.
LED LIGHTING SYSTEMS
During the first half of 2001, the Company 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. The Company's FlexLED product was designed
specifically for illuminating channel letters. LED lighting systems accounted
for approximately 4% of the Company's total revenue in 2001.
WATERFALLS
The Company designs and manufactures fiber optically lit waterfalls
and water features primarily used in swimming pools and spas, through its wholly
owned subsidiary, Oasis Waterfalls LLC. During 2001, sales of Oasis Waterfalls
LLC products and services accounted for approximately 8% of the Company's total
revenue.
SALES AND MARKETING
The Company's products are utilized in a wide variety of applications;
consequently, the Company utilizes numerous marketing channels and strategies to
address target users.
From November 1998 to October 2000, the Company 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 the Company's products to certain
markets including the architectural lighting market. In consideration for these
rights, Cooper agreed to purchase up to $47,075,000 of the Company's products
over a five-year period. Cooper did not meet its minimum purchase commitments.
Effective October 31, 2000, Cooper and the Company mutually agreed to terminate
the exclusive distribution agreement. The Company did not derive any revenue
from Cooper
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during 2001, compared to approximately 13% in 2000. Separate from the
distributorship agreement with Cooper, the Company received an order from Regent
Lighting Corporation, an affiliate of Cooper, in September 2000, to supply
outdoor lighting products. The Company derived approximately $839,000 or 7% of
its total revenues from Regent Lighting Corporation during 2001, compared to
approximately 13% in 2000.
The Company currently markets and distributes its products through a
network of approximately 90 individual lighting agencies covering the United
States and Canada. The independent lighting agencies provide assistance in the
lighting specification process and direct the customer to purchase products from
the Company.
From September 1996 to October 2001, the Company 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 the Company's fiber optic lighting products
in the swimming pool and spa market. On August 15, 2001, the Company reached an
agreement with Hayward terminating Hayward's exclusive distribution rights, as
of September 30, 2001. The agreement with Hayward allowed the Company to
commence direct selling of its 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. The Company
derived approximately 16% of its total revenues from Hayward in 2001 compared to
approximately 28% in 2000.
The Company currently markets and sells its lighting products in the
swimming pool and spa market through a network of independent manufacturer's
representatives. The Company believes the new direct distribution channels will
allow it to more closely serve its customers as well as offer new services such
as the bundling of product and installation.
International sales accounted for approximately 26% of the Company's
total revenue for 2001 compared to approximately 25% in 2000. The Company enters
into exclusive and non-exclusive marketing and sales arrangements with leading
lighting companies in international territories. The Company provides technical
expertise and limited marketing support, while its international distributors
provide sales staff, local marketing, and product service. The Company believes
its international distributors are better able to service international markets
due to their understanding of local market conditions and best business
practices.
The Company utilizes a combination of direct marketing and
manufacturer's representatives for its signage product lines in order to reduce
end user costs. The Company also markets endpoint signs and displays directly to
end users, principally Fortune 500 companies worldwide. The Company also
utilizes direct sales efforts to create specific applications for its lighting
products for large national commercial and retail lighting projects, including
original equipment manufacturer (OEM) opportunities.
MANUFACTURING AND SUPPLIERS
The fiber optic strands used in the Company's endpoint signs and
displays, as well as the production of its SIDE-GLOW(R) and END GLOW(R) cables,
are purchased from a key Japanese supplier. While the Company believes there are
alternative sources for the fiber optic strands used in the production of its
endpoint signs and displays, the Company believes its SIDE-GLOW(R) and END
GLOW(R) cables require fiber optic material of a higher quality than is
generally available elsewhere.
The Company uses customized cabling and extrusion equipment to
internally produce its SIDE-GLOW(R)and END GLOW(R) cables. In August 1997,
simultaneously with relocating to the Company's current facility, the Company
upgraded and retrofitted its cabling and extrusion equipment to increase quality
and production capability. Monitoring and, when desirable, revising the
manufacturing process has allowed the Company to increase quality, improve
capabilities and maintain process control. In the event the cabling and
extrusion equipment is ever disabled for any significant period of time, the
Company could outsource the manufacturing of its products.
The Company manufactures the light sources and control systems used
with its SIDE-GLOW(R) and END GLOW(R) cables and endpoint signs and displays in
its facility in Orlando, Florida. The designs of the light sources are
considered proprietary, and the Company has U.S. patents issued with respect to
certain designs. All endpoint signs and displays are manufactured directly by
the Company based on the clients' specifications, or designed jointly by the
Company's design personnel and its client. The Company believes its ability to
offer a full range of products, and design, engineering and support services,
are unique in the market place, and are important to its future growth.
RESEARCH AND PRODUCT DEVELOPMENT
The Company constantly strives to enhance its existing products. The
Company plans to develop additional products and identify new markets and
distribution channels. The Company considers its ability to constantly improve
existing
4
products, rapidly introduce new products to fill identified needs, and design
solutions for custom applications to be critical to its growth. The Company
believes its responsiveness to the market to be an important differentiating
factor, and it will continue to provide rapid response to market trends. The
Company believes 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 the Company currently employs. Accordingly, the Company
plans to continue to explore joint product development activities with its
marketing partners to maintain its competitive advantage and defend its market
position.
During 2001 the Company, spent approximately $456,000 on engineering
and product development activities, as compared to approximately $455,000 in
2000. The Company feels its future success will depend, in large part, on its
ability to continue to improve and enhance its existing products as well as
develop new products and applications for its LED and fiber optic lighting
technologies.
The Company believes increased levels of spending on research and
development is 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 identified, increased levels of spending on product
development may occur so the Company can rapidly design, engineer and produce
products to fill these market needs.
COMPETITION
The Company currently faces 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 the Company's operating results.
Traditional lighting technologies have the advantage of a long history
of market acceptance and familiarity as compared to the Company's fiber optic
products. The Company believes that education of its target market as to the
advantages of fiber optic lighting systems is critical to its future.
The Company competes with traditional lighting on the basis of
maintenance costs, safety issues, energy consumption, price and brightness. The
Company believes its products can effectively compete against traditional
lighting in the areas of maintenance costs, safety and energy consumption. The
Company's 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, the Company's 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. The Company's 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.
The Company's 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, the Company's
products may not be able to compete effectively with traditional lighting
products.
The Company currently faces competition from a defined number of
companies directly involved in the field of fiber optic lighting addressed by
its SIDE-GLOW(R) and END GLOW(R) cables and light source products. These
companies utilize a technology similar to the Company and compete generally on
the basis of price and quality. The Company believes it may compete favorably in
markets where price is the central issue. 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 related selling price, and consequently, erode the
Company's price advantage.
5
PATENTS AND PROPRIETARY RIGHTS
The Company considers its technology and procedures proprietary and
relies primarily on patent and trade secret laws and confidentiality agreements
to protect its technology and innovations. Employees of the 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 proprietary and trade secret
information of the Company and the assignment to the Company of all inventions,
improvements, technical information and suggestions relating in any way to the
business of the Company (whether patentable or not) which the employee or
consultant develops during the period of their employment or association with
the Company. Despite these restrictions, it may be possible for competitors or
customers to copy one or more aspects of the Company's products or obtain
information that the Company regards as proprietary. Furthermore, there can be
no assurance that others will not independently develop products similar to
those sold by the Company. The Company therefore believes that producing the
highest possible quality products at the most competitive prices is the best
means to protect against competitive innovations.
The Company has been issued a United States patent relating to the
reflective center core used in the process of manufacturing its SIDE-GLOW(R)
cables and has received Patent Cooperation Treaty protection of this patent
overseas. The Company also has two United States patents on methods of
manufacturing alternative versions of fiber optic cables. Additionally, the
Company has 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,
the Company believes that expansion of the applications for its fiber optic
technologies are important to the possible achievement of future growth
objectives. The Company has a fifth patent related to its light source
technology and a device for connecting fiber optic cables to the light source.
The Company also has several patent applications pending with respect to a
variety of new product innovations and manufacturing methods.
The Company will continue to seek patent protection where appropriate
for future developments, improvements and enhancements to its technology. There
can be no assurance, however, that the Company's patent or patents that may be
issued in the future will provide the Company with sufficient protection in the
case of an infringement of its technology or that others will not independently
develop technology comparable or superior to the Company's. Although the Company
believes that the products sold by it 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 the Company are deemed to infringe upon the patents or proprietary
rights of others, the Company could be required to modify its products or obtain
a license for the manufacture and/or sale of such products.
The Company has obtained approval for a registered trademark for the
"Super Vision" name, and has filed for a European community trademark.
Additionally, the Company has obtained registered trademarks on the brand names
SIDE-GLOW(R) and END GLOW(R) related to the Company's fiber optic cables, and
European community trademark applications have been filed as well. The Company
believes the trademarks may help in its efforts to achieve brand recognition,
although there can be no assurance to such effect.
EMPLOYEES
At March 6, 2002, the Company had 62 full-time employees, including 5
in research and development, 15 in sales, marketing and customer service, 13 in
finance and administration and 29 in production and quality control. None of the
Company's employees are currently covered by a collective bargaining agreement
and the Company considers its employee relations to be good. The Company also
utilizes temporary and part time employees as required by the volume of
business, primarily in the area of production.
6
Item 2. Description of Property.
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The Company's 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 $598,000 in 2001. Max King Realty, an entity
controlled by Brett Kingstone, the Chairman and Chief Executive Officer of the
Company, owns the building that houses the Company's facilities. On March 1,
2002 the Company entered into an agreement to sub-lease 20,000 square feet of
office/warehouse space within its facility. The term of the sub-lease began
March 1, 2002 and ends on February 28, 2003. The monthly rent payable to the
Company is $13,250 per month plus expenses for a pro rata portion of power and
water consumption.
Item 3. Legal Proceedings.
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On November 18, 1999 the Company filed a lawsuit (case number
CI-99-9392) in the Circuit Court of the 9th Judicial Circuit in and for Orange
County Florida against 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 (collectively, the "Defendants"). This is an industrial espionage
action in state court. The Company has made various allegations against the
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 replevin and other equitable relief (i.e., accounting, constructive trust
and injunctive relief). The Defendants have been enjoined from further violating
their respective non-compete and confidentiality agreements with the Company.
They are also prohibited from the exploitation of business opportunities or
prospective business opportunities of the Company and enjoined from any and all
acts, omissions or behavior which in any way has an adverse effect on the
Company's property interests. Three of the Defendants, Gitto/Global Corporation,
Nick Semenza and James Grimely have been dismissed from the litigation by the
Company. One of the Defendants, Marsam Trading Corporation, which filed for
bankruptcy in November 1999, was recently granted a dismissal from its Chapter
11 action; thus lifting the automatic stay that otherwise shields a debtor from
any state court actions against it. This will enable the Company to proceed
against Marsam in court. 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. As of May 15, 2000 Jose Rosario Cruz
and Ronald Elgin Simon were dismissed as parties in the case. The Defendants
have filed counterclaims against the Company for wrongful injunction, attempted
monopolization, and conversion. The Company believes it has meritorious defenses
to these counterclaims. The Defendants respective motions to dismiss the
Company's amended complaint were denied by the court. The defendants have
answered the complaint, denying everything and maintaining their counterclaims.
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. The case has not yet been scheduled for trial. Plans are to
vigorously pursue this lawsuit.
On March 4, 2002, the Company filed a lawsuit (case number
6:02-CV-270-ORL-19JGG ) in the United States District Court for the Middle
District of Florida against Color Kinetics Incorporated ("Color Kinetics"). This
is an action for declaratory judgment that certain patents of Color Kinetics are
invalid, that the Company's products do not infringe any of such patents, and
that such patents are unenforceable. Color Kinetics has notified the Company
that it believes that certain Company products may infringe certain of Color
Kinetics' patents for LED lighting systems. The Company intends to vigorously
defend itself against this allegation.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of the security holders of the
Company during the fourth quarter of the fiscal year covered by this report.
7
PART II
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Item 5. Market for Common Equity and Related Stockholder Matters.
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(a) The Company's Class A Common Stock has traded on the Nasdaq
SmallCap Market under the symbol SUPVA since March 22, 1994. The following table
sets forth the high and low bid prices of the Class A Common Stock for the
fiscal years ended December 31, 2001 and 2000 as reported by the NASDAQ Small
Cap Market.
Bid Prices
High Low
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Year ended
December 31, 2001
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First Quarter 7 5-1/2
Second Quarter 7-3/5 6-1/8
Third Quarter 7 5-3/4
Fourth Quarter 6-3/4 5-1/10
Year ended
December 31, 2000
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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
Such market quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not necessarily represent actual
transactions.
(b) The number of holders of record of the Company's Class A Common
Stock as of March 15, 2002 was 34.
(c) The Company has never paid a cash dividend on its Common Stock
(either Class A or Class B) and intends to continue to follow a policy of
retaining earnings to finance future growth. Accordingly, the Company does not
anticipate the payment of cash dividends to holders of Common Stock in the
foreseeable future.
Item 6. Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
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The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing elsewhere
in this report.
Results of Operations
Revenues
Revenues are derived primarily from sales of SIDE-GLOW(R) and END GLOW(R)
fiber optic cables, light sources, lighting accessories, endpoint signs and
displays along with fiber optically lit waterfalls and water features. Revenues
for 2001 were approximately $11,785,000 as compared to approximately $11,654,000
during the preceding year, an increase of approximately $131,000 or 1%. The
increase was primarily the result of growth in the architectural and waterfalls
markets, which increased 21% and 119% respectively over 2000. Revenues from the
sign and pool and spa markets decreased 13% and 40% respectively as compared to
2000.
The Company derived approximately 16% of its total revenues from Hayward
Pool Products, Inc. in 2001 compared to approximately 28% in 2000. Previously,
Hayward was the exclusive worldwide distributor of the Company's fiber optic
lighting products in the swimming pool and spa market. On August 15, 2001, the
Company reached an agreement with Hayward terminating Hayward's exclusive
distribution rights as of September 30, 2001. The agreement with Hayward allowed
the Company to commence direct selling of its 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 Company has agreed to pay Hayward royalties on gross sales
of fiber optic pool lighting products sold in the U.S. and Canada
8
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 due during each of the Company's fiscal years ending
December 31, 2002 and 2003. Pursuant to the agreement, Hayward also agreed to
return certain fiber optic lighting products previously sold by the Company to
Hayward and to return vested warrants covering 49,896 shares of the Company's
Class A common stock previously issued to Hayward all in exchange for $300,000
paid by the Company to Hayward in December 2001. The settlement payment of
$300,000 was allocated to the returned inventory at its fair market value of
approximately $155,000, to the returned vested warrants at their fair market
value on August 15, 2001, the measurement date, of approximately $43,000 and the
balance of the settlement payment of approximately $102,000 was recorded as a
one-time charge to operations in December 2001. The inventory repurchased from
Hayward represents the Company's manufactured fiber optic lighting products,
which had been directly purchased by Hayward from the Company from January 1,
2000 through September 30, 2001. The shares underlying Hayward's remaining
warrants and other shares of the Company's stock owned by Hayward are subject to
certain registration rights. The termination of Hayward's exclusive distribution
rights also released Hayward from any annual minimum inventory purchase
commitments for 2001 and beyond.
The Company believes that directly marketing its pool products through its
network of independent manufacturer's representatives will allow the Company to
more closely serve its customers as well as offer new services such as the
bundling of product and installation. The Company expects this direct approach
to increase revenues and gross margin from the sale of its pool and spa
products.
Gross Margin
Gross margin for the twelve months ended December 31, 2001 was
approximately $4,119,000, a 10% increase over 2000. The gross margin percentage
for the year 2001 was 35% as compared to 32% in 2000. The gross margin is
dependent, in part, on product mix, as well as the mix of customers, which
fluctuates from time to time. The 10% increase in the amount of gross margin
over the twelve months ended December 31, 2000 was mainly due to the increased
sales volume of domestic architectural lighting products. The increase in the
gross margin percentage from 32% to 35% was the result of enhancements to the
Company's sales process, a lower mix of revenue from pool related products that
were sold at a significant discount off list price to Hayward related to the
Company's now terminated distributor agreement with Hayward, and the
implementation of cost reductions in material components.
The Company will continue to focus on improving gross margin and
profitability through aggressively pursuing reductions of the cost of key
material components and manufacturing costs. To that end, the Company is in the
process of sourcing assembly of illuminators overseas, which is expected to have
a favorable impact on the overall gross margin and lower production costs in
2002 and beyond. The assembly of illuminators overseas has reduced the Company's
manufacturing space requirements and has allowed the Company to sub-lease 20,000
square feet of its facility for the period March 1, 2002 to February 28, 2003 to
an unrelated party. The base rental for the sub-lease is $13,250 per month, plus
expenses, for a pro rata portion of power and water consumption.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2001 were approximately
$4,350,000 or 37% of revenues compared to approximately $3,323,000 or 29% of
revenues for 2000, an increase of approximately $1,027,000 or 31% from the
preceding year. The increase was primarily due to additional sales and marketing
related expenses to support the Company's domestic architectural lighting market
as well as a one-time charge of approximately $102,000 taken for the Hayward
settlement. The Company currently expects that selling, general and
administrative expense will continue to increase in absolute dollars in order to
support the distribution of the Company's product offering in the domestic
architectural lighting market as well as the pool and spa market on a direct
basis through its network of agents and independent manufacturer
representatives.
Research and Development
Research and development costs were approximately $456,000 during the
twelve months ended December 31, 2001 as compared to approximately $455,000
during the same period in 2000. Research and development costs are expensed as
incurred, primarily in advance of any related sales and in some cases may not
ultimately generate sales.
Interest
The Company had interest income for the year 2001 of approximately $122,000
compared to approximately $187,000 for 2000, a decrease of approximately $65,000
or 35% due to lower average cash balances during the year. The Company's
interest expense was approximately $431,000 for the year ended December 31, 2001
as compared to approximately $439,000 for 2000 and is related to the capital
lease for the Company's facility in Orlando, Florida.
9
Income Tax
The Company has provided 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 2001 or 2000.
Net Loss
The net loss for the twelve months ended December 31, 2001 was
approximately $999,000, or $0.39 per basic and diluted common share, as compared
to a net loss of approximately $259,000 or $0.10 per basic and diluted share,
for the twelve months ended December 31, 2000. The increase in loss is primarily
due to higher selling, general and administrative expenses partially offset by
increased gross margin.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, the Company had working capital of approximately
$4,808,000, a decrease of approximately 20% from working capital of
approximately $6,010,000 at December 31, 2000. During 2001, the Company financed
its operations primarily from cash flow and cash on hand.
Cash Flows from Operating Activities
Net cash used in operations totaled approximately $553,000 for the year
ended December 31, 2001. The net loss of approximately $999,000 was partly
offset by the non-cash expense for depreciation and amortization of
approximately $696,000. The most significant uses of cash in operations during
2001 were an increase in prepaid expenses of approximately $131,000 related to
advance payments to certain suppliers for production of new product and an
advance lease payment on the existing facility. Accounts receivable increased by
approximately $66,000 in 2001 due to the timing of customer payments. The
increase in prepaid expense and accounts receivable offset by a decrease in
inventory of approximately $80,000 accounted for most of the change in operating
assets and liabilities during 2001.
Net cash provided by operations totaled approximately $799,000 for the year
ended December 31, 2000. The net loss of approximately $259,000 was partially
offset by the non-cash expense for depreciation and amortization of
approximately $658,000. Cash provided by operating activities for the year ended
December 31, 2000, included an increase in accounts payable of approximately
$395,000 due to the timing of payments to suppliers, which was offset by an
increase in prepaid expense and inventory of approximately $69,000 and $
158,000, respectively. These changes accounted for most of the change in
operating assets and liabilities in 2000.
Cash Flows from Investing Activities
Net cash used in investing activities for the years ended December 31, 2001
and 2000 totaled approximately $319,000 and $310,000, respectively. Capital
expenditures of approximately $368,000 for prototype and design equipment,
purchase of computer hardware and software, furniture and fixtures and tooling
accounted for most of the investing activities for 2001. Proceeds from the sale
of investments in the amount of $1,000,000, resulted from the maturity of U.S.
Corporate Securities and the conversion of these securities to cash in August
2001. The Company also purchased shares in a fixed income mutual fund in May
2001, totaling approximately $500,000 and purchased a fixed income corporate
bond for approximately $460,000 in October 2001. The fixed income corporate bond
earns interest at the rate of 5.875% and matures in January 2003.
The Company made capital expenditures of approximately $247,000 for
tooling, leasehold improvements in connection with the Company's new showroom,
computer and office equipment and trade show fixtures during 2000.
Cash Flows from Financing Activities
Net cash provided by financing activities for the year ended December 31,
2001 was approximately $10,000. Payments on capital lease obligations (see
footnote # 3 in the financial statements) in the amount of approximately $68,000
were offset by approximately $79,000 in proceeds, from the exercise of employee
stock options in 2001.
In 2000, proceeds from the exercise of employee stock options of
approximately $58,000 were offset by approximately $47,000 in payments of the
capital lease obligation.
The Company believes that available cash, together with funds expected to
be generated from operations, will be sufficient to finance the Company's
working capital requirements, as well as planned expansion for the next twelve
months as currently contemplated.
10
CRITICAL ACCOUNTING POLICIES
The Company utilizes certain accounting policies and procedures to
manage changes that occur in its business environment that may affect accounting
estimates made in preparation of its financial statements. These estimates
relate primarily to the Company's allowance for doubtful accounts receivable and
provision for inventory obsolescence. The Company's strategy for managing
doubtful accounts includes stringent, centralized credit policies and collection
procedures for all customer accounts. The Company utilizes a credit risk rating
system in order to measure the quality of individual credit transactions. The
Company strives to identify potential problem receivables early, take
appropriate collection actions, and maintain adequate reserve levels. The
Company's strategy for its provision for inventory obsolescence includes the
evaluation of existing inventory usage and realizable value. Typically, no
provision is recorded for inventory that is currently used and sold within a
reasonable time frame. Management has determined that the allowance for doubtful
accounts and provision for inventory obsolescence is adequate at each period
end.
RELATED PARTY 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, 2001 amounted to approximately $598,000. The lease agreement
was approved by all of the disinterested directors of Super Vision, with Mr.
Kingstone abstaining from the vote. At the time we entered in the lease
agreement, based on then current economic conditions, the real estate market,
and our prospects, we believed that the transaction was on terms, when taken as
a whole, no less favorable to Super Vision than could generally be obtained from
unaffiliated third parties.
See also Note 6 to the consolidated financial statements.
RECENT ACCOUNTING PRINCIPLES
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations," and SFAS No. 142 "Goodwill and Other Intangible Assets," which
change the accounting for business combinations and goodwill. SFAS No. 141
requires that the purchase method of accounting be used for business
combinations initiated after June 30, 2001. Use of the pooling-of-interests
method will be prohibited. SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will therefore cease
upon adoption of the Statement, which for the Company will be January 1, 2002.
The implementation of these Statements is not expected to have a material impact
on the Company's financial position or results of operations.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS
143 changes the measurement of an asset retirement obligation from a
cost-accumulation approach to a fair value approach, where the fair value
(discounted value) of an asset retirement obligation is recognized as a
liability in the period in which it is incurred and accretion expense is
recognized using the credit-adjusted risk-free interest rate in effect when the
liability was initially recognized. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset and
subsequently amortized into expense. The pre-FAS 143 prescribed practice of
reporting a retirement obligation as a contra-asset will no longer be allowed.
SFAS No. 143 becomes effective for fiscal years beginning after June 15, 2002.
The implementation of this Statement is not expected to have a material impact
on the Company's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes both SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and APB
Opinion No. 30, "Reporting the Results of Operations- -Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," it retains the fundamental provisions of
those Statements. SFAS No. 144 became effective for fiscal years beginning after
December 15, 2001. The implementation of this Statement is not expected to have
a material impact on the Company's financial position or results of operations.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was adopted by the Company in 2001 and its adoption had no effect on
the Company's operating results or the financial position.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
Forward-Looking Statements. This report contains certain forward-looking
- --------------------------
statements within the meaning of Section 27A of the Securities Act, Section 21E
of the Exchange Act, and the Cautionary Safe Harbor Disclosure for Forward
Looking Statements under the Private Securities Litigation Reform Act of 1995,
which provide that, because of the factors set forth below, as well as other
variables affecting the Company's operating results, past financial performance
should not be considered a reliable indicator of future performance and
investors should not use historical trends to anticipate results or trends in
future periods. The statements contained herein, which are not historical facts,
are forward-looking statements that are subject to meaningful risks and
uncertainties, including, but not limited to, the following additional factors
to consider. In some cases, you can identify forward-looking statements by
terminology such as "may", "will", "should", "expect", "plan", "anticipate",
"believe", "estimate", "predict", "forecast", "intend", or "potential".
Additional information concerning these or other factors which could cause
actual results to differ materially from those contained or projected in, or
even implied by, such forward-looking statements is contained in this report and
also from time to time in the Company's other Securities and Exchange commission
11
("SEC") filings. Copies of these filings are available from the Company and/or
the SEC. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
information will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
The Company Has A History Of Operating Losses And May Not Be Able To Operate
- ----------------------------------------------------------------------------
Profitability. The Company has experienced annual losses of ($999,233),
- -------------
($259,211), ($355,741) and ($1,541,478) for each of the years ended December 31,
2001, 2000, 1999 and 1998, respectively. The Company faces significant
challenges in order to reach profitability. In order for the Company to be
successful and to grow, it will need to successfully address these challenges.
Most of the Company's expenses are fixed in nature, and generally unable to
reduce expenses significantly in the short-term to compensate for any unexpected
delay or decrease in anticipated revenues. As a result, the Company may continue
to experience losses on a quarterly or annual basis, which could cause the
market price of the Company's Class A common stock to decline.
General Economic And Industry Conditions May Effect 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 Company, its prospects and
financial performance. Worldwide economic conditions could have an effect on the
demand for the Company's 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, the Company may experience difficulties
collecting accounts receivable, sales and demand for the Company's products may
decrease, and the operating results will probably suffer.
Quarterly Operating Results Fluctuate As A Result Of Many Factors. 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 the control of the Company. Factors that could affect 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 the Company's
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;
. the ability to control costs, including levels of expenses relative to
revenue levels;
. risk of product returns and exchanges; the Company can not be assured
that it will not experience component problems in the future that
could increase warranty reserves and manufacturing costs;
. the 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;
. the risk of loss of a significant customer;
. changes in the Company's pricing policies and the pricing policies of
suppliers and competitors, pricing concessions on volume sales, as
well as increased price competition in general;
. success in expanding and implementing our sales and marketing
programs;
. relatively small level of backlog at any given time;
. the mix of sales among its products;
. deferrals of customer orders in anticipation of new products, or
product enhancements;
12
. risks and uncertainties associated with 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, 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 quarter-to-quarter results. The loss of, or a substantial
reduction in, orders from any significant customer could seriously harm the
business, financial condition and results of operations.
Quarterly operating results are also substantially affected by the
market's acceptance of the Company's products and the level and timing of orders
received. Significant portions of the Company's expenses are relatively fixed in
advance based upon forecasts of future sales. If sales fall below expectations
in any given quarter, 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
herein, future operating results could be below the expectations of securities
analysts or investors. If that happens, the trading price of the Company's Class
A common stock could decline. As a result of these quarterly variations,
securities analyst or investors should not rely on quarter-to-quarter
comparisons of the Company's operating results as an indication of the Company's
future performance.
If Fiber Optic Lighting Products Do Not Gain Wider Market Acceptance Business
- -----------------------------------------------------------------------------
and Financial Performance May Suffer. The Company derives 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. The Company's 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 the Company's products. The
initial purchase price of the Company's fiber optic lighting products is
typically higher than conventional lighting, and the Company's products tend to
be less bright than conventional alternatives. The Company's continued success
will depend upon increased acceptance of fiber optic lighting products as an
alternative to neon and other traditional lighting technologies. The Company's
future results are dependent upon continued growth of the fiber optic lighting
market. As part of the Company's sales and marketing strategy, the Company
actively seeks to educate its target markets as to the advantages of fiber optic
lighting systems. The Company believes that achievement of this objective is
critical to its 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 the Company's business, results of operations, and
the value of its securities.
Sales Are Dependent Upon New Construction Levels And Are Subject To Seasonal
- ----------------------------------------------------------------------------
Trends. Sales of the Company's 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 the
Company's pool and spa lighting products depend substantially upon the level of
new pool construction. Because of the seasonality of construction, the Company's
sales of swimming pool and lighting products, and thus the Company's 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 the Company cannot predict the extent to which these
seasonal trends will continue.
Future Success Depends On The Successful Development And Market Acceptance Of
- -----------------------------------------------------------------------------
New Products. The Company believes revenue growth and future operating results
- ------------
will depend in part on its 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 the Company's product costs. The Company may not be
able to introduce any new products or any enhancements to its 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 the Company's existing products.
Market acceptance of the Company's new products depends upon many factors,
including the Company's ability to accurately predict market requirements and
evolving industry standards, the Company's ability to resolve technical
challenges in a timely and cost-effective manner and achieve manufacturing
efficiencies, the perceived advantages of the Company's new products over
traditional products, and the marketing capabilities of the Company's
independent distributors and strategic partners.
13
The Company Has Significant International Sales And Are Subject To Risks
- ------------------------------------------------------------------------
Associated With Operating In International Markets. International product sales
- --------------------------------------------------
represented approximately 26% of the Company's total revenues for the year ended
December 31, 2001 and approximately 25% for the year ended December 31, 2000.
The Company believes its 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 the Company operates;
. exposure to different legal standards and reduced protection for
intellectual property rights in some countries;
. currency fluctuations and restrictions; and
. political, social and economic instability.
Any of these factors may adversely effect the Company's future
international sales and, consequently, the Company's business and operating
results. Furthermore, as the Company increases international sales, 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.
The Company believes that international sales will continue to
represent a significant portion of its revenues, and that continued growth and
profitability may require further expansion of the Company's international
operations. Many of the Company's international sales are currently denominated
in U.S. dollars. As a result, an increase in the relative value of the dollar
could make the Company's products more expensive and potentially less price
competitive in international markets. The Company does not engage in any
transactions as a hedge against risks of loss due to foreign currency
fluctuations.
Competition Is Increasing In A Number Of The Company's Markets. The lighting
- --------------------------------------------------------------
industry is highly competitive. The Company's product lines span major segments
within the lighting industry and, accordingly, compete in a number of different
markets with a number of different competitors. The Company competes with
independent distributors, importers, manufacturers, and suppliers of lighting
fixtures and other consumer products. The Company's competitors include some
very large and well-established companies. Many of the Company's competitors
have far greater name recognition and greater financial, technological,
marketing and customer service resources than the Company. 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 the Company can.
The Company's competitors market products that compete with the Company's
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 the
Company provides, which requires the Company 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. The Company's ability to compete successfully in this
highly competitive market depends upon its ability to manufacture and purchase
quality components on favorable terms, ensure the Company's products meet safety
standards, deliver the Company's products promptly at competitive prices, and
provide a wide range of services. The Company anticipates 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 the Company's business, financial condition and results of operations.
The Company May Not Be Able To Adequately Protect Or Enforce Its Intellectual
- -----------------------------------------------------------------------------
Property Rights. The Company considers its technology and procedures
- ---------------
proprietary. If the Company is not able to adequately protect or enforce the
proprietary aspects of its technology, competitors could be able to access the
Company's proprietary technology and the Company's business, financial condition
and results of operations could be harmed. The Company currently attempts to
protect its technology through a combination of patent, copyright, trademark and
trade secret laws, employee and third party nondisclosure agreements and similar
means. Despite the Company's efforts, other parties may attempt to disclose,
obtain or use the Company's technologies. The Company's competitors may also be
able to independently develop products that are substantially equivalent or
superior to the Company's products or design around its patents. In addition,
the laws of some foreign countries do not protect the
14
Company's proprietary rights as fully as do the laws of the United States. As a
result, the Company may not be able to protect its proprietary rights adequately
in the United States or abroad.
The Company may receive notices that claim it has infringed upon the
intellectual property of others. Even if these claims are not valid, they could
subject the Company to significant costs. The Company has engaged in litigation
in the past, and litigation may be necessary in the future to enforce its
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 the Company to significant liabilities
to third parties, require the Company to license disputed rights from others or
require the Company to cease marketing or using certain products or
technologies. The Company may not be able to obtain any licenses on terms
acceptable at all. The Company also may have to indemnify certain customers or
strategic partners if it is determined that it has infringed upon or
misappropriated another party's intellectual property. Any of these results
could adversely affect the Company's 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 the Company's business, financial condition
and results of operations.
Reliance On Third Parties For A Significant Portion Of Sales; Terms And
- -----------------------------------------------------------------------
Conditions Of Sales Are Subject To Change With Very Little Notice. The Company
- -----------------------------------------------------------------
relies significantly on indirect sales channels to market and sell its products.
Most of the Company's products are sold through independent distributors and
agents. The Company's 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. The Company anticipates that
any such agreements it enters into in the future will be on similar terms.
Furthermore, the Company's agreements are generally short-term, and can be
cancelled by these sales channels without significant financial consequence. The
Company cannot control how these sales channels perform and cannot be certain
that either its customers or the Company will be satisfied by their performance.
If these distributors and agents significantly change their terms with the
Company, or change their historical pattern of ordering products from the
Company, there could be a significant impact on the Company's revenues and
profits.
Dependence On Third-Party Suppliers. The Company depends on others to
- -----------------------------------
manufacture a significant portion of the component parts incorporated into its
products. The Company purchases its component parts from numerous third-party
manufacturers and believes that numerous alternative sources of supply are
readily available for most component parts. The Company depends on its suppliers
to satisfy performance and quality specifications and to dedicate sufficient
production capacity for components within scheduled delivery times. The Company
does not maintain contracts with any of its suppliers; instead, it purchases
components pursuant to purchase orders placed from time to time in the ordinary
course of business. This means the Company is vulnerable to unanticipated price
increases.
The Company purchases fiber optic strands from a single Japanese
supplier. While the Company believes alternative sources for fiber optic strands
are available to enable it to produce its endpoint signs and displays, the
SIDE-GLOW(R) and END GLOW(R) cables require fiber optic material of a higher
quality than the Company believes is generally available elsewhere. Accordingly,
the loss of this supplier or delays in obtaining shipments could have a material
adverse effect on the Company's operations until such time as an alternative
supplier could be found.
The Company 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 the Company of
the manufactured product) and the wholesale and retail prices of its products.
The Company May Be Subject To Additional Risks. The risks and uncertainties
- ----------------------------------------------
described above are not the only ones facing the Company. Additional risks and
uncertainties not presently known or currently deem immaterial may also
adversely affect the Company's business operations.
15
Item 7. Consolidated Financial Statements
---------------------------------
The following consolidated financial statements are filed as part of
this report. This information appears in a separate section of this report.
Page
----
Reports of Independent Certified Public Accountants F-2, F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-4
Consolidated Statements of Operations for the years ended
December 31, 2001 and 2000 F-5
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2001 and 2000 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2001 and 2000 F-7
Notes to Consolidated Financial Statements F-8
Item 8. Changes in and disagreements with accountants on accounting and
----------------------------------------------------------------
financial disclosure
--------------------
On October 8, 2001, we engaged the accounting firm of Gallogly,
Fernandez & Riley, LLP as our new independent public accountants and dismissed
Ernst & Young LLP. The decision to change our accounting firm was approved by
the audit committee of our Board of Directors and by our Board of Directors.
During the two most recent fiscal years ended December 31, 2000 and 1999 and the
subsequent interim reporting periods from the last audit date of December 31,
2000, through and including the termination date of October 8, 2001, there were
no disagreements between us and Ernst & Young LLP on any matter of accounting
principles or practices, financial statement disclosure, auditing scope or
procedure, or any reportable events. The report of Ernst & Young LLP on the
financial statements of the company for the two fiscal years ended December 31,
2000 and 1999, contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
We have not consulted with Gallogly, Fernandez &, Riley, LLP during
the last two fiscal years ended December 31, 2000 and 1999 or during the
subsequent interim reporting periods from the last audit date of December 31,
2000, through and including the termination date of October 8, 2001, on either
the application of accounting principles or type of opinion Gallogly, Fernandez
& Riley, LLP might issue on our financial statements.
We requested Ernst & Young LLP to furnish a letter addressed to the
Securities and Exchange Commission stating whether Ernst & Young LLP agrees with
the above statements made by us. A copy of this letter addressed to the
Securities and Exchange Commission, dated October 10, 2001, is filed as Exhibit
16 to our Current Report on Form 8-K dated October 8, 2001.
16
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
------------------------------------------------------------------------
with Section 16(a) of the Exchange Act
--------------------------------------
See the sections captioned "Information About Directors and Executive
Officers" and "Proposal 1: Elect Six Directors" included in the Company's
definitive proxy statement in connection with its Annual Meeting of stockholders
to be held on May 14, 2002, which sections are incorporated herein by reference.
Item 10. Executive Compensation
----------------------
See the sections captioned "Information About Directors and Executive
Officers," "Summary Compensation Table," "Aggregate Option Exercises During 2001
and Year-end Option Values," and "1994 Stock Option Plan" included in the
Company's definitive proxy statement in connection with its Annual Meeting of
stockholders to be held on May 14, 2002, which sections are incorporated herein
by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
See the section captioned "Information About Super Vision
International, Inc. Common Stock Ownership" included in the Company's definitive
proxy statement in connection with its Annual Meeting of stockholders to be held
on May 14, 2002, which section is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
See the section captioned "Arrangements with Officers and Directors"
included in the Company definitive proxy statement in connection with its Annual
Meeting of stockholders to be held on May 14, 2002, which section is
incorporated herein by reference.
Item 13. Exhibits, Lists and Reports on Form 8-K
---------------------------------------
(a)
3.1 Certificate of Incorporation of the Company/(1)/
3.2 Amendment to Certificate of Incorporation/(1)/
3.3 Amendment to Certificate of Incorporation/(6)/
3.4 Amendment to Certificate of Incorporation/(5)/
3.5 Bylaws/(1)/
4.1 Form of Class A Common Stock Certificate/(8)/
10.1 Super Vision International, Inc. 1994 Stock Option Plan, as amended and restated/(5)/
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/(8)/
10.4.2 Amendment to lease for Presidents Drive facility/(8)/
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/(8)/
10.9 Amendment to Registration Rights Agreement between the company and Hayward Industries, Inc.
dated as of March 9, 1999/(8)/
10.10 Warrant Certificate registered in the name of Hayward Industries, Inc.*
21.1 Subsidiaries of the Registrant/(7)/
23.1 Consent of Gallogly, Fernandez & Riley *
23.2 Consent of Ernst & Young LLP*
17
* 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 Definitive Proxy Statement
filed April 29, 1997
/(6)/ Incorporated by reference to the Registrant's Definitive Proxy Statement
filed April 22, 1998
/(7)/Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 2000
/(8)/ Incorporated by Reference to the Registrant's Registration Statement on
Form SB-2 (File No. 333-73804)
(b) On October 12, 2001 the Company filed Form 8-K with the Securities and
Exchange Commission for the change in the Company's certifying accountant to
Gallogly, Fernandez & Riley LLP from Ernst and Young LLP.
18
SUPER VISION INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants
- Gallogly, Fernandez & Riley LLP F-2
Report of Independent Certified Public Accountants
- Ernst & Young LLP F-3
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-4
Consolidated Statements of Operations for the years ended
December 31, 2001 and 2000 F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001 and 2000 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2001 and 2000 F-7
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Super Vision International, Inc.
We have audited the accompanying consolidated balance sheet of Super Vision
International, Inc. and its subsidiary as of December 31, 2001, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the year 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 audit.
We conducted our audit 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 audit provides 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, 2001, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Gallogly, Fernandez & Riley LLP
Orlando, Florida
March 1, 2002
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Super Vision International, Inc.
We have audited the accompanying consolidated balance sheet of Super Vision
International, Inc. and its subsidiary as of December 31, 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year 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 audit.
We conducted our audit 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 audit provides 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 the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Orlando, Florida
March 7, 2001
F-3
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 2001 2000
----------- -----------
Current Assets:
Cash and cash equivalents $ 812,336 $ 1,673,639
Investments 902,157 1,398,517
Trade accounts receivable, less allowance for
Doubtful accounts of $162,016 and $146,693 at December 31, 2001 and
2000, respectively 2,091,165 2,024,701
Inventories, less reserve of $325,768 and $411,474
at December 31, 2001 and 2000, respectively 2,307,633 2,302,154
Prepaid expense 214,498 83,348
Other assets 19,497 26,000
----------- -----------
Total current assets 6,347,286 7,508,359
----------- -----------
Property and Equipment:
Machinery and equipment 1,895,259 1,641,962
Furniture and fixtures 449,417 453,661
Computers 819,804 768,476
Vehicles 44,386 36,620
Leasehold improvements 982,575 976,646
Property held under capital lease 3,081,000 3,081,000
----------- ----------
7,272,441 6,958,365
Accumulated depreciation and amortization (2,917,423) (2,271,136)
----------- -----------
Net property and equipment 4,355,018 4,687,229
----------- -----------
Investments 456,746 --
Goodwill, less accumulated amortization of $8,423 and $4,679 at
December 31, 2001 and 2000, respectively 17,781 21,524
Patents and trademarks less amortization of $54,810 and
$41,028 at December 31, 2001 and 2000, respectively 132,190 134,321
Other assets 169,190 160,327
----------- -----------
$11,478,211 $12,511,760
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,322,135 $ 1,317,007
Accrued compensation and benefits 96,139 86,918
Deposits 30,873 25,753
Current portion of obligation under capital lease 89,751 68,388
----------- -----------
Total current liabilities 1,538,898 1,498,066
----------- -----------
Obligation under capital lease, less current portion 2,970,805 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,
2,083,110 and 2,065,543 issued and outstanding at December 31, 2001 and
2000, respectively 2,084 2,066
Class B common stock, $.001 par value, 3,389,134 shares authorized, 483,264
issued and outstanding at December 31, 2001 and 2000. Each share of
Class B common stock is entitled to five
votes per share 483 483
Accumulated other comprehensive loss (30,655) (9,938)
Additional paid-in capital 10,556,110 10,520,808
Accumulated deficit (3,559,514) (2,560,281)
----------- -----------
Total stockholders' equity 6,968,508 7,953,138
----------- -----------
$11,478,211 $12,511,760
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
December 31,
2001 2000
----------- -----------
Revenues $11,785,237 $11,654,167
Cost and Expenses:
Cost of sales 7,666,691 7,918,273
Selling, general and administrative 4,350,170 3,322,547
Research and development 456,032 455,447
----------- -----------
Total costs and expenses 12,472,893 11,696,267
----------- -----------
Operating loss (687,656) (42,100)
Non-operating income (expense):
Interest income 122,086 186,693
Other Income 13,800 34,023
(Loss) Gain on sale of investments (16,106) 15,725
Interest expense (431,357) (438,792)
Loss on disposal of property and equipment -- (14,760)
----------- -----------
Total non-operating expense (311,577) (217,111)
----------- -----------
Net loss $ (999,233) $ (259,211)
=========== ===========
Basic and diluted loss per common share $ (0.39) $ (0.10)
=========== ===========
Basic and diluted weighted average shares outstanding 2,566,374 2,544,005
=========== ===========
See accompanying notes to consolidated financial statements.
F-5
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
-------------------------------------
------------------ ----------------
Class A Class B Additional
------------------ ---------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
--------- ------ ------- ------ ----------- -----------
Balance, January 1, 2000 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 -- -- -- -- -- --
--------- ------ ------- ---- ----------- -----------
Comprehensive loss
Balance, December 31, 2000 2,065,543 $2,066 483,264 $483 $10,520,808 $(2,560,281)
========= ====== ======= ==== =========== ===========
Return and cancellation of
vested common stock warrants -- -- -- -- (43,410) --
Exercise of employee stock options 17,567 18 -- -- 78,712 --
Net Loss -- -- -- -- -- (999,233)
Unrealized loss on
available-for-sale securities -- -- -- -- -- --
--------- ------ ------- ---- ----------- -----------
Comprehensive loss
Balance, December 31, 2001 2,083,110 $2,084 483,264 $483 $10,556,110 $(3,559,514)
========= ====== ======= ==== =========== ===========
Accumulated
Other Total
Comprehensive Stockholders' Comprehensive
Loss Equity Loss
------------- ------------- -------------
Balance, January 1, 2000 $ -- $8,076,032 --
Issuance of common stock warrants -- 87,816 --
Exercise of employee stockoptions 58,439 --
Net loss -- (259,211) (259,211)
Unrealized loss on
available-for-sale Securities (9,938) (9,938) (9,938)
-------- ---------- -----------
Comprehensive loss $ (269,149)
===========
Balance, December 31, 2000 $ (9,938) $7,953,138
======== ==========
Return and cancellation of
vested common stock warrants -- (43,410)
Exercise of employee stock options -- 78,730
Net Loss -- (999,233) (999,233)
Unrealized loss on
available-for-sale securities $(20,717) (20,717) (20,717)
-------- ---------- -----------
$(1,019,950)
Comprehensive loss ===========
Balance, December 31, 2001 $(30,655) $6,968,508
======== ==========
See accompanying notes to consolidated financial statements.
F-6
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 31,
2001 2000
---------- ----------
Cash Flows from Operating Activities:
Net loss $ (999,233) $ (259,211)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation 678,813 642,966
Net loss on disposal of property and equipment -- 14,760
Amortization of intangible assets and goodwill 17,525 15,331
Increase (decrease) in inventory reserve (85,706) 110,788
Decrease (increase) in other assets 6,503 (10,362)
Unrealized loss on available-for-sale securities (20,717) (9,938)
Issuance (cancellation) of common stock warrants (43,410) 87,816
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable, net (66,464) 14,341
Inventory 80,227 (158,409)
Prepaid expense (131,150) (69,097)
Other assets (8,863) 11,946
Increase (decrease) in:
Accounts payable 5,128 394,762
Accrued compensation and benefits 9,221 17,814
Deposits 5,120 (4,789)
---------- ----------
Total adjustments 446,227 1,057,929
---------- ----------
Net cash (used in) provided by operating activities (553,006) 798,718
---------- ----------
Cash Flows from Investing Activities:
Purchase of investments (960,386) (30,861)
Proceeds from sale of investments 1,000,000 --
Purchase of property and equipment (368,286) (247,204)
Proceeds from disposal of equipment and furniture 21,684 932
Acquisition of patents and trademarks (11,651) (32,452)
---------- ----------
Net cash used in investing activities (318,639) (309,585)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from exercise of employee stock options 78,730 58,439
Payments on capital lease obligation (68,388) (46,788)
---------- ----------
Net cash provided by financing activities 10,342 11,651
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents (861,303) 500,784
Cash and Cash Equivalents, beginning of period 1,673,639 1,172,855
---------- ----------
Cash and Cash Equivalents, end of period $ 812,336 $1,673,639
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest $ 431,357 $ 438,722
========== ==========
See accompanying notes to consolidated financial statements.
F-7
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
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.
ACQUISITION - 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.
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 obligations
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 either as available-for-sale or held to maturity.
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 are 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 costs 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. The Company accounts
for investments in debt securities as held-to-maturity and records the
investments at amortized cost when the Company has the positive intent and
ability to hold those securities to maturity.
At December 31, 2001, investments were comprised of U.S. Corporate
Securities and equity securities of approximately $457,000 and $902,000
respectively as compared to $1,008,000 and $391,000, respectively at
December 31, 2000. The investment in U.S. Corporate Securities matures in
2003.
F-8
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
INVESTMENTS - Cont'd
-----------
The amortized cost, unrealized losses, and fair values of the Company's
available-for-sale securities held at December 31, 2001 are summarized as
follows:
Gross Estimated
Amortized Unrealized Fair
Costs Costs Losses Value
---------------------------------------------
Available-for-sale securities:
Fixed Income Funds $873,037 $875,623 $(30,505) $842,532
Money Market Funds
59,625 59,625 -- 59,625
-------------------------------------------
$932,662 $935,248 $(30,505) $902,157
===========================================
Hold-to-maturity securities:
Corporate Bonds $456,897 $458,100 $ (150) $456,746
===========================================
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:
Fixed Income Funds $ 343,089 $ 343,089 $(9,938) $ 333,151
Money Market Funds
57,545 57.545 57,545
-------------------------------------------------
$ 400,634 $ 400,634 $(9,938) $ 390,696
=================================================
Hold-to-maturity securities:
Corporate Bonds $1,007,821 $1,033,200 $(7,620) $1,000,201
=================================================
RECENT ACCOUNTING PRONOUNCEMENTS - In July 2001, the Financial Accounting
--------------------------------
Standards Board issued Statement of Financial Accounting Standards ("SFAS")
No. 141 "Business Combinations," and SFAS No. 142 "Goodwill and Other
Intangible Assets," which change the accounting for business combinations
and goodwill. SFAS No. 141 requires that the purchase method of accounting
be used for business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Amortization of goodwill, including goodwill recorded in past
business combinations, will therefore cease upon adoption of the Statement,
which for the Company will be January 1, 2002. The implementation of these
Statements is not expected to have a material impact on the Company's
financial position or results of operations.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS 143
changes the measurement of an asset retirement obligation from a
cost-accumulation approach to a fair value approach, where the fair value
(discounted value) of an asset retirement obligation is recognized as a
liability in the period in which it is incurred and accretion expense is
recognized using the credit-adjusted risk-free interest rate in effect when
the liability was initially recognized. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived
asset and subsequently amortized into expense. The pre-FAS 143 prescribed
practice of reporting a retirement obligation as a contra-asset will no
longer be allowed. SFAS No. 143 becomes effective for fiscal years
beginning after June 15, 2002. The implementation of this Statement is not
expected to have a material impact on the Company's financial position or
results of operations.
F-9
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
RECENT ACCOUNTING PRONOUNCEMENTS - Cont'd
--------------------------------
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS
No. 144 supersedes both SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and APB
Opinion No. 30, "Reporting the Results of Operations- -Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," it retains the
fundamental provisions of those Statements. SFAS No. 144 becomes effective
for fiscal years beginning after December 15, 2001. The implementation of
this Statement is not expected to have a material impact on the Company's
financial position or results of operations.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
was adopted by the Company in 2001 and its adoption had no effect on the
Company's operating results or the financial position.
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.
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. The Company promotes its product lines primarily through print
media, such media including trade publications, trade shows and promotional
brochures. Advertising expenses were approximately $364,461 and $206,400
for the years ended December 31, 2001 and 2000, respectively.
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.
F-10
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
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. The Class A and Class B warrants,
employee stock options, certain warrants issued to Hayward (see Notes 6 and
7) are not included in the computation of loss per share for 2001 and 2000
because the related shares are contingently issuable or to do so would have
been anti-dilutive.At December 31, 2001 and 2000, the Company had 38,000
and 69,097 potentially dilutive common shares, respectively.
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."
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, which includes unrealized gains and
losses on available for sale securities.
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,
2001 2000
---------- ----------
Raw materials $1,775,229 $1,759,504
Work in process 18,418 12,461
Finished goods 839,754 941,663
---------- ----------
2,633,401 2,713,628
Less: Reserve for inventories (325,768) (411,474)
---------- ----------
Net inventories $2,307,633 $2,302,154
========== ==========
F-11
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
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:
December 31,
2001 2000
---------- ----------
Office/Warehouse building $3,081,000 $3,081,000
Less accumulated amortization (924,300) (718,900)
---------- ----------
$2,156,700 $2,362,100
========== ==========
At December 31, 2001, future minimum lease payments for the capital lease
are as follows: Year ending December 31:
2002 $ 610,596
2003 628,404
2004 641,127
2005 659,821
2006 673,176
2007 and thereafter 3,932,454
-----------
Minimum lease payments 7,145,578
Less amount representing interest
and executory costs (4,085,022)
-----------
Present value of net minimum lease
payments under capital lease $ 3,060,556
===========
Deposits paid under this lease agreement totaled $58,167 at December 31,
2001 and 2000. The Company's lease payments, including interest and
executory costs were $598,481 and $581,520 in 2001 and 2000, respectively.
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, 2001 and 2000 was $736,501 and
$1,035,817 respectively. The carrying values of cash equivalents, accounts
receivable and accounts payable approximate fair value due to their
short-term nature.
The Company purchases fiber optic strands from a single Japanese supplier.
While the Company believes alternative sources for fiber optic strands are
available to enable it to produce endpoint signs and displays, the
SIDE-GLOW(R) and END GLOW(R) cables require fiber optic material of a
higher quality than the Company believe is generally available elsewhere.
Accordingly, the loss of this supplier or delays in obtaining shipments
could have a material adverse effect on the Company's operations until such
time as an alternative supplier could be found.
F-12
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
5. INCOME TAXES:
As of December 31, 2001, the Company had approximately $2,614,000 in net
operating loss carryforwards for federal and state income tax purposes,
which expire between 2010 and 2021.
Components of deferred tax assets (liabilities) are as follows:
December 31,
2001 2000
----------- ---------
Accounts receivable $ 60,967 $ 55,201
Inventories 174,688 208,015
Accrued expenses 18,004 52,194
Depreciation 12,532 (58,439)
Stock warrants 71,579 71,579
Other 9,635 10,344
Tax credits 11,157 11,157
Net operating loss carry forwards 983,627 625,250
----------- ---------
1,342,189 975,301
Valuation allowance (1,342,189) (975,301)
----------- ---------
$ -- $ --
=========== =========
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 $1,342,189 at December
31, 2001.
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, 2001 and 2000:
2001 2000
------------------ -----------------
Amount % Amount %
--------- ------ -------- ------
Tax benefit computed at statutory federal
rate $(339,739) (34.00) $(88,131) (34.00)
State tax benefit (37,025) (3.71) (8,432) (3.25)
Change in valuation allowance 366,888 36.72 88,000 33.95
Non-deductible expenses 9,876 0.99 9,694 3.74
Other, net -- -- (1,131) (.44)
--------- ------ -------- ------
Income tax expense $ -- -- $ -- --
========= ====== ======== ======
F-13
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
6. CAPITAL STOCK:
CLASS A COMMON STOCK - At December 31, 2001 the Company has reserved Class
--------------------
A Common Stock for issuance in relation to the following:
Employee Stock Options 363,355
Shares Subject to Warrants 438,875
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 - The Company has 438,875 vested warrants outstanding in
--------------
connection with the transactions described below.
The Company has granted a 10-year warrant for 289,187 shares of Class A
Common Stock at an exercise price of $7.00 per share 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.
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.
F-14
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
6. CAPITAL STOCK (continued):
CAPITAL STOCK TRANSACTIONS - (continued)
--------------------------
The Company did not have any sales to Cooper and Cooper Canada during 2001,
as compared to $1,372,493 and $106,458 respectively in 2000. There were no
trade accounts receivable from Cooper and Cooper Canada as of December 31,
2001, as compared to $29,920 and $73,506 respectively as of December 31,
2000.
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 was tied to achievement of annual minimum purchase commitments
contained in the Distributorship Agreement, pursuant to which Hayward
acquired the worldwide rights to market and sell the Company's fiber optic
lighting products in the swimming pool and spa market. The warrants had a
10-year life and would expire September 25, 2006.
On August 15, 2001, the Company reached an agreement with Hayward
terminating Hayward's exclusive distribution rights as of September 30,
2001. The agreement with Hayward allowed the Company to commence direct
selling of its 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
Company has agreed to pay Hayward royalties on gross sales of fiber optic
pool lighting products sold in the U.S. 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 due during each of the Company's fiscal years ending
December 31, 2002 and 2003. Pursuant to the agreement, Hayward also agreed
to return certain fiber optic lighting products previously sold by the
Company to Hayward and to return vested warrants covering 49,896 shares of
the Company's Class A common stock previously issued to Hayward all in
exchange for $300,000 paid by the Company to Hayward in December 2001. The
settlement payment of $300,000 was allocated to the returned inventory at
its fair market value of approximately $155,000, to the returned vested
warrants at their fair market value on August 15, 2001, the measurement
date, of approximately $43,000 and the balance of settlement payment of
approximately $102,000 was recorded as a one-time charge to operations
(included in selling, general and administrative expense) in December 2001.
The inventory repurchased from Hayward represents the Company's
manufactured fiber optic lighting products, which had been directly
purchased by Hayward from the Company from January 1, 2000 through
September 30, 2001. The shares underlying Hayward's remaining warrants and
other shares of the Company's stock owned by Hayward are subject to certain
registration rights. The termination of Hayward's exclusive distribution
rights also released Hayward from any annual minimum inventory purchase
commitments for 2001 and beyond.
As of December 31, 2001, total vested warrants in relation to Hayward's
achievement of annual minimum purchase commitments under the original
Distributorship Agreement was 149,688.
The Company had sales of $1,844,953 and $3,290,337 to Hayward during 2001
and 2000, respectively. Trade accounts receivable includes $251,751 and
$458,919 due from Hayward at December 31, 2001 and 2000, respectively. The
Company derived approximately 16% of its total revenues from Hayward in
2001 compared to approximately 28% in 2000.
F-15
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
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, 2001 and 2000:
Options Number of Weighted
Available for Shares Average
Future Grant Under Option Option Price
------------- ------------ ------------
Balance, January 1, 2000 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
Options granted (42,400) 42,400 $6.29
Options exercised -- (17,567) $4.48
Options cancelled 27,849 (27,849) $7.66
------- -------
Balance, December 31, 2001 39,370 323,985
======= =======
The weighted average fair value of options granted during 2001 and 2000 was
$3.07 and $3.25 per option, respectively. At December 31, 2001, the 323,985
options outstanding under the plan are summarized in the following table:
Weighted Weighted
Option Range of Exercise Average Average
Shares Prices Exercise Price Remaining Life
------- ----------------- -------------- --------------
112,967 $3.69 - $5.47 $4.50 6.12 years
105,318 $5.55 - $7.38 $6.38 6.92
105,700 $7.44 - $9.25 $8.30 6.67
Options granted vest ratably over a three-year period or vest based on
achievement of performance criteria. As of December 31, 2001, 254,856
options were vested and exercisable. These options are summarized below:
Weighted Weighted
Option Range of Exercise Average Average
Shares Prices Exercise Price Remaining Life
------- ----------------- -------------- --------------
96,301 $3.69 - $5.47 $4.55 6.73 years
63,521 $5.55 - $7.38 $6.56 7.21
95,034 $7.44 - $9.25 $8.32 5.88
F-16
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
7. STOCK OPTION PLAN (continued):
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:
2001 2000
----------- ----------
Net loss:
As reported $ (999,233) $(259,211)
Proforma loss $(1,141,246) $(408,929)
Basic EPS:
As reported $ (0.39) $ (0.10)
Proforma loss $ (0.45) $ (0.16)
Diluted EPS:
As reported $ (0.39) $ (0.10)
Proforma loss $ (0.45) $ (0.16)
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
during 2001 and 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:
2001 % of Sales 2000 % of Sales
---------- ---------- ---------- ----------
Foreign markets:
Americas (excluding USA) $1,158,294 10% $1,140,433 10%
Europe, the Middle East and Africa 1,122,694 9% 1,295,116 11%
Asia Pacific 694,627 6% 311,178 3%
Japan 96,551 1% 89,120 1%
---------- ---------- ---------- ----------
$3,072,166 26% $2,835,847 25%
Significant customers:
Hayward Pool Products $1,844,953 16% $3,290,337 28%
Regent Lighting Corporation 838,891 7% $1,478,951 13%
F-17
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
9. 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 $29,662 and $37,463 for
2001 and 2000, respectively. Effective October 1, 2001, the Company
discontinued the company match portion of the plan.
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 $73,682 and $65,029 for 2001
and 2000, respectively.
10. CONTINGENCIES
On March 4, 2002, the Company filed a lawsuit (case number
6:02-CV-270-ORL-19JGG ) in the United States District Court for the Middle
District of Florida against Color Kinetics Incorporated ("Color Kinetics").
This is an action for declaratory judgment that certain patents of Color
Kinetics are invalid, that the Company's products do not infringe any of
such patents, and that such patents are unenforceable. Color Kinetics has
notified the Company that it believes that certain Company products may
infringe certain of Color Kinetics' patents for LED lighting systems. The
Company intends to vigorously defend itself against this allegation.
F-18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUPER VISION INTERNATIONAL, INC.
Date: March 25, 2002 By: /s/ Brett M. Kingstone
------------------------------
Brett M. Kingstone - Chairman,
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Brett M. Kingstone March 25, 2002--
- -----------------------------------------
Brett M. Kingstone - Chairman of
the Board of Directors, Chief
Executive Officer
(Principal Executive Officer)
/s/ Larry J. Calise March 25, 2002--
- -----------------------------------------
Larry J. Calise - Chief Financial Officer
(Principal Financial and Accounting
Officer)
/s/ Anthony Castor March 25, 2002--
- -----------------------------------------
Anthony Castor - Director
/s/ Brian McCann March 25, 2002--
- -----------------------------------------
Brian McCann - Director
/s/ Edgar Protiva March 25, 2002--
- -----------------------------------------
Edgar Protiva - Director
/s/ Robert Wexler March 25, 2002--
- -----------------------------------------
Robert Wexler - Director
/s/ Fritz Zeck March 25, 2002--
- -----------------------------------------
Fritz Zeck - Director
F-19
EXHIBIT INDEX
10.10 Warrant Certificate registered in the name of Hayward Industries,
Inc.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Gallogly, Fernandez & Riley LLP
F-20