SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
__________
[x] QUARTERLY REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File No. 0-23590
SUPER VISION INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 59-3046866
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
8210 Presidents Drive
Orlando, Florida 32809
(Address of Principal Executive Offices) (Zip Code)
(407) 857-9900
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ____
-----
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at May 10, 2001:
Class A Common Stock, $.001
par value 2,078,676 shares
Class B Common Stock, $.001
par value 483,264 shares
Transitional Small Business Disclosure Format
Yes ___ No X
---
Super Vision International, Inc.
Index to Form 10-QSB
PART I. FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000 1
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2001 and 2000 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 (unaudited) 3
Notes to Condensed Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
Super Vision International, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2001 2000
--------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,269,650 $ 1,673,639
Investments 1,399,873 1,398,517
Trade accounts receivable, less allowance for
doubtful accounts of $146,693 at March 31, 2001
and December 31, 2000 respectively 2,475,421 2,024,701
Inventories less reserve of $400,007 at March 31,
2001 and $411,474 at December 31, 2000 2,282,057 2,302,154
Prepaid expense 146,401 83,348
Other assets 36,106 26,000
--------------- -----------------
Total current assets 7,609,508 7,508,359
--------------- -----------------
Property and Equipment 7,000,508 6,958,365
Accumulated depreciation and amortization (2,432,890) (2,271,136)
--------------- -----------------
Net property and equipment 4,567,618 4,687,229
Goodwill, less accumulated amortization of $4,991 at
March 31, 2001 and $4,679 at December 31, 2000 21,212 21,524
Patents and trademarks, less amortization of $44,533 at
March 31, 2001 and $41,028 at December 31, 2000 135,812 134,321
Other assets 161,446 160,327
--------------- -----------------
$ 12,495,596 $ 12,511,760
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,366,336 $ 1,317,007
Accrued compensation and benefits 745 86,918
Deposits 36,510 25,753
Current portion of obligation under capital lease 76,933 68,388
--------------- -----------------
Total current liabilities 1,480,524 1,498,066
Obligation Under Capital Lease 3,039,816 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, 2,065,543 issued and outstanding 2,066 2,066
Class B common stock, $.001 par value, authorized
3,389,134 shares, 483,264 issued and outstanding 483 483
Accumulated other comprehensive loss (9,938) (9,938)
Additional paid-in-capital 10,520,808 10,520,808
Accumulated deficit (2,538,163) (2,560,281)
--------------- -----------------
Total stockholders' equity 7,975,256 7,953,138
--------------- -----------------
$ 12,495,596 $ 12,511,760
=============== =================
See accompanying notes to unaudited condensed consolidated financial statements.
Super Vision International, Inc.
Condensed Consolidated Statements of Operations - unaudited
Three Months
Ended March 31,
2001 2000
------------- --------------
Revenues $ 3,416,147 $ 2,527,281
Cost and Expenses:
Cost of sales 2,283,357 1,794,821
Selling, general and administrative 939,507 594,833
Research and development 97,827 100,457
------------- -------------
Total costs and expenses 3,320,691 2,490,111
Operating Income 95,456 37,170
Non-Operating Income (Expense):
Interest income 40,601 42,987
Interest expense (109,185) (110,318)
Loss on investment (4,754) --
Other Income -- 15,500
------------- -------------
Total non-operating expense (73,338) (51,831)
------------- -------------
Income (Loss) Before Income Taxes 22,118 (14,661)
Income Tax Expense -- --
------------- -------------
Net Income (Loss) $ 22,118 $ (14,661)
============= =============
Net Income (Loss) Per Common Share:
Basic $ 0.01 $ (0.01)
============= =============
Diluted $ 0.01 $ (0.01)
============= =============
See accompanying notes to unaudited condensed consolidated financial statements.
Super Vision International, Inc.
Condensed Consolidated Statements of Cash Flows - unaudited
Three Months
Ended March 31,
2001 2000
---------------- ----------------
Cash Flows from Operating Activities:
Net income (loss) $ 22,118 $ (14,661)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 165,571 170,319
Decrease in inventory reserve (11,467) (42,738)
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade accounts receivable, net (450,720) 185,098
Inventories 31,564 270,407
Prepaid expense (63,053) (97,195)
Other assets (11,226) (1,056)
Increase (decrease) in:
Accounts payable 49,329 (264,852)
Accrued compensation and benefits (86,173) (62,779)
Deposits 10,757 (17,479)
---------------- ----------------
Total adjustments (365,418) 139,725
---------------- ----------------
Net cash (used in) provided by operating activities (343,300) 125,064
Cash Flows from Investing Activities:
Purchase of property and equipment (42,142) (35,255)
Purchase of investments (1,356) (5,224)
Acquisition of patents and trademarks (4,996) (2,028)
Deposits on equipment -- (1,378)
---------------- ----------------
Net cash used in investing activities (48,494) (43,885)
Cash Flows from Financing Activities:
Cost on issuance of common stock -- (10)
Payments on capital lease obligation (12,195) (11,098)
Proceeds from exercise of employee stock options -- 24,702
---------------- ----------------
Net cash (used in) provided by financing activities (12,195) 13,594
---------------- ----------------
Net (Decrease) Increase in Cash and Cash Equivalents (403,989) 94,773
Cash and Cash Equivalents, beginning of period 1,673,639 1,172,855
---------------- ----------------
Cash and Cash Equivalents, end of period $ 1,269,650 $ 1,267,628
================ ================
See accompanying notes to unaudited condensed consolidated financial statements.
Super Vision International, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Summary of Significant Accounting Policies:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Super Vision
International, Inc. and its wholly-owned subsidiary Oasis Waterfalls, LLC.
(collectively, the "Company"). All significant inter-company balances and
transactions have been eliminated.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only
of normal recurring accruals necessary to present fairly the Company's
consolidated financial position, results of operations and cash flows for
the periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for
the full year.
The condensed consolidated financial statements should be read in
conjunction with the financial statements and the related disclosures
contained in the Company's Form 10-KSB dated March 22, 2001, filed with the
Securities and Exchange Commission.
Business
The Company is engaged in the design, manufacture and marketing of SIDE-
GLOW(R) and END GLOW(R) fiber optic lighting cables, light sources,
waterfalls and "point-to-point" fiber optic signs and displays. The
Company's products have a wide variety of applications in the signage,
swimming pool, architectural, advertising and retail industries.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Research and Development
Research and development costs to develop new products are charged to
expense as incurred.
Advertising
Advertising costs, included in selling, general and administrative
expenses, are expensed when the advertising first takes place.
Cash Equivalents
Temporary cash investments with an original maturity of three months or
less are considered to be cash equivalents.
Super Vision International, Inc.
Notes to Condensed Financial Statements (unaudited) - Continued
1. Summary of Significant Accounting Policies (Continued):
Investments
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair
value, with the unrealized gains and losses, net of tax, reported as
comprehensive income (loss) and as a separate component of stockholders'
equity. The amortized costs of debt securities in this category is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in investment income. Realized gains and losses
and declines in value judged to be other-than-temporary on available-for-
sale securities are included in investment income. The cost of securities
sold are based on the specific identification method. Interest and
dividends on securities classified as available-for-sales are included in
investment income. There were no material unrealized gains or losses on
securities at March 31, 2001 or 2000.
At March 31, 2001 investments were comprised of U.S. Corporate Securities
and equity securities of approximately $1,005,000 and $395,000
respectively. The investment in U.S. Corporate Securities matures in 2001.
Derivative Investments and Hedging Activities
As of January 1, 2001, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities. FASB Statement 133 requires the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If a derivative
is a hedge, depending on the nature of the hedge, changes in the fair value
of the derivative will either offset against the change in fair value of
the hedged item through earnings or be recognized in comprehensive income
until the hedged item is recognized in earnings. As of and since the
adoption of FASB 133, the Company has not entered into any derivative
instruments, as defined in the statement.
2. Inventories:
Inventories consisted of the following components:
(Unaudited)
March 31, December 31,
2001 200
--------------- --------------
Raw materials $ 1,837,198 $ 1,759,504
Work in progress 9,477 12,461
Finished goods 835,389 941,663
--------------- --------------
2,682,064 2,713,628
Less: Reserve for excess inventory (400,007) (411,474)
--------------- --------------
$ 2,282,057 $ 2,302,154
=============== ==============
Super Vision International, Inc.
Notes to Condensed Financial Statements (unaudited) - Continued
3. Capital Lease:
The Company leases its operating facility from a corporation owned by the
Company's Chief Executive Officer. The lease has a fifteen-year term, and
became effective June 15, 1997, extending through June 15, 2012.
Assets recorded under capital lease and included in property and equipment
are as follows:
Office/Warehouse building $ 3,081,000
Less accumulated amortization (770,250)
---------------
$ 2,310,750
===============
Future minimum annual lease payments for remainder of 2001 and years
subsequent thereto in the aggregate are as follows:
2001 $ 453,649
2002 610,596
2003 628,404
2004 641,127
2005 659,821
2006 and thereafter 4,604,030
---------------
Minimum lease payments 7,597,627
Less amount representing interest and executory costs (4,480,878)
---------------
Present value of net minimum lease payments under capital $ 3,116,749
===============
Deposits paid under this lease agreement totaled $58,167 at March 31, 2001.
4. Stock Option Plan:
The Company has a stock option plan that provides for the grant of
incentive stock options and nonqualified stock options for up to 450,000
shares of the Company's Class A common stock under the plan. The option
price must be at least 100% of market value at the date of the grant.
The following table summarizes activity of the stock option plan for the
three-month period ended March 31, 2001:
Options Number Option
Available for Of Price
Future Grant Shares Per Share
---------------- --------------- ----------------
Balance, January 1, 2001 53,921 327,001 $3.28 - $9.31
Options granted (23,300) 23,300 $5.88 - $6.34
Options cancelled 3,650 (3,650) $5.94 - $8.13
---------------- ---------------
Balance, March 31, 2001 34,271 346,651
================ ===============
Options granted vest ratably over a three-year period or vest based on
achievement of certain performance criteria. As of March 31, 2001, 227,355
options were vested and exercisable.
Super Vision International, Inc.
Notes to Condensed Financial Statements (unaudited) - Continued
5. Earnings (Loss) Per Share:
The following table sets forth the computation of basic and diluted
earnings (loss) per share in accordance with SFAS No. 128, "Earnings per
Share."
For the Three Months Ended
March 31,
2001 2000
-------------- --------------
Numerator:
Net income (loss) (numerator for basic and
diluted earnings (loss) per share) $ 22,118 $ (14,661)
Denominator:
Denominator for basic earnings (loss) per share
-weighted average shares 2,548,807 2,564,644
Effect of dilutive securities:
Options 22,897 -
Warrants 8,416 -
-------------- --------------
Dilutive potential shares 31,313 -
-------------- --------------
Denominator for diluted earnings (loss) per share
-adjusted weighted average shares 2,580,120 2,564,644
============== ==============
Basic earnings (loss) per share $ 0.01 $ (0.01)
============== ==============
Diluted earnings (loss) per share $ 0.01 $ (0.01)
============== ==============
Certain warrants are not included in the computation of earnings (loss) per
share because the related shares are contingently issuable or to do so
would have been anti-dilutive for the periods presented.
6. Contingencies:
The Company was recently notified by Hayward of an alleged intentional
violation by the Company of the distributorship agreement to which the
Company and Hayward are parties as a result of the Company's sale of its
products into the exclusive swimming pool, spa and hot tub market granted
to Hayward thereunder. Hayward has informed the Company that it believes
that the alleged violation is a material and non-curable breach of the
distributorship agreement.
In April 2001, the Company filed a lawsuit in Orange County, Florida
against Hayward Pool Products ("Hayward") for an alleged violation by
Hayward of the distributorship agreement to which the Company and Hayward
are parties as a result of Hayward's sale of a competitor's product into
the exclusive swimming pool, spa and hot tub market granted to Hayward
thereunder. The Company plans to pursue its claims vigorously. Due to the
status of the litigation, management is unable to estimate the possible
loss or recovery or range of loss or recovery, if any at this time
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The following discussion and analysis should be read in conjunction with the
unaudited Condensed Financial Statements and Notes thereto appearing elsewhere
in this report.
The following discussion contains certain forward-looking statements within the
meaning of the "safe-harbor" provisions of the Private Securities Litigation
Reform Act of 1995, as amended, the attainment of which involve various risks
and uncertainties. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may", "will", "should", "expect", "plan",
"believe", "estimate", "anticipate", "continue", "predict", "forecast",
"intend", "potential", or similar terms, variations of those terms or the
negative of those terms. The Company's actual results may differ materially from
those described in these forward-looking statements due to, among other factors,
competition in each of the Company's product areas, dependence on suppliers, the
Company's limited manufacturing experience, the condition of the international
marketplace and the evolving nature of the Company's fiber optic technology.
Additional information concerning these or other factors which could cause
actual results to differ materially from those contained or projected in, or
even implied by, such forward-looking statements is contained in this report and
also from time to time in the Company's other Securities and Exchange Commission
filings. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
information will prove to be accurate.
Results of Operations
- ---------------------
Revenues are derived primarily from the sale of fiber optic Side Glow(R) and End
Glow(R) cable and light sources, lighting accessories, endpoint signs and
displays along with fiber optically lit waterfalls and water features. Revenues
for the three months ended March 31, 2001 were approximately $3,416,000 as
compared to approximately $2,527,000 for the three months ended March 31, 2000,
an increase of approximately $ 889,000 or 35 %. The increase was primarily the
result of growth in the domestic architectural lighting and international
markets, which increased 154% and 42% respectively, as compared to the three
months ended March 31, 2000. Pool and sign revenues declined 37% and 12%
respectively as compared to the quarter ended March 31, 2000.
The Company derived approximately 27% of its total revenues from Hayward for the
three months ended March 31, 2001, as compared to approximately 45% for the same
period in 2000. The Company was recently notified by Hayward of an alleged
intentional violation by the Company of the distributorship agreement to which
the Company and Hayward are parties as a result of the Company's sale of its
products into the exclusive swimming pool, spa and hot tub market granted to
Hayward thereunder. Hayward has informed the Company that it believes that the
alleged violation is a material and non-curable breach of the distributorship
agreement. In April 2001, the Company filed a lawsuit in Orange County, Florida
against Hayward for an alleged violation by Hayward of the distributorship
agreement to which the Company and Hayward are parties as a result of Hayward's
sale of a competitor's product into the exclusive swimming pool, spa and hot tub
market granted to Hayward thereunder. Depending on the length of time to resolve
the dispute, the Company may experience slower than anticipated pool sales over
the remainder of the year.
Gross margin for the quarter ended March 31, 2001 was approximately $1,133,000
or 33% as compared to approximately $732,000 or 29% for the three months ended
March 31, 2000. The gross margin is dependent, in part, on product mix, which
fluctuates from time to time. The increase in gross margin dollars from the
first quarter of 2000 was mainly due to the increased volume of domestic
architectural lighting products. The increase in the gross margin percentage
from 30% to 33% was the result of enhancements to the Company's sales process as
well as the implementation of cost reductions in material components.
In April 2001 WPI Electronics ("WPI") and the Company began the process of
finalizing a settlement agreement to pay the Company $45,000 for approximately
$139,000 of product included in the Company's inventory in connection with
litigation between the two companies. In addition, the effect of the settlement
is to terminate any additional liability related to the outstanding contract
between the Company and WPI for the purchase of approximately $1,772,000 of
power supplies. The agreement is anticipated to be complete in May 2001. Upon
the completion of the settlement agreement between WPI and the Company, the
Company will offset the reduction in inventory against the proceeds of the
settlement, which is expected to reduce gross margin for the quarter ended June
30, 2001.
Selling, general and administrative expenses were approximately $940,000 during
the three months ended March 31, 2001 as compared to approximately $595,000 for
the same period ended 2000, an increase of approximately $345,000 or 58%. The
increase was principally due to additional sales and marketing related expenses.
Research and development costs were approximately $98,000 during the three
months ended March 31, 2001 as compared to approximately $100,000 during the
same period in 2000.
Interest expense of approximately $109,000 for the quarter ended March 31, 2001
as compared to approximately $110,000 for the same period last year relates to
the capital lease in connection the Company's facility in Orlando, Florida.
The Company has provided a full valuation allowance against income tax benefits
resulting from losses incurred on operations and as a result there was no
provision for income tax during the three months ended March 31, 2001 and 2000
respectively.
The net income for the three months ended March 31, 2001 was approximately
$22,000 or $0.01 per basic and diluted common share, as compared to net loss of
approximately $(15,000), or $(0.01) per basic and diluted common share, for the
quarter ended March 31, 2000. The increase was primarily due to an increase in
gross margin offset by higher general and administrative expense as well as an
increase in non-operating expense.
Liquidity and Capital Resources
- -------------------------------
At March 31, 2001 the Company had working capital of approximately of
$6,129,000.
Net cash used in operations amounted to approximately $343,000 for the quarter
ended March 31, 2001 as compared to approximately $125,000 provided by operating
activities for the first quarter of 2000. The most significant use of cash was
generated by the increase in trade accounts receivable. Trade accounts
receivable increased by approximately $451,000 mainly due to the timing of
customer payments. Net cash used in investing activities for the quarter ended
March 31, 2001 amounted to approximately $48,000. The purchase of computer and
software equipment (approximately $19,000), tooling (approximately $9,000),
building improvements (approximately $6,000) and tools (approximately $6,000)
primarily accounted for the use of cash in investing activities. Net cash used
in financing activities for the three months ended March 31, 2001 amounted to
approximately $12,000 in payments on the capital lease obligation related to the
Company's facility
PART II
Item 1. Legal Proceedings.
-----------------
In September 1999, WPI Electronics (`WPI") filed a lawsuit against the Company
for breach of contract in the United States District court for the District of
New Hampshire (Case number C-99-426-B) relating to the delivery of goods and
claiming approximately $576,000 in damages. The Company filed a motion to
dismiss this action and a separate action against WPI in the U.S. District Court
for the Middle District of Florida claiming that the goods delivered by WPI were
defective and claiming approximately $1,647,000 in damages including recovery of
inventory on hand and goods previously returned but already paid approximating
$198,000. In April 2001, WPI and the Company began the process of finalizing a
settlement agreement to pay the Company $45,000 for approximately $139,000 of
product included in the Company's inventory. In addition, the effect of the
agreement is to terminate any additional liability related to the outstanding
contract to purchase power supplies of approximately $1,772,000 from WPI. The
agreement is anticipated to be complete in May 2001.
In April 2001, the Company filed a lawsuit in Orange County, Florida against
Hayward for an alleged violation by Hayward of the distributorship agreement to
which the Company and Hayward are parties as a result of Hayward's sale of a
competitor's product into the exclusive swimming pool, spa and hot tub market
granted to Hayward thereunder. The Company plans to pursue its claims
vigorously.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Reports on Form 8-K. The Company did not file any report on Form 8-K during the
first quarter of 2001.
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunder duly authorized.
SUPER VISION INTERNATIONAL, INC.
By: /s/ Brett M. Kingstone Date: May 14, 2001
----------------------------------------------
Brett M. Kingstone, Chief Executive Officer
(Principal Executive Officer)
By: /s/ Larry J. Calise Date: May 14, 2001
----------------------------------------------
Larry J. Calise, Chief Financial Officer
(Principal Financial and Accounting Officer)