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 June 30, 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)
(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 August 10, 2001:
Class A Common Stock, $.001
par value 2,082,610 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 June 30, 2001 (unaudited)
and December 31, 2000 1
Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2001 and 2000 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 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 12
Item 4. Submission of Matters To A Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Super Vision International, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2001 2000
------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 722,611 $ 1,673,639
Investments 1,899,466 1,398,517
Trade accounts receivable, less allowance for
Doubtful accounts of $109,590 at June 30, 2001 and $146,693 at
December 31, 2000 2,150,025 2,024,701
Inventories, less reserve of $279,974 at June 30, 2001 and
$411,474 at December 31, 2000 2,682,703 2,302,154
Prepaid expense 115,710 83,348
Other assets 40,767 26,000
------------------- ---------------------
Total current assets 7,611,282 7,508,359
------------------- ---------------------
Property and Equipment 7,143,336 6,958,365
Accumulated depreciation and amortization (2,599,625) (2,271,136)
------------------- ---------------------
Net property and equipment 4,543,711 4,687,229
Goodwill, less accumulated amortization of $6,551 at June 30, 2001 and
$4,679 at December 31, 2000 19,653 21,524
Patents and trademarks, less amortization of $48,002 at June 30, 2001
and $41,028 at December 31, 2000 135,144 134,321
Other Assets 164,737 160,327
------------------- ---------------------
$ 12,474,527 $ 12,511,760
=================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,514,048 $ 1,317,007
Accrued compensation and benefits 76,340 86,918
Deposits 36,948 25,753
Current portion of obligation under capital lease 83,756 68,388
------------------- ---------------------
Total current liabilities 1,711,092 1,498,066
Obligation Under Capital Lease 3,017,231 3,060,556
Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000 shares
Authorized, none issued -- --
Class A common stock, $.001 par value, authorized
16,610,866 shares, 2,082,176 and 2,065,543 issued
and outstanding at June 30, 2001 and December 31, 2000, respectively 2,083 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 (11,722) (9,938)
Additional paid-in-capital 10,595,679 10,520,808
Accumulated deficit (2,840,319) (2,560,281)
------------------- ---------------------
Total stockholders' equity 7,746,204 7,953,138
------------------- ---------------------
$ 12,474,527 $ 12,511,760
=================== =====================
See accompanying notes to unaudited condensed consolidated financial statements.
1
Super Vision International, Inc.
Condensed Consolidated Statements of Operations - unaudited
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
----------------- ---------------- ------------------ ----------------
Revenues $ 3,067,327 $ 2,750,200 $ 6,483,474 $ 5,277,481
Cost and Expenses:
Cost of sales 2,057,599 2,002,411 4,340,955 3,797,232
Selling, general and administrative 1,136,121 851,996 2,075,630 1,446,829
Research and development 109,008 108,249 206,834 208,706
------------------ ---------------- ------------------ ----------------
Total costs and expenses 3,302,728 2,962,656 6,623,419 5,452,767
Operating Loss (235,401) (212,456) (139,945) (175,286)
Non-Operating Income (Expense):
Interest income 32,956 42,765 73,557 85,752
Interest expense (107,640) (109,915) (216,825) (220,233)
Other Income 9,800 25,968 9,800 41,468
Gain(Loss) on sale of investments (1,871) 2,842 (6,625) 2,842
Gain on disposal of fixed assets - 425 - 425
------------------ ---------------- ------------------ ----------------
Total non-operating expense (66,755) (37,915) (140,093) (89,746)
Loss Before Income Taxes (302,156) (250,371) (280,038) (265,032)
Income Tax Expense - - - -
------------------ ---------------- ------------------ ----------------
Net Loss $ (302,156) $ (250,371) $ (280,038) $ (265,032)
================== ================ ================== ================
Net Loss Per Common Share:
Basic $ (0.12) $ (0.10) $ (0.11) $ (0.10)
================== ================ ================== ================
Diluted $ (0.12) $ (0.10) $ (0.11) $ (0.10)
================== ================ ================== ================
See accompanying notes to unaudited condensed consolidated financial statements.
2
Super Vision International, Inc.
Condensed Consolidated Statements of Cash Flows - unaudited
Six Months
Ended June 30,
2001 2000
------------------- ------------------
Cash Flows from Operating Activities:
Net loss $ $
(280,038) (265,032)
Adjustments to reconcile net loss to net cash (used in) provided by
Operating activities:
Depreciation and amortization 343,102 349,941
Gain on disposal of fixed assets -- (425)
(Decrease) increase in inventory reserve (131,500) 82,263
Changes in operating assets and liabilities:
Unrealized loss on available for sale securities (1,784) --
(Increase) decrease in:
Trade accounts receivable, net (125,324) 361,069
Inventories (249,049) (71,914)
Prepaid expense (32,362) (81,644)
Other assets (24,945) 30,471
Increase (decrease) in:
Accounts payable 197,041 (264,998)
Accrued compensation and benefits (10,578) (11,354)
Deposits 11,195 (5,764)
------------------- ------------------
Total adjustments (24,204) 387,645
------------------- ------------------
Net cash (used in) provided by operating activities (304,242) 122,613
Cash Flows from Investing Activities:
Purchase of property and equipment (184,971) (84,054)
Purchase of investments (500,949) (8,835)
Acquisition of patents and trademarks (7,797) (2,028)
Proceeds from disposal of property and equipment -- 3,187
------------------- ------------------
Net cash used in investing activities (693,717) (91,730)
Cash Flows from Financing Activities:
Cost on issuance of common stock 17 24,190
Payments on capital lease obligation (27,957) (22,586)
Proceeds from exercise of employee stock options 74,871 33,806
------------------- ------------------
Net cash provided by financing activities 46,931 35,410
------------------- ------------------
Net (Decrease) Increase in Cash and Cash Equivalents (951,028) 66,293
Cash and Cash Equivalents, beginning of period 1,673,639 1,172,855
------------------- ------------------
Cash and Cash Equivalents, end of period $ 722,611 $ 1,239,148
=================== ==================
See accompanying notes to unaudited condensed consolidated financial statements.
3
Super Vision International, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Summary of Significant Accounting Policies:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Super Vision
International, Inc. and its wholly owned subsidiary Oasis Waterfalls, LLC
(collectively, the "Company"). All significant inter-company balances and
transactions have been eliminated.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only
of normal recurring accruals necessary to present fairly the Company's
consolidated financial position, results of operations and cash flows for
the periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for
the full year.
The condensed consolidated financial statements should be read in
conjunction with the financial statements and the related disclosures
contained in the Company's Form 10-KSB dated March 22, 2001, filed with the
Securities and Exchange Commission.
Business
The Company is engaged in the design, manufacture and marketing of SIDE-
GLOW(R) and END GLOW(R) fiber optic lighting cables, light sources,
waterfalls and "point-to-point" fiber optic signs and displays as well as
LED lighting products. The Company's products have a wide variety of
applications in the signage, swimming pool, architectural, advertising and
retail industries.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Research and Development
Research and development costs to develop new products are charged to
expense as incurred.
Advertising
Advertising costs, included in selling, general and administrative
expenses, are expensed when the advertising first takes place.
Cash Equivalents
Temporary cash investments with an original maturity of three months or
less are considered to be cash equivalents.
4
Super Vision International, Inc.
Notes to Condensed Consolidated 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 in a separate component of stockholders'
equity. The amortized costs of debt securities in this category is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in investment income. Realized gains and losses
and declines in value judged to be other-than-temporary on available-for-
sale securities are included in investment income. The cost of securities
sold are based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income. There were no material unrealized gains or losses on
securities at June 30, 2001 or December 31, 2000.
At June 30, 2001 investments were comprised of U.S. Corporate Securities
and equity securities of approximately $1,001,000 and $898,000,
respectively. The investment in U.S. Corporate Securities matures in August
2001.
Derivative Investments and Hedging Activities
As of January 1, 2001, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities. FASB Statement 133 requires the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If a derivative
is a hedge, depending on the nature of the hedge, changes in the fair value
of the derivative will either offset against the change in fair value of
the hedged item through earnings or be recognized in comprehensive income
until the hedged item is recognized in earnings. As of and since the
adoption of FASB 133, the Company has not entered into any derivative
instruments, as defined in the statement.
2. Inventories:
Inventories consisted of the following components:
(Unaudited)
June 30, December 31,
2001 2000
------------ ------------
Raw materials $ 2,035,565 $ 1,759,504
Work in progress 8,574 12,461
Finished goods 918,538 941,663
------------ -----------
2,962,677 2,713,628
Less: Reserve for excess inventory (279,974) (411,474)
------------ -----------
$ 2,682,703 $ 2,302,154
============ ===========
5
Super Vision International, Inc.
Notes to Condensed Consolidated 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 (821,600)
------------
$ 2,259,400
============
Future minimum annual lease payments for remainder of 2001 and years
subsequent thereto in the aggregate are as follows:
2001 $ 305,698
2002 610,596
2003 628,404
2004 641,127
2005 659,821
2006 and thereafter 4,604,030
-----------
Minimum lease payments 7,449,676
Less amount representing interest and executory costs (4,348,689)
-----------
Present value of net minimum lease payments under capital lease $ 3,100,987
===========
Deposits paid under this lease agreement totaled $58,167 at June 30, 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
six-month period ended June 30, 2001:
Number
Options Of Option
Available for Shares Price
Future Grant Under Option Per Share
-------------------- ------------------- --------------------
Balance, January 1, 2001 53,921 327,001 $3.28 - $9.31
Options granted (31,800) 31,800 $5.88 - $7.63
Options exercised 0 (17,067) $3.28 - $6.00
Options cancelled 15,784 (15,784) $5.94 - $8.75
-------------------- -------------------
Balance, June 30, 2001 37,905 325,950
==================== ===================
Options granted vest ratably over a three-year period or vest based on
achievement of certain performance criteria. As of June 30, 2001, 218,155
options were vested and exercisable.
6
Super Vision International, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) - Continued
5. Loss Per Share:
The following table sets forth the computation of basic and diluted loss
per share in accordance with SFAS No. 128, "Earnings per Share."
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------- -------------- -------------- -------------
Numerator:
Net loss (numerator for basic and
diluted earnings per share) $ (302,156) $ (250,371) $ (280,038) $ (265,032)
Denominator:
Denominator for basic earnings per share
-weighted average shares 2,561,342 2,569,084 2,554,895 2,566,799
Effect of dilutive securities:
Options - - - -
Warrants - - - -
--------------- -------------- -------------- -------------
Dilutive potential shares - - - -
Denominator for diluted earnings per share
-adjusted weighted average shares 2,561,342 2,569,084 2,554,895 2,566,799
=============== ============== ============== =============
Basic loss per share $ (0.12) $ (0.10) $ (0.11) $ (0.10)
=============== ============== ============== =============
Diluted loss per share $ (0.12) $ (0.10) $ (0.11) $ (0.10)
=============== ============== ============== =============
Certain warrants are not included in the computation of loss per share
because the related shares are contingently issuable or to do so would have
been anti-dilutive for the periods presented.
6. Contingencies
Effective as of July 26, 2001, the Company and Hayward Industries, Inc.
together with its affiliates ("Hayward") entered into an agreement (the
"Primary Agreement") resolving primary issues relating to the distribution
relationship between the parties, including the Distributorship Agreement
between the Company and Hayward dated as of September 25, 1996, as amended
(the "Distributorship Agreement"). The parties have agreed to execute a
confidential resolution agreement (the "Confidential Resolution Agreement")
incorporating the terms and conditions of the Primary Agreement and
resolving all of the remaining issues relating to their business
relationships (for purposes of this disclosure, the Primary Agreement
together with the Confidential Resolution Agreement are referred to as the
"Resolution Agreement"). The Resolution Agreement shall act to modify
and/or terminate previous relationships and contracts between the Company
and Hayward and may result in the termination of certain stock purchase
warrants and rights to warrants granted by the Company to Hayward. Upon
execution of the Confidential Resolution Agreement, the Company will
dismiss all of it's litigation against Hayward for alleged violations of
previous contracts and relationships and Hayward and the Company will
release certain claims, rights and causes of action as outlined in the
Resolution Agreement. Under the Resolution Agreement the Distributorship
Agreement will terminate effective September 30, 2001, including Hayward's
exclusive worldwide rights to sell the Company's pool related products.
7
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.
Three Months Ended June 30, 2001 vs. 2000
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. Total
revenues for the three months ended June 30, 2001 were approximately $3,067,000
as compared to approximately $2,750,000 for the three months ended June 30,
2000, an increase of approximately $317,000 or 12%. The increase was primarily
the result of growth in the domestic architectural lighting and international
markets, which increased by approximately $759,000 or 140% and approximately
$144,000 or 29%, respectively, as compared to the three months ended June 30,
2000. Pool and sign market revenues declined 61% and 33%, respectively from the
three months ended June 30, 2000.
Gross margin for the three months ended June 30, 2001 was approximately
$1,010,000 or 33% as compared to approximately $748,000 or 27% for the three
months ended June 30, 2000. Gross margin is dependent, in part, on product mix,
as well as, the mix of customers, which fluctuates from time to time. The
increase in the amount of gross margin over the second quarter of 2000 was
mainly due to the increased volume of domestic architectural lighting products.
The increase in the gross margin percentage from 27% to 33% was the result of
enhancements to the Company's sales process and a lower mix of pool related
products to Hayward that were sold at a significant discount off list price
based on the Company's current distributor agreement with Hayward. In addition
the Company incurred a net inventory write - off of approximately $99,000 in
connection with the settlement of the litigation with WPI Electronics in the
quarter ended June 30, 2001. Excluding the effect of the inventory adjustment,
gross margin for the three months ended June 30, 2001 was approximately
$1,109,000 or 36%.
Selling, general and administrative expenses were approximately $1,136,000
during the three months ended June 30, 2001 as compared to approximately
$852,000 for the same period ended 2000, an increase of approximately $284,000
or 33%. The increase was principally due to additional sales and marketing
related expenses to support the network of 91 lighting agencies selling the
Company's product in the domestic architectural lighting market. We currently
expect that selling, general and administrative expense will continue to
increase in absolute dollars in order to support the distribution channel of the
domestic architectural lighting market.
Research and development costs were approximately $109,000 during the three
months ended June 30, 2001 as compared to approximately $108,000 during the same
period in 2000.
Interest expense of approximately $108,000 for the three months ended June 30,
2001 as compared to
8
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 for the three months ended June 30, 2001 and 2000,
respectively.
The net loss for the three months ended June 30, 2001 was approximately
$(302,000), and $(0.12) per basic and diluted common share, as compared to a net
loss of approximately $(250,000), and $(0.10) per basic and diluted common
share, for the three months ended June 30, 2000. The increase in loss is
primarily due to higher selling, general and administrative expenses partially
offset by increased gross margin.
Six Months Ended June 30, 2001 vs. 2000
Results of Operations
- ---------------------
Total revenues for the six months ended June 30, 2001 were approximately
$6,483,000 as compared to approximately $5,277,000 for the six months ended June
30, 2000 an increase of approximately $1,206,000 or 23%. The increase was
primarily the result of growth in the domestic architectural lighting and
international markets, up approximately $1,546,000 and $342,000, respectively.
Increased revenues in the architectural and international markets were
principally offset by reductions in the pool and sign markets of approximately
$878,000 and $203,000, respectively.
Gross margin for the six months ended June 30, 2001 was approximately $2,143,000
or 33% as compared to approximately $1,480,000 or 28% for the six months ended
June 30, 2000. The gross margin is dependent, in part, on product mix, as well
as the mix of customers, which fluctuates from time to time. The increase in the
amount of gross margin over the second quarter of 2000 was mainly due to the
increased volume of domestic architectural lighting products. The increase in
the gross margin percentage from 28% to 33% was the result of enhancements to
the Company's sales process, a lower mix of pool related products to Hayward
that were sold at a significant discount off list price based on the Company's
current distributor agreement with Hayward and the implementation of cost
reductions in material components.
Selling, general and administrative expenses were approximately $2,076,000 for
the six months ended June 30, 2001 as compared to approximately $1,447,000 for
the same period ended 2000, an increase of approximately $629,000 or 43%. The
increase was primarily due to additional sales and marketing related expenses to
support the Company's domestic architectural lighting market. We currently
expect that selling, general and administrative expense will continue to
increase in absolute dollars in order to support the distribution of the
Company's product offering in the domestic architectural lighting market.
Research and development costs were approximately $207,000 for the six months
ended June 30, 2001 as compared to approximately $209,000 for the same period in
2000.
Interest expense of approximately $217,000 for the six months ended June 30,
2001, as compared to approximately $220,000 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 for the six months ended June 30, 2000 and 1999
respectively.
The net loss for the six months ended June 30, 2001 was approximately
$(280,000), or $(0.11) per basic and diluted common share, as compared to net
loss of approximately $(265,000), and $(0.10) per basic and diluted common
share, for the six months ended June 30, 2000. The increase in loss is primarily
due to higher selling, general and administrative expenses partially offset by
increased gross margin, as well as a reduction in other income from the sublease
of the warehouse portion of the facility. For the six months ended June 30,
2000, other income also included funds received in connection with a supplier
settlement in favor of the Company.
9
Hayward Relationship
- --------------------
The Company derived approximately 14% of its total revenues from Hayward Pool
Product Inc. (together with its affiliates "Hayward") for the three months ended
June 30, 2001, as compared to approximately 40% for the same period in 2000. For
the six months ended June 30, 2001, the Company derived approximately 21% of its
total revenues from Hayward, as compared to approximately 42% for the same
period in 2000. Pursuant to a Distributorship Agreement between the Company and
Hayward dated as of September 25, 1996 as amended (the "Distributorship
Agreement"), Hayward was granted the worldwide rights to market and sell the
Company's fiber optic swimming pool lighting products in the pool and spa
lighting market.
As part of the redefinition of the relationships between the Company and
Hayward, effective July 26, 2001, the Company and Hayward entered into an
agreement (the "Primary Agreement") resolving primary issues relating to the
distribution relationship between the parties, including the Distributorship
Agreement. The parties have agreed to execute a confidential resolution
agreement (the "Confidential Resolution Agreement") incorporating the terms and
conditions of the Primary Agreement and resolving all of the remaining issues
relating to their business relationships (for purposes of this disclosure, the
Primary Agreement together with the Confidential Resolution Agreement are
referred to as the "Resolution Agreement"). The Resolution Agreement shall act
to modify and/or terminate previous relationships and contracts between the
Company and Hayward. Upon execution of the Confidential Resolution Agreement,
the Company will dismiss all of it's litigation against Hayward for alleged
violations of previous contracts and relationships and Hayward and the Company
will release certain claims, rights and causes of action as outlined in the
Resolution Agreement. Under the Resolution Agreement the Distributorship
Agreement will terminate effective September 30, 2001, including Hayward's
exclusive worldwide rights to sell the Company's pool related products.
As part of the Resolution Agreement, after September 30, 2001, Hayward has
agreed not to sell fiber optic pool lighting products to customers in the United
States or Canada as set forth in the Resolution Agreement, and the Company has
agreed to pay Hayward royalties on gross sales of fiber optic pool lighting
products sold by the Company to customers in the United States and Canada over a
term of five years, at the rate of 5% of gross sales in the first year, 3% in
the second and third years, and 2% in the fourth and fifth years; with a
$100,000 minimum payment during each of years one and two.
As part of the Resolution Agreement, if requested by Hayward, the Company will
be obligated to repurchase up to $350,000 of Company manufactured fiber optic
lighting products which have been purchased by Hayward from the Company, at
Hayward's cost from the Company. Hayward has also agreed to the termination of
certain stock purchase warrants and rights to warrants granted by the Company to
Hayward upon specified terms and conditions. The shares of the Company's stock
and shares which may be purchased upon the exercise of options and warrants,
held by Hayward are subject to certain registration rights.
As a result of the change in the business relationships between the Company and
Hayward, the Company expects slower than normal sales of pool related fiber
optic products over the balance of calendar year 2001 as well as an increase in
general and administrative expense related to the registration of common shares
owned by Hayward.
10
Liquidity and Capital Resources
- -------------------------------
At June 30, 2001 the Company had working capital of approximately of $5,900,000.
Net cash used in operations amounted to approximately $302,000 for the six
months ended June 30, 2001 compared to approximately $123,000 of cash provided
by operating activities for the first half of 2000. The most significant use of
cash during the first six months of 2001 was generated by the increase of
approximately $249,000 in inventory, primarily attributable to the initial
stocking levels of LED products to support the launch of the Company's LED
product offering. Cash provided by operations was primarily the result of an
increase in accounts payable due to the timing of supplier payments and amounted
to approximately $197,000 for the six months ended June 30, 2001. Net cash used
in investing activities for the six months ended June 30, 2001 amounted to
approximately $696,000. The purchase of an investment for a fixed income
security amounted to approximately $501,000, while capital expenditures for
prototype and design equipment, purchase of computer hardware and software,
furniture and fixtures, and tooling accounted for most of the purchase of
property and equipment. Net cash provided by financing activities for the six
months ended June 30, 2000 amounted to approximately $47,000. Proceeds in the
amount of approximately $75,000 from the exercise of employee stock options were
offset by payments of approximately $28,000 on the capital lease obligation
related to the Company facility.
11
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 May 2001, WPI and the Company finalized a
settlement agreement pursuant to which WPI paid the Company
approximately $43,000 for approximately $142,000 of product included
in the Company's inventory. In addition, the effect of the agreement
terminated any additional liability related to the outstanding
contract to purchase power supplies of approximately $1,772,000 from
WPI. All legal proceedings between the Company and WPI have been
dismissed.
Effective July 26, 2001 the Company and Hayward Industries, Inc.
together with its affiliates ("Hayward") entered into an agreement
(the "Primary Agreement") resolving primary issues relating to the
distribution relationship between the parties, including the
Distributorship Agreement between the Company and Hayward dated as of
September 25, 1996, as amended (the "Distributorship Agreement"). The
parties have agreed to execute a confidential resolution agreement
(the "Confidential Resolution Agreement") incorporating the terms and
conditions of the Primary Agreement and resolving all of the remaining
issues relating to their business relationships (for purposes of this
disclosure, the Primary Agreement together with the Confidential
Resolution Agreement are referred to as the "Resolution Agreement").
Upon execution of the Confidential Resolution Agreement, the Company
and Hayward would cause to be filed appropriate documents dismissing
the action filed by the Company in Orange County, Florida, in April
2001, against Hayward in the United States District Court Case Number:
6:01-cv-548-ORL-28-KRS. The litigation between the Company and Hayward
was first reported in the Company's Form 10-QSB for the quarter ended
March 31, 2001. While contingencies may arise, the Company anticipates
the Confidential Resolution Agreement will be executed in the near
term.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on Friday, May 4,
2001 at 10:30 a.m. at its principal executive offices of the Company,
8210 Presidents Drive, Orlando, Florida 32809. The Company's
stockholders elected the following slate of directors recommended by
the Board of Directors by a vote of 4,178,962 for and 0 withheld:
Brett Kingstone Anthony Castor Brian McCann
Edgar Protiva Eric Protiva Fritz Zeck
The Company's stockholders also ratified and approved the appointment
of Ernst & Young LLP as the Company's independent auditors by a vote
of 4,175,962 for, 3,000 against and 0 withheld. There were no broker
non-votes for either matter.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
The Company did not file any reports on Forms 8-K during the three
months ended June 30, 2001.
12
SIGNATURES
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: August 13, 2001
--------------------------------------------
Brett M. Kingstone, Chief Executive Officer
(Principal Executive Officer)
By: /s/Larry J. Calise Date: August 13, 2001
--------------------------------------------
Larry J. Calise, Chief Financial Officer
(Principal Financial and Accounting Officer)
13