Item 1. Business General. SeaView Video Technology, Inc., (the "Company" or "we" or "our") was originally incorporated in the State of Utah on April 16, 1986. In order to change our domicile, we were reorganized under the laws of Nevada on December 30, 1993. On March 24, 1999, we entered into a reorganization agreement with SeaView Underwater Research, Inc. ("SeaView Florida"), a privately held Corporation that was incorporated in the State of Florida on April 2, 1998 ("the reorganization"). At the time of the reorganization we were a non-operating Company whose common stock was not publicly traded. We were however, subject to the reporting requirements of the Securities Exchange Act of 1934. In connection with the reorganization, we issued 5,000,000 shares of our common stock to SeaView Florida's shareholders in exchange for 100% of SeaView Florida's outstanding shares of common stock and $250,000 cash. For accounting purposes the reorganization was treated as a recapitalization.
As a result of the reorganization: o We were the surviving entity; o SeaView Florida ceased to exist; o SeaView Florida's shareholders gained control of our Company; o 0ur Board of Directors resigned and were replaced by a Board of Directors selected by SeaView Florida's shareholders; and o We changed our name to SeaView Underwater Research Inc. to reflect our continuance of SeaView Florida's business plan.
On February 2, 2000, we changed our name to SeaView Video Technology, Inc.
Significant Events During a review of our annual operations for the year ended December 31, 2000 by our recently hired Chief Financial Officer, we learned that we had materially misstated revenues in our unaudited financial information reported in our Form 10-Q filings for the periods ending June 30 and September 30, 2000. As a result, we have restated our financial statements for those periods. This restatement is included in Items 6, 7, and 8 of this report. Additionally, we filed amended Form 10-Q's for the periods ended June 30 and September 30, 2000 reflecting the restatements of our financial information.
Our Products We manufacture underwater video cameras, lights, and accessories through several third party assembly companies for the marine, commercial, and consumer-retail markets. We have also developed a video security system utilizing an exclusive patented technology, which enables video transmission through existing electrical wiring. SecureView, manufactured through independent contractors, is a light bulb camera and decoder combination which can be deployed, without additional wiring, as a security monitoring system. Our product sales and distribution efforts concentrate on the following: (1) direct to the public and government (2) through a network of approximately 700 independent dealers and (3) through an expanding retailers network. We have registered trademarks for many of our products.
Marine Products We manufacture and produce through third party manufacturers, underwater video cameras, which utilize specially modified CCD miniature video boards with infra-red emitters. The video boards are produced through independent contractors according to our proprietary specifications for the unique requirements of underwater applications. These modules are then placed within patented-design housings, which allow for various consumer and commercial configurations. Complete ready-to-go systems also include a proprietary viewing hood, a TV monitor, proprietary brackets, a kit of connectors, adapters, and power supply components, and a carrying case.
We also manufacture in-house and through independent contractors an underwater lighting product under the trademark SeaLite. Our SeaLite product is equipped with a powerful halogen lamp to attract baitfish, which in turn attracts predator fish. Our SeaLite product is also offered as a lighting accessory for our camera packages. A proprietary cable clamp is available as an option for this application.
Underwater camera systems are offered in Super-Mini, Mini, and full (Off-Shore series) sizes. Infrared-enhanced black and white is standard equipment in our underwater camera systems while color is offered as an option. Each respective series has a "TwinCam" package with both an IR/BW and a color camera probe.
TrakView is an electronic device which overlays data from an external GPS receiver onto any video signal, allowing a camera user to see and record the exact position directly on the video picture.
Security Products The trademarked name, SecureView, is the key brand identifier for a range of our security products incorporating the Induction Radio-Frequency System (IRFS), a technology which enables video transmission over AC and DC electrical conductors.
Security Products---Retail
Our core product, the SecureView, is produced in-house and through third party manufacturers as either an indoor or outdoor system. Our indoor and outdoor Secure View products utilize our "camera in a light bulb" design. Our Secure View product utilizes modified miniature CCD video camera boards with infrared emitters. The camera supplies composite video to the IRFS circuity within the proprietary lamp housing. A receiver component "decodes" the IRFS signal sent over the power line, and provides a composite-video feed to any standard television or recorder. The system comprises several individually-patented components. The retail system consists of a light bulb camera, decoder box, and RCA connecting cable.
In addition, we offer an IR Floodlight to enhance the performance of the SecureView camera when used in total darkness.
The Induction Radio-Frequency System circuitry is available in a DC variant and is labeled under our "SecureView DC." Current board sets operate at voltages ranging from 12 to 28 volts and are suitable for a variety of OEM applications in cars, trucks, boats, and recreational vehicles.
Security Products---Commercial
We manufacture and produce through third party manufacturers a commercial version of the SecureView system that may be used by schools, nursing homes, warehouses, banks, hotels, storage units and others.
An enhanced multi-camera system utilizes custom software and hardware in conjunction with a personal computer.
PowerCam utilizes a CCD miniature video camera, IR Floodlights, and Induction Radio Frequency System technology within an emergency-lighting housing.
Security Products---Government
Our enhanced SecureView system is available to the military, law enforcement and other appropriate government agencies through our teaming agreements with several independent companies. These SecureView systems are designed to specifications furnished by the purchasing government agency. Our enhanced SecureView system may be equipped with custom designed software that has worldwide monitoring capabilities.
We manufacture and produce through third party manufacturers a Vehicle Inspection Camera that utilizes modified CCD video boards with infra-red emitters. The camera is mounted on a lightweight alloy deployment system with a viewing monitor mounted on a specially designed easy-clip bracket. We have patents pending for both the deployment system and the clip bracket.
A complete range of all SeaView products and system configurations, including underwater cameras, have been developed for this category and listed for purchase via General Services Administration order codes.
Dental Products
During 2000, we began our development of DentaView, a proposed product that we plan to offer for use in dental applications through the use of our SeaView/SecureView cameras. The DentaView is currently being presented to dentists for review and evaluation. The DentaView is an extra-oral camera that seeks to provide improvements over the intra-oral extra oral systems currently being sold in the marketplace.
Industrial Products
SecureView DC board sets are appropriate for OEM inclusion in trucks, tractor-trailers, containerized freight, rail, ship, and aviation applications. Aftermarket packages for fleet retrofit are also being developed. No additional wiring is required when utilizing the SecureView DC board sets.
Misplacement of pallets is a major safety factor for industrial concern and creates high-cost damage. Our Lift-Cam product allows forklift operators to see the exact placement of pallets or other cargo, even under low light conditions.
Our Well Cam camera is intended for eventual use by oil and gas well operators to develop an economical method of viewing oil and gas pipelines and drill casings. The unique properties of our Well Cam camera are well suited to no- light environments. Well Cam is currently undergoing testing and meeting requirements for oil and gas applications.
Outside Production
We use multiple outside contractors to produce components, parts, and assemble products. Quality assurance, kitting, packing, and shipping are handled at our distribution center. In addition, we produce custom orders and provide warranty repair services.
Competition
Marine Division: We are a leader in the saltwater market and we have limited competition in the saltwater arena. We have made inroads in the freshwater markets through our dealer base. We will attempt to increase our market share in the saltwater and freshwater markets by adding mass marketers, sporting goods and marine retailers to our distribution channels. We are the largest manufacturer of infrared underwater video cameras in the world.
Security Products: Because we are the only manufacturer of our patented technology, the SecureView security camera in a light bulb, we have no competition regarding this particular product. Our SecureView has competitive advantages over other application alternatives in the marketplace such as wireless security camera systems that may have transmission and picture quality limitations and permanently installed CCTV systems burdened by high installation costs and limited flexibility of usage.
Proprietary Rights
We hold the exclusive rights to the following patents, trademarks, and copyrights:
FL TM SeaView 12-17-98 T98000001436 PATD Underwater Camera 06-22-99 D411,217 COPY SeaView Brochure 01-11-99 TX4-885-973 PATU Submersible Video Camera 06-10-99 09/329,580 PATD Underwater Camera 12-28-99 D418,152 FED TM SecureView 75/931,216 02-28-00 PATD Video Monitor Hood 04-11-00 D422,579 FED TM SeaLite 06-30-99 75/742,606 PATD Camera Housing 07-25-00 D428,618 PATU Video Camera Utilizing 05-15-00 09/570,978 Power Line Modulation FED TM SeaView 01-16-01 2,421,489 PATD Video Camera Housing 12-26-00 D435,576 PATD Infrared Illumination Device 12-19-00 D435,306 Housing PATD Video Camera Housing 12-26-00 D435,577 PATU Vehicle Inspection Camera 01-22-01 09/766,897
Other patents and patents pending are secured through licensing agreements.
Marketing We market our marine products through boat shows and television and tournament sponsorships, as well as through direct selling efforts to the marketing segments set forth below.
Boat Shows: We actively participate in boat shows throughout the United States in order to educate the consumer and receive feedback regarding our products at these events. This interaction is essential to development and improvement of our products. We also include boat shows in our efforts toward the recruitment of new dealers, who are then able to handle additional shows in their respective trade areas.
Television And Tournament Sponsorships: During the year 2000, we expanded advertising of our Marine and Security products through national advertising on The Weather Channel. The Weather Channel production staff has utilized SeaView Cameras in the production of their prime-time weekly feature, "Atmospheres." In November of 2000, we were the key sponsors of the APBA Offshore Classic in St. Petersburg, Florida. The event received television coverage on the TNN and ESPN networks. In December of 2000, we acted as the anchor sponsor with Continental Airlines for the World Billfish Tournament in Cavo San Lucas, Mexico. A thirty-minute television show is scheduled to air in the spring of 2001 on various National Cable Networks, ESPN and Fox Sports.
We have also continued our sponsorship of fishing seminars with sport fishing magazines.
Market Segmentation
Mass Market (Discount) The discount mass market is the fastest-growing and largest segment of the U.S. market consisting of four (4) major discount retailers: Wal-Mart/Sam's Club, K-Mart, Costco, and B. J. Wholesale. Our product distribution in the discount mass market should be limited to our Super-Mini camera probe, the new Super-Mini Camera System, and SeaLite products that fit the price tiers of these retailers
Marine The marine segment consists of local and small regional marine chain stores and major retail establishments such as West Marine, Boat US and Boater's World. These marine retailers have the personnel to provide a strong foundation for product training and one-on-one selling. Our distribution to this market will include all Sea View marine products, with a major focus on complete systems. We will attempt to manage the distribution of these products within this market segment to prevent over-saturation.
Sporting Goods This segment includes many local stores and small regional chains and major players such as The Sports Authority, Bass Pro Shops, Cabela's, Academy, and Oshman's. These retailers also have the personnel to provide a strong foundation for product training and one-on-one selling, although to a lesser extent than marine retailers. Our distribution to this market will include all Sea View marine products, with a focus and merchandise assortment determined by market strength of fishing and/or marine retailers. We will also attempt to manage the distribution of these products to ensure that we do not over-saturate this market segment.
Department Stores Department stores are positioned between discounters' low prices on the bottom end, and superior customer service provided by specialty stores on the upper end. As a result, department stores often differentiate themselves through items. As such, SecureView cameras should be positioned and marketed at major department store chains, such as J.C. Penney and May Corp, as a state-of-the-art electronic gift item. In addition, we should position the SecureView product line in several other regional department store groups. If penetration of this market increases, we plan to ensure that no more than two (2) stores within a mall carry the same Secure View product.
Catalogs / E-commerce While this market place has seen a dramatic rise followed by an even more dramatic fall, there is still a customer base that prefers to shop within this media. Our distribution within this market segment should be limited to those catalogs / E-commerce sites which agree that: 1.) We have complete control over all images. 2.) We create and manage all content pertaining to our products and company. 3.) Our web site must be hot linked to the retailer's site.
Within this market segment three catalogers / E-commerce companies should fulfill our distribution needs: o J.C. Penney which is also consistent with our department store distribution plan and the largest on-line retail site; o Sky Mall which meets our price tier and positioning needs; and o The Sharper Image which meets our specialty distribution needs.
Our products distributed in this market segment should include all SKU's within the product line. We will not consider additional partners in the market segment unless one or more of these companies fails to place our product or fails to obtain sufficient sales of our products.
Specialty Stores he home improvement market group and specialty electronics retailer market group are two channels in our distribution plan. Home Depot, Lowe's and True Value are the major players in the home improvement market. Placement of our products should be limited to two of these three companies. Radio Shack and Best Buy are the two major companies in the specialty electronic retailer market group. Placement of our products in this market should be considered a future project.
Commercial Commercial Security is a segment of a multi-billion-dollar industry, spanning from high-end consumers to enterprise-wide contracts for hardware and services, schools, municipalities, and institutions. Approaching the market through manufacturer's representatives, direct initiatives with large wholesale-to-trade resellers, and specialty sources such as SuperCircuits and MCM electronics, are all key strategies for rapid development of this market.
Government Our teaming agreements with several third-party government contractors have placed our products in front of buyers and decision makers within the Federal Government. Product cataloging to meet the guidelines of the General Services Administration (GSA) enables agencies at all government levels to procure our products from within existing contract vehicles. Online GSA-enabled sites such as the 8-A Mall further streamline the purchasing process, allowing authorized purchasers to use pre-approved FAST cards to obtain products.
Management believes that it has significant potential to develop the sale of our product to government agencies even though this market segment has been the slowest for us to develop. It has taken more than a year to establish this basic level of market penetration. Ongoing efforts by our representatives and teaming partners continue to generate commitments subject to budgetary and fiscal-year revisions, many of which are forward-looking up to two years in advance of actual procurements.
Human Relations
We lease our twelve employees from an unrelated employee-leasing company. We also have commissioned-sale arrangements with ten Manufacturer's Sales Representatives, each operating as an independent contractor servicing all channels of distribution.
Item 2.
Item 2. Properties
We currently lease approximately 2700 square feet of corporate office space from Transcontinental Plaza, Inc. Our lease term is for a period of three years. We lease approximately 1600 square feet of space for our assembly operations on a month-to-month term from one of our contract assemblers. We lease offsite storage on a temporary, as-needed basis.
We believe that our existing facilities are adequate for our current needs and that additional space will be available to us at current market rates. We do not anticipate any difficulty in renewing or obtaining suitable lease space for our operations.
Item 3.
Item 3. Legal Proceedings
There are no material pending legal proceedings other than routine litigation arising in the ordinary course of business. We do not believe that the results of such routine litigation, even if the outcome were unfavorable to us would have a material effect on our financial position.
Item 4.
Item 4. Submission Of Matters To A Vote Of Security Holders
None.
PART II
Item 5.
Item 5. Market For The Registrant's Common Stock And Related Matters
Our common stock is quoted on the OTC Bulletin Board (OTCBB) under the symbol SEVU. Our common stock has been quoted on the OTCBB since April of 1999. Our common stock is not listed or traded on Nasdaq or a national securities exchange. The high and low per share price of the our Common Stock is as follows:
2000 Low High
First Quarter $1.22 $21.25 Second Quarter $8.13 $14.75 Third Quarter $7.75 $13.25 Fourth Quarter $1.88 $11.56
1999 Low High
Second Quarter $.74 $3.50 Third Quarter $.56 $.95 Fourth Quarter $.38 $.87
The bid prices reported for these periods reflect inter-dealer prices, without retail markup, markdown or commissions, and may not represent actual transactions. The closing bid price per share as of April 12, 2001 was $.81.
We have approximately 18,119,909 shares of our common stock outstanding.
Holders. As of April 12, 2001 we had approximately 1,317 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.
Sales Of Unregistered Securities
Since our reorganization, we issued the following securities without registration:
We issued 2,700,000 shares of our common stock in March of 1999 to Richard McBride in consideration for services to be rendered to us.
We issued 182,500 shares of our common stock in January of 2000 to various employees in consideration of services rendered to us.
During the year 2000, we issued 649,000 shares of our common stock to warrant holders who recieved thier warrents at the time of our reorgination. The warrants were exercisable into common stock at a price of $1.00 per share.
During the year 2000, we issued 8% convertible debentures for proceeds totaling approximately $3,288,000. The debentures are for a term of twelve months and are non-interest bearing for an initial period, after which, interest was payable quarterly. No interest was paid on the debentures. The debentures were convertible by the option of the holders into shares of our common stock at a price of between $.50 and $8.00 per share. During the year 2000, we issued 5,373,584 shares of our common stock in exchange for $3,188,000 of our convertible debentures. The remaining outstanding debentures are convertible into our common stock at a price of $2.00 per share.
We issued 297,600 shares of common stock to nine persons in consideration of consulting services rendered to us.
We issued 150,000 shares of common stock to Golden Springs, LLC in consideration of a 20% interest in Golden Springs, LLC.
We made the above-mentioned issuances and sales in reliance upon Section 4(2) and Rule 506 of Regulation D of the 1933 Act. We believed that Section 4(2) and Rule 506 of Regulation D were available because sales were made without general solicitation or advertisement. We believe that each purchaser was accredited or sophisticated enough to evaluate the merits of the investment. All shares of common stock were issued with a restrictive legend.
Item 6.
Item 6. SELECTED FINANCIAL DATA
We commenced operations in April 1998. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and other financial information included elsewhere in this Form 10-K.
Summary Financial and Operating Data
Years Ended December 31, 2000 1999 1998 ---- ---- ----
Net Revenue 1,130,563 1,029,774 635,486 Net Income (2,204,461) 47,023 122,774 Pro forma net income - 26,951 87,898
Earnings per share: Basic Net Income (.18) .01 .02 Diluted Net Income (.18) .01 .02 Basic Pro forma Net Income - .00 .02 Diluted Pro forma net income - .00 .02
Common shares used in the Calculation of earnings per share Basic 12,051,616 7,105,644 6,000,000 Diluted 12,051,616 9,728,197 6,000,000
At December 31, 2000 1999 1998 ---- ---- ---- Balance Sheet Data: Working Capital 528,286 91,622 74,228 Total Assets 3,841,944 323,949 170,458 Stockholder's Equity 3,362,061 259,975 170,458
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTATEMENT OF PRIOR UNAUDITED FINANCIAL INFORMATION
The financial statements and results of operations for the 2nd and 3rd quarter ended June 30, 2000 and September 30, 2000, respectively, have been restated as set forth below, in accordance with Generally Accepted Accounting Principles.
Our original Form 10-Q for the quarter ended September 30, 2000, which was filed on November 14, 2000, incorrectly included as revenues and accounts receivable approximately $2,252,794 of purchase orders that we received for our new SecureView security camera products, but were not shipped to the customer by September 30, 2000. After restatement, our 3rd quarter net revenues were approximately $212,592. Our restatements also include a reduction in liabilities, totaling approximately $849,235, that were previously recorded relating to the purchase orders that were erroneously included as revenues. As set forth in the chart below, these restatements have resulted in a reduction of our net income by approximately $871,639 for the quarter ended September 30, 2000. We discovered these errors for the first time during an internal review of fiscal year 2000 operations that was undertaken by our newly hired CFO. As of the date of this filing, our new management has successfully implemented internal accounting control procedures that are designed to ensure that similar errors do not occur in future periods.
Our original Form 10-Q for the quarter ended June 30, 2001, which was filed on August 14, 2000, incorrectly included as revenues and accounts receivable approximately $1,184,006 of purchase orders that were received by the Company for its new SecureView security camera products, but were not shipped to the customer by June 30, 2000. After restatement, our 2nd quarter net revenues were approximately $335,120. As set forth in the chart below, our restatements have resulted in a reduction of our net income by approximately $966,957 for the quarter ended June 30, 2000. We discovered these errors for the first time, during an internal review of fiscal year 2000 operations that was undertaken by our newly hired CFO. As of the date of this filing, our new management has successfully implemented internal accounting control procedures that are designed to ensure that similar misstatements do not occur in future periods.
Original Original Filing Restated Filing Restated Quarter Ended Quarter Ended Nine Months Nine Months Ended Sept Sept. 30 Sept. 30 $ % 30 Ended Sept 30 $ % 2000 2000 Change Change 2000 2000 Change Change
Net Revenue $ 2,465,386 $ 212,592 $ (2,252,794) -91% $ 4,405,580 $ 968,780 $ (3,436,800) -78%
Net Income $ 216,132 $ (655,507) $ (871,639) -403% $ 155,128 $ (1,683,468) $ (1,838,596) -1185%
Total Assets $ 5,937,521 3,808,425 $ (2,129,096) -36% $ 5,937,521 $ 3,808,425 $ (2,129,096) -36%
Total Liab. $ 1,231,939 $ 382,704 $ (849,235) -69% $ 1,231,939 $ 382,704 $ (849,235) -69%
Original Original Filing Restated Filing Restated Quarter Ended Quarter Ended Six Months Six Months June 30 June 30 $ % Ended June 30 Ended June 30 $ % 2000 2000 Change Change 2000 2000 Change Change
Net Revenue $ 1,519,126 $ 335,120 $ (1,184,006) -78% $ 1,940,194 $ 756,188 $(1,184,006) -61%
Net Income $ 176,797 $ (790,160) $ (966,957) -547% $ (61,003) $(1,027,961) $ (966,958) -1585%
Total Assets $ 3,153,615 $2,472,467 $ (681,148) -22% $ 3,153,615 $ 2,472,467 $ (681,148) -22%
A. Overview Of Operations
Expansion
During the year 2000, our primary focus and investment was in our development of the retail, commercial and government channels of distribution for our SecureView product, the "Security Camera in a Light Bulb." We hired a spokesperson in the areas of national advertising to bring recognition to our brand names and product lines.
Teaming agreements were established with several companies from relationships that had been established and developed in the government sector. These agreements facilitated the presentation of product and write-in bid specifications for government procurement. General Services Administration listings were submitted and issued through a teaming partner. We continue to use time lines to secure final procurement and delivery in the government sector; however, we anticipate that some of the results of our current activity will take 2 to 3 years to accrue.
We directly contacted over 1,200 independent security, hardware and small electronics firms to establish an inventory and sell our SecureView product. We maintained market share in the underwater camera market by directly servicing over 700 independent dealers. During the year 2000, We continued our participation at Boat Shows to further develop brand awareness and receive product feedback directly from consumers. Brand development continued in 2000 through our sponsorships of two major events: the APBA International Offshore Powerboat Races in November 2000 and the Cabo San Lucas Billfish Tournament in December 2000. In return for promotional consideration, we also sponsored other fishing tournaments to promote our products. The "Team SeaView" factory-sponsored fishing team also promoted the SeaView brand by participating in tournaments throughout the Southeast and Eastern seaboard.
In the 4th quarter of 2000, we implemented the process to develop and assemble an outside sales force consisting of independent contractors acting as manufacturer's sales representatives. These sales representatives started retail-sector merchandising and a market segmentation plan to place SeaView products in the following: (1) mass market retailers (Wal-Mart, K-Mart and Costco); (2) Sporting Goods retailers (The Sports Authority, Academy Sports, Oshman's); (3) Marine retailers (West Marine, Boat US, Boater's World); (4) Department stores (JCPenney, May Company); (5) Dot.com retailers (JCPenney, Sharper Image, SkyMall); and (6) Specialty Stores (Lowe's, Home Depot, Best Buy, Radio Shack). These sales representatives also support the selling of commercial packages for internal use by these and other retailers.
Competition
Competition played a lesser role in affecting gross sales in 2000 versus 1999. Production efficiencies have been implemented in the Marine Division to effect broader retail distribution, produce above-average margins for the retailer, and attempt to position SeaView as the market leader in price, value and quality. As previously noted, the SecureView security camera in a light bulb has no head-to-head competition, as it stands alone in the marketplace as a new and innovative product. Critical-parts lead times of up to twenty-six weeks, coupled with design revisions and production problems, delayed the release of the SecureView product in significant quantities.
Operating Expenses
Our operating expenses increased in all categories to support the planned development of the new SecureView product line. Significant salary, travel and advertising expenses were expended to develop government sector sales. Capital expenditures included significant investments in Research and Development, including the design and fabrication of injection-mold tooling for our proprietary housings and component parts. We continued to develop and institute efficiencies in the production and assembly of all product lines as part of our efforts to provide future return. Our policy of requiring that all sales be conducted on a cash basis, primarily from credit cards, enables us to generate a steady cash flow and maintain operating funds. We have continued to operate on minimal debt, which has permitted us to allocate operating funds for market development and finalize research and development of our new products.
Gross Sales
The year 2000 was a transition period for the Marine Division. While direct-to-customer sales accounted for nearly all gross sales in 1999, the year 2000 marked a definite shift to the more traditional forms of distribution. Initial efforts with the independent dealer network incorporated discounted wholesale pricing and volume-price package promotions. In addition, new models at lower price points were introduced, to capture a larger segment of the entry-level and fresh-water markets. Although unit volume increased and production efficiencies improved, the shift to a wholesale-distribution model affected gross dollar volume, limiting the overall increase to 10%. In addition, our in-house sales force efforts were directed solely to SecureView in the 3rd and 4th quarter.
Anticipated sales figures for SecureView products fell short of our expectations for the year 2000. Although our aggressive selling efforts achieved approximately $9 Million in SecureView product orders from independent retailers and individual consumers, shipments were unable to keep pace with sales. Industry-wide component shortages and excessively long lead times, coupled with first-run production issues, slowed output to a small fraction of anticipated quantities.
Because of the size of the consumer market for our SecureView product line, management continued to focus on the extensive development of this product line. Our focus upon the SecureView product line limited Marine Division growth. As a result, we have readdressed our focus for the year 2001.
Summary
During 2000, we underwent significant transition by evolving from a start-up entity into a more process-oriented organization. Our implementation of a new infrastructure and experienced management team will enhance the execution of our business plan and our efforts to accelerate our growth and development. Our business plan includes efforts to: o continue the development of our internal and external sales forces; o produce our product in a timely manner; o efficiently ship our products; and o efficiently service both the retailer and consumer.
If we are successful in these efforts, we will become less reliant on direct consumer sales of our established product lines by generating the majority of our revenues from established retailers. We will continue to use a direct-to-consumer strategy for our new products because of the invaluable and immediate feedback garnered from the consumer.
The Company's Founder has resigned from the duties of the day-to-day business operation, to devote his energies to research and development of new products. New product innovation and improvements to our existing product line will improve the Company's longevity. In addition, our financial infrastructure is now being implemented by an experienced Chief Financial Officer to address and resolve any inefficiency, as follows: o improve our accounting controls; o ensure accurate financial reporting; o secure reasonable debt acquisition; and o improve cash flow.
We now have the capacity and parts to build in the thousands of units per month of any of our product line. We anticipate that increased interest in the underwater video market for the year 2001 and our plans to distribute our underwater video products to major retailers will increase our market share. With the successful launch of the SecureView product line to major retailers and commercial end-users, we are poised for a significant increase in sales for the year 2001. In addition, we will continue to nurture government sector sales within certain applicable timelines.
B. Results Of Operations
The following table sets forth, for the periods indicated, certain operating data as a percentage of net revenue:
Years Ended December 31, 2000 1999 1998 ---- ---- ----
Net Revenue 100.0% 100.0% 100.0% Cost of goods sold 32.9 19.3 23.5 ---- ---- ---- Gross Profit 67.1 80.7 76.5 Operating Expenses: Salaries & Wages 73.6 20.0 16.6 Advertising & Promotions 181.9 31.1 19.6 Provision for doubtful accounts 2.2 0.0 0.0 Depreciation 4.8 1.6 0.0 Professional fees 39.4 3.3 Rent & Utilities 9.8 10.1 8.3 Other Expenses 60.9 15.3 12.7 ---- ---- ---- Total operating expenses 372.6 81.4 57.2 Undistributed loss of Affiliate (12.2) 0.0 0.0 Interest Income .3 0.0 0.0 -- --- --- Income Before Taxes (317.4) (.7) 19.3 Income tax (benefit) expense 122.5 (5.2) 0.0 ----- ----- --- Net Loss (194.9)% 4.5% 19.3% ======= ==== ===== Pro forma expense - 1.9% 5.5% --- --- Pro forma net income - 2.6% 13.8% === ====
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Net Revenue. Net revenue increased 10% from $1.0 million for the year ended December 31, 1999 to $1.1 million for the year ended December 31, 2000. This increase was primarily due to increased sales resulting from the Company's enhanced advertising and marketing efforts through boat shows, national magazines, and television. Revamped pricing structures resulted in an increase in unit sales volume with nominal sales dollar growth.
Cost of Goods Sold. Cost of goods sold increased 87.4% from $199 thousand for the year ended December 31,1999 to $373 thousand for the year ended December 31, 2000. This increase was primarily due to increased costs of resources, including the acquisition and stocking of parts and components inventory necessary for production of the new camera in a light bulb product line. The amassing of inventory contributed to approximately 80% of the cost of good sold increase. However, gross profit remained at an acceptable 67.1%. Cost of goods sold relates to the parts and fees paid to outside companies for manufacturing the product and procurement of certain parts and components used in the manufacturing process.
Salaries and Wages. Salaries and wages increased 303.9% from $206 thousand for the year ended December 31,1999 to $832 thousand for the year ended December 31, 2000. This increase was primarily due to increased compensation resulting from increased staffing and stock compensation programs. Salaries and wages comprise inside wages and outside labor.
Advertising and Promotion. Advertising and promotion expenses increased 556.2% from $320 thousand for the year ended December 31,1999 to $2.1 million for the year ended December 31, 2000. This increase was primarily caused by increased national and regional advertising efforts, including national television and celebrity spokesperson campaigns conducted on our behalf to develop the market for the camera in a light bulb while maintaining our presence in the marine market. Advertising and promotions comprises the expense to advertise at boat shows and to advertise in industry magazines. This number also includes postage, printing and travel, attributable to advertising and promotion.
Depreciation Expense. Depreciation expense increased 100% from $16 thousand for the year ended December 31,1999 to $54 thousand for the year ended December 31, 2000. This increase in depreciation expense was caused by the Company's equipment acquisitions during these periods. Depreciation on equipment is calculated on the straight-line method over the estimated useful lives of the assets ranging from five to ten years.
Provision for doubtful accounts. The provision for doubtful accounts increased 100% to $24 thousand for the year ended December 31,2000. The increase relates to an allowance for uncollectible accounts placed on aged receivables for the year ended December 31, 2000.
Rent and Utilities. Rent and utilities increased 6.7% from $104 thousand for the year ended December 31,1999 to $111 thousand for the year ended December 31, 2000. This increase was primarily caused by additional space acquired by us during 2000. Rent and utilities includes office rent, telephone, and utilities.
Professional fees. Professional fees increased 1210.3% from $34 thousand for the year ended December 31,1999 to $445.5 thousand for the year ended December 31, 2000. This increase was primarily caused by fees paid and stock issued to consultants and professionals, and fees paid to attorneys and accountants. Professional fees consist of fees paid to various consultants, attorneys, and accountants.
Other Expenses. Other expenses increased 338.8% from $157 thousand for the year ended December 31,1999 to $689 thousand for the year ended December 31, 2000. This increase was primarily caused by research and development costs and product licensing fees incurred during 2000. Other expenses comprise cost of research and development, product licensing, insurance, property taxes, bank charges and other miscellaneous expenses.
Income Taxes. Prior to April 1, 1999, we had elected S Corporation status under Section 1362(a) of the Internal Revenue Code. Under the election, the stockholders included their share of the Company's applicable taxable income or loss on their federal income tax return. Accordingly, no provision for income taxes was made for periods prior to April 1, 1999. On April 1, 1999, we had elected to terminate our Subchapter S status in favor of a taxable C Corporation as designated in the Internal Revenue Code. Income tax provisions have been recorded for periods presented subsequent to April 1, 1999.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Net Revenue. Net revenue increased 57.4% from $635 thousand for the year ended December 31, 1998 to $1.0 million for the year ended December 31, 1999. This increase was primarily caused by increased sales resulting from the Company's enhanced advertising and marketing efforts.
Cost of Goods Sold. Cost of goods sold increased 33.5 % from $149 thousand for the year ended December 31,1998 to $199 thousand for the year ended December 31, 1999. This increase was primarily due to increased sales caused by the Company's better utilization of resources, Cost of goods sold relates to the parts and fees paid to outside companies for manufacturing the product.
Salaries and Wages. Salaries and wages increased 96.1% from $105 thousand for the year ended December 31,1998 to $206 thousand for the year ended December 31, 1999. This increase was primarily caused by increased compensation resulting from increased staffing and lower utilization of resources regarding sales. Salaries and wages are comprised of inside wages and outside labor.
Advertising and Promotion. Advertising and promotion expenses increased 156.5% from $125 thousand for the year ended December 31,1998 to $320 thousand for the year ended December 31, 1999. This increase was primarily caused by increased advertising efforts on behalf of the company. Advertising and promotions are comprised of the expense to advertise at boat shows and to advertise in industry magazines. This number also includes postage, printing and travel, attributable to advertising and promotion.
Depreciation Expense. Depreciation expense increased to $16 thousand for the year ended December 31,1999. This increase in depreciation expense was caused by property and equipment acquisitions by us during these periods. Depreciation on equipment is calculated on the straight-line method over the estimated useful lives of the assets ranging from five to ten years.
Rent and Utilities. Rent and utilities increased 96.2% from $53 thousand for the year ended December 31,1998 to $104 thousand for the year ended December 31, 1999. This increase was primarily caused by a higher utility cost for the period to support increased activity. Rent and utilities includes office rent, telephone and utilities.
Professional fees. Professional fees increased 100% to $34 thousand for the year ended December 31,1999 compared to the year ended December 31, 1998. Fees paid to attorneys and accountants primarily caused this increase. Professional fees consist of fees paid to various consultants, attorneys, and accountants.
Other Expenses. Other expenses increased 93.8% from $81 thousand for the year ended December 31,1998 to $157 thousand for the year ended December 31, 1999. This increase was primarily caused by costs associated with increasing sales. Other expenses comprise of cost of insurance, property taxes, bank charges, and other miscellaneous expenses.
Income Taxes. Prior to April 1, 1999, we had elected S Corporation status under Section 1362(a) of the Internal Revenue Code. Under the election, the stockholders included their share of the Company's applicable taxable income or loss on their federal income tax return. Accordingly, no provision for income taxes was made for periods prior to April 1, 1999. On April 1, 1999, we elected to terminate our Subchapter S status in favor of a taxable C Corporation as designated in the Internal Revenue Code. Income tax provisions have been recorded for periods presented subsequent to April 1, 1999. The effective pro forma tax rate increased from 28.4% for the period ended December 31, 1998 to 34.8% for the first quarter of 1999. The increase was primarily caused by higher income resulting in higher company tax brackets.
Quarterly Financial Information (Unaudited)
The following table sets forth unaudited quarterly operating results for each of the Company's last eight quarters (including the restated figures for the quarters ended June 30, 2000 and September 30, 2000). This information has been prepared on a basis consistent with the Company's audited financial statements and includes all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of the data. These quarterly results are not necessarily indicative of future results of operations
Quarter Quarter Quarter Quarter Ended March 31, Ended June 30, Ended Sept. 30, Ended Dec. 31, 2000 2000 2000 2000
Net Revenue................... 421,068 335,120 212,592 161,783 Gross Profit.................. 360,071 133,924 141,942 121,651 Net Loss (237,801) (790,160) (655,507) (520,993)
Shares:
Basic weighted average number of shares outstanding.................. 6,884,462 11,141,790 13,398,948 14,328,885 Diluted weighted average number of shares outstanding.............. 6,884,462 11,141,790 13,398,948 14,328,885
BASIC EARNINGS PER SHARE: Net loss.............................. $ (.03) $ (.07) $ (.05) $ (.04)
DILUTED EARNINGS PER SHARE: Net Loss.............................. $ (.03) $ (.07) $ (.05) $ (.04)
Quarter Quarter Quarter Quarter Ended March 31, Ended June 30, Ended Sept. 30, Ended Dec. 31, 1999 1999 1999 1999
Net Revenue........................ 300,869 364,729 214,444 149,732 Gross Profit....................... 252,613 270,581 184,233 123,461 Net Income (loss) 57,693 (20,589) 9,845 75 Pro forma Net Income 37,621 - - - Shares: Basic weighted average number of shares outstanding............... 6,000,000 7,304,286 7,430,000 7,666,413 Diluted weighted average number of shares outstanding........... 6,181,233 9,931,363 10,016,282 10,250,915
BASIC EARNINGS PER SHARE: Net income (loss).................. $ .01 $ (.003) $ .001 $ .000 Pro Forma Net income............... $ .01 $ - $ - -
DILUTED EARNINGS PER SHARE: Net income (loss)................. $ .01 $ (.002) $ .001 $ .000 Pro Forma Net income.............. $ .01 $ - $ - -
C. Liquidity And Capital Resources
On March 24, 1999, we entered into a reorganization agreement with SeaView Underwater Research, Inc. ("SeaView Florida"), a privately held Corporation that was incorporated in the State of Florida on April 2, 1998 ("the reorganization"). At the time of the reorganization we were a non-operating Company whose common stock was not publicly traded. We were however, subject to the reporting requirements of the Securities Exchange Act of 1934. In connection with the reorganization, we issued 5,000,000 shares of our common stock to SeaView Florida's shareholders in exchange for 100% of SeaView Florida's outstanding shares of common stock and $250,000 cash. For accounting purposes, the reorganization has been treated as a recapitalization.
As a result of the reorganization, o We were the surviving legal entity; o SeaView Florida ceased to exist; o SeaView Florida's Shareholders gained control of our Company; o 0ur Board of Directors resigned and were replaced by a Board of Directors selected by SeaView Florida's shareholders; and o We changed our name to SeaView Underwater Research, Inc. to reflect our continuance of SeaView Florida's business plan.
Since our inception we have financed our operations primarily through internal cash flow. Since the date of the reorganization, financing has primarily been obtained through debt and equity securities sales. Net cash used in and provided by operations for the years ended December 31, 2000, 1999 and 1998 was $(2,964,859), $35,243, and $63,061, respectively. Net cash used in operating activities for the year ended December 31, 2000, primarily consisted of loss from operations, adjusted for non-cash items, increases in deferred taxes, inventory, receivables from employees, prepaid expenses, and decreases in accrued liabilities and income taxes payable, offset by increases in accounts payable.
Cash used in investing activities for the years ended December 31, 2000, 1999 and 1998 was $418,120, $60,170 and $96,230, respectively, consisting of acquisitions of property and equipment.
On March 25, 1999, 2,700,000 shares of restricted common stock were issued to a key employee, Richard McBride. Unearned compensation equivalent to the market value of the stock at the date of grant is charged to stockholders' equity at the time of issuance.
During the year ended December 31, 2000, we issued 182,500 shares of restricted common stock to employees under an employee bonus arrangement. Compensation expense of $137,460 was recognized in connection with the issuance.
During the year ended December 31, 2000, we issued 397,600 shares of common stock as payment for advertising, consulting and professional services. Expenses of $271,255 were recognized based on the fair value of the services provided.
During the year ended December 31, 2000, we issued 8% convertible debentures for proceeds of $ 3,288,000. The debentures were for a term of twelve months and were non-interest bearing for an initial period, after which, interest was payable quarterly. No interest was paid on the debentures. The debentures were convertible by the option of the holders into shares of the Company's restricted common stock on the basis of $.50 to $8.00 per share. Proceeds from the issuance were used to fund the Company's operations. During the year ended December 31, 2000, we exchanged $3,188,000 of the debentures for 5,373,584 shares of the Company's common stock.
During the year ended December 31, 2000, warrants were exercised for 649,000 shares of common stock at $1.00 per share from a previous resolution dating from our reorganization. The proceeds were used to fund operations.
Based upon the Company's anticipated capital needs for operations of our business and general corporate purposes, management believes that the combination of the funds expected to be available under the Company's current cash reserves, future cash flows from operations, and anticipated capital infusions should be sufficient to meet the Company's funding requirements to conduct our operations and for further implementation of our growth strategy and current plans through at least 2001.
ITEM 7A.
ITEM 7A. Quantitative And Qualitative Disclosure About Market Risk.
See "Management's Discussion And Analysis", Section C. "Liquidity And Capital Resources".
SPECIAL NOTICE REGARDING FORWARD LOOKING STATEMENTS
We make "forward-looking statements" within the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995 throughout this document and in the documents we incorporate by reference into this Annual Report on Form 10-K. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate," "plan" and "continue" or similar words. We have based these statements on our current expectations about future events. Although we believe that our expectations reflected in or suggested by our forward-looking statements are reasonable, we cannot assure you that these expectations will be achieved. Our actual results may differ materially from what we currently expect. Important factors which could cause our actual results to differ materially from the forward-looking statements in this document are set forth in the "Factors Affecting Future Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and elsewhere in this document.
You should read this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even in the event that our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
This Form 10-K, the annual report, and certain information provided periodically in writing or orally by the Company's Officers or its agents contains statements which constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act, as amended and Section 21E of the Securities Exchange Act of 1934. The terms "Seaview Underwater Research," "company," "we," "our" and "us" refer to SeaView Video Technology, Inc. The words "expect," "believe," "plan," "intend," "estimate" and similar expressions and variations thereof if used are intended to specifically identify forward-looking statements. Those statements appear in a number of places in this Form 10-K and in other places, particularly, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things:
(i) The successful expansion of the Company in new and existing markets
(ii) Our liquidity and capital resources
(iii) Our future performance and operating results; and
Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The factors that might cause such differences include, among others, the following:
(i) Any adverse effect or limitations caused by any governmental regulations or actions;
(ii) Any increased competition in business and in acquisitions;
(iii) Inability to successfully conduct our business in new markets;
(iv) The continued relationship with and success of our professional association customers and their continued ability to grow in conjunction with our growth;
(v) Any inability to meet or exceed analysts expectations in any future period
We undertake no obligation to publicly update or revise the forward looking statements made in this Form 10-K to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.
Item 8.
Item 8. Financial Statements And Supplementary Data
Certain information required by this item is included in Item 7 of Part II of this report under the heading "Quarterly Financial Information" and is incorporated into this item by reference. All other information required by this item is included in Item 14 of Part IV of this report and is incorporated into this item by reference.
Item 9.
Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors And Executive Officers Of The Registrant
The information required by this Item is incorporated herein by reference to the information under the heading "Management-Directors and Executive Officers" in the Company's definitive Proxy statement to be used in connection with the Company's Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before April 30, 2001.
Item 11.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the information under the heading "Management-Compensation of Executive Officers and Directors" in the Company's definitive Proxy statement to be used in connection with the Company's Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before April 30, 2001.
Item 12.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The information required by this Item is incorporated herein by reference to the information under the heading "Management-Security ownership of Management and Others" in the Company's definitive Proxy statement to be used in connection with the Company's Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before April 30, 2001.
Item 13.
Item 13. Certain Relationships And Related Transactions
The information required by this Item is incorporated herein by reference to the information under the heading "Certain Relationships and Related Transactions" in the Company's definitive Proxy statement to be used in connection with the Company's Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission on or before April 30, 2001.
Item 14.
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS Page Number (s) ----------------
Independent Auditor's Reports Balance Sheets at December 31, 2000 and 1999 Statements of Income for the years ended December 31, 2000, 1999 and 1998 Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to Financial Statements
2. Financial Statement Schedules
All other schedules are omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.
3. Exhibits
Exhibit Number Description 3.1 Articles of Incorporation 3.2 Amendment to Articles of incorporation dated 3.3 Amendment to Articles of Incorporation dated 3.4 Amendment to Articles of Incorporation dated 3.5 Bylaws 4.1 Form of Debenture 4.2 Form of Warrant 10.0 * Reorganization Agreement [1] 10.1 * Professional Services Agreement [2] 10.2 * Registration of 1,430,000 shares of Registrant's common stock [3] 10.3 * Registration of 250,000 shares of Registrant's common stock [4] 10.4 * Registration of 100,000 shares of Registrant's common stock [5] 10.5 * Consulting and Licensing Agreement [6] 11.1 Computation of Per Share Earnings. 23.1 Consent of Independent Certified Public Accountants. 27.1 Financial Data Schedule for the year ended December 31, 2000 (for SEC use only).
* Previously filed as an exhibit in our filing identified in the endnote following the exhibit description and incorporated herein by reference. 1) Form 8-K dated April 8, 1999. 2) Form 8-K/A dated April 15, 1999. 3) Form S-8 dated April 8,1999 4) Form S-8 dated October 5, 1999 5) Form S-8 dated January 26, 2000 6) Form 8-K dated February 14,2001
(b) Reports on Form 8-k.
We filed the following current reports on Form 8-K:
On April 8, 1999, to report the completion of the acquisition of SeaView Underwater Research, Inc. See Note 7 of Notes to the Financial Statements.
On July 24, 2000, to report the acquisition of a 20% interest in Golden Springs, LLC, through the issuance of 150,000 shares of our common stock subject to restrictions under Rule 144 of the Securities Act of 1933, as amended.
On February 20, 2001, to report information the Consulting and Licensing Agreement between Richard L. McBride and us. See Note 12 to the Financial Statements.
On February 21, 2001, to report the resignation of Richard L. McBride as our Chief Executive Officer as well as a Director on our Board of Directors, and the appointment of George S. Bernardich III as President, Chief Executive Officer, and a Director on out Board of Directors.
On March 19, 2001, to report material inaccuracies existing in our unaudited financial statements relating to revenue recognition for the quarters ending June 20, 2000 and September 30, 2000.
(c) Exhibits
See (a) (3) above.
SEAVIEW VIDEO TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, State of Florida on April 13, 2001.
SEAVIEW VIDEO TECHNOLOGY, INC.
By: /s/ George S. Bernardich III
GEORGE S. BERNARDICH III Chief Executive Officer
By: /s/ James Cox
J.R. COX Secretary and Treasurer
By: /s/ Miles Gould
MILES GOULD Director
By: /s/ Brad Gould By: /s/ Brad Gould
BRAD GOULD Director
Independent Auditors' Report
The Board of Directors SeaView Video Technology, Inc.:
We have audited the accompanying balance sheets of SeaView Video Technology, Inc. as of December 31, 2000 and 1999, and the related statements of Operations, stockholders' equity, and cash flows for the years ended December 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of SeaView Video Technology, Inc. as of December 31, 2000 and 1999 and the results of operations and its cash flows for the years ended December 31, 2000 and 1999 in conformity with generally accepted accounting principles.
April 9, 2001 Carol McAtee, CPA St. Petersburg, Fl
Independent Auditors' Report
The Board of Directors SeaView Video Technology, Inc.:
I have audited the accompanying consolidated balance sheet of SeaView Video Technology, Inc. as of December 31, 1998 and the related statement of income, stockholders' equity, and cash flows for the year ended December 31, 1998 These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with auditing standards generally accepted in the United States. These standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of SeaView Underwater Research, Inc from March 31, 1998 to December 31, 1998 and the results of its operations for the year ended December 31, 1998 in conformity with generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming that the company will continue as a going and profitable concern.
Barbara Wright C.P.A.
SEAVIEW VIDEO TECHNOLOGY, INC. BALANCE SHEETS
December 31, December 31, Assets 2000 1999
Current Assets: Cash and cash equivalents $ 41,264 $ - Accounts Receivable, net of allowance for doubtful accounts of $24,389 in 2000 60,793 - Accounts Receivable, Officer 512,757 - Accounts Receivable, employees 40,000 - Inventory 293,355 120,604 Prepaid expenses 60,000 9,197 Income tax benefit - 25,795 --------- ------- Total current assets 1,008,169 155,596
Property and equipment, net 504,535 140,330 Investments 889,918 - Deferred tax asset 1,439,322 28,023 --------- ------ Total assets $ 3,841,944 $ 323,949 ========= =======
Liabilities and Stockholders' Equity
Current Liabilities: Due to Bank - 10,412 Accounts Payable 343,606 - Convertible Debentures 100,000 - Accrued liabilities 36,277 53,562 ------ ------ Total current liabilities 479,883 63,974 Stockholders equity: Common stock, $.001 par value, authorized 100,000,000shares; issued and outstanding 17,132,684 shares in 2000 and 10,380,000 shares in 1999 17,133 10,380 Additional paid-in capital 5,601,033 334,571 Unearned Restricted Stock Compensation (40,974) (74,306) Accumulated deficit (2,215,131) (10,670) ----------- -------- Total stockholders equity 3,362,061 259,975 --------- ------- Total liabilities and stockholders equity $ 3,841,944 $ 323,949 ========= =======
The accompanying notes are an integral part of these financial statements.
SEAVIEW VIDEO TECHNOLOGY, INC. STATEMENTS OF OPERATIONS
Years Ended December 31, -----------------------------------------------
2000 1999 1998 ---------------- ----------------- ---------------
Net Revenue $1,130,563 $ 1,029,774 $ 635,486 Cost of goods sold 372,975 198,886 149,355 ---------------- ----------------- --------------- Gross Profit 757,588 830,888 486,131 Operating expenses: Salaries & Wages 832,443 206,458 105,383 Advertising & Promotions 2,056,403 319,995 124,749 Provision for doubtful accounts 24,389 - - Depreciation 53,916 16,070 - Rent & Utilities 111,460 103,984 52,587 Professional fees 445,527 33,917 - Other Expenses 689,039 157,259 80,638 ---------------- ----------------- --------------- Total operating expenses 4,213,177 837,683 363,357 ---------------- ----------------- --------------- Net (loss) income from operations (3,455,589) (6,795) 122,774 Interest Income 3,206 0 0 Equity in loss of affiliate (137,582) 0 0 ---------------- ----------------- --------------- Income (loss) before taxes (3,589,965) (6,795) 122,774 Income tax (benefit) expense (1,385,504) (53,818) - ---------------- ----------------- --------------- Net (Loss) Income (2,204,461) 47,023 122,774 Pro Forma Tax Expense (Note 2) - 20,072 34,876 ---------------- ----------------- --------------- Pro Forma Net Income (Note 2) $ - $ 26,951 $ 87,898 ================= ================= ===============
Basic net (loss) income per common share (.18) .01 .02 Diluted net (loss) income per common share (.18) .00 .02 Pro forma basic net income per common share - .00 .01 Pro forma diluted net income per common share - .00 .01
Basic weighted number of common shares outstanding 12,051,616 7,105,644 6,000,000 Diluted weighted number of common shares outstanding 12,051,616 9,728,197 6,000,000
The accompanying notes are an integral part of these financial statements
SEAVIEW VIDEO TECHNOLOGY, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
Unearned Common Additional Restricted Common Stock Paid-In Retained Stock Stock ($.001 par) Capital Earnings Compensation Total
Balance on December 31, 1997 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of Stock for cash 100 500 47,184 47,684
Net Income 122,774 122,774 ----------- ----------- ------------ ------------- ----------- -----------
Balance on December 31, 1998 100 500 47,184 122,774 0 170,458
Additional cash paid in capital-from reverse merger 250,000 250,000
Cash distribution to (250,000) (250,000) shareholders
Recapitalization for effect of 5,999,900 5,500 (5,500) 0 reverse merger
Net Income for year ended December 31, 1999 47,023 47,023
Net Income for S Corporation prior to April 1, 1999 57,693 (57,693) 0
Undistributed Earnings upon termination of S Corporation 122,774 (122,774) 0
Issuance of restricted stock Under professional services Agreements 2,700,000 2,700 97,300 (100,000) 0
Issuance of shares under Consultant compensation plan 1,680,000 1,680 15,120 16,800
Amortization of unearned Restricted stock compensation 25,694 25,694
----------- ----------- ------------ ------------- ----------- ----------- Balance on December 31, 1999 10,380,000 10,380 334,571 (10,670) (74,306) 259,975
Net Loss for year ended December 31, 2000 (2,204,461) (2,204,461)
Conversion of subordinated debentures 5,373,584 5,374 3,182,626 3,188,000
Exercise of stock warrants 649,000 649 648,351 649,000
Issuance of stock to employees 182,500 182 137,278 137,460
Issuance of shares for services 397,600 398 270,857 271,255
Issuance of stock for acquisition of Golden Springs 150,000 150 1,027,350 1,027,500 Investment
Amortization of unearned Restricted stock compensation 33,332 33,332
----------- ----------- ------------ ------------- ----------- ----------- Balance on December 31, 2000 17,132,684 $ 17,133 $5,601,033 $(2,215,131) $ (40,974) $3,362,061 ========== ======== ========== ============ ========= ===============
The accompanying notes are an integral part of these financial statements.
SEAVIEW VIDEO TECHNOLOGY, INC STATEMENTS OF CASH FLOWS
Years Ended December 31, December 31, December 31, 2000 1999 1998 ------------- ------------ ------------- Cash flows from Operating activities: Net (Loss) Income $ (2,204,461) $ 47,023 $ 122,774 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 53,916 16,070 0 Amortization of unearned compensation 33,332 25,694 0 Equity in loss of affiliate 137,582 0 0 Compensation expense of stock issuance to employees 137,459 0 0 Compensation expense of stock issuance to consultants 271,255 16,800 0 Deferred income taxes (1,411,299) (28,023) 0 (Increase) decrease in: AR Trade (60,793) 0 0 Inventory (172,751) (60,891) (59,713) Employee AR (40,000) 0 0 Prepaid Assets (50,803) (9,197) 0 (Decrease) increase in: Due to Bank (10,412) 10,412 0 AP Trade 343,606 0 0 Accrued Liabilities (17,285) 53,562 0 Income taxes payable 25,795 (25,795) 0 ------------- ------------ ------------- Net cash (used in) provided by operating activities (2,964,859) 45,655 63,061 Cash flows from Investing activities: Additions to property and equipment (418,120) (60,170) (96,230) ------------- ------------ ------------- Net cash used in investing activities (418,120) (60,170) (96,230) Cash flows from Financing activities: Loan to Officer (512,757) 0 0 Proceeds from exercise of stock warrants 649,000 0 0 Proceeds from subordinated debentures 3,288,000 0 47,684 ------------- ------------ ------------- Net cash provided by financing activities 3,424,243 0 47,684
Net (decrease) increase in cash and cash equivalents 41,264 (14,515) 47,684
Cash and cash equivalents at beginning of period 0 14,515 0 ------------- ------------ -------------
Cash and cash equivalents at end of period $ 41,264 $ 0 $14,515 ============= ============ ============= Supplemental Disclosures of Cash Flow Information: Conversion of convertible debentures to common stock $ 3,188,000 0 0 ============= ============ =============
Acquisition of investment through stock issuance $ 1,027,500 0 0 ============= ============ =============
Cash paid for taxes $ 0 0 0 ============= ============= =============
Cash paid for interest $ 0 0 0 ============= ============ =============
The accompanying notes are an integral part of these financial statements.
SEAVIEW VIDEO TECHNOLOGY, INC. Notes to Financial Statements
1. OPERATIONS AND ORGANIZATION
SeaView Video Technology, Inc. (the Company) was originally incorporated in the State of Utah on April 16, 1986 as Gopher, Inc. On March 24, 1999, the Company entered into a reorganization agreement with SeaView Underwater Research, Inc. (SeaView Florida), a privately held Corporation that was incorporated in the State of Florida on April 2, 1998. At the time of the reorganization the Company was a nonoperating Company. In connection with the reorganization, the Company issued 5,000,000 shares of common stock and $250,000 cash to the SeaView Florida's shareholders in exchange for 100% of SeaView Florida's outstanding shares of common stock. For accounting purposes the reorganization was treated as a recapitalization.
As a result of the organization:
o The Company was the surving entity; o Seaview Florida ceased to exist; o Seaview Florida's Shareholders gained control of the Company; o The Board of Directors resinged and were replaced by a Board of Directors selected by Seaview Underwater Research Inc to reflect the continuance of SeaView Florida's business plan o The Company later changed our name to SeaView Video Technology, Inc.
The Company manufactures in-house and through outside contractors, underwater video cameras, lights, and accessories for the marine commercial and consumer retail market. The Company has also developed and manufactures in-house and through outside contractors, a video security system utilizing exclusive patented technology enabling video transmission through electrical wiring. The key product Secureview is a light bulb camera and decoder. The Company offices are located at 111 Second Avenue NE, Suite 1403, St Petersburg, Fl 33701.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying financial statements have been prepared on the accrual basis of accounting.
Reclassifications.To conform to 2000 presentation, certain 1999 and 1998 operating expenses have been reclassified.
Consolidation. Investments in 20%-50% owned affiliates are accounted for on the equity method, and, accordingly, operations includes the Company's share of its loss.
Cash and cash equivalents. The Company considers all highly liquid instruments with original maturities of 90 days or less to be cash equivalents for financial statement purposes.
Inventories. Inventories consist of raw materials and finished goods held for resale and are stated at the lower of cost or market. Inventory costs are determined using the first-in, first-out (FIFO) method.
Property and equipment. Property and equipment are stated at cost less accumulated depreciation. Depreciation on property and equipment is calculated on the straight line method over the estimated useful lives of the assets ranging from five to ten years. Maintenance and repairs are charged to expense as incurred.
Stock Based Compensation. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation". SFAS 123 allows companies which have stock based compensation arrangements with employees to adopt a fair-value basis of accounting for equity instruments or to continue to apply the intrinsic value based method required by with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock issued to Employees". The company has elected to account for stock based compensation arrangements in accordance with APB No. 25.
Revenue recognition. Revenue is recognized at the time of product shipment. Such revenue is recorded net of estimated product return. As of December 31, 1999, estimated amounts for returns were not considered material.
Income taxes. Prior to April 1, 1999, the Company had elected S Corporation status under Section 1362(a) of the Internal Revenue Code. Under the election, the stockholders included their share of the Company's applicable taxable income or loss on their federal income tax return. Accordingly, no provision for income taxes had been made. On April 1, 1999, the Company elected to terminate its
SEAVIEW VIDEO TECHNOLOGY, INC. Notes to Financial Statements
Subchapter S status in favor of a taxable C Corporation as designated in the Internal Revenue Code. Accordingly, pro forma income taxes, net income, and earnings per share have been included on the face of the historical income statement for the period presented prior to April 1, 1999. In addition, a pro forma adjustment has been made to reclassify undistributed earnings of $180,467 through April 1, 1999 as additional paid in capital.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income in the period that includes the enactment date of the rate change.
Earnings per Share. Net income (loss) per share is computed using the weighted-average number of common shares and dilutive common equivalent shares outstanding during the related period. Common equivalent shares consist of unearned shares, warrants, and subordinated convertible debentures, using the treasury stock method.
Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
3. INVENTORIES
Inventories consist of the following:
2000 1999
Raw Materials $258,552 $105,484 Finished Goods 34,803 15,120 ---------- ---------- $293,355 $120,604 ========== ==========
4. NOTE RECEIVABLE-OFFICER During the year ended December 31, 2000, the Company accepted several non-interest bearing notes from an officer, with a balance of $512,757 at December 31, 2000. The notes are collateralized by 6.5 million shares of company stock. The loan was repaid prior to the issuance of the financial statements.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
2000 1999
Automobiles $ 92,607 $14,904 Boat 63,114 - Furniture and Fixtures 147,841 71,556 Equipment 271,959 69,940 ------- ------ 575,521 156,400 Less accumulated depreciation (70,986) (16,070) -------- -------- $504,535 $40,330 ======== ======
SEAVIEW VIDEO TECHNOLOGY, INC. Notes to Financial Statements
6. INVESTMENTS
The investment security of $889,918 at December 31, 2000, represents a 21.23% ownership of capital in Golden Springs LLC, a state of Florida limited liability company. In consideration for its equity position in Golden Springs, LLC, the Company conveyed 150,000 shares of its common stock to Golden Springs, LLC subject to restrictions under Rule 144 of the Securities and Exchange Act of 1933, as amended. The resolution approved by the board of directors to issue shares dictated that the shares be replaced by the President and C.E.O. These shares were contributed in 2001. The investment is accounted for under the equity method. The results of operations and financial position of the Company's equity basis investment is summarized below:
Condensed Income Statement Information
Net Sales $ 489,080 Gross Margin 476,545 Net Loss (648,051)
Condensed Balance Sheet Information
Current Assets $ 658,204 Non-current Assets 4,096,319 Current Liabilities 2,675,194 Non-current Liabilities 2,200,794 Owners Deficit (121,465)
7. INCOME TAXES
For the year ended December 31, 2000 and 1999, the provision for income taxes consisted of the following:
2000 1999 ---- ---- Current expense (benefit): Federal 0 $ (3,224)
State 0 (22,571)
Deferred expense (benefit): Federal (1,207,876) (24,521) State (177,628) (3,502) ----------- ----------
Total current and deferred actual (1,385,504) (53,818) ============ ============ Pro forma income tax expense 0 20,072 ------------ ----------
Total income tax expense pro forma 0 $(33,746) ============ ==========
SEAVIEW VIDEO TECHNOLOGY, INC. Notes to Financial Statements
A reconciliation of statutory federal income tax rate with the Company's effective income tax rate as of December 31, 2000 and 1999 is as follows:
2000 1999
U.S. federal taxes statutory rate 34.00% 35.00% Increase/(decrease): State taxes 4.6 5.00 ------- -------
Income tax provision Effective tax rate of current actual tax benefit 38.6% 40.00% ======== =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax Assets are as follows: 2000 1999
Deferred tax asset: Stock based compensation $23,020 $10,278 Net operating loss 1,416,302 - Accrued Expenses - 21,424 ---------- ----------
Total deferred tax asset 1,439,322 31,702
Deferred tax liability: Prepaid expenses - (3,679) ---------- ---------- Total deferred tax asset $ 1,439,322 $ 28,023 ============ ========
The Company has net operating loss carryforwards of approximately $3,631,000 expiring in years 2019 through 2020. The Company establishes valuation allowances in accordance with FASB Statement No. 109, "Accounting for Income Taxes". The Company continually reviews the adequacy of the valuation allowance and is recognizing these benefits only as reassessment indicates that it is more likely than not that the benefits will be realized. The Company expects to generate income to utilize the carryforwards based on future income projections associated with expanding product lines and product sales growth.
8. STOCKHOLDERS' EQUITY
Under a Professional Services Agreement effective March 25, 1999, 2,700,000 shares of restricted common stock were issued to a key employee. Upon issuance of stock under the plan, unearned compensation equivalent to the market value of the stock at the date of grant is charged to stockholders' equity and subsequently amortized over the period of the agreement, three years. Amortization of $33,332 and $25,694 was recorded for the years ended December 31, 2000 and 1999.
Because the terms of the Professional Services Agreement calls for no cash payment by the employee, the intrinsic value of the compensation to the employee as defined by APB No. 25 equals the fair market value of the award as defined by SFAS No. 123. Thus, pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting had been applied, have been omitted.
During the year ended December 31, 2000, the Company issued 8% convertible debentures for proceeds of $ 3,288,000. The debentures were for a term of twelve months and were non-interest bearing for an initial period, after which, interest was payable quarterly. No interest was paid on the debentures. The debentures were convertible by the option of the holders into shares of the Company's restricted common stock on the basis of $.50 to $8.00 per share. Proceeds from the issuance were used to fund operations of the Company. During the year ended December 31, 2000, the Company exchanged $3,188,000 of the notes for 5,373,584 shares of the Company's common stock. Debentures of $100,000 remain outstanding at December 31, 2000. The outstanding debentures are convertible into restricted common stock of the Company on the basis of $2.00 per share.
SEAVIEW VIDEO TECHNOLOGY, INC. Notes to Financial Statements
During the year ended December 31, 2000, warrants were exercised for 649,000 shares of common stock at $1.00 per share from a previous resolution dating from the reverse merger into Gopher, Inc. The proceeds were used to fund operations. No warrants remain outstanding as of December 31, 2000.
During the year ended December 31, 2000, the Company issued 182,500 shares of restricted common stock to employees under an employee bonus arrangement. Compensation expense of $137,460 was recognized in connection with the issuance.
During the year ended December 31, 2000, the Company issued 397,600 shares of common stock with a fair value of $271,255 as payment for services based on the fair value of the services provided.
9. RECAPITALIZATION
On March 24, 1999, Gopher, Inc. ("Gopher") acquired all of the outstanding common stock of SeaView Video Technology, Inc. in exchange for 5,000,000 shares of Gopher's restricted stock and $250,000 cash. Gopher was formed as a non-operating public shell company, and, therefore, for accounting purposes, the combination has been treated as a recapitalization of SeaView Video Technology, Inc. and the issuance of stock by the company for the net monetary assets of Gopher.
The transaction is recorded as a capital transaction as described above, and, as such, pro forma information is not presented, since the transaction does not result in a business combination. The historical financial statements prior to March 24, 1999 are those of SeaView Video Technology, Inc., and reflect the restatement of the equity accounts based on the ratio of the exchange of 5,000,000 shares of Gopher for 100 shares of SeaView Video Technology, Inc.
10. CONCENTRATIONS
The Company's product assembly is dependent upon the operations of a primary labor supplier. At December 31, 2000, approximately $30,000 of the Company's inventory was held off-site at this location. If the Company should lose this one established supplier of assembly servicing there could be a disruption in the operations of the Company. The Company is in the process of securing alternative sources of these services.
11. COMMITMENTS AND CONTINGENCIES
The Company has entered into purchase commitments from suppliers for various product components. The remaining commitments outstanding as of December 31, 2000 are approximately $580,000.
The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity.
During the year ended December 31, 2000, Company entered into an operating lease of 2,711 square feet for use as its corporate offices. The lease is for a term of three years at a base monthly rental of $3,728, subject to a 3% annual escalation. Minimum future rental commitments including sales tax as of December 31, 2000 are as follows:
2001 $ 48,709 2002 50,159 2003 21,151 ------ Total $120,019 ========
SEAVIEW VIDEO TECHNOLOGY, INC. Notes to Financial Statements
12. SUBSEQUENT EVENTS
On February 14,2001, the Company entered into a Consulting and Licensing Agreement with Richard L. McBride for the granting of licensing rights to various patents, patent applications, and provisional patent applications and for consulting services to be provided. In exchange for these services and licensing rights, the Company issued to Richard L. McBride 1,000,000 shares of the Company's restricted common stock. The term of the agreement is through March 31, 2003 and the initial term of the licensing rights is for fourteen contiguous years.
SCHEDULE II
SeaView Video Technology, Inc.
Schedule of Valuation and Qualifying Accounts
Additions Balance at Charged to Balance at End Beginning of Costs and of Period Period Expenses Write-Offs
Year ended December 31, 2000 Allowance for uncollectible accounts receivable $ 0 $ 24,389 $ 0 $ 24,389 ============ =========== ============ ===========
Reserve for excess/obsolete inventory $ 0 $ 15,000 $ 0 $ 15,000 ============ =========== ============ ===========
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