As filed with the Securities and Exchange Commission on April 26, 2002
Registration No. 333-73804
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUPER VISION INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Delaware 7389 59-3046866
-------- ---- ----------
(State or Jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) I. D. number)
Super Vision International, Inc.
8210 Presidents Drive
Orlando, Florida 32809
(407) 857-9900
(Address and telephone number
of principal executive offices and
principal place of business)
__________________
Brett M. Kingstone, President
Super Vision International, Inc.
8210 Presidents Drive
Orlando, Florida 32809
(407) 857-9900
(Name, address and telephone number
of agent for service)
__________________
Copies to:
Suzan A. Abramson, Esquire
Katz, Kutter, Alderman Bryant & Yon, P.A.
111 N. Orange Avenue, Suite 900
Orlando, Florida 32801
(407) 841-7100
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
__________________
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number or the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number or the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
Title of Each Amount to be Proposed Proposed Amount of
------------- ------------ -------- -------- ---------
Class of Registered Maximum Maximum Registration Fee
-------- ---------- ------- ------- ----------------
Securities to be Offering Price Per Aggregate Offering
---------------- ------------------ ------------------
Registered Share Price
---------- ----- -----
Class A Common 249,480 $5.53/(1)/ $1,379,624.40 $ 344.91
Stock, $.001 Par 28,918 $5.53/(2)/ $ 159,916.54 $ 39.98
Value 149,688 $8.02/(2)/ $1,200,497.80 $ 300.12
250,369 $6.21/(3)/ $1,554,791.50 $ 388.70
28,918 $6.21/(4)/ $ 179,580.78 $ 44.90
------ -----
Total 707,373 $4,474,411.00 $1,118.61*
(1) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act based upon the average of
the high and low sales prices of our Class A Common Stock on November 15,
2001, as reported by the Nasdaq SmallCap Market.
(2) Reflects shares of Class A Common Stock issuable upon exercise of warrants.
The proposed maximum offering price per share was calculated in accordance
with Rule 457(g) under the Securities Act.
(3) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act based upon the average of
the high and low sales prices of our Class A Common Stock on January 25,
2002, as reported by the Nasdaq SmallCap Market.
(4) Reflects shares of Class A Common Stock issuable upon exercise of warrants.
The proposed maximum offering price per share was calculated in accordance
with Rule 457(g) under the Securities Act.
* A Registration Fee in the amount of $685.01 has previously been paid in
connection with the initial filing of this Registration Statement.
Pursuant to Rule 416, this Registration Statement includes such
indeterminate number of additional shares as may be required for issuance upon
the exercise of the warrants as a result of any adjustment in the number of
shares issuable by reason of the anti-dilution provisions of the warrants.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[SUBJECT TO COMPLETION - DATED APRIL 26, 2002]
SUPER VISION INTERNATIONAL, INC.
707,373 SHARES OF CLASS A COMMON STOCK
_____________________
The Super Vision International, Inc. stockholders listed in the table
included in the "Selling Stockholders" section of this prospectus, which begins
on page 33, are offering for sale all of the shares of our Class A Common Stock,
par value $.001 per share, covered by this prospectus. The 707,373 shares of
Class A Common Stock covered by this prospectus include 499,849 outstanding
shares and 207,524 shares issuable pursuant to the exercise of warrants held by
the selling stockholders. The selling stockholders must first exercise the
warrants and acquire the underlying shares of Class A Common Stock before they
can resell those shares under this prospectus. We are registering the shares
underlying the warrants for resale purposes only and not for initial issuance.
Of the shares of Class A common stock issuable upon exercise of the
warrants, warrants to purchase 149,688 shares have been issued by Super Vision
and have an exercise price of $8.02 per share, and warrants to purchase 57,836
shares have been issued by a stockholder of the company and have an exercise
price equal to the then "market value" of the shares determined by reference to
the average of the last reported bid and asked prices of our Class A common
stock for the 30 consecutive business days ending on the exercise date.
The prices at which the selling stockholders may sell the shares will be
determined by the then prevailing market prices for the shares or in negotiated
transactions. Super Vision will not receive any of the proceeds from the sale of
the shares of Class A common stock by the selling stockholders. We will,
however, receive an indeterminate amount of proceeds if all of the warrants
issued to the selling stockholders are exercised.
We have two classes of common stock outstanding, Class A common stock and
Class B common stock. The Class A common stock and Class B common stock are
identical in all respects except that the Class B common stock has five votes
per share while the Class A common stock has one vote per share. Further, the
Class B common stock is convertible into Class A common stock on a share-for-
share basis and has limited transferability.
INVESTMENT IN OUR CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Trading in our Class A common stock is conducted on the Nasdaq SmallCap
Market under the symbol "SUPVA". On April 23, 2002, the closing price of the
Class A common stock on the Nasdaq SmallCap Market was $4.80.
_____________________
The date of this prospectus is ________________, 2002.
_____________________
TABLE OF CONTENTS
-----------------
ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION............. 3
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................... 12
USE OF PROCEEDS........................................................... 12
MARKET PRICES OF CLASS A COMMON STOCK..................................... 12
CAPITALIZATION............................................................ 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................. 14
DESCRIPTION OF BUSINESS................................................... 20
MANAGEMENT................................................................ 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 32
DESCRIPTION OF SECURITIES................................................. 33
SELLING STOCKHOLDERS...................................................... 35
PLAN OF DISTRIBUTION...................................................... 37
LEGAL MATTERS............................................................. 38
EXPERTS................................................................... 39
CHANGES IN ACCOUNTANTS.................................................... 39
We have not authorized anyone to provide you with information different
from that contained in this prospectus. This prospectus constitutes an offer to
sell or a solicitation to buy shares only in jurisdictions where offers and
sales are permitted
-2-
ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION
-------------------------------------------------------------
In this prospectus, unless the context otherwise requires, "Super Vision,"
"we," "our," "us," the "company" and similar expressions refer to Super Vision
International, Inc., a Delaware corporation, and its subsidiary, but not to the
selling stockholder identified under the caption "Selling Stockholder."
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or the SEC. You may
inspect and copy these materials at the public reference facilities maintained
by the SEC at:
Judiciary Plaza Citicorp Center
Room 1024 500 West Madison Street
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
You also may obtain copies of these materials from the SEC at prescribed
rates by writing to the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more
information on the operation of the public reference rooms. You also can find
our SEC filings at the SEC's website at http://www.sec.gov.
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, or the Securities Act, with respect to the
shares of Class A common stock offered in this prospectus. This prospectus is
part of that registration statement and, as permitted by the SEC's rules, does
not contain all of the information set forth in the registration statement. For
further information about our common stock, and us, we refer you to those copies
of contracts or other documents that have been filed as exhibits to the
registration statement. You can review and copy the registration statement and
its exhibits and schedules from the SEC at the addresses listed above or from
its Internet site.
PROSPECTUS SUMMARY
------------------
The following information summarizes the material information appearing
elsewhere in this prospectus. We encourage you to read the entire prospectus
carefully.
Super Vision International, Inc.
We are 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. We derive our revenues primarily from
sales of SIDE-GLOW(R) and END-GLOW(R) fiber optic lighting cables, and fiber
optic lighting sources, accessories, endpoint signs and displays. We also
design, market and sell fiber optically lit waterfalls and water features. We
market and distribute our products primarily through a network of independent
sales representatives and distributors.
Our SIDE-GLOW(R) fiber optic lighting cable utilizes a patented center core
in the manufacturing process to produce a plastic cable which, used in
conjunction with a halogen or metal-halide light source, emits light along its
entire length. We market our SIDE-GLOW(R) cable as an alternative to neon
lighting for indoor and outdoor architectural accents and large signs and
displays. Our SIDE-GLOW(R) fiber optic lighting cable is flexible and easy to
install, is not prone to the breakage associated with glass neon tubes and is
energy efficient, providing significant savings in electrical costs. In
addition, unlike neon, which remains a constant color, the light source for our
fiber optic lighting cable makes the cable capable of changing color. While our
fiber optic lighting products cannot yet achieve neon's level of brightness and
are generally more costly to purchase and install, we believe the benefits of
our SIDE-GLOW(R) cable outweigh these factors for a large segment of the current
neon market.
During the first half of 2001, we introduced a new line of lighting
products using LED technology for signs, safety/warning lamps, lighting strips,
swimming pools and spas, architectural lighting, or
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wherever a small light source is required. Our FlexLED product was designed
specifically for illuminating channel letters.
Our "point-to-point" fiber optic lighting products employ fiber optic
strands to create signs and other types of displays in virtually unlimited
shapes, sizes, designs and colors using fiber optic end points to illuminate a
logo or other image. These products have been incorporated in point of purchase
signs, outdoor advertising, trade shows and interior displays by numerous
theatres, restaurants, nightclubs, hotels and other businesses.
Super Vision was incorporated in Delaware in December 1993 and is the
successor by merger to a Florida corporation of the same name which was
incorporated in January 1991. Our principal executive offices are located at
8210 Presidents Drive, Orlando, Florida 32809, and our telephone number is (407)
857-9900.
The Offering
Class A Common Stock Offered ................ 707,373 shares/(1)/
Class A Common Stock Outstanding as of March 15, 2002, 2,083,110 shares/(2)/
NASDAQ SmallCap Symbol ...................... Class A Common Stock SUPVA
(1) Of the shares of Class A common stock being offered by the selling
stockholders, an aggregate of 207,524 shares are subject to warrants under
which we will receive an indeterminate amount of proceeds if all of the
warrants are exercised in full. Of the shares issuable upon exercise of the
warrants, warrants to purchase 149,688 shares have been issued by Super
Vision and have an exercise price of $8.02 per share, and warrants to
purchase 57,836 shares have been issued by the Kingstone Family Limited
Partnership II, which is controlled by Brett M. Kingstone, our chief
executive officer, and have an exercise price equal to the then "market
value" of the shares determined by reference to the average of the last
reported bid and asked prices of our Class A common stock for the 30
consecutive business days ending on the exercise date. The warrants to
purchase 57,836 shares may only be exercised upon the exercise of warrants
to purchase up to 289,187 shares issued to the Kingstone Family Limited
Partnership II. The warrants issued to the Kingstone Family Limited
Partnership II have an exercise price of $7.00 per share. The selling
stockholders may each purchase from the partnership up to 10% of the shares
of Class A common stock purchased by the Kingstone Family Limited
Partnership II upon exercise of its warrants, or a maximum of 28,918 shares
each.
(2) Does not include an aggregate of 438,875 shares issuable upon the exercise
of warrants. There can be no assurance that any such warrants will be
exercised. Does not include (i) 450,000 shares issuable upon the exercise
of options granted or available for grant under the Company's 1994 Stock
Option Plan, as amended and restated or (ii) 483,264 shares of Class B
common stock automatically convertible into an equivalent number of shares
of Class A common stock upon the sale or transfer of the Class B shares.
Summary Consolidated Financial Data
The following table sets forth our summary consolidated financial data. This
table does not represent all of our financial information. You should read this
information together with our financial statements and the notes to those
statements beginning on page F-1 of this prospectus and the information under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.
-4-
Statement of Operations Data
Year Ended December 31,
-----------------------
2001 2000
---- ----
Revenues $11,785,237 $11,654,167
Costs and expenses 12,472,893 11,696,267
Net loss (999,233) (259,211)
Net loss per common share (0.39) (0.10)
Balance Sheet Data:
December 31, 2001
-----------------
Working Capital $ 4,808,388
Total Assets 11,478,211
Total Liabilities 4,509,703
Stockholders' equity 6,968,508
RISK FACTORS
------------
Any investment in our Class A common stock involves a high degree of risk.
You should carefully consider the following risks relating to our business and
our Class A common stock, together with the other information described
elsewhere in this prospectus. If any of the following risks actually occur, our
business could be materially affected, the trading price of our Class A common
stock could decline, and you might lose all or part of your investment. The
risks and uncertainties described below are, however, not the only ones facing
us. Additional risks and uncertainties not currently known to us or that we
currently consider immaterial may also impair our operations.
We Have a History of Operating Losses and May Not be Able to Operate Profitably
We have experienced annual losses of ($999,233), ($259,211), and ($355,741)
for each of the years ended December 31, 2001, 2000, and 1999, respectively. Our
company faces significant challenges in order to reach profitability. Some of
these challenges are discussed in detail in these Risk Factors. In order for our
company to be successful and to grow, we will need to successfully address these
challenges. Most of our expenses are fixed in nature, and we generally are
unable to reduce our expenses significantly in the short-term to compensate for
any unexpected delay or decrease in anticipated revenues. As a result, we may
continue to experience losses on a quarterly or annual basis, which could cause
the market price of our Class A common stock to decline.
General Economic and Industry Conditions May Effect Our Business
Any general economic, business or industry conditions that cause customers
or potential customers to reduce or delay their purchases of lighting products,
signs or displays could have a material
-5-
adverse effect on our business, prospects and financial performance. Worldwide
economic conditions could have an effect on the demand for our products and
could result in declining revenue and earnings. The U.S. economy has been
softening since the end of 2000. If this trend continues, as appears likely, we
may experience difficulties collecting accounts receivable, sales and demand for
our products may decrease, and our operating results will probably suffer.
Our Quarterly Operating Results Fluctuate as a Result of Many Factors
Our quarterly revenues and operating results have fluctuated and are likely
to continue to vary from quarter to quarter due to a number of factors, many of
which are not within our control. Factors that could affect our revenues
include, among others, the following:
. competitive factors, such as competitive pricing pressure and the potential
introduction of new products by competitors;
. manufacturing factors, including constraints in our manufacturing and
assembly operations and shortages or increases in the prices of raw
materials and components;
. sales and distribution factors, such as changes in product mix or
distribution channels resulting in lower margins, increases in sales and
marketing expenses, the loss of a significant distributor or sales
representative, and seasonality of sales;
. product development and introduction problems, such as increased research,
development and marketing expenses associated with new product
introductions, delays in the introduction of new products and technologies,
and adverse effects on sales of existing products;
. our ability to control costs, including levels of expenses relative to
revenue levels;
. our ability to develop, introduce, market and gain market acceptance of new
products and product enhancements in a timely manner;
. the size, timing, rescheduling or cancellation of significant customer
orders;
. changes in our pricing policies and the pricing policies of our suppliers
and competitors, pricing concessions on volume sales, as well as increased
price competition in general;
. our success in expanding and implementing our sales and marketing programs;
. our relatively small level of backlog at any given time;
. the mix of sales among our products;
. deferrals of customer orders in anticipation of new products, or product
enhancements;
. risks and uncertainties associated with our international business;
. expenses that may be incurred in litigation;
. personnel changes;
. currency fluctuations and our ability to get currency out of certain
foreign countries; and
. general economic and market conditions, including housing market trends,
interest rates and the weather.
-6-
In addition, our sales in any quarter may consist of a relatively small number
of large customer orders. As a result, the timing of a small number of orders
may impact our quarter-to-quarter results. The loss of, or a substantial
reduction in, orders from any significant customer could seriously harm our
business, financial condition and results of operations.
Our quarterly operating results are also substantially affected by the
market's acceptance of our products and the level and timing of orders received.
Significant portions of our expenses are relatively fixed in advance based upon
our forecasts of future sales. If sales fall below expectations in any given
quarter, our operating results will be adversely affected. In addition, certain
product development and marketing expenditures may vary significantly from
quarter to quarter and are made well in advance of potential resulting revenue.
Due to all of the factors listed above and other risks discussed in this
prospectus, our future operating results could be below the expectations of
securities analysts or investors. If that happens, the trading price of our
Class A common stock could decline. As a result of these quarterly variations,
you should not rely on quarter-to-quarter comparisons of our operating results
as an indication of our future performance.
If Fiber Optic Lighting Products Do Not Gain Wider Market Acceptance Our
Business and Financial Performance May Suffer
We derive our net sales and income primarily from selling SIDE-GLOW(R) and
END GLOW(R) fiber optic cables, light sources, lighting accessories, endpoint
signs and displays, and fiber optically lit waterfalls and water features. Our
fiber optic lighting products compete with traditional lighting technologies
such as neon and florescent lighting. Traditional lighting technologies have
the advantage of a long history of market acceptance and familiarity as compared
to our products. The initial purchase price of our fiber optic lighting
products is typically higher than conventional lighting, and our products tend
to be less bright than conventional alternatives. Our continued success will
depend upon increased acceptance of fiber optic lighting products as an
alternative to neon and other traditional lighting technologies. Our future
results are dependent upon continued growth of the fiber optic lighting market.
As part of our sales and marketing strategy, we actively seek to educate our
target markets as to the advantages of fiber optic lighting systems. We believe
that achievement of this objective is critical to our future success. Fiber
optic lighting products may not continue to gain market share within the overall
lighting market or competitors may introduce better lighting technologies,
displacing fiber optic lighting products in the market. As a growth company,
either of these occurrences could have a material adverse effect on our
business, results of operations, and the value of our securities.
Our Sales are Dependent Upon New Construction Levels and are Subject to Seasonal
Trends
Sales of our lighting products depend significantly upon the level of new
building construction and renovation. Construction levels are affected by
housing market trends, interest rates and the weather. Sales of our pool and
spa lighting products depend substantially upon the level of new pool
construction. Because of the seasonality of construction, our sales of swimming
pool and lighting products, and thus our overall revenues and income, have
tended to be significantly lower in the first quarter of each year. Various
economic and other trends may alter these seasonal trends from year to year, and
we cannot predict the extent to which these seasonal trends will continue.
Our Future Success Depends on the Successful Development and Market Acceptance
of New Products.
We believe our revenue growth and future operating results will depend in
part on our ability to complete development of new products and enhancements to
existing products, introduce these products in a timely, cost-effective manner,
achieve broad market acceptance of these products and enhancements, and reduce
our product costs. We may not be able to introduce any new products or any
enhancements to our existing products on a timely basis, or at all. In
addition, the introduction of any new products could adversely affect the sales
of certain of our existing products. Market acceptance of our new products
depends upon many factors, including our ability to accurately predict market
requirements and evolving industry standards, our ability to resolve technical
challenges in a timely and cost-effective
-7-
manner and achieve manufacturing efficiencies, the perceived advantages of our
new products over traditional products, and the marketing capabilities of our
independent distributors and strategic partners.
We Have Significant International Sales and Are Subject to Risks Associated with
Operating in International Markets
International product sales represented approximately 26% of our total
revenues for the year ended December 31, 2001 and approximately 25% for the year
ended December 31, 2000. We believe our international distributors are better
able to service international markets due to their understanding of local market
conditions and best business practices. International business operations are
subject to inherent risks, including, among others:
. unexpected changes in regulatory requirements, tariffs and other trade
barriers or restrictions;
. longer accounts receivable payment cycles;
. difficulties in managing and staffing international operations;
. potentially adverse tax consequences;
. the burdens of compliance with a wide variety of foreign laws;
. import and export license requirements and restrictions of the United
States and each other country in which we operate;
. exposure to different legal standards and reduced protection for
intellectual property rights in some countries;
. currency fluctuations and restrictions; and
. political, social and economic instability.
Any of these factors may adversely effect our future international sales
and, consequently, our business and operating results. Furthermore, as we
increase our international sales, our total revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower sales that
typically occur during the summer months in Europe and other parts of the world.
We believe that international sales will continue to represent a
significant portion of our revenues, and that continued growth and profitability
may require further expansion of our international operations. Many of our
international sales are currently denominated in U.S. dollars. As a result, an
increase in the relative value of the dollar could make our products more
expensive and potentially less price competitive in international markets. We do
not engage in any transactions as a hedge against risks of loss due to foreign
currency fluctuations.
Competition is Increasing In a Number of Our Markets
The lighting industry is highly competitive. Our product lines span major
segments within the lighting industry and, accordingly, our products compete in
a number of different markets with a number of different competitors. We
compete with independent distributors, importers, manufacturers, and suppliers
of lighting fixtures and other consumer products. Our competitors include some
very large and well-established companies. Many of our competitors have far
greater name recognition and greater financial, technological, marketing and
customer service resources than we do. This may allow them to respond more
quickly to new or emerging technologies and changes in customer requirements.
It may also allow them to devote greater resources to the development,
promotion, sale and support of their products than we can. Our competitors
market products that compete with our products on the basis of price and other
factors. Some of these competitors do not maintain warehouse operations or do
not perform all of the
-8-
services we provide, which requires us to charge higher prices. The relatively
low barriers to entry into the lighting industry and the limited proprietary
nature of many lighting products also permit new competitors to enter the
industry easily. Our ability to compete successfully in this highly competitive
market depends upon our ability to manufacture and purchase quality components
on favorable terms, ensure our products meet safety standards, deliver our
products promptly at competitive prices, and provide a wide range of services.
We anticipate that any future growth in fiber optic lighting will be accompanied
by continuing increases in competition. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share, any
of which could seriously harm our business, financial condition and results of
operations.
We May Not be Able to Adequately Protect or Enforce Our Intellectual Property
Rights
We consider our technology and procedures proprietary. If we are not able
to adequately protect or enforce the proprietary aspects of our technology,
competitors could be able to access our proprietary technology and our business,
financial condition and results of operations could be harmed. We currently
attempt to protect our technology through a combination of patent, copyright,
trademark and trade secret laws, employee and third party nondisclosure
agreements and similar means. Despite our efforts, other parties may attempt to
disclose, obtain or use our technologies. Our competitors may also be able to
independently develop products that are substantially equivalent or superior to
our products or design around our patents. In addition, the laws of some
foreign countries do not protect our proprietary rights as fully as do the laws
of the United States. As a result, we may not be able to protect our proprietary
rights adequately in the United States or abroad.
We may receive notices that claim we have infringed upon the intellectual
property of others. Even if these claims are not valid, they could subject us
to significant costs. We have engaged in litigation in the past, and litigation
may be necessary in the future to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others.
Litigation may also be necessary to defend against claims of infringement or
invalidity by others. An adverse outcome in litigation or any similar
proceedings could subject us to significant liabilities to third parties,
require us to license disputed rights from others or require us to cease
marketing or using certain products or technologies. We may not be able to
obtain any licenses on terms acceptable to us, or at all. We also may have to
indemnify certain customers or strategic partners if it is determined that we
have infringed upon or misappropriated another party's intellectual property.
Any of these results could adversely affect our business, financial condition
and results of operations. In addition, the cost of addressing any intellectual
property litigation claim, both in legal fees and expenses, and the diversion of
management resources, regardless of whether the claim is valid, could be
significant and could seriously harm our business, financial condition and
results of operations.
We Rely on Third Parties for a Significant Portion of Our Sales; Terms and
Conditions of Sales are Subject to Change With Very Little Notice
We rely significantly on indirect sales channels to market and sell our
products. Most of our products are sold through independent distributors and
agents. Our current agreements with indirect sales channels are non-exclusive
with regard to lighting products in general, but exclusive with respect to fiber
optic and LED lighting products. We anticipate that any such agreements we
enter into in the future will be on similar terms. Furthermore, our agreements
are generally short-term, and can be cancelled by these sales channels without
significant financial consequence. We cannot control how these sales channels
perform and cannot be certain that either our customers or we will be satisfied
by their performance. If these distributors and agents significantly change
their terms with us, or change their historical pattern of ordering products
from us, there could be a significant impact on our revenues and profits.
We Depend on Third-Party Suppliers
We depend on others to manufacture a significant portion of the component
parts we incorporate into our products. We purchase our component parts from
numerous third-party manufacturers and believe that numerous alternative sources
of supply are readily available for most component parts. We
-9-
depend on our suppliers to satisfy performance and quality specifications and to
dedicate sufficient production capacity for components within scheduled delivery
times. We do not maintain contracts with any of our suppliers; instead, we
purchase our components pursuant to purchase orders placed from time to time in
the ordinary course of business. This means we are vulnerable to unanticipated
price increases.
We purchase fiber optic strands from a single Japanese supplier. While we
believe alternative sources for fiber optic strands are available to enable us
to produce our endpoint signs and displays, the SIDE-GLOW(R) and END GLOW(R)
cables require fiber optic material of a higher quality than we believe is
generally available elsewhere. Accordingly, the loss of this supplier or delays
in obtaining shipments could have a material adverse effect on our operations
until such time as an alternative supplier could be found.
We may be subject to various import duties applicable to materials
manufactured in foreign countries and, in addition, may be affected by various
other import and export restrictions, as well as other considerations or
developments impacting upon international trade, including economic or political
instability, shipping delays and product quotas. These international trade
factors will, under certain circumstances, have an impact both on the cost of
components (which will, in turn, have an impact on the cost to us of the
manufactured product) and the wholesale and retail prices of our products.
We Depend on Key Employees in a Competitive Market for Skilled Personnel; the
Loss of the Services of any of our Key Employees Could Materially Affect our
Business
Our future success will depend to a large extent on the continued
contributions of certain key employees, many of whom would be difficult to
replace. We do not have employment agreements with our key employees except for
Brett Kingstone, our Chairman of the Board, President and Chief Executive
Officer. The loss of the services of Mr. Kingstone would have a material
adverse affect on our business. Our future success also will depend on our
ability to attract and retain qualified technical, sales, marketing and
management personnel, for whom competition is intense. The loss of, or failure
to attract and retain, any such persons could delay product development cycles,
disrupt our sales and marketing functions, disrupt our operations, or otherwise
harm our business or results of operations.
Our Business is Subject to Additional Risks that Could Materially and Adversely
Affect Our Future Business, Including:
. manufacturing risks, including the risks of shortages in materials or
components necessary to our manufacturing and assembly operations, and the
risks of increases in the prices of raw materials and components;
. sales and distribution risks, such as risks of changes in product mix or
distribution channels that result in lower margins;
. risks of the loss of a significant customer;
. risks of the effects of volume discounts that we grant from time to time to
our larger customers, including reduced profit margins; and
. risks of product returns and exchanges; we cannot be assured that we will
not experience component problems in the future that could require
increased warranty reserves and manufacturing costs.
Our President and Chief Executive Officer Controls a Significant Percentage of
Our Common Stock
On March 15, 2002, Brett M. Kingstone, our Chairman of the Board, President
and Chief Executive Officer, owned beneficially approximately 14% of our
outstanding common stock, including all of the outstanding shares of our Class B
Common Stock. Mr. Kingstone has approximately 57% of the voting power of our
outstanding shares and is able to control all matters requiring stockholder
approval, including election of directors and approval of significant corporate
transactions. This
-10-
concentration of ownership, which is not subject to any voting restrictions,
could limit the price that investors might be willing to pay for our Class A
common stock. In addition, Mr. Kingstone is in a position to impede transactions
that may be desirable for other stockholders. He could, for example, make it
more difficult for anyone to take control of us.
The Trading Price of Our Class A Common Stock is Volatile
The trading price of our Class A common stock has been subject to wide
fluctuations in the past. Since January 2000, our Class A common stock has
traded at prices as low as $5.10 per share and as high as $9.88 per share. We
may not be able to increase or sustain the current market price of our Class A
common stock in the future. As such, you may not be able to resell your shares
of Class A common stock at or above the price you paid for them. The market
price of our Class A common stock could continue to fluctuate in the future in
response to various factors, including, but not limited to:
. quarterly variations in operating results;
. our ability to control costs and improve cash flow;
. shortages announced by suppliers;
. acquisitions of businesses, products or technologies;
. changes in pending litigation or new litigation;
. changes in investor perceptions;
. introduction of new products or product enhancements by us or by our
competitors; and
. changes in earnings estimates or investment recommendations by securities
analysts.
The stock market in general has recently experienced volatility, which has
particularly affected the market prices of equity securities of many high
technology companies. This volatility has often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our Class A common stock. In the past, companies that
have experienced volatilities in the market price of their securities have been
the subject of securities class action litigation. If we were to become the
subject of a class action lawsuit, it could result in substantial losses and
divert management's attention and resources from other matters.
Our Stock Structure and Certain Anti-Takeover Provisions May Affect the Price of
Our Common Stock
Certain provisions of our certificate of incorporation could make it
difficult for a third party to acquire us, even though an acquisition might be
beneficial to our stockholders. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
Our Class A common stock entitles the holder to one vote per share and our Class
B common stock entitles the holder to five votes per share. The disparity in
the voting rights between our common stock, as well as Mr. Kingstone's
beneficial ownership of all of the Class B common stock, could discourage a
proxy contest or make it more difficult for a third party to effect a change in
our management and control. In addition, our Board of Directors is authorized
to issue, without stockholder approval, up to 5,000,000 shares of preferred
stock with voting, conversion and other rights and preferences superior to those
of our common stock, as well as additional shares of Class B common stock. Our
future issuance of preferred stock or Class B common stock could be used to
discourage an unsolicited acquisition proposal.
We Do Not Pay Cash Dividends
-11-
We have never paid cash dividends on our common stock and do not anticipate
paying any cash dividends on either class of our common stock in the foreseeable
future.
We May Be Subject to Additional Risks
The risks and uncertainties described above are not the only ones facing
our company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also adversely affect our business
operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
-------------------------------------------------
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "intend," "estimate" and "continue" or similar words.
You should read statements that contain these words carefully for the following
reasons:
. the statements discuss our future expectations;
. the statements contain projections of our future earnings or of our
financial condition; and
. the statements state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed above, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our class A common stock, you should be aware
that the occurrence of any of the events described in the above risk factors,
elsewhere in this prospectus and other events that we have not predicted or
assessed could have a material adverse effect on our earnings, financial
condition and business. If the events described above or other unpredicted
events occur, then the trading price of our Class A common stock could decline
and you may lose all or part of your investment.
USE OF PROCEEDS
---------------
The shares of our Class A common stock offered under this prospectus are
for the account of the selling stockholders. We will not receive any of the
proceeds from sales of the shares by the selling stockholders. However, 207,524
of the shares covered by this prospectus are subject to issuance by us pursuant
to the exercise of warrants. Warrants to purchase up to 149,688 shares have
been issued by Super Vision and have an exercise price of $8.02 per share. Any
cash proceeds we receive from the exercise of these warrants would be used for
general corporate purposes. We will not receive any proceeds from the exercise
of the remaining 57,836 warrants because the shares will be purchased from the
Kingstone Family Limited Partnership II, which is controlled by Brett Kingstone,
our chief executive officer. However, those warrants do not vest unless the
partnership fully or partially exercises certain warrants to purchase 289,187
shares of our Class A Common Stock at $7.00 per share. Any cash proceeds we
receive from the exercise of the warrants by the Kingstone Family Limited
Partnership II would also be used for general corporate purposes.
MARKET PRICES OF CLASS A COMMON STOCK
-------------------------------------
Our Class A common stock has been quoted in the Nasdaq SmallCap Market
under the symbol SUPVA since March 1994. The following table sets forth the
high and low bid prices for our Class A common stock as reported by the Nasdaq
SmallCap Market for the periods indicated.
Bid Prices
----------
High Low
---- ---
-12-
Year Ending
-----------
December 31,
------------
2001
----
First Quarter 7 5-1/2
Second Quarter 7-3/5 6-1/8
Third Quarter 7 5-3/4
Fourth Quarter 6-3/4 5-1/10
Year Ended
----------
December 31,
------------
2000
----
First Quarter 9-7/8 6
Second Quarter 8-3/8 7-5/8
Third Quarter 8 7
Fourth Quarter 7-3/4 5-1/2
As of March 15, 2002, we believe that there were approximately 34 holders
of record of our Class A common stock.
We have never paid any cash dividends, and we do not intend to pay any cash
dividends on our Class A common stock for the foreseeable future. We intend to
reinvest our earnings, if any, in the growth and expansion of our business.
There are no restrictions that limit our ability to pay dividends or that are
likely to do so in the future.
-13-
CAPITALIZATION
--------------
The following table sets forth our capitalization as of December 31, 2001.
The table should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
December 31, 2001
-----------------
Obligation under capital lease $ 2,970,805
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 issued and outstanding
at December 31, 2001 2,084
Class B common stock, $.001 par value, 3,389,134 shares
authorized, 483,264 issued and outstanding at
December 31, 2001; each share entitled to 5 votes 483
Accumulated other comprehensive loss (30,655)
Additional paid-in capital 10,556,110
Accumulated deficit (3,559,514)
-----------
Total stockholders' equity $ 6,968,508
-----------
Total capitalization $ 9,939,313
===========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
The following discussion and analysis should be read in conjunction with
our consolidated financial statements and notes thereto appearing elsewhere in
this prospectus.
Results of Operations
Year Ended December 31, 2001 compared to December 31, 2000
Revenues
Our revenues are derived primarily from sales of SIDE-GLOW(R) and END
GLOW(R) fiber optic cables and light sources, LED lighting products, lighting
accessories, endpoint signs and displays, and fiber optically lit waterfalls and
water features. Revenues for the year ended December 31, 2001 were
approximately $11,785,000 as compared to $11,654,000 during the preceding year,
an increase of approximately $131,000 or 1%. This increase was primarily the
result of sales growth in the architectural and waterfall markets, which
increased 21% and 119%, respectively, over 2000 levels. Revenues from the sign,
and pool and spa markets decreased 13% and 40%, respectively, as compared to
2000.
We derived approximately 16% of our total revenues from Hayward Pool
Products, Inc. in 2001 compared to approximately 28% in 2000. Previously,
Hayward was the exclusive worldwide distributor of our fiber optic lighting
products in the swimming pool and spa market. On August 15, 2001, we reached an
agreement with Hayward terminating Hayward's exclusive distribution rights as of
September 30, 2001. Our agreement with Hayward allowed us to commence direct
selling of our fiber optic lighting products in the swimming pool and spa market
worldwide, except in the United States and Canada, as of August 15, 2001, and
within the United States and Canada as of October 1, 2001. We
-14-
have agreed to pay Hayward royalties on gross sales of fiber optic pool lighting
products sold by us 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
our fiscal years ending December 31, 2002 and 2003. Pursuant to the agreement,
Hayward also agreed to return certain fiber optic lighting products we
previously sold to Hayward and to return vested warrants covering 49,896 shares
of our Class A common stock previously issued to Hayward all in exchange for
$300,000, which we paid 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
approximately $102,000 balance of the settlement payment was recorded as a one-
time charge to operations in December 2001. The inventory repurchased from
Hayward consisted of our manufactured fiber optic lighting products, which had
been directly purchased by Hayward from us from January 1, 2000 through
September 30, 2001. The shares underlying Hayward's remaining warrants and other
shares of our common 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 purchase commitments for 2001 and beyond.
We believe that directly marketing our swimming pool products through our
network of independent manufacturer's representatives will allow us to more
closely serve our customers as well as offer new services such as the bundling
of product and installation. We anticipate that directly marketing our products
in the swimming pool market may enable us to increase revenues and gross margin
from the sale of our pool and spa products.
Gross Margin
Gross margin for the year ended December 31, 2001 was approximately
$4,119,000, a 10% increase over 2000. Our gross margin percentage was 35% for
the year ended December 31, 2001 as compared to 32% for 2000. Gross margin is
dependent, in part, on product mix, as well as our mix of customers, which
fluctuates from time to time. The 10% increase in the amount of gross margin
for the year ended December 31, 2001 over the year ended December 31, 2000 was
mainly due to the increased sales volume of domestic architectural products.
The increase in gross margin percentage from 32% to 35% was the result of
enhancements to our sales process, a lower mix of revenue from pool related
products that were sold at a significant discount off list price to Hayward
pursuant to our now terminated distributor agreement with Hayward, and the
implementation of cost reductions in material components.
We intend to continue focusing on improving gross margin and profitability
through aggressively pursuing reductions in the cost of key material components
and manufacturing costs. To that end, we are in the process of sourcing
assembly of illuminators overseas, which is expected to have a favorable impact
on our overall gross margin and lower production costs in 2002 and beyond. The
assembly of illuminators overseas has reduced our manufacturing space
requirements and has allowed us to sub-lease 20,000 square feet of our facility
for the period March 1, 2002 to February 28, 2003 to an unrelated
-15-
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 the year ended December
31, 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% over the preceding year. The increase was
primarily due to additional sales and marketing related expenses to support our
domestic architectural lighting market as well as a one-time charge of
approximately $102,000 taken for the Hayward settlement. We currently expect
that selling, general and administrative expenses will continue to increase in
absolute dollars in order to support the distribution of our product offerings,
in the domestic architectural lighting market as well as the pool and spa
market, on a direct basis through our network of agents and independent
manufacturer representatives.
Research and Development
Research and development costs were approximately $456,000 for the year
ended December 31, 2001 compared to approximately $455,000 for 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
We had interest income for the year ended December 31, 2001 of
approximately $122,000 compared to approximately $187,000 for 2000, a decrease
of approximately $65,000, or 35%, due to lower cash balances during the year.
Interest expense of approximately $431,000 for the year ended December 31, 2001
compared to approximately $439,000 for 2000, related to the capital lease for
our facility in Orlando, Florida.
Income Tax
We have a full valuation allowance against income tax benefits resulting
from losses incurred on operations and, as a result, there was no provision for
income tax in 2001 or 2000.
Net Loss
Our net loss for the year ended December 31, 2001 was approximately
$999,000, or $0.39 per basic and diluted share, compared to a net loss of
approximately $259,000, or $0.10 per basic and diluted share, for 2000. The
increase in the net loss was primarily due to higher selling, general and
administrative expenses partially offset by increased gross margin.
-16-
Liquidity and Capital Resources
Historically, we have financed our operations primarily with cash flow from
operations and equity capital.
At December 31, 2001, we had working capital of approximately $4,808,388, a
decrease of approximately 20% over working capital of approximately $6,010,000
at December 31, 2000. During 2001, we financed our operations primarily from
cash flow and cash on hand.
-17-
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
-18-
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. We 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.
We made capital expenditures of approximately $247,000 for tooling,
leasehold improvements in connection with our 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 on the
capital lease obligation.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
We use certain accounting policies and procedures to manage changes
that occur in our business environment that may affect accounting estimates made
in preparation of our financial statements. These estimates relate primarily to
our allowance for doubtful accounts receivable and provision for inventory
obsolescence. Our strategy for managing doubtful accounts includes stringent,
centralized credit policies and collection procedures for all customer accounts.
We use a credit risk rating system in order to measure the quality of individual
credit transactions. We strive to identify potential problem receivables early,
take appropriate collection actions, and maintain adequate reserve levels. Our
strategy for providing 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. We believe that the allowance for doubtful accounts and provision for
inventory obsolescence is adequate at each period end.
RELATED PARTY TRANSACTIONS
- --------------------------
-19-
On September 27, 1996, we 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 ("FASB") 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 Super Vision will be January 1, 2002.
The implementation of these Statements is not expected to have a material impact
on our 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 our 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 our financial position or results of operations.
We adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" in 2001 and its adoption had no effect on our operating results or
financial position.
DESCRIPTION OF BUSINESS
------------------------
General
-20-
Our company is a designer and manufacturer of energy efficient LED and
fiber optic lighting products, signs and displays for applications in the
signage, swimming pool, architectural, and retail industries.
Products and Services
SIDE-GLOW(R) END GLOW(R)
Our SIDE-GLOW(R) fiber optic lighting cables are marketed as an alternative
to neon and other conventional lighting products, for use in accent lighting,
theme lighting and lighting areas where maintenance and breakage are of concern
to the end user. SIDE-GLOW(R) fiber optic lighting cable is flexible and easy to
install, is not prone to the breakage associated with glass neon tubes and is
energy efficient, providing significant savings in electrical costs and
maintenance. In addition, the cables can be combined with standard or custom
manufactured light sources and control systems to create color-changing patterns
and unique lighting systems. The cables are offered in a variety of diameters
with a wide range of light sources.
END GLOW(R) cables are utilized to transmit cool, ultra violet and heat
free light from a remote light source to the object or area being lighted. We
market our END GLOW(R) cables in conjunction with our line of light sources and
lighting accessories for a variety of applications from swimming pool and spa
lighting to display case lighting and residential landscape lighting. END
GLOW(R) cables allow for unique lighting of areas or objects with the added
benefits of fiber optics. Utilizing our state of the art fiber optic cabling
systems, we are able to custom manufacture END GLOW(R) cables to user
specifications, in order to deliver the required amount of light to the object
at the most affordable cost.
Our SIDE-GLOW(R) and END GLOW(R) cables have been incorporated in diverse
locations worldwide. Applications of these products can be found in the
following places: the world's largest fiber optically lit pool in the Westin
Hotel, St. John's, U.S. Virgin Islands; Universal Studios CityWalk, Florida; the
Coca-Cola sign in New York Times Square; and the Pepsi Cola sign in Caracas,
Venezuela.
During 2001, our SIDE-GLOW(R) and END GLOW(R) cable products accounted for
approximately 35% of our total revenues. We believe that this product area
offers our largest growth potential and, therefore, we intend to devote the
majority of our engineering, sales and marketing efforts to expand this area of
our business and the related light source product lines described below.
Light Sources
We manufacture a variety of light sources used in conjunction with our
SIDE-GLOW(R) and END GLOW(R) fiber optic cables and lighting accessories to
create full lighting systems. Each line of light sources was created to meet
specific market needs and applications. The light sources are manufactured to
meet the standards established by Underwriters Laboratories and comparable
certifying bodies worldwide. We currently manufacture numerous standard catalog
light sources for the following: endpoint fiber optic applications and certain
SIDE-GLOW(R) applications; swimming pool and residential applications; display
case and interior theme lighting industries; and commercial lighting and
signage. We also manufacture a wide variety of custom light sources for specific
market needs based on a survey of a customer's lighting applications.
We utilize control systems with our light sources to allow for
customization of lighting systems. All of our light sources are designed to
accept a variety of unique controller options, allowing the basic light sources
to meet a wide variety of market needs. Multiple light sources can be sequenced
using our proprietary control systems to create special lighting effects.
Light source product lines represented approximately 39% of our total
revenue during 2001. We believe that maintaining a competitively priced and
commercially superior line of light sources is critical to continued growth in
all of our product lines and markets. We plan to devote significant resources
to continue development of these products and markets.
-21-
Endpoint Signs and Displays
We design, manufacture, and install endpoint fiber optic signs and custom
displays for advertising, signage and point of purchase displays. Custom
patterns are created using sophisticated design tools and software, which are
then tailored to customer specifications. These patterns are fed into automated
equipment to produce drilled patterns in the subject material. Fiber optic
filaments are then placed, treated and gathered to a light source. Utilizing a
variety of techniques, the fibers are then ordered within the light source and
computer generated color disk assembly to create the desired visual effects.
During 2001, endpoint signs and displays accounted for approximately 5% of our
total revenues.
Lighting Accessories
We sell a variety of lighting accessories and fixtures for use with our
fiber optic cables and light sources. These fixtures include underwater lens
assemblies, display case fixtures, downlights and landscape accessories. The
accessories and fixtures are used to provide direct object lighting, decorative
accent lighting and special effect lighting. We believe that providing these
fixtures and accessories to the market enhances our ability to market our fiber
optic products as a full lighting package, as opposed to a component line.
During 2001, lighting accessories accounted for approximately 9% of our total
revenues.
LED Lighting Systems
During the first half of 2001, we introduced a line of lighting products
using LED technology for signs, safety/warning lamps, lighting strips, swimming
pools and spas, architectural lighting, or wherever a small light source is
required. Our FlexLED product was designed specifically for illuminating channel
letters. LED lighting systems accounted for approximately 4% of our total
revenue in 2001.
Waterfalls
We design and manufacture fiber optically lit waterfalls and water features
primarily used in swimming pools and spas, through our wholly-owned subsidiary,
Oasis Waterfalls LLC. During 2001, sales of Oasis Waterfalls' products and
services accounted for approximately 8% of our total revenue.
Sales and Marketing
Our products are utilized in a wide variety of applications; consequently,
we use numerous marketing channels and strategies to reach target customers.
From November 1998 to October 2000, we had an exclusive distribution, sales
and marketing agreement with Cooper Lighting, Inc. and Cooper Industries
(Canada), Inc. pursuant to which Cooper acquired the North American rights to
market, sell and distribute our products to certain markets including the
architectural lighting market. In consideration for these rights, Cooper agreed
to purchase up to $47,075,000 of our products over a five-year period. Cooper
did not meet its minimum purchase commitments. Effective October 31, 2000, we
mutually agreed to terminate our distribution agreement with Cooper. We did not
derive any revenue from Cooper in 2001, compared to approximately 13% of our
total revenues in 2000. Separate from the distributorship agreement with
Cooper, we received an order from Regent Lighting Corporation, an affiliate of
Cooper, to supply outdoor lighting products. We derived approximately $839,000,
or 7% of our total revenues from Regent Lighting Corporation in 2001, compared
to approximately 13% in 2000.
We currently market and distribute our architectural lighting products in
North America through a network of approximately 90 lighting agencies covering
the United States and Canada. These independent lighting agencies provide
assistance in the lighting specification process and direct customers to
purchase our products.
-22-
From September 1996 to October 2001, we had an exclusive distribution
agreement with Hayward Pool Products, Inc., the world's largest swimming pool
products supplier, pursuant to which Hayward acquired the worldwide rights to
market and sell our fiber optic lighting products in the swimming pool and spa
market. On August 15, 2001, we reached an agreement with Hayward terminating
Hayward's exclusive distribution rights, as of September 30, 2001. Our
agreement with Hayward allowed us to commence direct selling of our fiber optic
lighting products in the swimming pool and spa market worldwide, except in the
United States and Canada, as of August 15, 2001, and within the United States
and Canada as of October 1, 2001. The termination of Hayward's exclusive
distribution rights also released Hayward from any annual minimum purchase
commitments for 2001 and beyond. We derived approximately 16% of our total
revenues from Hayward in 2001 compared to approximately 28% in 2000.
We currently market and sell our lighting products in the swimming pool and
spa market through a network of independent manufacturer's representatives. We
believe our new direct distribution channels will allow us to more closely serve
our customers as well as offer new services such as the bundling of product and
installation.
International sales accounted for approximately 26% of our total revenue
for 2001 compared to approximately 25% in 2000. We have entered into exclusive
and non-exclusive marketing and sales arrangements with leading lighting
companies in international territories. We provide technical expertise and
limited marketing support, while our international distributors provide sales
staff, local marketing, and product service. We believe our international
distributors are better able to service international markets due to their
understanding of local market conditions and best business practices.
We use a combination of direct marketing and manufacturer's representatives
for our signage product lines in order to reduce end user costs. We also market
endpoint signs and displays directly to end users, principally Fortune 500
companies worldwide. We also utilize direct sales efforts to create specific
applications for our lighting products for large national commercial and retail
lighting projects, including original equipment manufacturer (OEM)
opportunities.
Manufacturing and Suppliers
The fiber optic strands used in our endpoint signs and displays, as well as
the production of our SIDE-GLOW(R) and END GLOW(R) cables, are purchased from a
key Japanese supplier. While we believe there are alternative sources for the
fiber optic strands used in the production of our endpoint signs and displays,
we believe our SIDE-GLOW(R) and END GLOW(R) cables require fiber optic material
of a higher quality than is generally available elsewhere.
We use customized cabling and extrusion equipment to internally produce our
SIDE-GLOW(R) and END GLOW(R) cables. In August 1997, simultaneously with
relocating to our current facility, we upgraded and retrofitted our cabling and
extrusion equipment to increase quality and production capability. Monitoring
and, when desirable, revising our manufacturing process has allowed us to
increase quality, improve capabilities and maintain process control. In the
event our cabling and extrusion equipment is ever disabled for any significant
period of time, we could outsource the manufacturing of our products.
We manufacture the light sources and control systems used with our SIDE-
GLOW(R) and END GLOW(R) cables and endpoint signs and displays in our facility
in Orlando, Florida. The designs of the light sources are considered
proprietary, and we have U.S. patents issued with respect to certain designs.
All endpoint signs and displays are manufactured directly by us based on the
clients' specifications, or designed jointly by our client and our experienced
design personnel. We believe our ability to offer a full range of products, and
design, engineering and support services, are unique in the market place, and
are important to our prospects for future growth.
-23-
Research and Product Development
We constantly strive to enhance our existing products. We plan to develop
additional products and identify new markets and distribution channels. We
consider our ability to constantly improve existing products, rapidly introduce
new products to fill identified needs, and design solutions for custom
applications to be critical to our growth. We believe our responsiveness to the
market to be an important differentiating factor, and we will continue to
provide rapid response to market trends. We believe that the increasing market
for fiber optic lighting products in general may attract larger companies into
the market with more capital and technical personnel than we currently employ.
Accordingly, we plan to continue to explore joint product development activities
with our marketing partners to maintain our competitive advantage and defend our
market position.
During 2001, we spent approximately $456,000 on engineering and product
development activities, as compared to approximately $455,000 in 2000. We feel
our future success will depend, in large part, on our ability to continue to
improve and enhance our existing products as well as develop new products and
applications for our LED and fiber optic lighting technologies.
We believe increased levels of spending on research and development will be
necessary to successfully develop a product which has the brightness of neon and
which can be sold at a comparable price. Additionally, as new market
opportunities are identified, increased levels of product development may occur
so we can rapidly design, engineer and produce products to fill these market
needs.
Competition
We currently face competition from both traditional lighting technologies
such as neon and florescent lighting and from competitors specifically engaged
in fiber optic lighting. Several larger companies which are currently engaged
in traditional lighting technologies or lighting component manufacturing have
announced their intention of entering the fiber optic lighting market through
acquisition or formation of divisions or subsidiaries dedicated to penetrating
the fiber optic lighting market. There can be no assurance that a large
conventional lighting company will not enter the market and utilize its
resources to capture significant market share and adversely affect our operating
results.
Traditional lighting technologies have the advantage of a long history of
market acceptance and familiarity as compared to our fiber optic products. We
actively seek to educate our target markets as to the advantages of fiber optic
lighting systems and believe that achievement of this objective is critical to
our future.
We must also compete with traditional lighting on the issues of maintenance
costs, safety issues, energy usage, price and brightness. We believe our
products can effectively compete against traditional lighting in the areas of
maintenance costs, safety and energy consumption. Our lighting systems offer
the advantage of centralized light source maintenance for lamp replacement. This
feature is superior to other lighting systems, such as neon, which require
maintenance throughout the lighting system. Additionally, the SIDE-GLOW(R) and
END GLOW(R) cables are virtually maintenance and breakage free, as opposed to
neon and other comparable lighting products which experience high breakage rates
both in the field and in shipment. This reduced breakage also results in an
additional advantage in the area of safety. Further, our products result in a
voltage free light, which is particularly beneficial in wet and underwater
applications, where risk of shock from electricity in the lighted path is an
issue. Our products also eliminate the majority of heat and radiation at the
light output, which can be advantageous in applications where these factors may
not be desirable, particularly with respect to lighting accessories such as task
lighting and display case lighting.
Our products may not favorably compete with traditional lighting on the
basis of price for smaller lighting systems and in particular with neon systems
in smaller scale applications, which comprise a large
-24-
portion of the available market. Additionally, fiber optic lighting systems do
not equal neon's brightness in a cost-effective manner for many applications. In
applications calling for maximum brightness and competitive cost, our products
may not be able to compete effectively with traditional lighting products.
Our company currently faces competition from a defined number of companies
directly involved in the field of fiber optic lighting addressed by our SIDE-
GLOW(R) and END GLOW(R) cables and light source products. These companies
utilize a technology similar to ours and compete generally on the basis of price
and quality. We believe our company may compete favorably in markets where price
is the central issue. There can be no assurance, however, that the current
competitors directly involved in this industry or a new competitor will not
develop processes or technology which will allow them to decrease their costs,
and consequently, erode our price advantage.
Patents and Proprietary Rights
We consider our technology and procedures proprietary and rely primarily on
patent and trade secret laws and confidentiality agreements to protect our
technology and innovations. Employees of our company, as well as technical
consultants who may be hired from time to time, enter into confidentiality
and/or invention assignment agreements and non-competition agreements providing
for non-disclosure of our proprietary and trade secret information and the
assignment to the company of all inventions, improvements, technical information
and suggestions relating in any way to our business (whether patentable or not)
which the employee or consultant develops during the period of their employment
or association with our company. Despite these restrictions, it may be possible
for competitors or customers to copy one or more aspects of our products or
obtain information that we regard as proprietary. Furthermore, there can be no
assurance that others will not independently develop products similar to those
sold by us. We therefore believe that producing the highest possible quality
products, at the most competitive prices, is the best means to protect against
competitive innovations.
We have been issued a United States patent relating to the reflective
center core used in the process of manufacturing our SIDE-GLOW(R) cables and
have received Patent Cooperation Treaty protection of this patent overseas. We
also have two United States patents on methods of manufacturing alternative
versions of fiber optic cables. Additionally, we have acquired a United States
patent related to the method of manufacturing a fiber optic image magnification
device. While there is no guarantee that this patent can be developed into a
commercially viable product, we believe that expansion of the applications for
our fiber optic technologies are important to the possible achievement of future
growth objectives. We have a fifth patent related to our light source technology
and a device for connecting fiber optic cables to the light source. We also have
several patent applications pending with respect to a variety of new product
innovations and manufacturing methods.
We intend to continue to seek patent protection where appropriate for
future developments, improvements and enhancements to our technology. There can
be no assurance, however, that our existing patents or patents that may be
issued in the future, will provide us with sufficient protection in the case of
an infringement of our technology or that others will not independently develop
technology comparable or superior to our technology. Although we believe that
the products sold by us do not and will not infringe upon the patents or violate
the proprietary rights of others, it is possible that such infringement or
violation has occurred or may occur. In the event that products sold by us are
deemed to infringe upon the patents or proprietary rights of others, we could be
required to modify our products or obtain a license for the manufacture and/or
sale of such products.
We have obtained approval for a registered trademark for the "Super Vision"
name, and have filed for a European community trademark. Additionally, we have
obtained registered trademarks on the brand names SIDE-GLOW(R) and END GLOW(R)
related to our fiber optic cables, and European community trademark applications
have been filed as well. We believe the trademarks may help in our efforts to
achieve brand recognition, although there can be no assurance that our efforts
will be successful.
Employees
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At March 6, 2002, we 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 our employees
are currently covered by a collective bargaining agreement and we consider our
employee relations to be good. We also utilize temporary and part time
employees as required by the volume of business, primarily in the area of
production.
Property
Our executive offices and manufacturing facility are located in
approximately 70,000 square feet of leased space in Orlando, Florida. The lease
expires in June 2012, and provides for a base monthly rental. Rental payments
amounted to approximately $598,000 for the year ended December 31, 2001. Max
King Realty, an entity controlled by Brett Kingstone, our Chairman and Chief
Executive Officer, owns the building that houses our facilities. On March 1,
2002 we entered into an agreement to sub-lease 20,000 square feet of
office/warehouse space within our facility. The term of the sub-lease began
March 1, 2002 and ends on February 28, 2003. The monthly rent payable to us is
$13,250 plus expenses for a pro rata portion of power and water consumption.
Legal Proceedings
On November 18, 1999, we filed a lawsuit (case number CI-99-9392) in the
Circuit Court of the 9th Judicial Circuit in and for Orange County Florida
against the following defendants: Jack Caruso, Samson Mong Wu, Susan Sumida Wu,
Debbie Wu, Thomas Wu, Lily Cheung, Ruby Lee, James C. Lee, Tony Lee, Optic-Tech
International Corporation, Shanghai Qiaolong Optic-Tech International Company,
Ltd., Marsam Trading Corporation, Marsam Trading Corporation (HK) Ltd., David
Winkler, Gitto/Global Corp., James J. Grimley, Nick Semenza, Rami Yosefian,
Sanford Properties, Inc., Jose Rosario Cruz, Ronald Elgin Simon, and Travis
Pochintesta . This is an industrial espionage action in state court. We have
made various allegations against the defendants, individually and collectively.
These allegations include fraud, breach of contract, breach of fiduciary duty,
tortious interference with existing business relationships, tortious
interference with contractual relationships, tortious interference with
prospective business advantage, unjust enrichment, violations of Florida's
Uniform Trade Secrets Act, civil conspiracy, violations of Florida's RICO Act
and other conduct sufficient to provide grounds for equitable relief (for
example, replevin, accounting, constructive trust and injunctive relief). The
defendants have been enjoined from further violating their respective non-
compete and confidentiality agreements with Super Vision. They are also
prohibited from the exploitation of our business opportunities or prospective
business opportunities, and enjoined from any and all acts, omissions or
behavior which in any way has an adverse effect on our property interests. At
this time, defendants Jack Caruso, Samson Wu, Susan Wu, Thomas Wu, David
Winkler, Optic-Tech International Corporation and Tony Lee have invoked their
Fifth Amendment right to protection from self-incrimination. These defendants
attempted to stay the civil action pending the resolution of pending criminal
charges against them, but their motion to stay was denied. Discovery (subject
to the limitations prescribed by the Fifth Amendment privilege) and
investigation is ongoing. On September 19, 2000 the Fifth District Court of
Appeal ruled against the defendants in their appeal regarding their motion to
dissolve the temporary injunction order. As of September 30, 2001, defendants
Gitto/Global Corporation, Nick Semenza, James Grimely, Jose Rosario Cruz and
Ronald Elgin Simon were dismissed as parties in the case. The defendants have
filed counterclaims against us for wrongful injunction, attempted
monopolization, and conversion. We believe we have meritorious defenses to
these counterclaims. The defendants' respective motions to dismiss our amended
complaint were denied by the court. The defendants have answered the complaint,
denying everything and maintaining their counterclaims. The case has not yet
been scheduled for trial. Plans are to vigorously pursue this lawsuit.
On March 4, 2002, we 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. This is an action for declaratory judgment that
certain patents of Color Kinetics are invalid, that our products do not infringe
-26-
any of such patents, and that such patents are unenforceable. Color Kinetics
has notified us that it believes that certain of our products may infringe
certain Color Kinetics' patents for LED lighting systems. We intend to
vigorously defend ourselves against this allegation.
MANAGEMENT
----------
Our executive officers and directors, their ages, and positions with
the company, as of December 31, 2001 are as follows:
Name Age Position
---- ---- --------
Brett M. Kingstone 42 Chief Executive Officer, President
and Chairman of the Board
Edgar Protiva 60 Director
Brian McCann 36 Director
Anthony T. Castor 50 Director
Fritz Zeck 61 Director
Robert Wexler 41 Director
Larry Calise 43 Chief Financial Officer
Each of our directors currently holds office until the next annual meeting
of shareholders and until his successor is duly elected and qualified. Our
officers serve at the discretion of the Board of Directors.
The principal occupation and business experience for each of our executive
officers and directors for at least the last five years is as follows:
Brett M. Kingstone is our founder. He has been employed by us in a senior
executive capacity and has been chairman of the company's board of directors
since our formation in 1991. Since July 1999, Mr. Kingstone has been our
Chairman of the Board, Chief Executive Officer and President. From November
1997 to July 1999, Mr. Kingstone served as our Chairman and Chief Executive
Officer. From our inception to November 1997, he was Chairman, Chief Executive
Officer and President. From October 1985 until January 1991, Mr. Kingstone
served as an independent consultant in the area of fiber optic technology.
Prior to that, from December 1988 until October 1989, he served as President of
Fibermedia Corporation in Boulder, Colorado. From January 1984 to August 1985,
he was a partner in Kingstone Prato, Inc., a venture capital partnership in
Boulder, Colorado. From August 1981 through December 1983, he served as Vice
President of Sales of Gekee Fiber Optics, Inc. in Palo Alto, California. Mr.
Kingstone is a graduate of Stanford University and the author of two books - The
Student Entrepreneur's Guide (McGraw-Hill) and The Dynamos (John Wiley & Sons;
Koksaido Press).
Edgar Protiva became a director of Super Vision in March 1994. From 1980
to present, Mr. Protiva has been engaged in merchant banking with K.C.L.
Associates
Brian McCann became a director of Super Vision in October 1995. From
February 1998 until present, Mr. McCann has served as the President of ADVA
Optical Networking, Inc., which provides optical networking solutions for
computer operating systems. From 1996 to 1998, Mr. McCann was the Vice
President of North American Business Development for ADVA GmbH Optical Solutions
of Munich, Germany.
-27-
Anthony T. Castor III became a director of Super Vision in September 1996.
Currently, Mr. Castor is serving as President, Chief Executive Officer and a
director of the Morgan Group, Inc., a specialty transportation company.
Previously, Mr. Castor served as Vice Chairman and a director of Lynch
Corporation, a producer of adhesive and coating systems as well as capital
equipment for the electronic display and consumer tableware industries. He also
served as President and Chief Executive Officer of Spinnaker Corporation, which
is a subsidiary of Lynch Corporation. From January 1998 until January 2000, Mr.
Castor was President and Chief Executive Officer of Precision Industrial
Corporation, a worldwide supplier of capital equipment for processing sheet
metal. From 1994 until December 1997, Mr. Castor was the President and Chief
Executive Officer of Hayward Industries, Inc., a supplier of pumps, filters,
heaters and other accessories for the pool and spa industries and industrial
equipment. From 1987 to 1993, Mr. Castor was Corporate Vice President of
Crompton & Knowles Corporation, a supplier of specialty chemicals and process
equipment and President of its wholly-owned subsidiary, Ingredient Technology
Corporation.
Fritz Zeck became a director of Super Vision in January 1999. Since 1994,
Mr. Zeck has served as President of Cooper Lighting, Inc., a manufacturer of
lighting products. From 1985 until 1994, he served as Vice President of Sales
for Cooper Lighting. Mr. Zeck joined Metalux in 1976 where he was Regional
Sales Manager for the Central portion of the United States. He founded Lumark
Lighting in 1978, which was a division of Metalux. Mr. Zeck serves as Cooper
Lighting's designee to our Board of Directors.
Robert Wexler became a director of Super Vision in September 2001. From
1993 to present, Mr. Wexler has been a partner in the corporate department of
the law firm of Krugman & Kailes LLP in Saddle Brook, New Jersey. Krugman &
Kailes LLP serves as the general counsel for Hayward Industries, Inc. Mr. Wexler
serves as Hayward Industries' designee to our Board of Directors.
Larry Calise became our Chief Financial Officer in February 2000. Prior to
this he served as Vice President of Finance for nStor Corporation, a
manufacturer of information storage and RAID solutions. From 1986 through 1996,
he held positions of Controller, VP and Corporate Controller, and VP Finance and
Administration for Philip Crosby Associates, which was later acquired by
Alexander Proudfoot PLC, a multinational management consulting firm specializing
in productivity and quality management. From 1982 to 1986, Mr. Calise was an
Audit Supervisor for the CPA firm PricewaterhouseCoopers LLP.
Executive Compensation
The following table summarizes the compensation paid to our Chief Executive
Officer during the years ended December 31, 2001, 2000 and 1999. Until 2001,
Super Vision did not have any executive officer or employee, other than our
Chief Executive Officer, whose total annual salary and bonus exceeded $100,000.
Other than the executive officers named below, we did not have any executive
officer or employee serving at the end of 2001 whose total annual salary and
bonus exceeded $100,000.
Summary Compensation Table
Annual compensation
------------------- All other
Year Salary Bonus Compensation(1)
---- ------ ----- ---------------
Brett M. Kingstone(2) 2001 $135,462 $12,368 $15,122
2000 $131,192 $ 8,010 $16,176
1999 $127,154 $ 258 $15,822
Larry Calise(3) 2001 $109,692 $ 50 $ 423
2000 $ 86,346 $ 502 --
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(1) Includes a monthly allowance of $1,000 for automobile and other related
expenses for Mr. Kingstone as well as the vested portion of Super Vision's
401(k) plan employer match for Messrs. Kingstone and Calise.
(2) Mr. Kingstone is our President and Chief Executive Officer and serves as
the Chairman of our Board of Directors.
(3) Mr. Calise is our Chief Financial Officer.
Neither Mr. Calise nor Mr. Kingstone were awarded any options during the
year ended December 31, 2001.
Employment Agreements
In January 1994, we entered into a three-year employment agreement with
Brett Kingstone, our Chairman of the Board, Chief Executive Officer and
President. The agreement with Mr. Kingstone is renewable automatically for
successive one year terms and provides for a current base annual salary of
$125,000 (subject to annual increases and bonuses at the discretion of the Board
of Directors) and a monthly automobile allowance of $1,000.
In the event we terminate Mr. Kingstone's agreement, other than for cause,
we have agreed to pay him severance in an amount equal to the annual base salary
in effect for the balance of the term of the agreement plus six months. The
agreement contains confidentiality and non-competition provisions.
We have no other employment agreements with our employees, although all
employees sign confidentiality and non-competition agreements.
We have entered into indemnification agreements with certain of our
directors and executive officers which provide that we will indemnify our
directors and executive officers against expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by a director or
executive officer in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties as an
officer, director, employee or agent of our company.
Aggregate Option Exercises During Fiscal Year 2001 and Year-End Option Values
None of the options held by the executive officers listed in the "Summary
Compensation Table" above, were exercised during the year ended December 31,
2001. The following table shows information about the value of our named
executive officer's unexercised stock options at December 31, 2001.
Number of Securities Under- Value of Unexercised In-
lying Unexercised Options the-Money Options at
at December 31, 2001 December 31, 2001(1)
--------------------------------- --------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Brett M. Kingstone 64,000 -- -- --
Larry Calise 11,000 29,000 -- --
- ----------
(1) The dollar values of any In-the-Money Options would be calculated by
determining the difference between $5.64 per share, the closing bid price of our
Class A common stock on December 31, 2001, and the exercise price of the stock
options. "In-the-Money" stock options are options for which the exercise price
is less than the market price of the underlying stock on a particular date.
Neither Mr. Kingstone nor Mr. Calise currently has any In-the-Money
options.
Director Compensation
We compensate directors who are not employees of Super Vision with an
annual fee of $1,000 and an annual grant of 1,000 stock options for serving on
our Board of Directors. For each Board or Committee meeting attended in person,
directors also receive $500. For meetings attended via
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telephone, directors receive $250. We reimburse all directors for travel and
other related expenses incurred in attending stockholder, Board and committee
meetings. We do not compensate our employees for service as a director. We do,
however, reimburse them for travel and other related expenses
During the year ended December 31, 2001, pursuant to our 1994 Stock Option
Plan, we granted options to purchase 1,000 shares of Class A common stock to
Messrs. Edgar Protiva, Brian McCann, Anthony Castor, and Fritz Zeck, all
directors of Super Vision. The options were granted on May 4 , 2001 at an
exercise price of $7.50 and vested on November 4, 2001. In September 2001, we
granted options to purchase 5,000 shares of our Class A Common Stock at an
exercise price of $6.00 per share to Mr. Robert Wexler when he became a director
of our company. Mr. Wexler's options vested on March 26, 2002.
Stock Option Plan
In January 1994, we adopted our 1994 Stock Option Plan covering 150,000
shares of our Class A Common Stock, pursuant to which our officers, directors
and key employees are eligible to receive incentive and/or non-qualified stock
options. The plan was subsequently amended and restated to increase the number
of shares reserved for issuance from 150,000 to 450,000. The plan expires in
January 2004, and is administered by the Board of Directors or a committee
designated by the Board of Directors. The purposes of the plan are to ensure the
retention of our existing executive personnel, key employees and consultants, to
attract and retain new executive personnel, key employees and consultants and to
provide additional incentive by permitting such individuals to participate in
the ownership of our company. Criteria utilized by the Board of Directors or
committee in granting options pursuant to the plan is consistent with these
purposes.
Incentive stock options granted under the plan are exercisable for a period
of up to 10 years from the date of grant at an exercise price which may not be
less than the fair market value of the Class A Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the plan
to a stockholder owning more than 10% of the outstanding Class A Common Stock
may not exceed five years and its exercise price may not be less than 110% of
the fair market value of the Class A Common Stock on the date of the grant. Upon
the exercise of an option, payment may be made by cash, check or if provided in
the option agreement, in shares of our Class A Common Stock having a fair market
value equal to the exercise price of the options, or any other means that the
Board or the committee determines. The options are non-transferable during the
life of the option holder.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information regarding our common
stock owned as of March 15, 2002, for the following (a) all persons we know to
be "beneficial owners" of more than five percent of the outstanding common stock
of Super Vision, and (b) the common stock owned beneficially by Super Vision
directors and named executive officers and all executive officers and directors
as a group. Each person has sole voting and sole investment power with respect
to the shares shown, except as noted.
Shares Beneficially Owned (2)
-------------------------------------------------------------------------------
Beneficial Owners (1) Number Percent Ownership Total
----------------------- ------------------------ Voting
Class A Class B Class A Class B Power
------- ------- ------- ------- -------
Brett M. Kingstone(3)....................... 351,387 483,264 14.45% 100% 57.08%
Kingstone Family Ltd Partnership II (4)..... 291,387 483,264 12.28% 100% 56.54%
Edgar Protiva(5)............................ 14,498 -- * -- *
Brian McCann(6)............................. 12,000 -- * -- *
Anthony Castor III(6)....................... 11,000 -- * -- *
Fritz Zeck (6) ............................. 8,000 -- * -- *
Robert Wexler (9) 5,000 -- -- -- --
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Hayward Industries, Inc.(7)................. 399,168 -- 17.88% -- 8.59%
Cooper Lighting, Inc. (8)................... 250,369 -- 12.02% -- 5.56%
Larry Calise (10) 11,000 -- -- -- --
All executive officers and
directors as a group (seven
persons) (11)............................. 412,885 483,264 16.57% 100% 57.64%
_____________________
* Represents a percentage of beneficial ownership that is less than 1%.
(1) Unless otherwise stated, the address for all persons listed above is Super
Vision International, Inc., 8210 Presidents Drive, Orlando, Florida 32809.
(2) "Beneficial ownership" is a technical term broadly defined by the
Securities and Exchange Commission to mean more than ownership in the usual
sense. For example, you "beneficially" own Super Vision common stock not
only if you hold it directly, but also if you indirectly (through a
relationship, a position as a director or trustee, or a contract or
understanding) have or share the power to vote the stock, or to sell it, or
if you have the right to acquire it within 60 days. The percent of shares
beneficially owned as of March 15, 2002 was calculated based upon 2,566,374
outstanding shares, consisting of 2,083,110 shares of Class A common stock
and 483,264 shares of Class B common stock outstanding and includes, for
each person or group, any securities that person or group has the right to
acquire within 60 days pursuant to options, warrants, conversion privileges
or other rights.
(3) This amount includes the following shares owned by the Kingstone Family
Limited Partnership II (KFLPII), of which Mr. Kingstone controls and is the
general partner: (i) 483,264 shares of Class B common stock; (ii) 289,187
shares of Class A common stock that may be acquired upon the exercise of
warrants that were exercisable as of (or will become exercisable within 60
days after) March 15, 2002; and (iii) 2,200 shares Class A Common stock.
In addition, this amount includes 60,000 shares of Class A common stock
which may be acquired upon the exercise of options granted pursuant to the
company's stock option plan.
(4) The Kingstone Family Limited Partnership II (KFLPII) was formed in 1998 by
Mr. Kingstone, and he is the general partner. KFLPII has granted Hayward
Industries, Inc. an option to purchase up to 28,918 shares of Class A
common stock that may be acquired upon exercise of the KFLPII warrants to
purchase 289,187 shares of Class A common stock. These warrants granted to
Hayward will vest only if the KFLPII fully or partially exercises the
option to purchase 289,187 shares of Class A common stock. Similarly,
KFLPII has granted Cooper Lighting, Inc. an option to purchase up to 28,918
shares of Class A common stock that may be exercised upon exercise of the
KFLPII warrants to purchase 289,187 shares of Class A common stock. These
warrants granted to Cooper will vest only if the KFLPII fully or partially
exercises the option to purchase the 289,187 shares of Class A common
stock.
(5) This amount includes 1,498 shares of Class A common stock. The balance of
13,000 shares of Class A common stock may be acquired upon the exercise of
options granted for serving as a director of Super Vision that were
exercisable as of March 15, 2002, or that will become exercisable within 60
days after March 15, 2002.
(6) All of these shares consist of Class A common stock, and all may be
acquired upon the exercise of options granted for serving as a director of
Super Vision that were exercisable as of March 15, 2002, or that will
become exercisable within 60 days after March 15, 2002.
(7) The address of Hayward Industries, Inc. is 900 Fairmont Avenue, Elizabeth,
New Jersey 07207. This amount represents 249,480 shares of Class A common
stock, and also includes 149,688 warrants to purchase Class A common stock
that were exercisable as of March 15, 2002. However, this amount does not
include up to 28,918 shares that may be acquired upon exercise of the
options owned by Hayward Industries described in footnote (4) above. Oscar
Davis, the President and Chairman of the Board of Directors of Hayward
Industries, Inc., owns in excess of a majority of the outstanding common
shares of Hayward Industries, Inc. and, therefore, may be deemed the
beneficial owner of the shares of Class A Common Stock held by Hayward
-31-
Industries, Inc. under the rules and regulations promulgated by the
Securities and Exchange Commission.
(8) The address of Cooper Lighting, Inc. is 1121 Highway 74 South, Peachtree
City, Georgia 30269. This amount represents shares of Class A common stock,
but does not include up to 28,918 shares that may be acquired upon exercise
of the options owned by Cooper Lighting Inc. described in footnote (4)
above.
(9) Includes currently exercisable options to purchase 5,000 shares of our
Class A Common Stock granted to Mr. Wexler when he became a director of the
company.
(10) Includes currently exercisable options to purchase 11,000 shares of our
Class A Common Stock.
(11) This amount includes shares that may be acquired upon exercise of options
and warrants held by directors and executive officers of Super Vision that
were exercisable as of March 15, 2002, or that will become exercisable
within 60 days after March 15, 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On September 27, 1996, Super Vision entered into a lease agreement with Max
King Realty, an entity controlled by Mr. Kingstone, our President, Chief
Executive Officer and Chairman of the Board, for approximately 70,000 square
feet of warehouse and office space. We began occupying this facility in August
1997. The lease term expires in June 2012. Rental payments for the year ended
December 31, 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.
On November 23, 1998, we entered into a Stock Purchase Agreement with
Cooper Lighting, Inc., a subsidiary of Cooper Industries, Inc. (a New York Stock
Exchange company trading under the symbol "CBE") pursuant to which we sold
Cooper 250,369 shares of our Class A common stock for a purchase price of
$2,000,000. In addition, we entered into a distributorship agreement with two
of Cooper's subsidiaries pursuant to which they were granted certain exclusive
distribution rights in the United States and Canada to market and sell our fiber
optic lighting products in certain markets including the architectural market.
Cooper was also granted a ten-year warrant to purchase an additional 250,369
shares of our Class A Common Stock at $8.02 per share. Vesting of this warrant
was tied to Cooper's achievement of certain annual minimum purchase commitments.
Cooper did not meet its minimum purchase commitments. Effective as of October
31, 2000, we mutually agreed to terminate our distribution agreement with
Cooper. As a result, no shares may be purchased under this warrant. In
addition, we issued Cooper a warrant to purchase up to 517,950 shares of our
Class A Common Stock at fair market value if the number of our outstanding
shares of Class A Common Stock increased as a result of the exercise of other
outstanding warrants to purchase our stock. This warrant expired unexercised in
May 1999. The Kingstone Family Limited Partnership II, which is controlled by
Brett Kingstone, our president, chairman of the board and chief executive
officer, also granted Cooper an option to purchase up to 28,918 shares our Class
A common stock that may be acquired upon exercise of warrants to purchase
289,187 shares of Class A common stock held by the partnership. These warrants
will vest only if the partnership fully or partially exercises its warrant to
purchase 289,187 shares of our Class A common stock. The warrants to purchase
up to 28,918 shares have an exercise price equal to the "market value" of the
underlying shares at the time of exercise. We have agreed to register under the
Securities Act of 1933, at our expense, all of the shares of Class A Common
Stock owned by Cooper, and the shares Cooper may purchase upon exercise of the
warrants described above. Cooper also has the right to designate one director
to our Board of Directors. Its current designee is Fritz Zeck. We derived
approximately 13% of our total revenues from Cooper in 2000 and approximately
26% in 1999.
On September 25, 1996, we entered into a Stock Purchase Agreement with
Hayward Industries, Inc. pursuant to which we sold Hayward 249,480 shares of our
Class A common stock at a purchase price of $8.02 per share. In addition, we
entered into a distributorship agreement with Hayward pursuant to
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which Hayward was granted certain exclusive worldwide distribution rights to
sell our fiber optic lighting products in the swimming pool and spa market. On
August 15, 2001, we reached an agreement with Hayward terminating Hayward's
exclusive distribution rights, as of September 30, 2001. Our agreement with
Hayward allowed us to commence direct selling of our fiber optic lighting
products in the swimming pool and spa market worldwide, except in the United
States and Canada, as of August 15, 2001, and within the United States and
Canada as of October 1, 2001. As part of the August 2001 agreement, we have
agreed to pay Hayward royalties on gross sales of fiber optic pool lighting
products sold by us 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
our fiscal years ending December 31, 2002 and 2003. Pursuant to the agreement,
Hayward also agreed to return certain fiber optic lighting products we
previously sold to Hayward and to return vested warrants covering 49,896 shares
of our Class A common stock previously issued to Hayward all in exchange for
$300,000 paid by us 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
approximately $102,000 balance of settlement payment was recorded as a one-time
charge to operations in December 2001. The inventory repurchased from Hayward
consisted of our manufactured fiber optic lighting products, which had been
directly purchased by Hayward from us from January 1, 2000 through September 30,
2001. The shares underlying Hayward's remaining warrants and other shares of our
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 purchase commitments for 2001 and beyond.
Also, as part of the September 1996 transaction with Hayward, we granted
Hayward a ten-year warrant to purchase an additional 249,480 shares of our Class
A Common Stock at $8.02 per share. Vesting of this warrant was tied to
achievement of certain annual minimum purchase commitments by Hayward. As of
December 2001, warrants to purchase 149,688 shares were vested under this
warrant. Certain other warrants granted to Hayward as part of the September
1996 transaction have terminated or expired unexercised. The shares of our
Class A Common Stock that may be purchased upon the exercise of these warrants
are being offered by this prospectus. In addition, as part of the September
1996 transaction, the Kingstone Family Limited Partnership II, which is
controlled by Brett Kingstone, our president, chairman of the board and chief
executive officer, also granted Hayward an option to purchase up to 28,918
shares of our Class A common stock that may be acquired upon exercise of
warrants to purchase 289,187 shares of Class A common stock at an exercise price
of $7.00 per share held by the partnership. Hayward's warrants will vest only
if the partnership fully or partially exercises its warrant to purchase 289,187
shares of our Class A common stock. Hayward's warrants to purchase up to 28,918
shares have an exercise price equal to the "market value" of the underlying
shares at the time of exercise. We have agreed to register under the Securities
Act of 1933, at our expense, all of the shares of Class A common stock owned by
Hayward, and the shares Hayward may purchase upon exercise of the warrants owned
by Hayward described above. Hayward has the right to designate one director to
our Board of Directors. Its current designee is Robert Wexler. We derived
approximately 16% of our total revenues from Hayward in 2001 and approximately
28% in 2000.
DESCRIPTION OF SECURITIES
--------------------------
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Our authorized capital consists of 20,000,000 shares of common stock, par
value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001
per share. None of the preferred stock is outstanding. Our common stock is
divided into two classes, Class A common stock and Class B common stock.
Common Stock
Class A Common Stock
Of our authorized common stock, 16,610,866 shares are classified as Class A
common stock of which 2,083,110 shares were issued and outstanding as of March
15, 2002. Each outstanding share of Class A common stock is entitled to one
vote, either in person or by proxy, on all matters that may be voted upon by the
owners thereof at meetings of the shareholders. Our Class A common stock and
Class B common stock vote together as a single class on all matters on which
stockholders may vote, except when class voting is required by applicable
law.
Holders of our Class A common stock are entitled to dividends, together
with the holders of Class B common stock, pro rata based on the number of shares
held, when, as and if declared by the Board of Directors, from funds legally
available therefore. In the case of dividends or other distributions payable in
our stock, including distributions pursuant to stock splits or division of our
stock, only shares of Class A common stock will be distributed with respect to
Class A common stock. In the event of the liquidation, dissolution or winding
up of the affairs of the company, all assets and funds of the company remaining
after the payment to creditors and to holders of preferred stock, if any, will
be distributed, pro rata, among the holders of the Class A common stock and
Class B common stock. Holders of Class A common stock are not entitled to
preemptive, subscription, cumulative voting, or conversion rights, and there are
no redemption or sinking fund provisions applicable to the Class A common stock.
The rights of the holders of our Class A common stock will be subject to, and
may be adversely affected by, the rights of the holders of any series of
preferred stock that may be issued in the future, including voting, dividend,
and liquidation rights.
Class B Common Stock
Super Vision is authorized to issue 3,389,134 shares of Class B common
stock, of which 483,264 shares are issued and outstanding as of March 15, 2002
and held by one holder of record. Each share of Class B common stock is
entitled to five votes on all matters on which stockholders may vote, including
the election of directors. The Class A common stock and Class B common stock
vote together as a single class on all matters on which stockholders may vote,
except when class voting is required by applicable law.
Holders of Class B common stock are entitled to participate together with
the holders of Class A common stock, pro rata based on the number of shares
held, in the payment of cash dividends and in the liquidation, dissolution and
winding up of the company subject to the rights of holders of preferred stock,
if any. In the case of dividends, or other distributions payable in stock of
the company, including distributions pursuant to stock splits or divisions of
our stock , only shares of Class B common stock shall be distributed with
respect to Class B common stock.
Shares of Class B common stock are automatically convertible into an
equivalent number of fully paid and non-assessable shares of Class A common
stock upon the sale or transfer of such shares by the original record holder
thereof except to another holder of Class B common stock. Each share of Class B
common stock also is convertible at any time upon the option of the holder into
one share of Class A common stock. There are no preemptive, redemption,
conversion or cumulative voting rights applicable to the Class B common stock.
The disparity in the voting rights between our common stock, as well as Mr.
Kingstone's beneficial ownership of all of the Class B common stock, could
discourage a proxy contest or make it more difficult for a third party to effect
a change in our management and control.
-34-
Options and Convertible Securities Presently Outstanding
The following options and convertible securities are currently outstanding:
(i) 438,875 shares issuable upon the exercise of warrants, (ii) 450,000 shares
issuable upon the exercise of options granted or available for grant under Super
Vision's 1994 Stock Option Plan, and (ii) 483,264 shares of Class B common stock
automatically convertible into an equivalent number of shares of Class A common
stock upon the sale or transfer of the Class B shares.
Preferred Stock
Our Board of Directors has the authority to issue 5,000,000 shares of
preferred stock, $.001 par value, none of which is issued and outstanding. The
Board of Directors has authority to issue the preferred stock in one or more
series and to fix, by resolution, conditional, full, limited or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, if any, as the Board may deem advisable. The Board may
also set the qualifications, limitations or restrictions of the preferred
stock, if any, including the number of shares in a series (which the Board may
increase or decrease as permitted by Delaware law), liquidation preferences,
dividend rates, conversion or exchange rights, redemption provisions of the
shares constituting any series, and such other special rights and protective
provisions with respect to any class or series as the Board may deem advisable
without any further vote or action by the stockholders. Any shares of preferred
stock so issued would have priority over the common stock with respect to
dividend or liquidation rights or both and could have voting and other rights of
stockholders. The issuance of preferred stock with voting or conversion rights
may adversely affect the voting rights of the holders of common stock. We have
no present plans to issue shares of preferred stock.
Transfer Agent and Registrar
Our transfer agent and registrar for our securities is American Stock
Transfer & Trust Company located at 59 Maiden Lane, New York, New York, 10038.
Reports to Security Holders
We will furnish to our stockholders annual reports containing audited
financial statements. We may issue other unaudited interim reports to our
stockholders as we deem appropriate.
SELLING STOCKHOLDERS
--------------------
The following table provides:
. The name of the selling stockholders;
. The number of shares beneficially owned by each selling stockholder
before the offering; and
. The number of shares being offered by each selling stockholder under
this prospectus;
The table has been prepared on the basis of information furnished to us by
or on behalf of the selling stockholders. Because the selling stockholders may
offer all or some of the shares pursuant to this offering, no estimate can be
given regarding the amount of shares that will be held by the selling
stockholders after this offering. The table assumes that each selling
stockholder will sell all of the shares it is offering under this prospectus,
and that the selling stockholder will not acquire additional shares of our Class
A common stock before the completion of this offering. Assuming all of the
shares offered under this prospectus are sold, each selling stockholder will own
less than 1% of the total number of shares of our Class A common stock
outstanding after this offering.
Except as described below, no selling stockholder has, nor within the past
three years has had, any position, office or other material relationship with us
or any of our predecessors or affiliates.
-35-
The information in this table is as of the date of this prospectus.
Information concerning the selling stockholders may change from time to time and
any such changed information will be described in supplements to this prospectus
if and when necessary.
Shares
Beneficially
Owned Before Shares
Name Offering Offered
- ---- -------- -------
Cooper Lighting, Inc. 279,287(1) 279,287
Hayward Industries, Inc. 428,086(2) 428,086
(1) Includes 28,918 shares of our Class A common stock that are subject to
warrants issued by the Kingstone Family Limited Partnership II, which
is controlled by Brett M. Kingstone, our chief executive officer, that
may only be exercised if all or part of an option to purchase 289,187
shares of our Class A common stock is exercised by the Kingstone
Family Limited Partnership II.
(2) Includes (i) 149,688 shares of our Class A common stock that are
subject to warrants currently exercisable, and (ii) 28,918 shares of
our Class A common stock that are subject to warrants issued by the
Kingstone Family Limited Partnership II that may only be exercised if
all or part of an option to purchase 289,187 shares of our Class A
common stock is exercised by the Kingstone Family Limited Partnership
II.
In March 1997, we granted a 10-year warrant to purchase 289,187 shares
of Class A Common Stock at $7.00 per share to Brett Kingstone, our president,
chairman of the board and chief executive officer. Mr. Kingstone subsequently
assigned this warrant to the Kingstone Family Limited Partnership II, which Mr.
Kingstone controls and is the general partner.
On September 25, 1996, we entered into a Stock Purchase Agreement with
Hayward Industries, Inc., pursuant to which we sold Hayward 249,480 shares of
our Class A common stock at a purchase price of $8.02 per share. In addition,
we entered into a distributorship agreement with Hayward pursuant to which it
was granted certain exclusive worldwide distribution rights to market and sell
our fiber optic lighting products in the swimming pool and spa market. On
August 15, 2001, we reached an agreement with Hayward terminating Hayward's
exclusive distribution rights as of September 30, 2001.
As part of the September 1996 transaction, Hayward was also granted a
ten-year warrant to purchase an additional 249,480 shares of our Class A Common
Stock at $8.02 per share. Vesting of this warrant was tied to achievement of
certain annual minimum purchase commitments by Hayward. As of December 2001,
warrants to purchase 149,688 shares were vested under this warrant. Certain
other warrants granted to Hayward as part of the September 1996 transaction have
terminated or expired unexercised. In addition, as part of the September 1996
transaction, the Kingstone Family Limited Partnership II, which is controlled by
Brett Kingstone, our president, chairman of the board and chief executive
officer, also granted Hayward an option to purchase up to 28,918 shares of our
Class A common stock that may be acquired upon exercise of warrants to purchase
289,187 shares of Class A common stock at an exercise price of $7.00 per share
held by the partnership. Hayward's warrants will vest only if the partnership
fully or partially exercises its warrant to purchase 289,187 shares of our Class
A common stock. Hayward's warrants have an exercise price equal to the "market
value" of the underlying shares at the time of exercise. We have agreed to
register, at our expense, all of the shares of Class A common stock owned by
Hayward, and the shares Hayward may purchase upon exercise of the warrants owned
by Hayward
-36-
described above, under the Securities Act of 1933. Hayward has the right to
designate one director to our Board of Directors. Its current designee is Robert
Wexler.
On November 23, 1998, we entered into a Stock Purchase Agreement with
Cooper Lighting, Inc., a subsidiary of Cooper Industries, Inc. (a New York Stock
Exchange company trading under the symbol "CBE") pursuant to which we sold
Cooper 250,369 shares of our Class A common stock for a purchase price of
$2,000,000. In addition, we entered into a distributorship agreement with two
of Cooper's subsidiaries pursuant to which they were granted certain exclusive
distribution rights in the United States and Canada to market and sell our fiber
optic lighting products in the architectural market. Effective October 31,
2000, we mutually agreed to terminate our distribution agreement with Cooper.
Certain warrants granted to Cooper as part of the November 1998 transaction have
terminated or expired unexercised. The Kingstone Family Limited Partnership II
also granted Cooper an option to purchase up to 28,918 shares of our Class A
common stock that may be acquired upon exercise of warrants to purchase 289,187
shares of Class A common stock held by the partnership. Cooper's warrants will
vest only if the partnership fully or partially exercises its warrant to
purchase 289,187 shares of our Class A common stock. Cooper's warrants have an
exercise price equal to the "market value" of the underlying shares at the time
of exercise. We have agreed to register, at our expense, all of the shares of
Class A Common Stock owned by Cooper, and the shares Cooper may purchase upon
exercise of the warrants described above, under the Securities Act of 1933.
Cooper also has the right to designate one director to our Board of Directors.
Its current designee is Fritz Zeck.
PLAN OF DISTRIBUTION
--------------------
The selling stockholders, or their pledges, transferees or other successors
in interest, may sell the shares of Class A common stock covered by this
prospectus from time to time in public or private transactions occurring on or
off NASDAQ, at prevailing market prices or at negotiated prices. Sales may be
made directly to purchasers or through brokers or to dealers, who are expected
to receive customary commissions or discounts. To this end, the selling
stockholders may offer their shares for sale in one or more of the following
transactions:
. in the over-the-counter market;
. through the facilities of any national securities exchange or United
States automated inter-dealer quotation system of a registered
national securities association on which any of the shares of Class A
common stock are then listed, admitted to unlisted trading privileges,
or included for quotation in privately negotiated transactions;
. in transactions other than on such exchanges or in the over-the-
counter market;
. in connection with short sales of our Class A common stock;
. by pledge to secure debts and other obligations;
. in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options; or
. in a combination of any of the above transactions.
If a selling stockholder sells its shares directly, or indirectly
through underwriters, broker-dealers or agents acting on its behalf, in
connection with such sales, the broker-dealers or agents may receive
compensation in the form of commissions, concessions, allowances or discounts
from the selling stockholder and/or the purchasers of the shares for whom they
may act as agent or to whom they sell the shares as principal or both. Such
commissions, concessions, allowances or discounts might be in excess of
customary amounts. To comply with the securities laws of certain jurisdictions,
the securities offered in this prospectus will be offered or sold in those
jurisdictions only through registered or licensed broker-dealers. In addition,
in certain jurisdictions the securities offered in this prospectus may not be
offered or
-37-
sold unless they have been registered or qualified for sale in those
jurisdictions, or unless an exemption from registration or qualification is
available and is complied with. We are not aware of any definitive selling
arrangement at the date of this prospectus between either selling stockholder
and any broker-dealer or agent. We will not receive any of the proceeds from the
resale of the shares by the selling stockholders, but may receive certain funds
as described under "Use of Proceeds."
In connection with the distribution of its shares, a selling stockholder
may enter into hedging transactions with broker-dealers. In connection with such
transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with the selling stockholder.
The selling stockholders may also sell the shares short and redeliver the
shares to close out the short positions.
The selling stockholders may also enter into option or other transactions
with broker-dealers that require the delivery of the shares to the broker-
dealer.
The selling stockholders may also loan or pledge their shares to a broker-
dealer. The broker-dealer may then sell the loaned shares or, upon a default,
may sell the pledged shares.
The selling stockholders and any dealer acting in connection with the
offering or any broker executing a sell order on behalf of a selling stockholder
may be deemed to be an "underwriter" within the meaning of the Securities Act of
1933. In that case, any profit on the sale of shares by a selling stockholder
and any commissions or discounts received by any such broker or dealer may be
deemed to be underwriting compensation under the Securities Act of 1933. Any
such broker or dealer may be required to deliver a copy of this prospectus to
any person who purchases any of the shares from or through such broker or
dealer. These shares may later be distributed, sold, pledged, hypothecated or
otherwise transferred. In addition to any other applicable laws or regulations,
the selling stockholders must comply with regulations relating to distributions
by the selling stockholders, including Regulation M under the Securities
Exchange Act of 1934, as amended.
We have agreed to pay all fees and expenses incident to the registration of
the shares, except commissions and discounts of underwriters, brokers, dealers
or agents and fees and expenses of counsel or any other professionals or other
advisors, if any, to the selling stockholders. A selling stockholder may
indemnify any broker, dealer, agent or underwriter that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act of 1933.
If shares are sold in an underwritten offering, the shares may be acquired
by the underwriters for their own account and may be further resold from time to
time in one or more transactions, including negotiated transactions, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or at fixed prices. The names of the
underwriters with respect to any such offering and the terms of the
transactions, including any underwriting discounts, concessions or commissions
and other items constituting compensation of the underwriters and broker-
dealers, if any, will be set forth in a supplement to this prospectus relating
to such offering. Any public offering price and any discounts, concessions or
commissions allowed or reallowed or paid to broker-dealers may be changed from
time to time. Unless otherwise set forth in a supplement to this prospectus, the
obligations of the underwriters to purchase the shares will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all of the shares specified in such supplement if any such shares are purchased.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and both we and the selling stockholders qualify for
the exemption.
LEGAL MATTERS
-------------
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Katz, Kutter, Alderman, Bryant & Yon, P.A., Orlando, Florida, will pass on
the validity of the Class A common stock offered under this prospectus for us.
EXPERTS
-------
The consolidated financial statements of Super Vision International, Inc.
at December 31, 2000, and for the year then ended, appearing in this prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Super Vision International, Inc.
at December 31, 2001 and for the year then ended, appearing in this prospectus
and Registration Statement have been audited by Gallogly, Fernandez & Riley,
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
CHANGES IN ACCOUNTANTS
----------------------
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 past 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.
-39-
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 Accumulated
--------------------------------
Additional Other Total
----------------- --------------
Class A Class B Paid-in Accumulated Comprehensive Stockholders' Comprehensive
----------------- --------------
Shares Amount Shares Amount Capital Deficit Loss Equity Loss
--------- ------- ------- ------ ----------- ----------- ------------- ------------- -------------
Balance, January 1, 2000 2,054,102 $ 2,054 483,264 $483 $10,374,565 $(2,301,070) $ - $8,076,032 -
Issuance of common stock
warrants - - - - 87,816 - - 87,816 -
Exercise of employee stock
options 11,441 12 58,427 - 58,439 -
Net loss - - - - - (259,211) - (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 2,065,543 $ 2,066 483,264 $483 $10,520,808 $(2,560,281) $ (9,938) $7,953,138
========= ======= ======= ====== =========== =========== ============ ============
Return and cancellation of
vested common stock warrants - - - - (43,410) - - (43,410)
Exercise of employee stock
options 17,567 18 - - 78,712 - - 78,730
Net Loss - - - - - (999,233) - (999,233) (999,233)
Unrealized loss on
available-for-sale
securities - - - - - - $ (20,717) (20,717)
--------- ------- ------- ------ ----------- ----------- ------------- ------------ -------------
Comprehensive loss $1,019,950)
=============
Balance, December 31, 2001 2,083,110 $ 2,084 483,264 $483 $10,556,110 $(3,559,514) $ (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.
F-10
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
INCOME TAXES - Income taxes are provided for the tax effects of
------------
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes resulting from temporary differences.
Such temporary differences result from differences in the carrying value of
assets and liabilities for tax and financial reporting purposes. The
deferred tax assets and liabilities represent the future tax consequences
of those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
USE OF ESTIMATES - The preparation of financial statements in conformity
----------------
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
EARNINGS PER SHARE - Basic loss per share is computed by dividing net loss
------------------
available to common stockholders by the weighted average common shares
outstanding for the period. Diluted loss per share is computed giving
effect to all potentially dilutive common shares. Potentially dilutive
common shares may consist of incremental shares issuable upon the exercise
of stock options, adjusted for the assumed repurchase of the Company's
common stock, at the average market price, from the exercise proceeds and
also may include incremental shares issuable in connection with convertible
securities. In periods in which a net loss has been incurred, all
potentially dillutive common shares are considered antidilutive and thus
are excluded from the calculation. 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,
F-14
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001
6. CAPITAL STOCK (continued):
Cooper did not have any vested warrants in relation to achievement of
annual minimum purchase commitments.
Additionally, the Company issued 517,950 warrants to Cooper to purchase
shares of Class A Common Stock at fair market value if the number of
outstanding shares of Class A Common Stock of the Company is increased as a
result of the exercise of the Company's currently outstanding warrants (the
"Warrants"). The warrant for 517,950 shares expired on March 29, 1999.
Cooper also has the right to designate one director to the Company's Board
of Directors.
The Company 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 Weighted
Available for of 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 Average Average
Shares Exercise 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 Average Average
Shares Exercise 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 judgement 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
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, Super Vision can
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended,
or the Securities Act. Our Certificate of Incorporation and Bylaws provide that
we will indemnify our directors and officers to the fullest extent permitted by
Delaware law. Our Certificate of Incorporation also includes a provision
limiting director liability to us, or our stockholders, for monetary damages
arising from certain acts or omissions in a director's capacity as a director.
In addition, we have the ability to maintain insurance on behalf of our
directors and officers to insure them against any liability asserted against
them in their capacities as directors or officers or arising out of such status.
Our registration rights agreement with the selling stockholder contains
reciprocal agreements of indemnity between us and the selling stockholders as to
certain liabilities, including liabilities under the Securities Act and in
certain circumstances could provide for indemnification of our directors and
officers.
We have entered into indemnification agreements with each of our directors
and executive officers which provide that we will indemnify our directors and
executive officers against expenses, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by a director or executive
officer in connection with any civil or criminal action or administrative
proceeding arising out of the performance of his duties as an officer, director,
employee or agent of our company.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses of this offering, all of which are to be paid by the
Registrant, are as follows:
SEC Registration Fee $ 1,118.61
Printing Expenses 1,000.00
Accounting Fees and Expenses 20,000.00
Legal Fees and Expenses 25,000.00
Miscellaneous Expenses 1,500.00
----------
Total $48,618.61
Item 26. Recent Sales of Unregistered Securities
During the past three years, the Registrant has sold the following
securities pursuant to exemptions form registration under the Securities Act of
1933, as amended:
1. On November 23, 1998, we entered into a Stock Purchase Agreement with
Cooper Lighting, Inc., a subsidiary of Cooper Industries, Inc. (a New York Stock
Exchange Company trading under the symbol "CBE") pursuant to which we sold to
Cooper Industries, Inc. 250,369 shares of our Class A common stock, for a
purchase price of $2,000,000. In addition, we entered into a distributorship
agreement with two of Cooper's subsidiaries pursuant to which they were granted
certain exclusive distribution rights in the United States and Canada to market
and sell our fiber optic lighting products in certain markets including the
architectural market. Cooper was also granted a ten-year warrant to purchase an
additional 250,369 shares of Class A
II-1
Common Stock of the Company at $8.02 per share. Vesting of this warrant was tied
to achievement of certain annual minimum purchase commitments by Cooper. Cooper
did not meet its minimum purchase commitments. As of a result, Cooper cannot
purchase any shares under this warrant. In addition, we issued 517,950 warrants
to Cooper to purchase shares of our Class A common stock at fair market value if
the number of our outstanding shares of Class A common stock increased as a
result of the exercise of other outstanding warrants to purchase our stock. This
warrant expired unexercised in May 1999.
On March 27, 1997, we granted a 10-year warrant for 289,187 shares of our
Class A common stock to the Kingstone Family Limited Partnership II ("KFLP II"),
of which our Chairman and Chief Executive Officer, Brett Kingstone, controls and
is the general partner. As part of the November 1998 transaction with Cooper,
KFLP II granted an option to purchase up to 28,918 shares of the Class A common
stock underlying the warrant upon the warrant's full or partial exercise to
Cooper.
KFLP II has also granted an option to purchase up to 28,918 shares of the
Class A common stock underlying the warrant upon the warrant's full or partial
exercise to Hayward Industries, Inc.
The foregoing sales were made in reliance on Section 4(2) of the Securities
Act of 1933. No general advertisement or solicitation of offerees was made and
all purchasers signed and delivered to the Registrant agreements wherein they
represented, among other things, that the securities would be held for their own
account for investment only and not with the intent to engage in a distribution
of such securities. The certificates representing such securities bear legends
restricting transferability in transactions not registered under the Securities
Act of 1933, and the securities registers of the Registrant bear stop transfer
legends.
Item 27. Exhibits
3.1 Certificate of Incorporation of the Company/(1)/
3.2 Amendment to Certificate of Incorporation/(1)/
3.3 Amendment to Certificate of Incorporation/(8)/
3.4 Amendment to Certificate of Incorporation/(7)/
3.5 Bylaws/(1)/
4.1 Form of Class A Common Stock Certificate/(10)/
5.1 Opinion of Katz, Kutter, Alderman, Bryant & Yon, P.A.*
10.1 Super Vision International, Inc. 1994 Stock Option Plan, as
amended and restated/(7)/
10.2 Employment Agreement between the company and Brett M.
Kingstone/(1)/
10.3 Form of Indemnification Agreement/(1)/
10.4.1 Lease for Presidents Drive facility/(10)/
10.4.2 Amendment to lease for Presidents Drive facility/(10)/
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/(6)/
10.8 Agreement between the Kingstone Family Limited Partnership II
and Hayward Industries, Inc. dated as of March 9, 1999/(10)/
10.9 Amendment to Registration Rights Agreement between the company
and Hayward Industries, Inc. dated as of March 9, 1999/(10)/
10.10 Warrant Certificate registered in the name of Hayward
Industries, Inc./(11)/
21.1 Subsidiaries of the Registrant/(9)/
23.1 Consent of Gallogly, Fernandez & Riley LLP (included in Part
II of the Registration Statement)*
II-2
23.2 Consent of Ernst & Young LLP (included in Part II of the
Registration Statement)*
23.3 Consent of Katz, Kutter, Alderman, Bryant & Yon, P.A.
(included in its opinion filed as Exhibit 5.1 hereto)*
24.1 Power of Attorney (included on signature page of Registration
Statement)/(10)/
________________________________
*Filed herewith
/(1)/Incorporated by Reference to the Registrant's Registration Statement on
Form SB-2 (File No. 33-74742)
/(2)/Incorporated by Reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarter ended June 30, 1997
/(3)/Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 25, 1996
/(4)/Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarter ended September 30, 1997
/(5)/Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1997
/(6)/Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarter ended September 30, 1998
/(7)/Incorporated by reference to the Registrant's Definitive Proxy Statement
filed April 29, 1997
/(8)/Incorporated by reference to the Registrant's Definitive Proxy Statement
filed April 22, 1998
/(9)/Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 2000
/(10)/Previously filed
/(11)/Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 2001
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the company
pursuant to the foregoing provisions, or otherwise, the company has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the company of expenses incurred or paid by a
director, officer or controlling person of the company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
company will, unless in the opinion of its counsel the matter has been settled
by controlling
II-3
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
2. That, for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 2
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Orlando, State of Florida, on the 26
day of April, 2002.
SUPER VISION INTERNATIONAL, INC.
By: /s/ Brett M. Kingstone
-------------------------------
Brett M. Kingstone, Chairman
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates stated:
Signatures Title Date
- ---------- ----- ----
/s/ Brett M. Kingstone Chairman of the Board and Chief April 26, 2002
- -------------------------------- Executive Officer (Principal Executive
Brett M. Kingstone Officer)
/s/ Larry J. Calise* Chief Financial Officer (Principal April 26, 2002
- -------------------------------- Financial and Accounting Officer)
Larry J. Calise
/s/ Anthony T. Castor* Director April 26, 2002
- --------------------------------
Anthony T. Castor
/s/ Brian McCann* Director April 26, 2002
- --------------------------------
Brian McCann
/s/ Edgar Protiva* Director April 26, 2002
- --------------------------------
Edgar Protiva
/s/ Robert Wexler* Director April 26, 2002
- --------------------------------
Robert Wexler
/s/ Fritz Zeck* Director April 26, 2002
- --------------------------------
Fritz Zeck
*By: /s/ Brett M. Kingstone
-----------------------
Brett M. Kingstone
Attorney-in-Fact
II-5
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 1, 2002, with respect to the financial statements
of Super Vision International, Inc. included in Amendment No.2 to the
Registration Statement (Form SB-2 No. 333-73804) and related Prospectus of Super
Vision International, Inc. for the registration of 707,373 shares of its common
stock.
/s/ Gallogly, Fernandez & Riley LLP
Orlando, Florida
April 23 2002
II-6
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 7, 2001, with respect to the financial statements
of Super Vision International, Inc. included in Amendment No.2 to the
Registration Statement (Form SB-2 No. 333-73804) and related Prospectus of Super
Vision International, Inc. for the registration of 707,373 shares of its common
stock.
/s/ Ernst & Young LLP
Orlando, Florida
April 23 2002
II-7
EXHIBIT INDEX
-------------
5.1 Opinion of Katz, Kutter, Alderman, Bryant & Yon, P.A.
23.1 Consent of Gallogly, Fernandez & Riley LLP (included in Part II of the
Registration Statement)
23.2 Consent of Ernst & Young LLP (included in Part II of the Registration
Statement)
23.3 Consent of Katz, Kutter, Alderman, Bryant & Yon, P.A. (included in its
opinion filed as Exhibit 5.1 hereto)