<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number: 0-26022
SERENGETI EYEWEAR, INC.
(Exact Name of Registrant as specified in its Charter)
New York 65-0665659
(State of incorporation) (I.R.S. Employer Identification No.)
8125 25th Court East
Sarasota, Florida 34243
(Address of principal executive offices)
(941) 359-3599
(Registrant's telephone number)
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 past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Registrant's common stock, $.001 par value,
that were outstanding as of April 30, 2000, was 2,384,000.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
Serengeti Eyewear, Inc.
Consolidated Balance Sheets
ASSETS
Balance Sheets:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 72,710 $ 306,126
Accounts receivable - trade 6,495,502 5,843,863
Inventories 14,654,286 15,237,394
Prepaid expenses and other current assets 524,208 289,497
----------- -----------
Total current assets 21,746,706 21,676,880
Fixed assets - net of accumulated depreciation 1,818,385 1,867,267
Other assets:
Goodwill - net 5,853,635 5,940,970
Patents and trademarks - net 9,481,878 9,637,116
Other assets 119,996 377,082
----------- -----------
Total other assets 15,455,509 15,955,168
----------- -----------
Total assets $39,020,600 $39,499,315
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Serengeti Eyewear, Inc.
Consolidated Balance Sheets
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Note payable-bank/line of credit $ 10,316,712 $ 10,146,096
Accounts payable 7,139,815 8,569,673
Accrued dividends 1,955,000 1,564,000
Accrued expenses 705,860 533,718
Income taxes payable 35,400 --
Current portion of long-term debt 1,379,961 1,992,318
------------ ------------
Total current liabilities 21,532,748 22,805,805
------------ ------------
Long-term debt, less current portion 180,671 523,579
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.001 par value,
1,000,000 shares authorized; 25,384
shares issued and outstanding 23,809,000 23,809,000
Common stock, $.001 par value,
10,000,000 shares authorized; 2,384,000
shares issued and outstanding 2,384 2,384
Additional paid in capital 10,586,094 10,586,094
Accumulated deficit (17,090,297) (18,227,547)
------------ ------------
Total stockholders' equity 17,307,181 16,169,931
------------ ------------
Total liabilities and stockholders' equity $ 39,020,600 $ 39,499,315
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
Serengeti Eyewear, Inc.
Consolidated Statements of Operations
Income Statements:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 11,230,979 $ 10,532,935
Cost of goods sold 6,080,622 6,289,642
------------ ------------
Gross profit 5,150,357 4,243,293
Operating expenses:
Depreciation and amortization 370,374 362,012
Selling expenses 598,967 714,586
General and administrative expenses 2,233,952 1,963,448
------------ ------------
Total operating expenses 3,203,293 3,040,046
------------ ------------
Income from operations 1,947,064 1,203,247
Other expenses:
Interest expense (383,414) (436,331)
Other expense -- (5,658)
------------ ------------
(383,414) (441,989)
------------ ------------
Net income before income taxes 1,563,650 761,258
Income Tax (35,400) --
------------ ------------
Net income 1,528,250 761,258
Preferred stock dividends (391,000) (391,000)
------------ ------------
Net income applicable to common stock $ 1,137,250 $ 370,258
------------ ------------
Earnings per share
Basic $ 0.48 $ 0.16
------------ ------------
Diluted $ 0.02 $ 0.02
------------ ------------
Weighted average shares:
Basic 2,384,000 2,384,000
------------ ------------
Diluted 90,096,509 41,005,530
------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Serengeti Eyewear, Inc.
Consolidated Statements of Cash Flows
Cash flow:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,528,250 $ 761,258
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 370,374 362,012
Cash provided by (used for):
Accounts receivable (651,639) 1,407,704
Income tax refund receivable - 358,055
Inventories 583,108 (815,538)
Prepaid expenses and other assets 22,375 90,683
Accounts payable (1,429,858) (21,684)
Accrued expenses 172,142 418,042
Income tax payable 35,400 -
----------- -----------
Net cash provided by operating activities 630,152 2,560,532
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (78,919) (6,723)
----------- -----------
Net cash used in investing activities (78,919) (6,723)
----------- -----------
Cash flows from financing activities:
Increase in bank overdraft - (151,251)
Repayment of related party debt - (15,314)
Net borrowings (repayments) from line of credit 170,616 (2,322,704)
Principal payments on long-term debt (955,265) -
----------- -----------
Net cash (used in) financing activities (784,649) (2,489,269)
----------- -----------
Net increase (decrease) in cash (233,416) 64,540
Cash - beginning of period 306,126 87,774
----------- -----------
Cash - end of period $ 72,710 $ 152,314
=========== ===========
</TABLE>
5
See accompanying notes to financial statements.
<PAGE>
Serengeti Eyewear, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note A. Basis of presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Pursuant to the rules of the Securities and Exchange Commission,
those financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the 1999 Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 of Serengeti Eyewear, Inc. (the "Company").
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Solartechnics (HK) Ltd.
Intercompany transactions and balances have been eliminated in consolidation.
Inventories
Inventories are valued at the lower of cost or market on a
first-in-first-out basis.
Income taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes", which
requires use of the liability method. FAS 109 provides that deferred tax assets
and liabilities are recorded based on the differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax assets and
liabilities at the end of each period are determined using the currently enacted
tax rates applied to taxable income in the periods in which the deferred tax
assets and liabilities are expected to be settled or realized.
The Company had net operating loss carryforwards of approximately $6.5
million as of December 31, 1999. The Company has recorded a valuation allowance
to state its deferred tax assets at estimated realizable value due to
uncertainty related to realization of these assets through future taxable
income. For the three months ended March 31, 2000, the recorded income taxes
payable of $35,400 related to alternative minimum federal and foreign taxes.
Earnings per share
Earnings per share amounts are computed based upon the weighted average
number of common shares and potential common shares outstanding during each
period. Potential common shares related to options and warrants are calculated
using the treasury stock method. The dilutive effect of convertible preferred
stock is reflected in diluted earnings per share using the if-converted method
and assumes conversion at the beginning of the period.
6
<PAGE>
Serengeti Eyewear, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The reconciliation of the net income and shares for the basic and
diluted earnings per share computation are as follows for the three months ended
March 31, 2000 and March 31, 1999:
Earnings Per Share:
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 Three Months Ended March 31, 1999
--------------------------------- ---------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net income applicable to
common stock (Basic) $1,137,250 $ 2,384,000 $0.48 $370,258 $ 2,384,000 $0.16
Effect of Dilutive Securities:
Series A convertible
preferred stock 139,870 29,861,783 140,433 13,148,726
Series B convertible
preferred stock 125,565 28,925,363 125,565 12,736,402
Series C convertible
preferred stock 125,565 28,925,363 125,565 12,736,402
---------- ----------- -------- -----------
Net income applicable
to common stock and
assumed conversions
(diluted) $1,528,250 $90,096,509 $0.02 $761,821 $41,005,530 $0.02
========== =========== ======== ===========
</TABLE>
7
<PAGE>
Serengeti Eyewear, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note B. Inventories
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
Inventory amounts consist of the following:
<S> <C> <C>
Raw Materials $ 2,495,307 $ 2,298,906
Work-in-process 3,304,011 3,375,602
Finished Goods 8,854,968 9,562,886
----------- -----------
Total $14,654,286 $15,237,394
----------- -----------
</TABLE>
Note C. Line of Credit
During September 1999, the Company secured with an asset-based lender a
$12 million revolving credit facility with interest payable at prime plus 1.75%,
replacing all but $2 million of the then existing credit facility. The
prime-lending rate at March 31, 2000 was 8.75%.
Under the current revolver facility, as amended, the Company is able to
borrow up to 1) 85% of eligible domestic accounts receivable, 2) 75% of eligible
foreign accounts receivable, and 3) 80% and 50% of the value of the Company's
eligible premium and non-premium inventory, respectively, subject to additional
limitations on inventory-based loans. The unused portion of the facility was
$2,106,205 at March 31, 2000. The revolver facility is collateralized by
substantially all the Company's assets and is automatically renewable on its
anniversary date in September 2001.
Note D. Stockholders' equity - Preferred stock
On October 4, 1996, the Company issued 7,500 shares of its $.001 par
value Series A 6.5% cumulative convertible non-voting preferred stock to RBB
Bank Aktiengesellschaft ("RBB"), a banking institution located in Austria, in a
private offshore offering pursuant to Regulation S for cash aggregating
$7,500,000 less commissions aggregating $525,000. Concurrently with the closing
of an acquisition, whereby the Company purchased certain assets of the Serengeti
Eyewear division of Corning, Inc. ("Corning"), RBB purchased, pursuant to said
Regulation S offering, 7,500 shares of the Company's $.001 par value Series B 6%
cumulative convertible non-voting preferred stock and 7,500 shares of the
Company's $.001 par value Series C 6% cumulative convertible non-voting
preferred stock for cash aggregating $15,000,000 less commissions aggregating
$1,050,000.
The dividends on the preferred shares are payable in cash or additional
shares of preferred stock, at the option of the Company. During 1997, 118 shares
of preferred stock valued at $118,000, which represent dividends accrued in
1996, were issued. During 1998, dividends aggregating 1,290 shares of preferred
stock valued at $1,290,000, which represent dividends accrued in 1997, were
issued. During 1999, dividends aggregating 1,476 shares of preferred stock
valued at $1,476,000, which represent dividends accrued in 1998, were issued. At
March 31, 2000, dividends aggregating $1,955,000 were due and payable RBB.
8
<PAGE>
Serengeti Eyewear, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Each of the Series A Preferred Shares may be converted into shares of
common stock at any time. Each Series A share is convertible into such number of
common shares as is determined by dividing its stated value of $1,000 by a
conversion rate equal to the lower of (a) $5.50 or (b) 80% of the average market
price for the common stock for the ten trading days ending three days prior to
the giving by the holder of a notice of conversion.
Each of the Series B Preferred Shares may be converted into shares of
common stock at any time. Each Series B share is convertible into such number of
common shares as is determined by dividing its stated value of $1,000 by a
conversion rate equal to the lower of (a) $6.75 or (b) 80% of the average market
price for the common stock for the ten trading days ending three days prior to
the giving by the holder of a notice of conversion.
Each of the Series C Preferred Shares may be converted into shares of
common stock at any time. Each Series C share is convertible into such number of
common shares as is determined by dividing its stated value of $1,000 by a
conversion rate equal to the lower of (a) $8.25 or (b) 80% of the average market
price for the common stock for the ten trading days ending three days prior to
the giving by the holder of a notice of conversion.
The Company recorded dividends of $1,564,000 ($61.61 per share),
$1,476,000 ($61.74 per share) and $5,040,000 ($222.83 per share), including
$3,750,000 of dividends recorded as an issuance of the beneficial conversion
features of the preferred stock, during 1999, 1998 and 1997, respectively.
At any time after September 30, 2000 the Company will have the right to
force conversion of the preferred shares into common stock.
Note E. Concentration of credit risk/major customers
During the three months ended March 31, 2000, the Company made net
sales to three customers of approximately $2,000,000, $1,300,000 and $1,100,000,
or 17.8%, 11.6% and 10.2% of its total net sales, respectively. During the same
three-month period of the prior year, the Company made net sales to the same
three customers of approximately $2,400,000, $1,400,000 and $200,000, or 22.8%,
12.9% and 2.3% of its total net sales, respectively.
Approximately $3,300,000, or 44.6%, of the gross accounts receivable,
were due from three customers at March 31, 2000 and were unsecured.
Approximately $2,500,000, or 36.1%, of the gross accounts receivable were due
from three customers at March 31, 1999 and were unsecured.
Note F: Litigation
During January 1998, RBB Bank Aktiengesellschaft ("RBB"), the entity
which purchased $22.5 million of the Company's preferred stock, the proceeds of
which were utilized by the Company to purchase the Serengeti business, filed a
complaint in the United States District Court, Southern District of New York. In
the complaint, RBB alleges various violations of the securities laws in
connection with the purchase by RBB of the 22,500 shares of the Company's
convertible preferred stock. RBB contends that the Company (i) failed to
disclose certain material information and that RBB relied to its detriment on
these omissions in purchasing the Company's convertible preferred
9
<PAGE>
Serengeti Eyewear, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
stock and (ii) failed to convert the preferred stock when requested. There are
also common law claims for fraud and negligent misrepresentation. RBB seeks
specific performance of RBB's right to convert its preferred shares and
compensatory damages up to $22.5 million, equal to the purchase price of the
preferred stock, plus interest. RBB also seeks punitive damages and attorneys'
fees. In April 1998, the Company moved to dismiss the federal securities laws
claims against it, as well as the common law claims for conversion, fraud and
negligent misrepresentation. Following the filing of the motion to dismiss, RBB
withdrew its claim against the Company arising under Section 12 of the
Securities Act of 1933. The court granted the Company's motion to dismiss the
remaining securities law claim against it under Section 10 of the Securities
Exchange Act of 1934 and limited the scope of the fraud and negligent
misrepresentation claim. The court denied the motion with respect to the
conversion claim. In January 1999, the Company answered the complaint by denying
all the allegations of wrongdoing and by asserting various affirmative defenses
to RBB's claims. Document and deposition discovery has been substantially
completed. No trial date has been scheduled. The parties have reached a
conditional settlement of this action. Accordingly, by order dated February 17,
2000, the court dismissed the case without prejudice with the right to reopen
the case on or before August 17, 2000, if the settlement is not consummated.
In the normal course of conducting its business, the Company is
involved in various other legal matters. The Company is not a party to any other
legal matter which management believes could result in a judgment that would
have a material adverse effect on the Company's financial position, liquidity or
results of operations.
10
<PAGE>
Serengeti Eyewear, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note G. Foreign operations
The Company distributes its products from two geographic areas: The
United States and Hong Kong. Following is a summary of information by area for
the three months ended March 31, 2000 and 1999:
Foreign Operations:
Three Months Ended March 31
------------------------------
2000 1999
---- ----
(Unaudited) (Unaudited)
Net sales to unaffiliated customers:
United States $11,074,158 $ 8,605,816
Hong Kong $ 156,821 $ 1,927,119
----------- -----------
$11,230,979 $10,532,935
Income from operations:
United States $ 1,888,592 $ 1,047,121
Hong Kong $ 58,472 $ 156,126
----------- -----------
$ 1,947,064 $ 1,203,247
Other Income $ - $ (5,658)
Interest expense $ (383,414) $ (436,331)
Income taxes $ (35,400) $ -
----------- -----------
Net income $ 1,528,250 $ 761,258
----------- -----------
Identifiable assets:
United States $37,104,420 $38,708,870
Hong Kong 1,916,180 573,321
----------- -----------
$39,020,600 $39,282,191
=========== ===========
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial statements and the Notes thereto appearing elsewhere in this report.
Results of Operations
Comparison of the three months ended March 31, 2000 to the three months ended
March 31, 1999.
Net sales increased 6.6%, from approximately $10.5 million for the
three months ended March 31, 1999 to approximately $11.2 million for the same
period in 2000, primarily as a result of increased sales to Costco Canada, a
major customer of the Company.
Gross profit as a percentage of sales increased from 40.3% for the
three months ended March 31, 1999 to 45.9% for the same period in 2000,
primarily due to cost reductions with suppliers realized during the current
period.
Selling expenses decreased from approximately $715,000 during the three
months ended March 31, 1999 to approximately $600,000 for the same period in
2000. Sales commissions decreased because a greater percentage of the Company's
sales were made to "house" accounts which do not earn a commission. Advertising
print production and printing costs decreased, as the Company deferred certain
media advertising to coincide with new products to be introduced during the
second quarter of 2000. The Company was also able to continue utilizing
promotional brochures and point-of-sale materials printed during 1999, rather
than incurring the expense of developing new such materials in the first quarter
of 2000.
General and administrative expenses increased from approximately $2.0
million for the three months ended March 31, 1999 to approximately $2.2 million
for the same period in 2000, primarily due to increases in payroll resulting
from customary annual pay increases, and increases in bad debt reserves and
warranty expenses coinciding with increased sales during the first quarter of
2000 over the first quarter of 1999, partially offset by a decrease in
consulting fees and gains on foreign exchange.
Interest expense decreased from approximately $436,000 for the three
months ended March 31, 1999 to approximately $383,000 for the same period in
2000, primarily as a result of a reduction in long-term debt.
Liquidity and Capital Resources
The Company entered into a loan agreement for a new senior credit
facility on September 17, 1999 which includes 1) a $12 million revolver facility
with interest calculated at prime plus 1.75%, and 2) a term loan of $725,000
with interest calculated at prime plus 2.00%, payable in 12 equal monthly
installments commencing November 1999.
Under the new credit facility, the Company is able to borrow up to 85%
of eligible domestic accounts receivable and 75% of eligible foreign accounts
12
<PAGE>
receivable, and up to 80% and 50% of the value of the Company's eligible premium
and non-premium inventory, respectively, subject to additional limitations on
inventory-based loans. The unused portion of the facility was approximately $2.1
million at March 31, 2000.
The new facility requires the Company to maintain certain financial
ratios. Pursuant to the credit facility, in the event the Company has "surplus
cash" in any fiscal year, the Company is required to make mandatory prepayments
against the term loan in the amount of 25% of the surplus cash. The facility
also contains a number of customary covenants, including, among others,
limitations on liens, affiliate transactions, mergers, acquisitions, asset
sales, dividends and advances. The facility is secured by a first priority lien
on substantially all of the assets of the Company and its subsidiaries. At March
31, 2000, the Company was in violation of the leverage ratio requirement under
the new revolver and obtained a waiver from the lender for those violations.
The new loan agreement retired all but $2 million of the debt which
existed with the Company's former senior lender. An amendment was signed with
the former senior lender which requires the Company to retire said debt in 18
equal monthly installments commencing November 1999, with interest calculated at
prime plus 4.00%.
The Company's liquidity improved from a working capital deficit of
approximately $1.1 million at December 31, 1999 to working capital of
approximately $200,000 at March 31, 2000, primarily as a result of a reduction
in the current portion of long-term debt and accounts payable.
The Company incurred capital expenditures of approximately $79,000 for
the three months ended March 31, 2000, primarily through the purchase of new
sunglass molds. The Company does not expect to make material capital
expenditures during the 2000 fiscal year.
The Company anticipates that the net cash available from operations
will be sufficient to satisfy its anticipated cash requirements for the
remainder of the 2000 fiscal year.
Concentration of Customers
Wal-Mart, Sunglass Hut and Costco accounted for 17.8%, 11.6% and 10.2%,
respectively, of the Company's net sales for the three months ended March 31,
2000. Such customers accounted for 22.8%, 12.9% and 2.3% of net sales,
respectively, for the three months ended March 31, 1999. The loss of any or all
of these customers, or a significant future reduction in their respective
purchases of the Company's products, may be expected to materially adversely
affect the Company's operations and prospects.
Dependence on Single Supplier
The Company relies on Corning as its sole source of supply for lens
blanks for its Serengeti product line. Any disruption of this source may result,
at a minimum, in a temporary curtailment of the Company's ability to ship these
products, while a loss of this source may materially adversely affect the
Company's operations and prospects.
13
<PAGE>
Seasonality
The Company's sales are seasonal with historical premium product sales
higher in the second quarter of each year. The Company anticipates that the
seasonality of its premium sunglass business generally will follow the selling
activity of its largest customer, Sunglass Hut. Historically, the strongest
quarter in terms of Serengeti sales is the second quarter, followed by the
first, fourth and third quarters.
The seasonality of the Company's non-premium sunglass business
generally follows the selling activity of its largest customer for such
products, Wal-Mart. Historically, the Company's strongest quarter in terms of
sales is the fourth quarter, followed by the first, second and third quarters.
Foreign Currency Exchange
The Company presently transacts business internationally in United
States currency and in the local currency of its suppliers. During the three
months ended March 31, 2000, the Company realized foreign exchange gains of
approximately $71,000, primarily as a result of the gains of the U. S. Dollar
against the Japanese Yen and Italian Lira. In order to ensure that it purchases
product at competitive prices, the Company is negotiating with its suppliers to
put in place concessions in the event either party is materially adversely
affected by future currency fluctuations.
Recent Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to
recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. FAS 133, as amended by FAS 137,
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000.
Historically, the Company periodically entered into derivative
contracts for the purpose of hedging risks attributable to interest rate
fluctuations and, in general, such hedges have been fully effective in
offsetting the changes in fair value of the underlying risk. The Company did not
have any derivative contracts at March 31, 2000, and does not expect to have any
hedging activities in the future. Accordingly, FAS 133 is not expected to affect
the Company's financial statements.
Year 2000 Issues
The Year 2000 problem arose because many computer systems were designed
to identify a year using two digits, instead of four digits, in order to
conserve memory and other resources. Many computer systems were not designed to
recognize calendar dates beginning in 2000, which could have resulted in
miscalculations or system failures, which could have in turn resulted in an
adverse impact on the Company.
In November, 1997 the Company began converting its information system
to be year 2000 compliant. At December 31, 1997, the Company had completed the
installation of the new software and completed the process of updating
application by mid-1998. The Company incurred charges aggregating approximately
$50,000 in 1998 and additional costs and expenses of approximately $140,000 in
1999.
14
<PAGE>
Pursuant to the Company's Year 2000 planning, the Company requested
information regarding the computer systems of its key suppliers, customers,
creditors and financial service organizations.
The Company did not experience any significant disruptions in any of
its systems on January 1, 2000. As of the date of this report, no supplier or
customer of the Company has made the Company aware of any significant
disruptions subsequent to January 1, 2000. The Company will continue to monitor
this issue throughout the remainder of the calendar year.
Forward Looking Statements and Associated Risks
This report contains forward-looking statements, including statements with
respect to proposed financing activities and anticipated business trends, which
are made pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
some of which cannot be predicted or quantified and are beyond the Company's
control. Future events and actual results could differ materially from those set
forth in, contemplated by, or underlying the forward-looking statements.
Statements in this Report describe factors, among others such as (i) the
Company's continued ability to develop and introduce innovative products, (ii)
changing consumer preferences, (iii) manufacturing capacity constraints of its
outside sources and the availability of raw materials, (iv) the effect of
economic conditions, (v) dependence on certain customers, and (vi) other risks
identified from time to time in the Company's Securities and Exchange Commission
filings, that could contribute to or cause such differences.
15
<PAGE>
ITEM 3: Quantitative and Qualitative Disclosures About Market RISK
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). FAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
is required to adopt the provisions of the standard during the third quarter of
2000. Because the Company does not use derivatives, the Company does not expect
that the adoption of the new standards will have a material impact on the
results of operations or financial condition.
The Company presently transacts business internationally in United
States currency and in the local currency of its suppliers. During the three
months ended March 31, 2000, the Company realized foreign exchange gains of
approximately $71,000, primarily as a result of the gains of the U. S. Dollar
against the Japanese Yen and Italian Lira. In order to ensure that it purchases
product at competitive prices, the Company is negotiating with its suppliers to
put in place concessions in the event either party is materially adversely
affected by future currency fluctuations.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Reference is made to Note F of the financial statements included herein
and to the Company's annual report on Form 10-K for the year ended December 31,
1999 for a discussion of certain litigation.
During January 1998, RBB Bank Aktiengesellschaft ("RBB"), the entity
which purchased $22.5 million of the Company's preferred stock, the proceeds of
which were utilized by the Company to purchase the Serengeti business, filed a
complaint in the United States District Court, Southern District of New York. In
the complaint, RBB alleges various violations of the securities laws in
connection with the purchase by RBB of the 22,500 shares of the Company's
convertible preferred stock. RBB contends that the Company (i) failed to
disclose certain material information and that RBB relied to its detriment on
these omissions in purchasing the Company's convertible preferred stock and (ii)
failed to convert the preferred stock when requested. There are also common law
claims for fraud and negligent misrepresentation. RBB seeks specific performance
of RBB's right to convert its preferred shares and compensatory damages up to
$22.5 million, equal to the purchase price of the preferred stock, plus
interest. RBB also seeks punitive damages and attorneys' fees. In April 1998,
the Company moved to dismiss the federal securities laws claims against it, as
well as the common law claims for conversion, fraud and negligent
misrepresentation. Following the filing of the motion to dismiss, RBB withdrew
its claim against the Company arising under Section 12 of the Securities Act of
1933. The court granted the Company's motion to dismiss the remaining securities
law claim against it under Section 10 of the Securities Exchange Act of 1934 and
limited the scope of the fraud and negligent misrepresentation claim. The court
denied the motion with respect to the conversion claim. In January 1999, the
Company answered the complaint by denying all the allegations of wrongdoing and
by asserting various affirmative defenses to RBB's claims. Document and
deposition discovery has been substantially completed. No trial date has been
scheduled. The parties have reached a conditional settlement of this action.
Accordingly, by order dated February 17, 2000, the court dismissed the case
without prejudice with the right to reopen the case on or before August 17,
2000, if the settlement is not consummated.
In the normal course of conducting its business, the Company is
involved in various legal matters. The Company is not a party to any other legal
matter, other than discussed in its most recent Form 10-K, which management
believes could result in a judgment that would have a material adverse effect on
the Company's financial position, liquidity or results of operations.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SERENGETI EYEWEAR, INC.
Dated: May 12, 2000 By: /s/ Stephen Nevitt
------------------- ----------------------------------
Stephen Nevitt
President
(Principal Executive Officer)
By: /s/ William McMahon
------------------------------
William McMahon
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 2000 and the Consolidated Statements
of Operations for the three-month period ended March 31, 2000 and is qualified
in its entirety byh reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 72,710
<SECURITIES> 0
<RECEIVABLES> 7,470,240
<ALLOWANCES> 974,738
<INVENTORY> 14,654,286
<CURRENT-ASSETS> 21,746,706
<PP&E> 3,320,814
<DEPRECIATION> 1,502,429
<TOTAL-ASSETS> 39,020,600
<CURRENT-LIABILITIES> 21,532,748
<BONDS> 0
0
23,809,000
<COMMON> 2,384
<OTHER-SE> (6,504,203)
<TOTAL-LIABILITY-AND-EQUITY> 39,020,600
<SALES> 11,230,979
<TOTAL-REVENUES> 11,230,979
<CGS> 6,080,622
<TOTAL-COSTS> 6,080,622
<OTHER-EXPENSES> 3,203,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 383,414
<INCOME-PRETAX> 1,563,650
<INCOME-TAX> 35,400
<INCOME-CONTINUING> 1,528,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,528,250
<EPS-BASIC> .48
<EPS-DILUTED> .02
</TABLE>
