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 September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 November 6, 2001:
Class A Common Stock, $.001
par value 2,083,010 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 September 30, 2001 (unaudited) and
December 31, 2000 1
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2001 and 2000 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the Nine Months ended
September 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 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Super Vision International, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2001 2000
------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,548,916 $ 1,673,639
Investments 897,556 1,398,517
Trade accounts receivable, less allowance for
doubtful accounts of $112,721 at September 30, 2001 and
$146,693 at December 31, 2000 1,802,004 2,024,701
Inventories, less reserve of $293,575 at September 30, 2001 and
$411,474 at December 31, 2000 2,517,174 2,302,154
Prepaid expense 129,781 83,348
Other assets 30,519 26,000
----------- -----------
Total current assets 6,925,950 7,508,359
----------- -----------
Property and Equipment 7,177,696 6,958,365
Accumulated depreciation and amortization (2,769,586) (2,271,136)
----------- -----------
Net property and equipment 4,408,110 4,687,229
Goodwill, less accumulated amortization of $7,487 at September 30,
2001 and $4,679 at December 31, 2000 18,717 21,524
Patents and trademarks, less amortization of $51,398 at September 30,
2001 and $41,028 at December 31, 2000 134,371 134,321
Other Assets 166,407 160,327
----------- -----------
$11,653,555 $12,511,760
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,211,774 $ 1,317,007
Accrued compensation and benefits 7,362 86,918
Deposits 35,811 25,753
Current portion of obligation under capital lease 86,702 68,388
----------- -----------
Total current liabilities 1,341,649 1,498,066
Obligation Under Capital Lease less current portion 2,994,419 3,060,556
Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued -- --
Class A common stock, $.001 par value, authorized
16,610,866 shares, 2,082,610 and 2,065,543 issued
and outstanding at September 30, 2001 and December 31, 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 (23,292) (9,938)
Additional paid-in-capital 10,597,336 10,520,808
Accumulated deficit (3,259,123) (2,560,281)
----------- -----------
Total stockholders' equity 7,317,487 7,953,138
----------- -----------
$11,653,555 $12,511,760
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
1
Super Vision International, Inc.
Condensed Consolidated Statements of Operations - unaudited
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
------------------ ---------------- ------------------ ----------------
Revenues $2,303,234 $2,371,050 $8,786,708 $7,648,531
Cost and Expenses:
Cost of sales 1,508,520 1,556,409 5,849,474 5,353,641
Selling, general and administrative 1,019,810 722,030 3,095,439 2,168,859
Research and development 116,738 126,117 323,573 334,823
---------- ---------- ---------- ----------
Total costs and expenses 2,645,068 2,404,556 9,268,486 7,857,323
Operating Loss (341,834) (33,506) (481,778) (208,792)
Non-Operating Income (Expense):
Interest income 29,102 47,685 102,659 133,437
Interest expense (107,628) (109,488) (324,453) (329,721)
Other income 2,750 42,102 12,550 83,570
Gain (Loss) on sale of investments (1,195) 293 (7,820) 3,135
Loss on disposal of fixed assets - (15,956) - (15,531)
---------- ---------- ---------- ----------
Total net non-operating expense (76,971) (35,364) (217,064) (125,110)
Loss Before Income Taxes (418,805) (68,870) (698,842) (333,902)
Income Tax Expense - - - -
---------- ---------- ---------- ----------
Net Loss $ (418,805) $ (68,870) $ (698,842) $ (333,902)
========== ========== ========== ==========
Net Loss Per Common Share:
Basic $ (0.16) $ (0.03) $ (0.27) $ (0.13)
========== ========== ========== ==========
Diluted $ (0.16) $ (0.03) $ (0.27) $ (0.13)
========== ========== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
2
Super Vision International, Inc.
Condensed Consolidated Statements of Cash Flows - unaudited
Nine Months
Ended September 30,
2001 2000
---------- ----------
Cash Flows from Operating Activities:
Net loss $ (698,842) $ (333,902)
Adjustments to reconcile net loss to net cash (used in) provided by
Operating activities:
Depreciation and amortization 522,926 531,051
Loss on disposal of fixed assets -- 15,531
(Decrease) increase in inventory reserve (117,899) 147,262
Changes in operating assets and liabilities:
Unrealized loss on available for sale securities (13,354) --
(Increase) decrease in:
Trade accounts receivable, net 222,697 515,724
Inventories (97,122) (366,209)
Prepaid expense (46,433) (61,753)
Other assets (21,897) 43,828
Increase (decrease) in:
Accounts payable (105,233) (262,583)
Accrued compensation and benefits (79,556) (69,104)
Deposits 10,058 (7,922)
---------- ----------
Total adjustments 274,187 485,825
---------- ----------
Net cash (used in) provided by operating activities (424,655) 151,923
---------- ----------
Cash Flows from Investing Activities:
Purchase of property and equipment (219,331) (114,213)
Proceeds from sale of investments 1,001,910 --
Purchase of investments (500,949) (16,884)
Acquisition of patents and trademarks (10,420) (2,028)
Deposits on equipment -- (12,559)
Proceeds from disposal of equipment and furniture -- 4,118
---------- ----------
Net cash provided by (used in) investing activities 271,210 (141,566)
---------- ----------
Cash Flows from Financing Activities:
Cost on issuance of common stock -- 36,174
Payments on capital lease obligation (47,823) (34,478)
Proceeds from exercise of employee stock options 76,545 58,577
---------- ----------
Net cash provided by financing activities 28,722 60,273
---------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents (124,723) 70,630
Cash and Cash Equivalents, beginning of period 1,673,639 1,172,855
---------- ----------
Cash and Cash Equivalents, end of period $1,548,916 $1,243,485
========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
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 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 cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified
as available-for-sale are included in investment income. Unrealized
losses on securities at September 30, 2001 or December 31, 2000 were
$23,292 and $9,938 respectively.
At September 30, 2001, investments were comprised of equity securities
of $904,903. The investment in U.S. Corporate Securities matured in
August 2001.
Derivative Investments and Hedging Activities
As of January 1, 2001, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. FASB Statement 133 requires the
Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value
through income. If a derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of the derivative will either
offset against the change in fair value of the hedged item through
earnings or be recognized in comprehensive income until the hedged item
is recognized in earnings. As of and since the adoption of FASB 133,
the Company has not entered into any derivative instruments, as defined
in the statement.
2. Inventories:
Inventories consisted of the following components:
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
Raw materials $1,990,971 $1,759,504
Work in progress 8,083 12,461
Finished goods 811,695 941,663
---------- ----------
2,810,749 2,713,628
Less: Reserve for excess inventory (293,575) (411,474)
---------- ----------
$2,517,174 $2,302,154
========== ==========
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 (872,950)
----------
$2,208,050
==========
Future minimum annual lease payments for remainder of 2001 and years
subsequent thereto in the aggregate are as follows:
2001 $ 154,249
2002 610,596
2003 628,404
2004 641,127
2005 659,821
2006 and thereafter 4,604,030
-----------
Minimum lease payments 7,298,227
Less amount representing interest and executory costs (4,217,106)
-----------
Present value of net minimum lease payments under capital lease $ 3,081,121
===========
Deposits paid under this lease agreement totaled $59,167 at September
30, 2001.
4. Stock Option Plan:
The Company has a stock option plan that provides for the grant of
incentive stock options and nonqualified stock options for up to
450,000 shares of the Company's Class A common stock under the plan.
The option price must be at least 100% of market value at the date of
the grant.
The following table summarizes activity of the stock option plan for
the nine-month period ended September 30, 2001:
Number
Options Of Option
Available for Shares Price
Future Grant Under Option Per Share
-------------------- ------------------- --------------------
Balance, January 1, 2001 53,921 327,001 $3.28 - $9.31
Options granted (40,100) 40,100 $5.88 - $7.63
Options exercised - (17,067) $3.28 - $6.00
Options cancelled 24,050 (24,050) $5.94 - $9.31
-------------------- -------------------
Balance, September 30, 2001 37,871 325,984
==================== ===================
Options granted vest ratably over a three-year period or vest based on
achievement of certain performance criteria. As of September 30, 2001,
241,023 options were vested and exercisable.
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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
--------------- -------------- -------------- -------------
Numerator:
Net loss (numerator for basic and
diluted earnings per share) $ (418,804) $ (68,870) $ (698,842) $ (333,902)
Denominator:
Denominator for basic earnings per share
-weighted average shares 2,565,582 2,572,095 2,558,735 2,568,556
Effect of dilutive securities:
Options - - - -
Warrants - - - -
---------- ---------- ---------- ----------
Dilutive potential shares - - - -
Denominator for diluted earnings per share
-adjusted weighted average shares 2,565,582 2,572,095 2,558,735 2,568,556
========== ========== ========== ==========
Basic loss per share $ (0. 16) $ (0.03) $ (0.27) $ (0.13)
========== ========== ========== ==========
Diluted loss per share $ (0.16) $ (0.03) $ (0.27) $ (0.13)
========== ========== ========== ==========
Certain warrants are not included in the computation of loss per share
because the related shares are contingently issuable or to do so would
have been anti-dilutive for the periods presented.
6. Contingencies
Effective as of July 26, 2001, the Company and Hayward Industries, Inc.
("Hayward") entered into an agreement (the "Primary Agreement")
resolving primary issues relating to the distribution relationship
between the parties, including the Distributorship Agreement between
the Company and Hayward dated as of September 25, 1996 (the
"Distributorship Agreement"). Effective August 15, 2001 the Company and
Hayward executed a Confidential Resolution Agreement incorporating the
terms and conditions of the Primary Agreement and resolving all of the
remaining issues relating to their business relationships.
Pursuant to the terms of the Confidential Resolution Agreement, Hayward
has requested the Company to repurchase (at Hayward's cost of $300,000)
certain fiber optic lighting products previously sold by the Company to
Hayward. The Company is obligated to deliver $150,000 to Hayward on or
before December 31, 2001 and $150,000 on or before January 1, 2002. In
connection with exercising this option to return certain inventory,
Hayward has elected to forfeit warrants covering 49,896 shares of the
Company's class A common stock. The shares underlying Hayward's
remaining warrants and other shares of the Company's stock owned by
Hayward are subject to certain registration rights.
As part of the Confidential Resolution Agreement, Hayward has agreed
not to sell fiber optic pool lighting products to customers in the
United States or Canada, and the Company has agreed to pay Hayward
royalties on gross sales of fiber optic pool lighting products sold by
the Company to customers in the United States and Canada over a term of
five years, at the rate of 5% of gross sales in the first year, 3% in
the second and third years, and 2% in the fourth and fifth years; with
a $100,000 minimum payment during each of years one and two.
In accordance with the Confidential Resolution Agreement, the Company
has dismissed all of it's litigation against Hayward for alleged
violations of previous contracts and relationships and Hayward has
released claims, rights and causes of action it has alleged against the
Company as outlined in the Confidential Resolution Agreement. Under the
Confidential Resolution Agreement the Distributorship Agreement
terminated effective September 30, 2001, including Hayward's exclusive
worldwide rights to sell the Company's pool related products.
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 September 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, LED lighting products, lighting accessories,
endpoint signs and displays along with fiber optically lit waterfalls and water
features. Total revenues for the three months ended September 30, 2001 were
approximately $2,303,000 as compared to approximately $2,371,000 for the three
months ended September 30, 2000, a decrease of approximately $68,000 or 3%. The
decrease was primarily the result of the declining revenue in the pool and sign
markets, which decreased by approximately $202,000 or 45% and approximately
$95,000 or 27%, respectively, as compared to the three months ended September
30, 2000. The domestic architectural lighting market revenues increased 10% as
compared to the three months ended September 30, 2000.
Gross margin for the three months ended September 30, 2001 was approximately
$795,000 or 35% as compared to approximately $815,000 or 34% for the three
months ended September 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
decrease in the amount of gross margin from the third quarter of 2000 was mainly
due to the decreased volume of international and sign market revenues.
Selling, general and administrative expenses were approximately $1,020,000
during the three months ended September 30, 2001 as compared to approximately
$722,000 for the same period ended 2000, an increase of approximately $298,000
or 41%. The increase was principally due to additional sales and marketing
related expenses to support the network of 91 lighting agencies selling the
Company's products 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 $117,000 during the three
months ended September 30, 2001 as compared to approximately $126,000 during the
same period in 2000.
Interest expense of approximately $108,000 for the three months ended June 30,
2001 as compared to approximately $109,000 for the same period last year relates
to the capital lease in connection the Company's facility in Orlando, Florida.
8
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 September 30, 2001 and 2000,
respectively.
The net loss for the three months ended September 30, 2001 was approximately
$(419,000), and $(0.16) per basic and diluted common share, as compared to a net
loss of approximately $(69,000), and $(0.03) per basic and diluted common share,
for the three months ended September 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.
Nine Months Ended September 30, 2001 vs. 2000
Results of Operations
- ---------------------
Total revenues for the nine months ended September 30, 2001 were approximately
$8,787,000 as compared to approximately $7,649,000 for the nine months ended
September 30, 2000 an increase of approximately $1,138,000 or 15%. The increase
was primarily the result of growth in the domestic architectural lighting and
international markets, up approximately $1,648,000 and $311,000, respectively.
Increased revenues in the architectural and international markets were
principally offset by reductions in the pool and sign markets of approximately
$1,080,000 and $298,000, respectively.
Gross margin for the nine months ended September 30, 2001 was approximately
$2,937,000 or 33% as compared to approximately $2,295,000 or 30% for the nine
months ended September 30, 2000. The 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 nine months ended
September 30, 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, a
lower mix of revenue of pool related products to Hayward that were sold at a
significant discount off list price based on the Company's now terminated
distributor agreement with Hayward, and the implementation of cost reductions in
material components.
Selling, general and administrative expenses were approximately $3,095,000 for
the nine months ended September 30, 2001 as compared to approximately $2,169,000
for the same period ended 2000, an increase of approximately $927,000 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 $324,000 for the nine months
ended September 30, 2001 as compared to approximately $335,000 for the same
period in 2000.
Interest expense of approximately $324,000 for the nine months ended September
30, 2001, as compared to approximately $330,000 for the same period 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 September 30, 2001 and 2000
respectively.
The net loss for the nine months ended September 30, 2001 was approximately
$(699,000), or $(0.27) per basic and diluted common share, as compared to net
loss of approximately $(334,000), and $(0.13) per basic and diluted common
share, for the nine months ended September 30, 2000. The increase in loss is
primarily due to higher selling, general and administrative expenses partially
offset by increased gross margin, as well as a reduction in other income from
the sublease of the warehouse portion of the facility. For the nine months ended
September 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 11% of its total revenues from Hayward
Industries, Inc. ("Hayward") for the three months ended September 30, 2001, as
compared to approximately 19% for the same period in 2000. For the nine months
ended September 30, 2001, the Company derived approximately 18% of its total
revenues from Hayward, as compared to approximately 35% for the same period in
2000. Pursuant to a Distributorship Agreement between the Company and Hayward
dated as of September 25, 1996 (the "Distributorship Agreement"), Hayward was
granted the worldwide rights to market and sell the Company's fiber optic
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. On August 15, 2001 the Company and Hayward executed a Confidential
Resolution Agreement incorporating the terms and conditions of the Primary
Agreement and resolving all of the remaining issues relating to their business
relationships. The Confidential Resolution Agreement modified and/or terminated
previous relationships and contracts between the Company and Hayward. In
accordance with the Confidential Resolution Agreement, the Company dismissed all
of it's litigation against Hayward for alleged violations of previous contracts
and relationships and Hayward released claims, rights and causes of action it
has alleged against the Company.
Under the Confidential Resolution Agreement the Distributorship Agreement
terminated effective September 30, 2001, including Hayward's exclusive worldwide
rights to sell the Company's pool related products. The agreement with Hayward
allows the Company to commence direct, worldwide selling of its fiber optic
lighting products in the swimming pool and spa market, 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.
As part of the Confidential Resolution Agreement, Hayward has agreed not to sell
fiber optic pool lighting products to customers in the United States or Canada,
and the Company has agreed to pay Hayward royalties on gross sales of fiber
optic pool lighting products sold by the Company to customers in the United
States and Canada over a term of five years, at the rate of 5% of gross sales in
the first year, 3% in the second and third years, and 2% in the fourth and fifth
years; with a $100,000 minimum payment during each of years one and two.
Pursuant to the terms of the Confidential Resolution Agreement, Hayward has
requested the Company to repurchase (at Hayward's cost of $300,000) certain
fiber optic lighting products previously sold by the Company to Hayward. The
Company is obligated to deliver $150,000 to Hayward on or before December 31,
2001 and $150,000 on or before January 1, 2002. In connection with exercising
this option to return certain inventory, Hayward has elected to forfeit warrants
covering 49,896 shares of the Company's class A common stock. The shares
underlying Hayward's remaining warrants and other shares of the Company's stock
owned by Hayward are subject to certain registration rights.
As a result of the change in the business relationships between the Company and
Hayward, the Company expects lower 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
and shares underlying stock warrants owned by Hayward.
10
Liquidity and Capital Resources
- -------------------------------
At September 30, 2001 the Company had working capital of approximately of
$5,671,000.
Net cash used in operations amounted to approximately $425,000 for the nine
months ended September 30, 2001 compared to approximately $152,000 of cash
provided by operating activities for the nine months ended September 30, 2000.
The most significant source of cash provided by operating activities was
generated by a decrease in accounts receivable of approximately $223,000, mainly
due to the timing of customer payments. Cash used in operations during the first
nine months of 2001 was mainly attributable to a decrease in accounts payable
due to the timing of supplier payments, which amounted to $105,234 and a net
increase in inventory of approximately $97,000. The net increase in inventory
was the result of an increase of approximately $239,000 primarily due to initial
stocking levels of LED products to support the launch of the Company's LED
product line offset by a reduction to inventory of approximately $142,000,
related to the write off of product associated with the WPI litigation that was
settled in May 2001.
Net cash provided by investing activities for the nine months ended September
30, 2001 amounted to approximately $271,000. Proceeds from the sale of
investments in the amount of approximately $1,002,000, was the result of the
maturity of U.S. Corporate Securities. The most significant source of cash used
in investing activities was the result of the purchase of an investment for a
fixed income security, which amounted to approximately $501,000. The purchase of
property and equipment for prototype and design equipment, purchase of computer
hardware and software, furniture and fixtures, and tooling amounted to
approximately $219,000 of cash used in investing activities.
Net cash provided by financing activities for the nine months ended September
30, 2001 amounted to approximately $29,000. Proceeds in the amount of
approximately $77,000 from the exercise of employee stock options were offset by
payments of approximately $48,000 on the capital lease obligation related to the
Company's facility.
11
PART II
Item 1. Legal Proceedings
-----------------
Effective July 26, 2001 the Company and Hayward Industries, Inc.
("Hayward") entered into an agreement (the "Primary Agreement")
resolving primary issues relating to the distribution relationship
between the parties, including the Distributorship Agreement between
the Company and Hayward dated as of September 25, 1996 (the
"Distributorship Agreement"). Effective August 15, 2001 the parties
executed a Confidential Resolution Agreement incorporating the terms
and conditions of the Primary Agreement and resolving all of the
remaining issues relating to their business relationships. Upon
execution of the Confidential Resolution Agreement, the Company and
Hayward 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.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
On October 12, 2001 the Company filed Form 8-K with the Securities and
Exchange Commission for the change in the Company's certifying
accountant to Gallogly, Fernandez & Riley LLP from Ernst and Young LLP.
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: November 13, 2001
-------------------------------------------
Brett M. Kingstone, Chief Executive Officer
(Principal Executive Officer)
By: /s/Larry J. Calise Date: November 13, 2001
--------------------------------------------
Larry J. Calise, Chief Financial Officer
(Principal Financial and Accounting Officer)
13