UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report pursuant to Sections 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31,1999.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period from _______ to _______.
Commission File Number 33-55254-26
SEAVIEW UNDERWATER RESEARCH, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 87-0438640
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
200 MADONNA BLVD. SUITE A, TIERRA VERDE, FL 33715
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(Address of principal executive offices) (Zip Code)
(727) 866-3660
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value.
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(title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in Definitive Proxy or Information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 28, 2000, was approximately $88,864,650 based upon the
closing price of such shares on such date on the Nasdaq Market.
As of March 28, 2000, the number of shares outstanding of the Registrant's
Common Stock, $.001 par value, was 12,417,200.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be used in connection
with the Registrant's 2000 Annual Meeting of Shareholders, which will be filed
on or before April 29, 2000, are incorporated by reference in Part III, Items
10-13 of this Form 10-K. Except with respect to information specifically
incorporated by reference in this Form 10-K, the Proxy Statement is not deemed
to be filed as a part hereof.
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SEAVIEW UNDERWATER RESEARCH, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I PAGE
----
Item 1. BUSINESS............................................ 3
Item 2. PROPERTIES.......................................... 5
Item 3. LEGAL PROCEEDINGS................................... 5
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................. 5
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED MATTERS............................... 5
Item 6. SELECTED FINANCIAL DATA............................. 6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 7
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK....................................... 10
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 12
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE............ 23
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.. 23
Item 11. EXECUTIVE COMPENSATION.............................. 23
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................ 23
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 23
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K....................................... 24
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PART I
ITEM 1. BUSINESS
Seaview Underwater Research, Inc. (the "Company) was incorporated in
the State of Florida on April 2, 1998, and was not in operation prior to this
date. The Company sells underwater video cameras direct to the public and
through an expanding retailers network. The production is performed by an
outside assembly company. The Company has registered trademarks for many of its
products.
Underwater Video and Photography has been available to divers for many years, in
the basic form of film cameras and video recorders placed in expensive
watertight enclosures. These systems provide most of the spectacular underwater
pictures and film seen today. The SeaView Camera Probe provides a superior
clear, crisp video image in poor quality water day and night.
BASE PRODUCTS (MARINE DIVISION)
The Company manufactures and produces three types of underwater video consisting
of watertight clear container modules. Utilizing modified CCD miniature video
boards with infra-red emitters and unique circuit modifications, the video
boards are produced specifically for the Company with proprietary modifications
allowing for the specific requirements of underwater applications. These modules
are then placed within patented design housings which allow for various consumer
and commercial capabilities. To supply a complete ready-to-go system, the
following components are added: television monitor for viewing video,
y-connector, sun reducing viewing hood (patent pending), pole adapter, patent
pending brackets, carry case, power supply and miscellaneous power attachments.
INDUSTRIAL DIVISION
During 1999, the Company began development of industrial applications for the
SeaView Cameras.
The Well Cam is currently undergoing tests and meeting code requirements for oil
and gas well applications. This concept allows this industry to have an
economical method of viewing oil and gas pipe lines and drilling casings. The
unique properties of the camera make it well suitable to no light environments.
The Lift-Cam is used by forklifts in the industrial market. This product allows
the forklift operator to see in low light, the exact placement of pallets.
Misplacement of pallets is a major concern and creates high cost damages. The
Lift-Cam can reduce injury, damage, and insurance costs.
NON-CAMERA PRODUCTS
The Company invented a Fish Attractor product trademarked SeaLite. The SeaLite
uses bright light in an underwater application. Light is proven to attract bait
fish, which attract predator fish.
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OUTSIDE PRODUCTION
The Company has an agreement with a third party production company to assemble
most of the Company's products. However, the Company internally produces custom
orders and repairs. The Company has a blanket purchase order, on a month to
month basis, with the production company.
COMPETITION
The Company has very limited competition in the saltwater arena. The Company's
advertising and name awareness has catapulted SeaView into the leader. The
Company is the largest manufacturer of infra-red underwater video cameras in the
world.
PROPRIETARY RIGHTS
SEAVIEW UNDERWATER CAMERA. The Company has a patent pending application filed
with the United States Patent Office involving the use of infra-red light
transmission in fluids, via a video camera. The Company has granted patents on
the underwater cameras D411,217, full size design and patent D418,152, mini
design. Additionally, the Company has patents pending on our Sun Visor Hoods,
Component Module and Universal Bracket.
The above patents are owned exclusively by the Founder and President of the
Company who has licensed the patents to the Company under a royalty agreement.
The royalty agreement was entered into on March 22, 1999 and is for a term of
three years.
SECUREVIEW SECURITY CAMERAS. The Company has a patent pending application on
file with the United States Patent Office involving the use of video cameras,
utilizing bayonet style light bulb applications in the transmission of any video
signal or audio signal.
Additionally, the Company has fifteen different, but specific granted patents
regarding transmission of video and audio signals over electrical wiring a under
long term renewable option throughout twelve years.
MARKETING
BOAT SHOWS. The Company participates actively in boat shows around the country.
Boat Shows allows the Company to educate the consumer while receiving feedback
on the Company's products. This interaction is essential to the Company's
continued success and product improvement. The marketing exposure is also used
to gain dealers. The dealers are then able to handle additional shows in their
area.
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TELEVISION AND TOURNAMENT SPONSORSHIPS. In December of 1999, the Company
participated in its first national televised event. The Company was the anchor
sponsor for the World Billfish Tournament with Continental Airlines in Las
Cabos, Mexico. The thirty minute television show is scheduled to air in April
2000 on various National Cable Networks, ESPN and Fox Sports.
The Company has also sponsored various fishing seminars with Florida Sportsman
Magazine and Sport Fishing Magazine.
HUMAN RELATIONS
The Company uses an outside employee leasing program for its 10 employees.
ITEM 2. PROPERTIES
The Company currently operates and leases space approximately 4,000 sq. ft.
location. Corporate offices are on the second floor and warehouse retail outlet
on the first floor. The property is leased from Gulf Coast Investments, Inc. 200
Madonna Blvd., Tierra Verde, Florida 33715 for a term of one year.
The Company anticipates no future problems in renewing or obtaining suitable
leases for its operations. The Company believes that its principal leased
properties are adequate for the purposes for which they are used and are
suitably maintained for such purposes. The Company will enter into new leases as
it expands.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than routine litigation
arising in the ordinary course of business. The Company does not believe that
the results of such litigation, even if the outcome were unfavorable to the
Company, would have a material effect on its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED MATTERS
The Common Stock of the Company is quoted on the National Association of Dealers
Automated-Quotation System ("NASDAQ") under the symbol SEVU. Since April 9,
1999, the date the Company's Common Stock commenced trading, the table below
sets forth the high and low per share price of the Company's Common Stock as
reporte by Nasdaq for the periods indicated:
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1999 LOW HIGH
- ---- ---- ------
Second Quarter (Beginning April 9, 1999) $.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 March 28, 2000 was $15.75 and there are
approximately 824 number of shareholders of record as of that date. The number
of record hodlers was determined from the records of the Company 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.
The Company has never declared or paid any cash dividends on its Common Stock.
Any future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deem relevant.
On March 24, 1999, Gopher, Inc. ("Gopher") acquired all of the outstanding
common stock of the Company 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 the Company and the issuance of stock by the
company for the net monetary assets of Gopher. Prior to that date, there was no
established trading market for the Common Stock
SALES OF UNREGISTERED SECURITIES
None.
ITEM 6. SELECTED FINANCIAL DATA
The Company 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.
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SUMMARY FINANCIAL AND OPERATING DATA
YEARS ENDED DECEMBER 31,
1998 1999
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Net Revenue $ 635,486 $1,029,774
Net Income 122,774 47,023
Pro forma net income 87,898 26,951
Earnings per share:
Basic Net Income $ .02 $ .01
Diluted Net Income .02 .01
Basic Pro forma Net Income .02 .00
Diluted Pro forma Net Income .02 .00
Common shares used in the calculations
Of earnings per share:
Basic .............................. 5,000,000 6,105,644
Diluted ............................ 5,000,000 8,728,197
AT DECEMBER 31,
1998 1999
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BALANCE SHEET DATA:
Working Capital ...................... 74,228 91,622
Total Assets ......................... 170,458 323,949
Stockholders' Equity ................. 170,458 259,975
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A. OVERVIEW OF OPERATIONS
Seaview Underwater Research, Inc. (the Company) was incorporated in the State of
Florida on April 2, 1998, and was not in operation prior to this date. The
Company sells underwater video cameras direct to the public and through and
expanding retailers network. The production is performed by an outside assembly
company. The Company has registered trademarks for many of its products.
EXPANSION
The Company expanded market share during 1999 over 1998 with increased
advertising and carryover name awareness. Word of mouth exposure and
improvements and modifications to production also contributed. Boat show
participation was increased over 1998. The investment of professional display
booths helped overcome image problems of a new business.
COMPETITION
Competition played a small role in effecting gross sales in 1999 over 1998.
Parts and production problems and capitalization problems delayed the entry into
the fresh water market. Other manufacturers were forced into advertising and the
overall awareness factor was increased. This advancement will play into a huge
growth multiple for 2000 and beyond.
OPERATING EXPENSES
The Company was able to lower parts cost and shift to outside production during
1999. This added additional assembly labor cost, but helped solve some of the
back order problems and loss of sales from back orders. All sales on a cash
basis, mainly credit cards dept a steady cash flow and maintained operating
funds. Paying vendors C.O.D. and not utilizing bank financing also lowered
operating costs and prevented over buying or stocking readily available parts.
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GROSS SALES
First and second quarter sales were in line with estimated growth and were
curtailed by parts supply and unexpected demand for the winter season.
Utilization of the min-cam for ice fishing increased orders.
Third and fourth quarter sales were dramatically effected by our CCD board
supplier in Taiwan. The series of earthquakes there caused disruption in a major
quantity of parts orders. This caused an estimated 30% loss in orders and
refunds on advance orders. The Company was forced to utilize various outside
suppliers with sluggish delivery times.
Management's time was reduced severely with ongoing development of the Company's
SecureView product.
SUMMARY
The Company has gone through an entire reorganization in every facet. Problems
have been addressed and resolved. Currently the Company has capacity and parts
to build in the thousands of units per month, instead of hundreds. Delivery time
is approaching an in stock position. The market place for the year 2000 and
beyond will see a huge interest in underwater video. The consumer is only just
beginning to understand its utilization. With the successful development of the
SecureView product line, the Company is poised for a ten fold increase in sales
for the year 2000.
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,
1998 1999
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Net Revenue 100.0% 100.0%
Cost of goods sold 23.5 19.3
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Gross Profit 76.5 80.7
Operating expenses:
Salaries & Wages 16.6 20.0
Advertising & Promotions 19.6 31.1
Depreciation -- 1.6
Rent & Utilities 8.3 10.1
Other Expenses 12.7 18.6
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Total operating expenses 57.2 81.4
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Income before taxes 19.3 (.7)
Income tax (benefit) expense -- (5.2%)
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Net Income 19.3% 4.5%
Pro forma expense 5.5% 1.9%
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Pro forma Net Income 13.8% 2.6%
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NET REVENUE. Net revenue increased 62.0% 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 33.2% from $149
thousand for the year ended December 31,1998 to $199 thousand for the year ended
December 31, 1999. This increase was primarily caused by better utilization of
resources due to increased sales. 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 95.9% 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 with
respect to sales. Salaries and wages comprises 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 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 to $16 thousand
for the year ended December 31,1999. This increase in depreciation expense was
caused by property and equipment acquisitions by the company 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 seven years.
RENT AND UTILITIES. Rent and utilities increased 97.7% 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.
OTHER EXPENSES. Other expenses increased 137.1% from $81 thousand for
the year ended December 31,1998 to $191 thousand for the year ended December 31,
1999 . This increase was primarily caused by professional fees paid to
consultants and other 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, 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 was made for periods prior to April 1, 1999. On April
1, 1999, the Company elected to terminate its 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
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28.4% for the period ended December 31, 1998 to 34.8% for the first quarter of
1999. The increase was primarily caused higher income resulting in higher
company tax brackets.
C. LIQUIDITY AND CAPITAL RESOURCES
On March 24, 1999, Gopher, Inc. ("Gopher") acquired all of the
outstanding common stock of the Company 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 the Company and the
issuance of stock by the company for the net monetary assets of Gopher.
On March 25, 1999, 2,700,000 shares of restricted common stock were
issued to a key employee. 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.
On October 5, 1999, the Company filed registration statements with the
Securities and Exchange Commission for the issuance of 250,000 shares of its
common stock for the purpose of compensating consultants for services rendered.
On January 26, 2000 the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of 100,000 shares of its
common stock for the purpose of compensating consultants for services rendered.
Based upon the Company's anticipated capital needs for operations of
its business and general corporate purposes, management believes that the
combination of the funds expected to be available under the Company's current
cash reserves and cash flow from operations should be sufficient to meet the
Company's funding requirements to conduct its operations and for further
implementation of its growth strategy and current plans through at least 2001.
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
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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 Underwater Research, 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER(S)
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Independent Auditor's Reports 13-14
Balance Sheets at December 31, 1999 15
and 1998 Statements of Income for the years ended
December 31, 1999 and 1998 16
Statements of Stockholders' Equity for the years ended
December 31, 1999 and 1998 17
Statements of Cash Flows for the years ended
December 31, 1999 and 1998 18
Notes to Financial Statements 19-22
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INDEPENDENT AUDITOR REPORT
The Board of Directors
Seaview Underwater Research, Inc.:
I have audited the accompanying balance sheet of Seaview Underwater Research,
Inc. as of December 31, 1999, and the related statement of income, stockholders'
equity, and cash flows for the year ended December 31, 1999. 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.
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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, such financial statements present fairly, in all material
respects, the financial position of Seaview Underwater Research, Inc. as of
December 31, 1999 and the results of operations and its cash flows for the year
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Carol McAtee, CPA
March 21, 2000
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INDEPENDENT AUDITOR REPORT
The Board of Directors
Seaview Underwater Research, Inc.:
I have audited the accompanying consolidated balance sheet of Seaview Underwater
Research, 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.
February 18, 1999
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SEAVIEW UNDERWATER RESEARCH, INC.
BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
ASSETS 1998 1999
------------ -----------
Current Assets:
Cash and cash equivalents .................... $ 14,515 $ --
Prepaid expenses ............................. -- 9,197
Income tax benefit ........................... 25,795
Inventory .................................... 59,713 120,604
--------- ---------
TOTAL CURRENT ASSETS ...................... 74,228 155,596
Property and equipment, net ..................... 96,230 140,330
Deferred tax asset .............................. 28,023
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TOTAL ASSETS .............................. $ 170,458 $ 323,949
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Due to Bank .................................. -- 10,412
Accrued liabilities .......................... 53,562
TOTAL CURRENT LIABILITIES ................. -- 63,974
Stockholders' equity:
Capital stock ................................... 5,000 9,380
Additional paid-in capital ...................... 42,684 335,571
Unearned Restricted Stock Compensation .......... -- (74,306)
Retained earnings ............................... 122,774 (10,670)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ................ 170,458 259,975
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY.. $ 170,458 $ 323,949
========= =========
The accompanying notes are an integral part of these financial statements.
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SEAVIEW UNDERWATER RESEARCH, INC.
STATEMENTS OF INCOME
YEARS ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------ -----------
Net Revenue .................................... $ 635,486 $ 1,029,774
Cost of goods sold ............................. 149,355 198,886
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GROSS PROFIT ........................... 486,131 830,888
Operating expenses:
Salaries & Wages .......................... 105,383 206,458
ADVERTISING & PROMOTIONS ................... 124,749 319,995
Depreciation ............................... 16,070
Rent & Utilities ........................... 52,587 103,984
Other Expenses ............................. 80,638 191,176
----------- -----------
TOTAL OPERATING EXPENSES ............... 363,357 837,683
INCOME BEFORE TAXES ........................... 122,774 (6,795)
INCOME TAX (BENEFIT) EXPENSE ................... -- (53,818)
----------- -----------
NET INCOME ..................................... 122,774 47,023
PRO FORMA TAX EXPENSE (NOTE 2) ................. 34,876 20,072
----------- -----------
PRO FORMA NET INCOME (NOTE 2) .................. $ 87,898 $ 26,951
=========== ===========
Basic net (loss) income per common share ....... .02 .01
Diluted net (loss) income per common share ..... .02 .01
Pro forma basic net income per common share .... .02 .00
Pro forma diluted net income per common share .. .02 .00
Basic weighted average number of common shares
outstanding ............................... 5,000,000 6,105,644
Diluted weighted average number of common shares
outstanding ............................... 5,000,000 8,728,197
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
SEAVIEW UNDERWATER RESEARCH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
COMMON ADDITIONAL RESTRICTED
COMMON STOCK PAID-IN RETAINED STOCK
STOCK ($.001 PAR) CAPITAL EARNINGS COMPENSATION TOTAL
--------- --------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance on December 31, 1997 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of Stock 5,000,000 5,000 42,684 47,684
Net Income 122,774 122,774
--------- ------- ------- -------- -------- --------
Balance on December 31, 1998 5,000,000 5,000 42,684 122,774 0 170,458
Net Income for year ended
December 31, 1999 47,023 47,023
Net Income from 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 $9,380,000 $9,380 $335,571 $ (10,670) $(74,306) $259,975
========== ====== ======== ========= ======== ========
</TABLE>
17
<PAGE>
SEAVIEW UNDERWATER RESEARCH, INC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 122,774 $ 47,023
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation ........................................ 0 16,070
Amortization of unearned compensation ............... 0 25,694
Compensation expense of stock issuance to consultants 0 16,800
Deferred income taxes ............................... 0 (28,023)
(Increase) decrease in:
Inventory ........................................... (59,713) (60,891)
Prepaid Assets ...................................... 0 (9,197)
Accrued Liabilities ................................. 0 53,562
Income taxes payable ................................ 0 (25,795)
--------- ---------
Net cash provided by (used in) operating activities .... 63,061 35,243
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .................... (96,230) (60,170)
--------- ---------
Net cash used in investing activities ............... (96,230) (60,170)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock ........................ 47,684 0
--------- ---------
Net cash provided by financing activities ........... 47,684 0
--------- ---------
Net (decrease) increase in cash and cash equivalents 14,515 (24,927)
Cash and cash equivalents at beginning of period ... 0 14,515
--------- ---------
Cash and cash equivalents at end of period ................. $ 14,515 $ (10,412)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
SEAVIEW UNDERWATER RESEARCH, INC.
Notes to Financial Statements
1. OPERATIONS AND ORGANIZATION
Seaview Underwater Research, Inc. ("the Company") sells underwater
video cameras direct to the public and through an expanding retailers
network. The manufacturing of the video cameras is contracted out to an
independent company. The Company was incorporated in the State of Florida
on April 2, 1998, and had no operations prior to incorporation. The Company
is located at 200 Madonna Blvd. Suite A, Tierra Verde, Florida 33715.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying financial statements have been
prepared on the accrual basis of accounting.
INVENTORIES. Inventories consist of 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 seven 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 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.
19
<PAGE>
SEAVIEW UNDERWATER RESEARCH, INC.
Notes to Financial Statements
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:
1998 1999
----- ----
Raw Materials $59,713 $120,604
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1998 1999
---- ----
Automobiles $ -- $ 14,904
Furniture and Fixtures 49,770 71,556
Equipment 46,460 69,940
------- --------
96,230 156,400
Less accumulated depreciation -- (16,070)
------- --------
$96,230 $140,330
======= ========
5. INCOME TAXES
For the year ended December 31, 1999, the provision for income taxes
consisted of the following:
1999
----
Current expense (benefit):
Federal $ (3,224)
State (22,571)
Deferred expense (benefit):
Federal (24,521)
State (3,502)
--------
Total current and deferred actual (53,818)
========
Pro forma income tax expense 20,072
--------
Total income tax expense pro forma $(33,746)
========
20
<PAGE>
SEAVIEW UNDERWATER RESEARCH, 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, 1999 is as follows:
1999
U.S. federal taxes statutory rate 35.00%
Increase/(decrease):
State taxes 5.00
------
Income tax provision
Effective tax rate of current actual tax benefit 40.00%
======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax
Assets are as follows:
1999
Deferred tax asset:
Stock based compensation $10,278
Accrued Expenses 21,424
-------
Total deferred tax asset 31,702
Deferred tax liability:
Prepaid expenses (3,679)
-------
Total deferred tax asset $28,023
=======
Based on the Company's historical operating income, management believes
that it is more likely than not that the Company will realize the benefit
of its net deferred tax assets.
6. STOCK AWARD AGREEMENT
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 $25,694 was recorded for the year ended December 31,
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.
7. RECAPITALIZATION
On March 24, 1999, Gopher, Inc. ("Gopher") acquired all of the outstanding
common stock of Seaview Underwater Research, 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
Underwater Research, Inc. and the issuance of stock by the company for the
net monetary assets of Gopher.
21
<PAGE>
SEAVIEW UNDERWATER RESEARCH, INC.
Notes to Financial Statements
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 Underwater
Research, 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 Underwater Research, Inc.
8. COMMITMENTS AND CONTINGENCIES
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.
9. SUBSEQUENT EVENTS
On January 26, 2000 the company filed a registration statement with the
Securities and Exchange Commission for the issuance of 100,000 shares of
its common stock for the purpose of compensating consultants for services
rendered.
22
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
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 29, 2000.
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 29, 2000.
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 29, 2000.
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 29, 2000.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
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]
11.1 Computation of Per Share Earnings.
23.1 Consent of independent certified public accountants.
23.2 Consent of independent certified public accountant.
27.1 Financial Data Schedule for the year ended December 31,
1999 (for SEC use only).
Previously filed as an exhibit in the Company 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
(b) REPORTS ON FORM 8-K.
The company filed a Report on From 8-k on April 8, 1999 reporting the
completion of the acquisition of the Company by Gopher, Inc. See Note 7
of Notes to the Financial Statements.
24
<PAGE>
SEAVIEW UNDERWATER RESEARCH, 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 March 30, 2000.
SEAVIEW UNDERWATER RESEARCH, INC.
By: /s/ RICHARD L. MCBRIDE
------------------------
RICH MCBRIDE
Chief Executive Officer
By: /s/ JAMES COX
-----------------------
J.R. COX
Secretary and Treasurer
By: /s/ MILES GOULD
-----------------------
MILES GOULD
Director
By: /s/ FRED LESLIE
-----------------------
FRED LESLIE
Director
By: /s/ CHARLES CATO
-----------------------
CHARLES CATO
Director
By: /s/ BRAD GOULD
-----------------------
By: /s/ Brad Gould
BRAD GOULD
Director
25
EXHIBIT 11.1
SEAVIEW UNDERWATER RESEARCH, INC
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
----------- ------------
<S> <C> <C>
Net income ......................................... $ 122,774 $ 47,023
========== ==========
Pro forma Net Income ................................ $ 87,898 $ 26,951
========== ==========
Shares:
Basic weighted average number of shares outstanding . 5,000,000 6,105,644
Additional shares adjusted-under nonvested stock for
diluted earnings per share ..................... 0 2,622,553
---------- ----------
Diluted weighted average number of shares outstanding 5,000,000 8,728,197
========== ==========
BASIC EARNINGS PER SHARE:
Net income .......................................... $ .02 $ .01
========== ==========
Pro forma Net Income ................................ .02 .00
========== ==========
DILUTED EARNINGS PER SHARE:
Net income .......................................... $ .02 $ .01
========== ==========
Pro forma Net Income ................................ .02 .00
========== ==========
</TABLE>
EXHIBIT 23.1
SEAVIEW UNDERWATER RESEARCH, INC.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Seaview Underwater Research, Inc.
We consent to the use of our report dated March 21, 2000, with respect to the
balance sheet of Seaview Underwater Research, Inc. as of December 31, 1999 and
the related statement of income, stockholders' equity and cash flows for the
year ended December 31, 1999, which report appears in your Annual report on Form
10-K for the year ended December 31, 1999.
/s/ Carol McAtee
St. Petersburg, Fl
March 26,2000
EXHIBIT 23.2
The Board of Directors
Seaview Underwater Research, Inc.
I consent to the use of my report dated _______, with respect to the balance
sheet of Seaview Underwater Research, Inc. as of December 31, 1998 and the
related statement of income, stockholders' equity and cash flows for the year
ended December 31, 1998, which report appears in your Annual report on Form 10-K
for the year ended December 31, 1999.
/s/ Barbara Wright C.P.A.
Memphis, TN
March 26,2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 120,604
<CURRENT-ASSETS> 155,596
<PP&E> 156,400
<DEPRECIATION> 16,070
<TOTAL-ASSETS> 323,949
<CURRENT-LIABILITIES> 63,974
<BONDS> 0
0
0
<COMMON> 9,380
<OTHER-SE> 250,595
<TOTAL-LIABILITY-AND-EQUITY> 323,949
<SALES> 1,029,774
<TOTAL-REVENUES> 1,029,774
<CGS> 198,886
<TOTAL-COSTS> 198,886
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,795)
<INCOME-TAX> (53,818)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,023
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
