<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-----------------
[x] QUARTERLY REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission File No. 0-23590
SUPER VISION INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 59-3046866
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
8210 Presidents Drive
Orlando, Florida 32809
(Address of Principal Executive Offices)
(407) 857-9900
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at November 23, 1998:
Class A Common Stock, $.001
par value 1,770,049 shares
Class B Common Stock, $.001
par value 483,264 shares
Transitional Small Business Disclosure Format
Yes No X
--- ---
<PAGE> 2
SUPER VISION INTERNATIONAL, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Financial Statements:
Condensed Balance Sheets as of September 30, 1998 (unaudited) 1
and December 31, 1997
Condensed Statements of Operations for the Nine Months Ended
September 30, 1998 and 1997 (unaudited) 2
Condensed Statement of Stockholders' Equity (unaudited) 3
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (unaudited) 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
<PAGE> 3
SUPER VISION INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,178,194 $ 2,478,145
Investments -- 102,121
Trade accounts receivable, less allowance for
doubtful accounts of $93,611 and $156,517 895,231 1,501,340
Inventory 2,901,722 2,142,754
Advances to employees 9,946 14,313
Deferred income taxes 61,899 119,185
Other assets 187,479 98,812
------------ ------------
Total current assets 5,234,471 6,456,670
Property & Equipment 6,066,537 5,873,909
Accumulated depreciation and amortization (911,270) (526,436)
------------ ------------
Net property & equipment 5,155,267 5,347,473
Deposits on Equipment 96,520 --
Deferred Income Taxes -- 39,631
Other Assets 204,765 183,034
------------ ------------
$ 10,691,023 $ 12,026,808
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 436,543 $ 935,943
Accrued compensation and benefits 66,758 45,225
Deposits 61,283 97,839
Accrued warranty 3,000 --
------------ ------------
Total current liabilities 567,584 1,079,007
Obligation Under Capital Lease 3,178,449 3,148,359
Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued -- --
Class A common stock, $.001 par value, authorized
16,610,866 shares authorized, 1,770,049 issued and
outstanding 1,770 1,770
Class B common stock, $.001 par value, 3,389,134 shares
authorized, 483,264 issued and outstanding 483 483
Additional paid-in capital 8,237,279 8,201,040
Retained earnings (deficit) (1,294,542) (403,851)
------------ ------------
Total stockholders' equity 6,944,990 7,799,442
------------ ------------
$ 10,691,023 $ 12,026,808
============ ============
</TABLE>
See accompanying notes to condensed financial statements
1
<PAGE> 4
SUPER VISION INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,547,701 $ 1,881,038 $ 6,461,681 $ 6,626,760
Cost and Expenses:
Cost of sales 1,114,936 1,121,451 4,144,158 3,966,066
Selling, general and administrative 864,893 443,813 2,581,748 1,744,251
Research and development 124,452 95,034 276,331 227,029
----------- ----------- ----------- -----------
Total costs and expenses 2,104,281 1,660,298 7,002,237 5,937,346
----------- ----------- ----------- -----------
Operating Income (Loss) (556,580) 220,740 (540,556) 689,414
----------- ----------- ----------- -----------
Non-Operating Income (Expense):
Interest income 17,821 38,830 75,140 114,602
Interest expense (106,338) (123,991) (325,325) (123,991)
Loss on disposal of assets (131) (100,879) (3,033) (100,879)
----------- ----------- ----------- -----------
Total non-operating income (expense) (88,648) (186,040) (253,218) (110,268)
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (645,228) 34,700 (793,774) 579,146
Income Tax Expense (150,000) (1,322) (96,917) (169,160)
----------- ----------- ----------- -----------
Net Income (Loss) $ (795,228) $ 33,378 $ (890,691) $ 409,986
=========== =========== =========== ===========
Income (Loss) Per Common Share:
Basic $ (0.36) $ 0.02 $ (0.40) $ 0.19
=========== =========== =========== ===========
Diluted $ (0.36) $ 0.01 $ (0.40) $ 0.19
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
SUPER VISION INTERNATIONAL, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------------
CLASS A CLASS B ADDITIONAL RETAINED
------------------------ ----------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
--------- -------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,770,049 $1,770 483,264 $483 $8,201,040 $ (403,851)
Issue common stock warrants -- -- -- -- 36,239 --
Net loss for the nine
months ended September 30, 1998 -- -- -- -- -- (890,691)
--------- ------ ------- ---- ---------- -----------
Balance, September 30, 1998 1,770,049 $1,770 483,264 $483 $8,237,279 $(1,294,542)
========= ====== ======= ==== ========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 6
SUPER VISION INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (890,691) $ 409,986
----------- -----------
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation 395,942 215,830
Loss on disposal of fixed assets 3,303 100,879
Accretion of capital lease obligation 30,090 35,476
Deferred income taxes 96,917 --
Issuance cost 36,239 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net 606,109 619
Inventory (758,968) (505,189)
Other assets (84,300) 153,512
Increase (decrease) in:
Accounts payable and accrued warranty (496,400) (164,863)
Accrued compensation and benefits 21,533 --
Accrued and other liabilities -- (290,747)
Deposits (36,556) 20,018
----------- -----------
Total adjustments (186,091) (434,465)
----------- -----------
Net cash used in operating activities (1,076,782) (24,479)
----------- -----------
Cash Flows from Investing Activities:
Purchase of investments -- 7,093
Proceeds from the sale of investments 102,121 --
Purchase of property, plant and equipment (200,786) (1,003,117)
Acquisition of patents and trademarks (27,984) (12,498)
Deposits on equipment (96,520) (79,786)
----------- -----------
Net cash used in investing activities (223,169) (1,088,308)
----------- -----------
Cash Flows from Financing Activities:
Issuance costs -- (15,000)
Proceeds from exercise of warrants -- 79,076
Proceeds from exercise of employee stock options -- 267,600
Payments on capital lease obligation -- (20,351)
----------- -----------
Net cash provided by financing activities -- 311,325
----------- -----------
Net Decrease in Cash and Cash Equivalents (1,299,951) (801,462)
Cash and Cash Equivalents, beginning of period 2,478,145 3,327,965
----------- -----------
Cash and Cash Equivalents, end of period $ 1,178,194 $ 2,526,503
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 7
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION:
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the Company's financial position,
results of operations and cash flows for the periods presented. The results
of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
The condensed financial statements should be read in conjunction with the
financial statements and the related disclosures contained in the Company's
Form 10-KSB dated April 13, 1998, filed with the Securities and Exchange
Commission.
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net loss or
shareholders' equity for 1998 or 1997.
2. STOCK OPTION PLAN:
The Company has a stock option plan that provides for the grant of
incentive stock options and nonqualified stock options for up to 450,000
shares of the Company's Class A common stock. The option price must be at
least 100% of market value at the date of the grant.
The following table summarizes activity of the stock option plan for the
nine-month period ended September 30, 1998:
<TABLE>
<CAPTION>
SHARES SHARES
AVAILABLE FOR SUBJECT TO OPTION
FUTURE OPTION EXISTING PRICE
GRANTS OPTIONS PER SHARE
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Balance, January 1, 1998 22,702 272,095 $5.00 - $9.25
Options authorized 100,000 - -
Options granted (17,000) 17,000 $3.00 - $9.25
Options exercised - -
Options cancelled 23,200 (23,200) $5.00 - $9.13
------------ -------
Balance, September 30, 1998 128,902 265,895
============ =======
</TABLE>
Options granted vest ratably over a three-year period or vest based on
achievement of performance criteria. As of September 30, 1998, 158,802
options were vested and exercisable.
5
<PAGE> 8
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
3. INCOME TAXES:
The components of the net deferred tax asset recognized in the accompanying
balance sheet at September 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -----------
<S> <C> <C>
Deferred tax $(133,834) $(133,834)
liability
Deferred tax asset 674,976 376,279
Valuation allowance (479,243) (83,629)
--------- ---------
$ 61,899 $ 158,816
========= =========
</TABLE>
The types of temporary differences between the tax basis of assets and
liabilities and their financial statement reporting amounts are
attributable principally to depreciation methods, deferred gains, and
different accounting methods used.
As of September 30, 1998, the Company had approximately $1,458,000 in net
operating loss carryforwards for federal and state income tax purposes,
which expire in 2012.
4. INVENTORY:
Inventory at September 30, 1998 and December 31, 1997 consisted of the
following components:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Raw materials $ 2,257,123 $ 1,635,278
Work in progress 80,954 --
Finished goods 615,690 559,521
----------- -----------
2,953,767 2,194,799
Less: Reserve for excess inventory (52,045) (52,045)
----------- -----------
$ 2,901,722 $ 2,142,754
=========== ===========
</TABLE>
6
<PAGE> 9
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
5. CAPITAL LEASE:
The Company leases its operating facility from a corporation owned by the
Company's Chief Executive Officer. The lease has a fifteen-year term, and
became effective June 15, 1997, extending through June 15, 2012.
Assets recorded under capital lease and included in Property, Plant and
Equipment are as follows:
<TABLE>
<S> <C>
Office/Warehouse building $ 3,081,000
Less accumulated amortization (256,328)
-----------
$ 2,824,672
===========
</TABLE>
Future minimum annual lease payments for the five years subsequent to
September 30, 1998 and in the aggregate are as follows:
<TABLE>
<S> <C>
1999 $ 256,650
2000 570,150
2001 581,520
2002 605,750
2003 610,596
2004 and thereafter 6,407,679
-----------
Minimum lease payments 9,032,345
Less amount representing interest and executory costs (5,853,896)
-----------
Present value of net minimum lease payments under capital lease $ 3,178,449
===========
</TABLE>
Deposits paid under this lease agreement totaled $58,167 at September 30,
1998.
7
<PAGE> 10
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
6. EARNINGS (LOSS) PER SHARE:
In 1997, the FASB issued SFAS No. 128, Earnings per Share. This statement
replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share are very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements. The
following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) (numerator for basic and
diluted earnings per share) $ (795,228) $ 33,378 $ (890,691) $ 409,986
----------- ---------- ----------- ----------
Denominator:
Denominator for basic earnings per share
-weighted average shares 2,227,183 2,182,671 2,227,183 2,152,952
Effect of dilutive securities:
Options -- 37,971 -- 13,328
Warrants -- 488,182 -- 47,943
----------- ---------- ----------- ----------
Dilutive potential shares -- 526,153 -- 61,271
Denominator for diluted earnings per share 2,227,183 2,708,824 2,227,183 2,214,223
-adjusted weighted average shares
Basic earnings (loss) per share $ (0.36) $ 0.02 $ (0.40) $ 0.19
=========== ========== =========== ==========
Diluted earnings (loss) per share $ (0.36) $ 0.01 $ (0.40) $ 0.19
=========== ========== =========== ==========
</TABLE>
Certain warrants and escrowed shares are not included in the computation of
earnings per share because the related shares are contingently issuable or
to do so would have been anti-dilutive for the periods presented.
8
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report.
The following discussion contains certain forward-looking statements, within the
meaning of the "safe-harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the attainment of which involve various risks and
uncertainties. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may", "will", "expect", "believe",
"estimate", "anticipate", "continue", or similar terms, variations of those
terms or the negative of those terms. The Company's actual results may differ
materially from those described in these forward-looking statements due to,
among other factors, competition in each of the Company's product areas,
dependence on suppliers, the Company's limited manufacturing experience and the
evolving nature of the Company's fiber optic technology.
Results of Operations
The net loss for the 1998 quarter and 1998 nine months was approximately
$(795,000) and $(891,000), respectively, or $(.36) and $(.40) per diluted common
share, respectively, as compared to net income of approximately $33,000, or $.01
per diluted common share, in the 1997 quarter and $410,000, or $.19 per diluted
common share for the 1997 nine months. The decrease is primarily due to sales
volume that was below projected levels in the areas of pool and spas and export
markets.
REVENUES. Revenues are derived primarily from the sale of fiber optic side
glow(R) and end glow(TM) cable and light sources, point of purchase fiber optic
signs and displays and sales of fiber optic landscape and task lighting systems.
Total revenues for the three months ("1998 quarter") and nine months ended
September 30, 1998 ("1998 nine months") were approximately $1,548,000 and
$6,462,000, respectively, as compared to approximately $1,881,000 and $6,627,000
for the three months ("1997 quarter") and nine months ended September 30, 1997
("1997 nine months"). This represented decreases of 18% and 3%, respectively.
The Company experienced revenue growth in the domestic lighting market, and is
planning to expand efforts in this market. Subsequent to the end of the 1998
quarter, the Company entered into an exclusive distribution agreement
("Agreement") with Cooper Lighting, Inc. ("Cooper"), a subsidiary of Cooper
Industries, Inc. whereby Cooper acquired the exclusive rights to market and sell
the Company's products in the United States and Canadian architectural lighting
market (the "Market"). Subject to the specific terms of the Agreement, over a
five year period Cooper has minimum purchase targets of up to an aggregate of
$47,000,000 of the Company's products for resale in the Market. Management
believes this Agreement will expand the domestic market for the Company's
products, and may contribute to the worldwide acceptance of fiber optic
technology in the lighting market. Management further believes that broader
acceptance of fiber optic technology in significant markets like the United
States and Canada could help to stimulate future revenue growth in export and
other markets.
Export sales were well below expectations in the 1998 quarter and 1998 nine
months, primarily due to the relative strength of the U.S. dollar overseas,
which raised the relative price of the Company's products as compared to other
types of lighting products. Management noted that the majority of the Company's
export sales were tied to new and renovation construction; consequently, as
foreign markets have experienced economic difficulties, construction funding has
slowed and sales of product through the Company's distribution channels have
fallen. In response, Management has sought to expand distribution in targeted
areas that have not suffered economic reversals, such as Europe and portions of
South America. In the Asian market, the Company has suspended planned marketing
activities, believing that the Company's products cannot compete effectively
until such time as U.S. dollar stabilizes in relation to the currencies of the
Company's Asian distributors.
Revenues in the pool and spa market were below forecast, as the Company's
exclusive partner in the pool and spa industry did not achieve the market
penetration originally anticipated. Management believes that the Company's
products must be upgraded to differentiate the Company from competitive
products. A new generation of higher performance products was released at the
recent National Spa and Pool Institute trade show which Management believes may
result in increased market recognition and revenues in future periods.
Revenues during the 1997 nine months included approximately $830,000 of revenue
recognized under a long-term contract completed in May 1997 for what the Company
believes to be the world's largest custom fiber optic display. Management
believes the overall market available to fiber optic lighting products continues
to increase as the commercial, sign and pool and spa industries become aware of
the benefits and applications of fiber optics in these market segments.
9
<PAGE> 12
COST OF SALES. Cost of sales were approximately $1,115,000, or 72% of revenues,
during the 1998 quarter and $4,144,000, or 64% of revenues, for the 1998 nine
months as compared to approximately $1,121,000, or 60% of revenues, for the 1997
quarter and $3,966,000, or 60% or revenues, for the 1997 nine months. The gross
margin was 28% and 36%, respectively, for the 1998 quarter and 1998 nine months
as compared to 40% for the both 1997 quarter and 1997 nine months. Gross margins
for the 1998 quarter and 1998 nine months were adversely affected by a sales mix
that favored light sources as opposed to lighting systems and fiber products.
The Company released several new light source products for the pool and spa
industry which provide superior performance and have been designed to realize
better unit profit margins. In addition, the Company plans to introduce several
new light sources targeted at the commercial and sign markets which are also
designed to improve gross margins on the light source lines. Gross margins were
also affected by the lower than anticipated sales volume which increased fixed
overhead costs per unit produced. Decreases in material costs were more than
offset by fixed operating costs. The increase in overall fixed operating costs
resulted from the Company's relocation in August 1997 from its previous
facilities totaling 27,000 square feet to its new facility of 70,000 square
feet. As revenue projections have fallen, Management has implemented cost
control programs including reduction of personnel in production and
administration areas through attrition, and programs designed to reduce indirect
manufacturing costs. Management believes that the increased costs associated
with the new facility are necessary for the Company to service the volume
increases associated with the Company's recent Agreement with Cooper as well as
anticipated growth in the pool and spa product lines. Further, Management
intends to pursue additional distribution partners in targeted industries, and
believes the future benefits of the integrated manufacturing facility are
necessary to demonstrate the Company's ability to service such partners.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $865,000 and $2,582,000 during the
1998 quarter and 1998 nine months, respectively, as compared to approximately
$444,000 and $1,744,000 for the 1997 quarter and 1997 nine months, respectively.
This represented increases of 95% and 48%, respectively. During the 1998 nine
months, commission expenses were significantly increased due to the growth of
the Company's domestic lighting business that is supported by lighting agents
across the country. Commissions are payable upon receipt of payment in full on
customer accounts. In addition, the Company attended numerous international and
domestic trade shows compared to the 1997 nine months. As a result, advertising
expenditures for trade publication placements were significantly increased to
support these trade events. Literature expenses and educational training
seminars were also increased as the Company received greatly increased inquiries
for product catalogs and requests for applications training, which Management
believes is a result of the trade advertising and show attendance. As revenue
projections decreased, several planned trade events were canceled, particularly
in the Asian and Australian markets; however, many of the planned trade events
in the 1998 quarter were planned in late 1997 to secure early commitment
discounts, so the effect of these cancellations was minimal in the 1998 quarter.
To further reduce costs, the Company has restructured its internal sales groups,
and engaged commissioned manufacturer's representatives to decrease internal
costs of selling. Management has also engaged an out source marketing group to
aid in reducing the costs of advertising and to provide more targeted direction
in the Company's marketing efforts. Management also believes the recent
Agreement with Cooper will reduce selling and marketing expenses as Cooper will
assume responsibility for all costs of selling and marketing the Company's
products in the Market throughout the United States and Canada. While Management
believes these marketing and sales expenses are critical to potential future
revenue growth, Management is implementing more cost effective methods of
developing and delivering these materials and training services including
utilization of electronic catalogs and internet based systems.
The Company also experienced increase legal costs during the 1998 quarter.
Management became aware of a foreign competitor which the Company believes has
infringed the Company's fiber optic cable patents, and incurred expenses in
investigating the extent of the infringement and in pursuing remedial and
enforcement actions with various trade bodies. In addition, the Company filed a
lawsuit against several former employees who Management believes may be in
violation of certain covenants in their employment agreements. Management
intends to aggressively enforce the covenants of confidentiality and
non-competition in such agreements against the former employees.
10
<PAGE> 13
RESEARCH AND DEVELOPMENT. Research and development costs were approximately
$124,000 and $276,000, respectively, during the 1998 quarter and 1998 nine
months as compared to approximately $95,000 and $227,000, respectively, during
the 1997 quarter and 1997 nine months. This represented increases of 31% and
22%, respectively. During the 1998 quarter, the Company continued several joint
product development efforts with key vendors and technology partners to attempt
to reduce fixed research and development costs. Management believes that these
relationships may allow the Company to accelerate product development while
reducing development costs and cycle times. During the 1998 nine months, the
Company increased personnel levels in the area of research and development in
order to shorten development time of several new light sources and to accelerate
a cost reduction and re-engineering program in several core product categories
to reduce manufacturing costs of these product lines. The initial results of
these efforts were the introduction of a new line of high performance products
targeted to the pool and spa industry in the 1998 quarter to increase
penetration of this market through Hayward Pool Products. The Company also plans
to release several new product lines in the fourth quarter of 1998 and the first
quarter of 1999 which Management believes will be critical to future revenue
growth in the lighting and signage markets. Management believes the increased
expenditures for engineering and research and development are necessary to
ensure that the Company continues to expand its product offerings to the market
and to maintain a leadership position in fiber optic lighting technology.
INTEREST. Interest income is derived from the short-term investments of liquid
cash balances in low risk commercial paper and money market funds. Interest
income for the 1998 quarter and 1998 nine months was approximately $18,000 and
$75,000, respectively, as compared to approximately $39,000 and $115,000,
respectively, for the 1997 quarter and 1997 nine months. The decrease is
attributable to lower average cash balances available for investment during the
1998 nine months. The Company utilized cash during the 1998 nine months to
expand inventory in advance of the traditional summer building season in the
pool and spa and architectural lighting markets.
Interest expense increased from approximately $124,000 for the 1997 quarter and
1997 nine months to approximately $106,000 and $325,000 for the 1998 quarter and
1998 nine months. The increase is attributable to the accounting treatment for
the lease on the Company's new facility as a capital lease under Statement of
Financial Accounting Standards No. 13, Accounting for Leases.
TAXES. Provision for income taxes included charges of approximately $150,000 and
$97,000, respectively, for the 1998 quarter and 1998 nine months compared to
income tax expense of $1,322 and $169,000, respectively, for the 1997 quarter
and 1997 nine months. Income taxes for the 1998 nine months included a provision
for income taxes of $150,000, which was offset by tax benefits of approximately
$53,000. The charge to income during the 1998 nine months was due to the
accounting treatment of the net deferred tax asset resulting from prior years'
net operating loss carryforwards and the associated valuation allowance against
this asset. Income taxes for the 1997 nine months included a provision for
income taxes of approximately $174,000, which was offset by tax benefits of
approximately $38,000 as a result of the carryforward of prior year tax losses.
Liquidity and Capital Resources
At September 30, 1998, the Company had working capital of approximately
$4,667,000.
Cash and investments decreased by approximately $1,300,000 during the 1998 nine
months. Inventory increased by approximately $759,000 during the 1998 nine
months. Inventory was expanded based on planned revenue growth. As projections
for revenue growth were reduced, material orders have been postponed or canceled
to match new forecasts. The inventory on hand consists mainly of raw materials
for the Company's core optical products lines, and will be used to support
future revenue growth in the domestic lighting market in furtherance of the
Agreement with Cooper. Accounts Receivable decreased by approximately $606,000
as extended credit term sales to major customers became due. Other assets
increased by approximately $84,000. The increase was primarily due to
prepayments on tooling for new products and tooling to reduce unit costs and
improve margins on core product lines. Deposits on orders decreased by
approximately $37,000. In the past, the Company had required deposits on orders
prior to order acceptance. As the Company's customer mix has evolved, the
Company has modified its credit terms to industry standards for qualified
customers. Accounts payable decreased by approximately $499,000 as extended
credit term purchases from major vendors became due. Net equipment and furniture
decreased by approximately $192,000. Acquisitions of fixed assets and computer
equipment were exceeded by depreciation on existing assets. Planned capital
expansions, other than
11
<PAGE> 14
the aforementioned tooling projects, were postponed as revenue projections were
revised downward. The Company plans to continue to make tooling changes in core
product lines to increase the unit profitability of these products and to
install a new information system which will allow real time updating and
streamlining of databases that are currently unrelated and stored on multiple
information systems, which may reduce internal administrative costs and increase
revenue per employee.
Subsequent to the 1998 quarter, the Company entered into an Agreement with
Cooper for the distribution of its products in certain Markets located in the
United States and Canada. Concurrent with the Agreement, Cooper Lighting, Inc.
purchased Class A common stock directly from the Company equivalent to
approximately 10% of the total outstanding stock of the Company. The acquisition
price of the common stock was $7.98 per common share, resulting in net proceeds
to the Company of approximately $1,960,000. Under the terms of the stock
purchase agreement, Cooper is entitled to nominate one director to the Board of
Directors of the Company, and received certain registration rights and warrants
in conjunction with the transaction.
Escrowed Shares
In January 1994, the Company and certain stockholders of the Company entered
into an agreement providing for the escrow of 2,918,000 shares held by such
individuals (the "Escrow Shares"). In the event any of the shares were released
from escrow to officers, directors and other employees of the Company,
compensation expense would be recorded for financial reporting purposes as
required by generally accepted accounting principles. As of March 31, 1997,
Brett Kingstone, the President and Chairman, voluntarily retired 2,891,870
shares of Class B Common Stock previously held in the escrow account. These
shares were returned to the Company treasury and cancelled. The Company
currently has 26,130 shares of Class A Common Stock held in escrow. In the event
the Company attains certain earnings thresholds, or the Company's Class A Common
Stock meets certain minimum bid prices required for the release of the remaining
26,130 Escrow Shares, the Company may, in the event of the release of such
shares from escrow, recognize during the period in which the earnings thresholds
are met or are probable of being met or such minimum bid prices attained,
charges to earnings as compensation expense which would have the effect of
reducing the Company's earnings at such time.
Year 2000 Issue
As year 2000 approaches, an issue impacting all companies has emerged regarding
how existing application software programs and operating systems can accommodate
this date value. In brief, many existing application software products in the
marketplace were designed to only accommodate a two digit date position which
represents the year (i.e., "98" is stored on the system and represents the year
1998). As a result, the year 1999 (i.e., "99") could be the maximum date value
systems will be able to accurately process. Significant uncertainty exists in
the software industry concerning the potential effects associated with such
compliance. Management is in the process of working with its software vendors to
assure that the Company is prepared for the year 2000. The Company does not
anticipate incurring additional expenditures to upgrade its current software and
hardware equipment in relation to the "Year 2000" issue. The developers of the
accounting software and operating systems that the Company currently uses have
submitted written statements assuring the Company that the software has the
capability to handle Year 2000 issues and the Company will not have to incur
further costs for upgrades.
The Company relies on its customers, suppliers, utility providers, financial
institutions and other partners in order to continue normal business operations.
At this time, it is impossible to assess the impact of the Year 2000 issue on
each of these organizations. There can be no guarantee that the systems of other
unrelated entities on which the Company relies will be corrected on a timely
basis and will not have a material adverse effect on the Company. The Company
has identified the other organizations which are critical to its' continued
operations and intends to survey these organizations to determine the impact of
the Year 2000 on their operations and their plans for addressing any potential
concerns. The estimated cost of review and assessment efforts is not expected to
be material to the Company's financial position or any year's result of
operations, although there can be no assurance of this result.
12
<PAGE> 15
PART II
Item 5. Other Information
On November 23, 1998, Registrant entered into a Stock Purchase Agreement with
Cooper Lighting, Inc. ("Cooper"), a subsidiary of Cooper Industries, Inc. (a
New York Stock Exchange Company trading under the symbol "CBE") pursuant to
which Registrant sold to Cooper 250,369 shares of its Class A Common Stock,
$.001 par value per share ("Class A Common Stock") for a purchase price of
$2,000,000. In addition, the Registrant entered into a Distributorship Agreement
(the "Distributorship Agreement") with Cooper and Cooper Industries (Canada),
Inc., ("Cooper Canada") another subsidiary of Cooper Industries, Inc., pursuant
to which Cooper and Cooper Canada were granted the exclusive distribution rights
in the United States and Canada to Registrant's fiber optic products in the
commercial, residential, industrial, institutional and public transportation
markets, including but not limited to, any and all lighting applications in or
related to architectural lighting, accent lighting, down lighting, display
cases, landscaping, confinement, explosion-proof, clean rooms, traffic signals,
signage, outdoor area and emergency/exit lighting. In consideration for these
rights, Cooper has agreed, in accordance with the terms of the Distributorship
Agreement, to purchase up to $47,000,000 of the Registrant's products over a
five year period, renewable after such period. Cooper was also granted a ten
year warrant to purchase an additional 250,369 shares of Class A Common Stock of
the Registrant at $8.02 per share, and a warrant to purchase an additional
517,950 shares of Class A Common Stock at fair market value if the number of
outstanding shares of Class A Common Stock of Registrant is increased as a
result of the exercise of Registrant's currently outstanding warrants (the
"Warrants"). Cooper was granted registration rights with respect to the shares
of Class A Common Stock sold pursuant to the Stock Purchase Agreement and the
shares of Class A Common Stock issuable upon exercise of the Warrants. Cooper
also has the right to designate one director to Registrant's Board of Directors.
13
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.8 Stock Purchase Agreement between Registrant and
Cooper Lighting, Inc., dated November 23, 1998,
including exhibits (to be filed by amendment to
this 10-QSB as soon as possible).
27 Financial data schedule (Filed in electronic form only).
99.1 Press release dated November 23, 1998.
(b) The Company filed one current report on Form 8-K on August 13, 1998.
14
<PAGE> 17
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunder duly authorized.
SUPER VISION INTERNATIONAL, INC.
By: /s/Brett M. Kingstone Date: November 23, 1998
-------------------------------------------
Brett M. Kingstone, Chief Executive Officer
(Principal Executive Officer)
By: /s/John P. Stanney Date: November 23, 1998
---------------------------------------------
John P. Stanney, President and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SUPER VISION INTERNATIONAL, INC. FOR THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,178,194
<SECURITIES> 0
<RECEIVABLES> 895,231
<ALLOWANCES> 93,611
<INVENTORY> 2,901,722
<CURRENT-ASSETS> 5,234,471
<PP&E> 6,066,537
<DEPRECIATION> 911,270
<TOTAL-ASSETS> 10,691,023
<CURRENT-LIABILITIES> 567,584
<BONDS> 0
0
0
<COMMON> 2,253
<OTHER-SE> 8,237,279
<TOTAL-LIABILITY-AND-EQUITY> 6,944,990
<SALES> 6,461,681
<TOTAL-REVENUES> 6,461,681
<CGS> 4,144,158
<TOTAL-COSTS> 7,002,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325,325
<INCOME-PRETAX> (793,774)
<INCOME-TAX> 96,917
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (890,691)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
<PAGE> 1
Exhibit 99.1
FOR IMMEDIATE RELEASE
- ---------------------
November 23, 1998
For more information contact:
- -----------------------------
For Super Vision International
Bitner.com, 407/423-2433
Kimbra Hennessy, ext. 22
Cynthia Connally, ext. 25
SUPER VISION INTERNATIONAL AND COOPER LIGHTING
SIGN EXCLUSIVE MARKETING AND JOINT DEVELOPMENT AGREEMENT
ORLANDO, Fla. (Nov. 23, 1998) -- Super Vision International, Inc.
(NASDAQ:SUPVA, Class A Common), a world leader in the manufacture of fiber optic
lighting systems, today signed an agreement that grants Cooper Lighting, a
subsidiary of Cooper Industries, Inc. (NYSE:CBE), exclusive marketing and
distribution rights in North America for Super Vision's innovative fiber optic
products serving the architectural lighting market.
As part of the agreement, Cooper will acquire approximately 10 percent
of Super Vision's outstanding stock for $2 million and receive a seat on Super
Vision's Board of directors.
"This agreement gives Super Vision an infusion of capital that will
launch our fiber optic products into the mainstream of the lighting industry,"
said John Stanney, Super Vision president and CFO. "Because we believe that
fiber optics represents the future of lighting, we have earmarked a large
portion of this money for intense research and product development."
Fritz Zeck, president of Cooper Lighting said: "This alliance opens new
markets and adds value for our current and future customers by combining Super
Vision's fiber optic products with Cooper Lighting's unsurpassed sales,
marketing and product development capabilities. We'll be working together to
accelerate new product development and introductions. The addition of fiber
optic technology is an excellent complement to our product line, offering
exciting new solutions to our customers."
Cooper Industries is a Houston-based diversified, worldwide
manufacturer of electrical products, tools and hardware. Cooper Lighting
manufactures recessed, track, fluorescent, and emergency lighting fixtures sold
under such brand names as Halo, Iris, McGraw-Edison, Lumark, FailSafe, Metalux,
Sure-Lites, AtLite and Lumiere, a newly acquired line of outdoor lighting
products. Headquartered in Elk Grove Village, Illinois, Cooper Lighting has
manufacturing facilities in nine domestic and five international locations,
employing 5,200 people worldwide.
"This represents not only a landmark agreement for Super Vision but
also for the entire fiber optic industry," said Brett Kingstone, Super Vision
chairman and CEO. "The Cooper Lighting/Super Vision agreement becomes the first
major agreement where a lighting company has teamed with a fiber optic partner,
which signals that fiber optics is now entering the mainstream lighting
industry."
All fiber optic products for the agreement will be manufactured at
Super Vision's Orlando headquarters. Super Vision International, Inc. develops,
manufactures and sells a wide variety of fiber optic lighting and sign products
for use in the sign, architectural, swimming pool and spa, and landscape
lighting markets. For more information, please visit the Super Vision web site
at www.svision.com.
###
Statements contained in this news release that are not based upon current or
historical fact are forward-looking in nature. Such forward-looking statements
are subject to risks and uncertainties, which could cause actual results to
differ materially from estimated results. Such risks and uncertainties are
detailed in Super Vision's filings with the Securities and Exchange Commission.
