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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-23590
SUPER VISION INTERNATIONAL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 59-3046866
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
8210 PRESIDENTS DR., ORLANDO, FLORIDA 32809
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(Address of Principal Executive Offices)
(407) 857-9900
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12 (b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
CLASS A COMMON STOCK, $.001 PAR VALUE
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(Title of Class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $ 9,809,260.
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant computed by reference to the last sales price
at which the stock was sold on March 28, 2000 was $13,181,435.
As of March 17, 2000, there were issued and outstanding: 2,056,102 shares of
Class A Common Stock, $.001 par value and 483,264 shares of Class B Common
Stock, $.001 par value
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PART I
Item 1. Description of Business.
GENERAL
Super Vision International, Inc. (the "Company") is a world leader in
the design and manufacture of fiber optic lighting products, signs and displays
for applications in the signage, swimming pool, architectural, and retail
industries. The Company completed the initial public offering of its Class A
Common Stock in March 1994.
The Company was incorporated in Delaware on December 16, 1993 and is
the successor by merger to a Florida corporation of the same name, which was
incorporated in January 1991. The Company's executive offices are located at
8210 Presidents Dr., Orlando, Florida 32809 and its telephone number is (407)
857-9900.
PRODUCTS AND SERVICES
SIDE-GLOW(R) AND END GLOW(R) CABLES
The Company's SIDE-GLOW(R) fiber optic lighting cables are marketed as
an alternative to neon and other conventional lighting products, for use in
accent lighting, theme lighting and lighting areas where maintenance and
breakage are of concern to the end user. SIDE-GLOW(R) fiber optic lighting
cable is flexible and easy to install, is not prone to the breakage associated
with glass neon tubes and is energy efficient, providing significant savings in
electrical costs and maintenance. In addition, the cables can be combined with
standard or custom manufactured light sources and control systems to create
color changing patterns and unique lighting systems. The cables are offered in
a variety of diameters with a wide range of light sources.
END GLOW(R) cables are utilized to transmit cool, ultra violet and
heat free light from a remote light source to the object or area being lighted.
The Company markets its END GLOW(R) cables in conjunction with its line of
light sources and lighting accessories for a variety of applications from
swimming pool and spa lighting to display case lighting and residential
landscape lighting. END GLOW(R) cables allow for unique lighting of areas or
objects with the added benefits of fiber optics. Utilizing its state of the art
fiber optic cabling systems, the Company is able to custom manufacture END
GLOW(R) cables to user specifications, in order to deliver the required amount
of light to the object at the most affordable cost.
The Company's SIDE-GLOW(R) and END GLOW(R) cables have been
incorporated in diverse locations worldwide. Applications of these products can
be found in the following places: the world's largest fiber optically lit pool
in the Westin Hotel, St. John's, U.S. Virgin Islands; Universal Studios
CityWalk, Florida; the world's largest fiber optic sign installations for AT&T;
the Coca-Cola sign in New York Times Square; and the Pepsi Cola sign in
Caracas, Venezuela.
During 1999, the Company's SIDE-GLOW(R) and END GLOW(R) cable products
accounted for approximately 49% of the Company's total revenues. The Company
believes that this product area offers the largest growth potential and,
therefore, the Company intends to devote the majority of its engineering, sales
and marketing efforts to expand this area of its business and the related light
sources product line described below.
LIGHT SOURCES
The Company manufactures a variety of light sources used in
conjunction with its SIDE-GLOW(R) and END GLOW(R) fiber optic cables and
lighting accessories to create full lighting systems. Each line of light
sources was created to meet specific market needs and applications. The light
sources are manufactured to meet the standards established by Underwriters
Laboratories and comparable certifying bodies worldwide. The Company currently
manufactures numerous standard catalog light sources for the following:
endpoint fiber optic applications and certain SIDE-GLOW(R) applications;
swimming pool and residential applications; display case and interior theme
lighting industries; and commercial lighting and signage. The Company also
manufactures a wide variety of custom light sources for specific market needs
based on a survey of the customer's lighting application.
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The Company utilizes control systems with its light sources to allow
for customization of lighting systems. All of the Company's light sources are
designed to accept a variety of unique controller options, allowing the basic
light sources to meet a wide variety of market needs. Multiple light sources
can be sequenced using the Company's proprietary control systems to create
special lighting effects.
Light source product lines represented approximately 39% of the
Company's total revenue during 1999. The Company believes that maintaining a
competitively priced and commercially superior line of light sources is
critical to continued growth in all of the Company's product lines and markets.
The Company plans to devote significant resources to continue development of
these products and markets.
ENDPOINT SIGNS AND DISPLAYS
The Company designs, manufactures, and installs endpoint fiber optic
signs and custom displays for advertising, signage and point of purchase
displays. Custom patterns are created using sophisticated design tools and
software, which are then tailored to customer specifications. These patterns
are fed into automated equipment to produce drilled patterns in the subject
material. Fiber optic filaments are then placed, treated and gathered to a
light source. Utilizing a variety of techniques, the fibers are then ordered
within the light source and computer generated color disk assembly to create
the desired visual effects.
During 1999, endpoint signs and displays accounted for approximately
10% of the Company's total revenues.
LIGHTING ACCESSORIES
The Company sells a variety of lighting accessories and fixtures for
use with its fiber optic cables and light sources. These fixtures include
underwater lens assemblies, display case fixtures, downlights and landscape
accessories. The accessories and fixtures are used to provide direct object
lighting, decorative accent lighting and special effect lighting. The Company
believes that providing these fixtures and accessories to the market enhances
the Company's ability to market its fiber optic products as a full lighting
package, as opposed to a component line.
During 1999, lighting accessories accounted for approximately 2% of
the Company's total revenues.
WATERFALLS
In October 1999, the Company acquired the assets of Oasis Falls
International, Inc. and Maas Industries located in Sanford, Florida. The
Company believes that the acquisition of these businesses provides it with the
capabilities to design and manufacture waterfalls primarily used in swimming
pools, thereby expanding the distribution channel and application of the
Company's pool related products.
SALES AND MARKETING
The Company's products are utilized in a wide variety of applications;
consequently, the Company utilizes numerous marketing channels and strategies
to address target users. Since November 1998, the Company operates under an
exclusive distribution, sales and marketing agreement with Cooper Lighting,
Inc. and Cooper Industries (Canada), Inc. (referred to collectively hereinafter
as "Cooper"), pursuant to which Cooper acquired the North American rights to
market, sell and distribute the Company's products to the architectural
lighting market. The Company's products are marketed by Cooper under a new
brand, Optiance by Super Vision. The Company derived approximately 26% of its
total revenues from Cooper in 1999.
Since 1996, the Company has had an exclusive distribution and
marketing agreement with Hayward Pool Products ("Hayward"), the world's largest
pool products supplier, pursuant to which Hayward acquired the worldwide rights
to market and sell the Company's fiber optic swimming pool lighting products in
the pool and spa lighting market. The Company derived approximately 19% of its
total revenues from Hayward in 1999 compared to approximately 21% in 1998.
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The Company utilizes a combination of direct marketing and
manufacturer's representatives for its Signage product lines in order to reduce
end use costs. Endpoint signs and displays are also marketed direct to end
users, principally Fortune 500 companies worldwide.
International sales accounted for approximately 26% of the Company's
total revenues for 1999 and 1998. The Company has entered into exclusive and
non-exclusive marketing and sales arrangements with leading lighting companies
in international territories. The Company provides technical expertise and
limited marketing support, while its international distributors provide sales
staff, local marketing, and product service. The Company believes its
international distributors are better able to service international markets due
to their understanding of local market conditions and best business practices.
MANUFACTURING AND SUPPLIERS
The fiber optic strands used in the Company's endpoint signs and
displays as well as the production of its SIDE-GLOW(R) and END GLOW(R) cables
are purchased from several key suppliers. In October 1994, the Company entered
into a contract for the design and purchase of customized cabling and extrusion
equipment in order to produce its SIDE-GLOW(R) and END GLOW(R) cables. The
equipment became operational in December 1995. In August 1997, concurrent with
the Company's relocation to its new facility, the cabling and extrusion
equipment were upgraded and retrofitted to increase quality and production
capability. Revision of the manufacturing process has allowed the Company to
increase quality, improve capabilities and maintain process control. In
November 1998, the Company was able to make process modifications, which
yielded a 68% improvement in light output of its SIDE-GLOW(R) cables, which the
Company began shipping in February 1999. The Company believes that as the
volume of products produced increases, this equipment may further reduce the
manufacturing costs of its SIDE-GLOW(R) and END GLOW(R) cables, and therefore
allow the Company to offer its products to the market at prices equivalent to
neon lighting. In the event the cabling and extrusion equipment are ever
disabled for any period of time, the Company would outsource the manufacturing
of these products. The Company manufactures the light sources and control
systems used with its SIDE-GLOW(R) and END GLOW(R) cables and endpoint displays
in its facility in Orlando, Florida. The designs of the light sources are
considered proprietary and the Company has U.S. patents issued with respect to
this design. All endpoint displays are manufactured directly by the Company
based on the clients' specifications, or designed jointly with the Company's
highly experienced personnel. The Company believes its ability to offer a full
range of products and design, engineering and support services are unique in
the market place, and are important to its future prospects for growth.
The Company's strategy is to continue to reduce materials costs and
reduce its dependence on outside suppliers by expanding its manufacturing
capabilities and engineering its products around off the shelf components
combined with its proprietary designs. The Company continues to perform
research and development to further lower the cost of production of all
existing products. The Company also plans to develop additional products and
identify new markets and distribution channels.
The Company will continue to purchase the fiber optic strands from
several Japanese suppliers. While the Company believes alternative sources for
fiber optics are available to enable it to produce its endpoint signs and
displays, the SIDE-GLOW(R) and END GLOW(R) cables require fiber optic material
of a higher quality than the Company believes is currently available elsewhere.
RESEARCH AND PRODUCT DEVELOPMENT
The Company considers its ability to constantly improve existing
products, rapidly introduce new products to fill identified needs, and design
solutions for custom applications to be critical to its growth. The Company
believes this responsiveness to the market to be an important differentiating
factor, and will continue to seek rapid response to market trends. The Company
believes that the increasing market for fiber optic lighting products in
general may attract larger companies into the market with more capital and
technical personnel than the Company currently employs. Accordingly, the
Company plans to perform joint product development with its marketing partners
to maintain its competitive advantage and to defend its market position.
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During 1999, the Company spent approximately $544,000 on engineering
and product development activities, as compared to approximately $387,000 in
fiscal 1998. The Company feels its success will depend, in large part, on its
ability to continue to improve and enhance its existing products as well as
develop new products and applications for its technologies. In addition, the
Company believes it must improve gross margins on all product lines through
engineering and research.
The Company believes increased levels of spending on research and
development may be necessary to successfully develop a product which has the
brightness of neon and which can be sold at a comparable price. Further, the
Company feels joint research with Cooper will be required to fully develop and
expand a package of fiber optic lighting products and systems engineered
specifically for the architectural lighting market. Additionally, as new market
opportunities are found, increased levels of product development may be
warranted to rapidly design, engineer and produce products to fill these market
needs.
COMPETITION
The Company currently faces competition from both traditional lighting
technologies such as neon and florescent lighting and from competitors
specifically engaged in fiber optic lighting. Additionally, the Company is
aware that several larger companies which are currently engaged in traditional
lighting technologies or lighting component manufacturing have announced their
intention of entering the fiber optic lighting market through acquisition or
formation of divisions or subsidiaries dedicated to penetrating the fiber optic
lighting market. There can be no assurance that a large conventional lighting
company will not enter the market and utilize its resources to capture
significant market share and adversely affect the Company's operating results,
although the Company believes that its recent agreement with Cooper will be a
potential mitigating factor.
Traditional lighting technologies have the advantage of a long history
of market acceptance and familiarity as compared to the Company's products. The
Company is actively seeking to educate its target markets as to the advantages
of fiber optic lighting systems and believes that achievement of this objective
is critical to its future.
The Company must also compete with traditional lighting on the issues
of maintenance costs, safety issues, energy usage, price and brightness. The
Company feels its products can effectively compete against traditional lighting
in the areas of maintenance costs, safety and energy consumption. The Company's
lighting systems offer the advantage of centralized light source maintenance
for lamp replacement. This feature is superior to other lighting systems, such
as neon, which require maintenance throughout the lighting system.
Additionally, the SIDE-GLOW(R) and END GLOW(R) cables are virtually maintenance
and breakage free, as opposed to neon and other comparable lighting products
which experience high breakage rates both in the field and in shipment. This
reduced breakage also results in an additional advantage in the area of safety.
Further, the Company's products result in a voltage free light, which is
particularly beneficial in wet and underwater applications, where risk of shock
from electricity in the lighted path is an issue. The Company's products also
eliminate the majority of heat and radiation at the light output, which can be
advantageous in applications where these factors may not be desirable,
particularly with respect to lighting accessories such as task lighting and
display case lighting.
The Company's products may not favorably compete with traditional
lighting on the basis of price for smaller lighting systems and in particular
with neon systems in smaller scale applications, which comprise a large portion
of the available market. Additionally, fiber optic lighting systems do not
equal neon's brightness in a cost-effective manner for many applications. In
applications calling for maximum brightness and competitive cost, the Company's
products may not be able to compete effectively with traditional lighting
products.
The Company currently faces competition from a defined number of
companies directly involved in the field of fiber optic lighting addressed by
the Company's SIDE-GLOW(R) and END GLOW(R) cables and light source products.
These companies utilize a similar technology to that used by the Company and
compete generally on the basis of price and quality. The Company believes it
may compete favorably in markets where price is the central issue. The
Company's quality control system will also allow the Company to compete on the
basis of quality of product and services delivered. There can be no assurance,
however, that the current competitors directly involved in this industry or a
new competitor will not develop processes or technology which will allow them
to decrease their costs, and consequently, erode the Company's price advantage.
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PATENTS AND PROPRIETARY RIGHTS
The Company considers its technology and procedures proprietary and
relies primarily on patent and trade secret laws and confidentiality agreements
to protect its technology and innovations. Employees of the Company, as well as
technical consultants who may be hired from time to time, enter into
confidentiality and/or invention assignment agreements and non-competition
agreements providing for non-disclosure of proprietary and trade secret
information of the Company and the assignment to the Company of all inventions,
improvements, technical information and suggestions relating in any way to the
business of the Company (whether patentable or not) which the employee or
consultant develops during the period of their employment or association with
the Company. Despite these restrictions, it may be possible for competitors or
customers to copy one or more aspects of the Company's products or obtain
information that the Company regards as proprietary. Furthermore, there can be
no assurance that others will not independently develop products similar to
those sold by the Company. The Company therefore believes that producing the
highest possible quality products at the most competitive prices is the best
means to protect against competitive innovations.
The Company has been issued a United States patent relating to the
reflective center core used in the process of manufacturing its SIDE-GLOW(R)
cables and has received Patent Cooperation Treaty protection of this patent
overseas. The Company also has two United States patents on methods of
manufacturing alternative versions of fiber optic cables. Additionally, the
Company has acquired a United States patent related to the method of
manufacturing a fiber optic image magnification device. While there is no
guarantee that this patent can be developed into a commercially viable product,
the Company believes that expansion of the applications for its fiber optic
technologies are important to the possible achievement of future growth
objectives. The Company has a fifth patent related to its light source
technology and a device for connecting fiber optic cables to the light source.
The Company also has several patent applications pending with respect to a
variety of new product innovations and manufacturing methods.
The Company will continue to seek patent protection where appropriate
for future developments, improvements and enhancements to its technology. There
can be no assurance, however, that the Company's patent or patents that may be
issued in the future will provide the Company with sufficient protection in the
case of an infringement of its technology or that others will not independently
develop technology comparable or superior to the Company's. Although the
Company believes that the products sold by it do not and will not infringe upon
the patents or violate the proprietary rights of others, it is possible that
such infringement or violation has occurred or may occur. In the event that
products sold by the Company are deemed to infringe upon the patents or
proprietary rights of others, the Company could be required to modify its
products or obtain a license for the manufacture and/or sale of such products.
The Company has obtained approval for a registered trademark for the
"Super Vision" name, and has filed for a European community trademark.
Additionally, the Company has obtained registered trademarks on the brand names
SIDE-GLOW(R) and END GLOW(R) related to the Company's fiber optic cables, and
European community trademark applications have been filed as well. The Company
has also applied for trademarks on several planned new products and brand
names, with provisional approval expected in 2000. The Company believes the
trademarks may help in its efforts to achieve brand recognition, although there
can be no assurance to such effect.
EMPLOYEES
At March 1, 2000, the Company had 53 full-time employees, including 5
in research and development, 9 in sales, marketing and customer service, 10 in
finance and administration and 29 in production and quality control. None of
the Company's employees are currently covered by a collective bargaining
agreement and the Company considers its employee relations to be good. The
Company also utilizes temporary and part time employees as required by the
volume of business, primarily in the area of production.
Item 2. Description of Property.
The Company's executive offices and manufacturing facility are located
in approximately 70,000 square feet of leased space in Orlando, Florida. The
lease expires in June 2012 and provides for a base monthly rental. Rental
payments amounted to approximately $553,000 in 1999. Max King Realty, an entity
controlled by Brett Kingstone, the Chairman and Chief Executive Officer of the
Company, owns the building that houses the Company's facilities.
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Item 3. Legal Proceedings.
On January 8, 1999, the Company filed a lawsuit in the U. S. District
Court for the Middle District of Florida, Orlando Division against Neo-Neon,
Ltd., a Hong Kong corporation, and Line Lite International, B.V., a Netherlands
corporation, for direct patent infringement of the Company's patents related to
its Side Glow(R) products. In June 1999 both parties settled out of court with
the Company and agreed to stop selling infringing products.
On November 18, 1999 the Company filed a lawsuit (case number
CI-99-9392) in the Circuit Court of the 9th Judicial Circuit in and for Orange
County Florida against Jack Caruso, Samson Mong Wu, Susan Sumida Wu, Debbie Wu,
Thomas Wu, Lily Cheung, Ruby Lee, James C. Lee, Tony Lee, Optic-Tech
International Corporation, Shanghai Qiaolong Optic-Tech International Company,
Ltd., Marsam Trading Corporation, Marsam Trading Corporation (HK) Ltd., David
Winkler, Gitto/Global Corp., James J. Grimley, Nick Semenza, Rami Yosefian,
Sanford Properties, Inc., Jose Rosario Cruz, Ronald Elgin Simon, and Travis
Pochintesta (collectively, the "Defendants"). This is an industrial espionage
action in state court. The Company has made various allegations against the
twenty-two defendants, individually and collectively. These allegations include
fraud, breach of contract, breach of fiduciary duty, tortious interference with
existing business relationships, tortious interference with contractual
relationships, tortious interference with prospective business advantage,
unjust enrichment, violations of Florida's Uniform Trade Secrets Act, civil
conspiracy, violations of Florida's RICO Act and other conduct sufficient to
provide grounds for replevin and other equitable relief (i.e., accounting,
constructive trust and injunctive relief). The Defendants have been enjoined
from further violating their respective non-compete and confidentiality
agreements with the Company. They are also prohibited from the exploitation of
business opportunities or prospective business opportunities of the Company and
enjoined from any and all acts, omissions or behavior which in any way has an
adverse effect on the Company's property interests. Three of the Defendants,
Gitto/Global Corporation, Nick Semenza and James Grimely have been dismissed
from the litigation by the Company. One of the Defendants, Marsam Trading
Corporation, which filed for bankruptcy in November 1999, was recently granted
a dismissal from its Chapter 11 action, thus lifting the automatic stay that
otherwise shields a debtor from any state court actions against it. This will
enable the Company to proceed against Marsam in court. Discovery has begun and
investigation is ongoing. At this time, Defendants Jack Caruso, Samson Wu,
Susan Wu, Thomas Wu, David Winkler, Optic-Tech International Corporation and
Tony Lee have invoked their Fifth Amendment right to protection from
self-incrimination. These defendants attempted to stay the civil action pending
the resolution of pending criminal charges against them, but their motion to
stay was denied. Discovery (subject to the limitations prescribed by the Fifth
Amendment privilege) and investigation is ongoing. An appeal is now pending,
wherein these defendants are seeking review of their motion to dissolve the
injunction. Various motions have been filed and are pending. The case has not
yet been scheduled for trial. Plans are to vigorously pursue this lawsuit.
In September 1999, WPI Electronics (`WPI") filed a lawsuit against the
Company for breach of contract in the United States District court for the
District of New Hampshire (Case number C-99-426-B) relating to the delivery of
goods and claiming approximately $155,000 in damages. The Company filed a
motion to dismiss this action and a separate action against WPI in the U.S.
District Court for the Middle District of Florida claiming that the goods
delivered by WPI were defective and seeking to recover for inventory on hand
and for goods previously returned but already paid approximating $286,000.
These cases have now been consolidated in New Hampshire and the Company intends
to aggressively defend against WPI's claims and pursue its claims.
Item 4. Submission of Matters to a Vote of Security-Holders.
No matters were submitted to a vote of the security holders of the
Company during the fourth quarter of the fiscal year covered by this report.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Company's Class A Common Stock has traded on the Nasdaq
SmallCap Market under the symbol SUPVA since March 22, 1994.
The following table sets forth the average of the high and
low bid prices of the Class A Common Stock for the fiscal
years ended December 31, 1999 and 1998 as reported by The
Nasdaq Stock Market, Inc.
Bid Prices
High Low
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Year ended
December 31, 1999
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First Quarter 6-1/8 3-7/8
Second Quarter 6 4-5/8
Third Quarter 5-1/8 3-3/4
Fourth Quarter 6-1/2 4-1/8
Year ended
December 31, 1998
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First Quarter 7-1/2 5
Second Quarter 6-3/8 3-1/4
Third Quarter 5 3
Fourth Quarter 6-1/4 2-3/8
Such market quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not necessarily represent actual
transactions.
(b) The number of holders of record of the Company's Class A
Common Stock as of March 17, 2000 was 39.
(c) The Company has never paid a cash dividend on its Common
Stock (either Class A or Class B) and intends to continue to
follow a policy of retaining earnings to finance future
growth. Accordingly, the Company does not anticipate the
payment of cash dividends to holders of Common Stock in the
foreseeable future.
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Item 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this report and "factors that may affect future results
and market price of stock" below:
GENERAL
On October 18, 1999 the Company entered into an Asset
Purchase Agreement with Oasis Falls International, Inc. and Maas Industries to
acquire substantially all of the assets of these businesses in the amount of
$132,812, in exchange for 31,250 shares of the Company's Class A Common Stock.
The assets acquired include inventory, tooling machinery and certain
intangibles relating to tooling and intellectual property rights. In addition
the Company recorded approximately $26,000 in goodwill. The Company also agreed
to cause the dismissal with prejudice of a pending lawsuit filed by the Company
against Maas Industries.
RESULTS OF OPERATIONS
REVENUES
Revenues are derived primarily from sales of SIDE-GLOW(R) and
END GLOW(R) fiber optic cables, light sources, endpoint signs and displays and
lighting accessories. Revenues for 1999 were approximately $9,809,000 as
compared to $8,350,000 during the preceding year, an increase of approximately
$1,459,000 or 17%. The increase was primarily the result of growth in all major
markets. Architectural, sign, pool and spa and international revenues increased
21%, 29%, 7% and 28% respectively over 1998. The acquisition of Oasis Falls
contributed approximately $79,000 to the revenue growth in the fourth quarter.
GROSS MARGIN
Gross margin for 1999 increased to approximately $3,482,000,
a 17% increase over 1998. The gross margin percentage was 36% and unchanged
from 1998. The 1999 gross margin percentage on architectural revenues was
somewhat lower due to the full year effect of changes in the Company's
distribution channels, from Cooper becoming the Company's distributor in the
fourth quarter of 1998. Offsetting factors included favorable product mix and
an improved margin on pool and spa revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for 1999 were
approximately $2,978,000 and 30% of revenues compared to approximately
$3,623,000 and 43% of revenues for 1998, a reduction of approximately $645,000
and 18% from the preceding year. The decrease was primarily the result of lower
selling and marketing costs in the architectural lighting market since, under
the Company's distribution agreement, Cooper assumed responsibility for all
costs of selling and marketing the Company's architectural lighting products in
the exclusive markets throughout the United States and Canada.
RESEARCH AND DEVELOPMENT
Research and development costs were approximately $544,000
for 1999 compared to approximately $387,000 for 1998, an increase of 41%.
Increased product development activity contributed to the higher expense level
in 1999. Research and development costs are expensed as incurred, primarily in
advance of any related sales and in some cases may not ultimately generate
sales.
INTEREST
The Company had interest income for 1999 of approximately
$131,000 compared to approximately $91,000 for 1998 due to higher average cash
balances during the year. Interest expense of approximately $444,000 compared
to approximately $440,000 for 1998 relates to a capital lease concerning the
Company's facility in Orlando, Florida.
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INCOME TAX
The Company has provided a full valuation allowance against
income tax benefits resulting from losses incurred on operations and as a
result there is no provision for income tax in 1999. The charge of
approximately $159,000 to income in 1998 was due to the accounting treatment of
the net deferred tax asset resulting from prior years' net operating loss
carryforward and the associated valuation allowance against the net asset.
NET LOSS
The net loss for 1999 was approximately $(356,000), or
$(0.14) per share-diluted, compared to a net loss of approximately $(1,541,000)
or $(0.68) per share-diluted, for 1998. The significant decrease in the net
loss was due to the 17% increase in revenues, an 18% decrease in selling,
general and administrative expenses and the reduction of income tax expense as
compared to 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of
approximately $4,798,000.
OPERATING ACTIVITIES
Net cash provided by operations amounted to approximately
$58,000 for the year ended December 31, 1999 as compared to net cash used in
operating activities of approximately $(1,124,000) for the year ended December
31, 1998. The most significant use of cash for 1999 was the increase in
accounts receivable of approximately $1,123,000 mainly due to increased sales
volume as compared to 1998, particularly in the fourth quarter of 1999. The
increase in accounts receivable in 1999 is partially offset by an increase in
accounts payable of approximately $584,000 due to the timing of payments to
suppliers and the decrease in inventory of approximately $200,000 due to the
cancellation and postponement of material orders.
The most significant use of cash in 1998 was the loss from
operations (before changes in operating assets and liabilities) of
approximately $691,000. In addition net cash was used by an approximately
$597,000 decrease in accounts payable and an increase in inventory of
approximately $507,000, offset by a decrease in accounts receivable of
approximately $586,000 in 1998.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used by investing activities for the years ended
December 31, 1999 and 1998 amounted to approximately $1,675,000 and $485,000
respectively. The purchase of long-term investments in corporate bonds
(approximately $997,000) and a short term fixed income mutual fund
(approximately $370,000) accounted for the primary use of cash from investing
activities for 1999. The corporate bonds mature on August 1, 2001 and earn
interest at the rate of 7%; the short term fixed income fund earns a fixed rate
at the current level of 7.56%
The Company also used cash in the amount of approximately
$284,000 in 1999 principally to upgrade manufacturing tooling and equipment.
Net cash used by investing activities was approximately
$485,000 in 1998. Capital expenditures of approximately $565,000 for the
purchase of equipment related to the production of new products and replacement
of the Company's financial and operational software system, was offset by the
proceeds from the sale of investments of approximately $102,000.
10
<PAGE> 11
CASH FLOWS FROM FINANCING ACTIVITIES
The Company had available a $1,000,000 line of credit during
the first half of 1999. Amounts under the line were due on demand with interest
payable monthly at the prime rate. Certain securities served as collateral for
this line of credit. On July 15, 1999 the Company terminated the line of credit
arrangement. Borrowings and repayments under the line of credit amounted to
approximately $405,000 during 1999. During 1998, borrowings and repayments
under the line of credit amounted to approximately $275,000. As of December 31,
1998 there was no balance outstanding.
The Company believes that available cash, together with funds
expected to be generated from operations, will be sufficient to finance the
Company's working capital requirements, as well as planned expansion for the
next twelve months as currently contemplated.
In January 1994, the Company and certain stockholders of the
Company entered into an agreement providing for the escrow of a portion of the
shares held by such stockholders, in the aggregate of 2,891,870 shares of Class
B Common Stock and 26,130 shares of Class A Common Stock (the "Escrow Shares").
As of March 31, 1997, Brett Kingstone, the CEO 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 and retired. Until March 29,
1999, the Company held 26,130 shares of Class A Common Stock in escrow, in the
event the Company attained any of the earnings thresholds or the Company's
Class A Common Stock met certain minimum bid prices required for the release of
the remaining 26,130 Escrow Shares. These shares were returned to the Company
and retired in 1999.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
Forward-Looking Statements. This report contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act, Section 21E of the Exchange Act, and the Cautionary Safe Harbor Disclosure
for Forward Looking Statements under the Private Securities Litigation Reform
Act of 1995, which provide that, because of the factors set forth below, as
well as other variables affecting the Company's operating results, past
financial performance should not be considered a reliable indicator of future
performance and investors should not use historical trends to anticipate
results or trends in future periods. The statements contained herein, which are
not historical facts, are forward-looking statements that are subject to
meaningful risks and uncertainties, including, but not limited to, the
following additional facts to consider. In some cases, you can identify
forward-looking statements by terminology such as "may", "will", "should",
"expect", "plan", "anticipate", "believe", "estimate", "predict", "forecast",
"intend", or "potential". These forward-looking statements include the plans
and objectives of management for future operations, including plans and
objectives relating to, among other factors, competition in each of the
Company's product areas, dependence in suppliers, product demand, the ability
to timely respond to rapid changes in technology, the ability to attract and
retain qualified engineering and production personnel, infringement on or a
challenge to the Company's proprietary information, and changes in economic
conditions. Additional information concerning these or other factors which
could cause actual results to differ materially from those contained or
projected in, or even implied by, such forward-looking statements is contained
in this report and also from time to time in the Company's other Securities and
Exchange Commission ("SEC") filings. Copies of these filings are available from
the Company and/or the SEC. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the forward-looking information will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
Factors Affecting Growth and Profitability. The growth and
profitability of the Company's business will be dependent upon a number of
factors beyond the control of the Company. For example, since the lighting
industry generally is directly affected by new construction, building permits,
housing starts and energy considerations, the Company's growth and
profitability can be affected by adverse developments in those areas. Should
the Company experience a slowdown in construction, the slowdown may cause the
Company's business, financial position and results to be materially adversely
affected.
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<PAGE> 12
Nasdaq SmallCap Listing Requirements; Penny Stock Regulation.
The Company's Class A Common Stock is traded on the Nasdaq SmallCap Market. In
order to maintain its listing on the Nasdaq SmallCap Market, the Company must
maintain total assets, capital and public float at specified levels, and
generally must maintain a minimum bid price of $1.00 per share. If the Company
fails to maintain the standard necessary to be quoted on the Nasdaq SmallCap
Market, the Company's securities could become subject to delisting. If the
securities are delisted, trading in the securities could be conducted on the
OTC Bulletin Board or in the over-the-counter market in what is commonly
referred to as the "pink sheets." If this occurs, a security holder will find
it more difficult to dispose of the securities or to obtain accurate quotations
as to the price of the securities. In addition, the Common Stock could become
subject to the "penny stock" regulations promulgated under the Securities
Exchange Act of 1934, (the "Exchange Act"), which would subject the Company to
the requirements of Rule 15g-9 promulgated under the Exchange Act. Under such
rule, broker/dealers who recommend low-priced securities to persons other than
established customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser's
written consent prior to the transaction. The Securities Enforcement Remedies
and Penny Stock Reform Act of 1990 also requires additional disclosure in
connection with any trades involving a stock defined as a "penny stock"
(generally, according to regulations adopted by the Securities and Exchange
Commission, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions), including the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. Such requirements could
severely limit the market liquidity of the Common Stock and the ability of
investors to sell their securities in the secondary market.
Year 2000 Compliance. As of December 31, 1999, the Company
believed it was year 2000 compliant. As of March 15, 2000, no significant Year
2000 issues relating to the Company's internal operating systems, interfaces
with third parties or products have been experienced. In addition, as of March
15, 2000, information and products from third parties associated with the
Company have not had any adverse effects on the Company's operations. To date,
the costs incurred in association with any Year 2000 compliance projects have
not been material to the Company's results of operations or liquidity. In
addition the Company does not anticipate any additional significant costs to be
incurred in order to remain compliant.
Competition. The Company's product lines span major segments
within the lighting industry and, accordingly, the Company's products compete
in a number of different markets with a number of different competitors. The
Company competes with other independent distributors, importers, manufacturers,
and suppliers of lighting fixtures and other consumer products. The lighting
industry is highly competitive. Other competitors market similar products that
compete with the Company on the basis of price. Some of these competitors do
not maintain warehouse operations or do not perform some of the services
provided by the Company, which require the Company to charge higher prices. The
relatively low barriers to entry into the lighting industry and the limited
proprietary nature of many lighting products also permit new competitors to
enter the industry easily. The ability of the Company to compete successfully
in this highly competitive market depends upon its ability to manufacture and
purchase quality products on favorable terms, ensure its products meet safety
standards, deliver the goods promptly at competitive prices, and provide a wide
range of services such as electronic data interchange and customized products,
packaging, and store displays.
Trademarks and Patents. The Company considers its technology
and procedures proprietary and relies primarily on patent and trade secret laws
and confidentiality agreements to protect its technology and innovations.
Employees of the Company, as well as technical consultants who may be hired
from time to time, enter into confidentiality and/or invention assignment
agreements and non-competition agreements providing for non-disclosure of
proprietary and trade secret information of the Company and the assignment to
the Company of all inventions, improvements, technical information and
suggestions relating in any way to the business of the Company (whether
patentable or not) which the employee or consultant develops during the period
of their employment or association with the Company. The Company intends to
aggressively enforce these and all other such agreements. Despite these
restrictions, it may be possible for competitors or customers to copy one or
more aspects of the Company's products or obtain information that the Company
regards as proprietary. Furthermore, there can be no assurance that others will
not independently develop products similar to those sold by the Company. The
Company therefore believes that producing the highest possible quality products
at the most competitive prices is the best means to protect against competitive
innovations.
12
<PAGE> 13
Fluctuations in Quarterly and Annual Operating Results. The
Company's quarterly and annual operating results are affected by a wide variety
of factors that could materially and adversely affect revenues and
profitability. These include factors relating to competition, such as
competitive pricing pressure and the potential introduction of new products by
competitors, manufacturing factors, including constraints in the Company's
manufacturing and assembly operations and shortages or increases in the prices
of raw materials and components, sales and distribution factors, such as
changes in product mix or distribution channels resulting in lower margins, the
loss of a significant distributor or sales representative, and seasonality of
sales. Product development and introduction problems, such as increased
research, development and marketing expenses associated with new product
introductions, delays in the introduction of new products and technologies and
adverse effects on sales of existing products, as well as other factors,
including levels of expenses relative to revenue levels, personnel changes,
expenses that may be incurred in litigation, generally prevailing economic
conditions and fluctuations in foreign currency exchange rates could also
adversely affect the Company's business. The Company's annual and quarterly
results of operations also have been and will continue to be affected by
national economic and other factors, such as housing market trends, interest
rates and the weather.
The Company's quarterly operating results are also
substantially affected by the market's acceptance of the Company's products and
the level and timing of orders received. Significant portions of the Company's
expenses are relatively fixed in advance based upon the Company's forecasts of
future sales. If sales fall below expectations in any given quarter, the
Company's operating results will be adversely affected. In addition, certain
product development and marketing expenditures may vary significantly from
quarter to quarter and are made well in advance of potential resulting revenue.
Sales of commercial lighting products also depend
significantly upon the level of new building construction. Because of the
seasonality of construction, the Company's sales of swimming pool and
commercial lighting products have tended to be significantly lower in the first
quarter of each year. Various economic and other trends may alter these
seasonal trends from year to year, and the Company cannot predict the extent to
which these seasonal trends will continue.
The Company anticipates that any future growth in the fiber
optic lighting market will be accompanied by increasing competition in a number
of its product lines. Such competition could adversely affect the Company's
operating results.
Reliance on International Markets. The Company believes its
international distributors are better able to service international markets due
to their understanding of local market conditions and best business practices.
However, because a significant portion of the Company's revenues is derived
from sales in international markets, drastic negative changes in foreign
economic conditions could have a material adverse effect on the Company's
financial results.
Reliance on International Suppliers. The Company will
continue to purchase fiber optic strands from several Japanese suppliers. While
the Company believes alternative sources for fiber optics are available to
enable it to produce its endpoint signs and displays, the SIDE-GLOW(R) and END
GLOW(R) cables require fiber optic material of a higher quality than the
Company believes is currently available elsewhere. Accordingly, the loss of
these suppliers or delays in obtaining shipments could have a material adverse
effect on the Company's operations until such time as an alternative supplier
could be found, although several suppliers have been identified as potential
alternatives, which could provide the quality level in the amounts the Company
requires or until such time as the Company could implement its own production
capabilities.
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<PAGE> 14
Item 7. Consolidated Financial Statements
The following consolidated financial statements are filed as
part of this report. This information appears in a separate section of this
report.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
Item 8. Changes in and disagreements with accountants on accounting and
financial disclosure
Not applicable
PART III
Item 9. Directors and Executive Officers of the Company; Compliance with
Section 16(a) of the Exchange Act
Directors and Executive Officers of the Company: Set forth
below is the name, age, position with the Company, the year in which each was
first appointed or elected an officer or director, and certain other
information with respect to each director and executive officer of the Company.
BRETT M. KINGSTONE Mr. Kingstone has been Chairman of the
Chief Executive Officer, President Board, Chief Executive Officer and
and Chairman of Board of Directors President of the Company since July
Age 40 1999. From November 1997 to July 1999
Mr. Kingstone served as Chairman and
Chief Executive Officer. From the
Company's inception to November 1997 he
was Chairman, Chief Executive Officer
and President. From October 1985 until
January 1991, Mr. Kingstone served as
an independent consultant in the area
of fiber optic technology. Prior to
that, from December 1988 until October
1989, he served as President of
Fibermedia Corporation in Boulder,
Colorado. From January 1984 to August
1985, he was a partner in Kingstone
Prato, Inc., a venture capital
partnership in Boulder, Colorado. From
August 1981 through December 1983, he
served as Vice President of Sales of
Gekee Fiber Optics, Inc. in Palo Alto,
California. Mr. Kingstone is a graduate
of Stanford University and the author
of two books - The Student
Entrepreneur's Guide (McGraw-Hill) and
The Dynamos (John Wiley & Sons;
Koksaido Press).
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<PAGE> 15
LARRY J. CALISE Mr. Calise was hired in February 2000
Chief Financial Officer as the Company's Chief Financial
Age 41 Officer. Prior to this he served as
Vice President of Finance for nStor
Corporation, a manufacturer of
information storage and Raid solutions.
From 1986 through 1996, he held
positions of Controller, VP and
Corporate Controller, and VP Finance
and Administration for Philip Crosby
Associates, which was later acquired by
Alexander Proudfoot PLC, a
multinational management consulting
firm specializing in productivity and
quality management. From 1982 to 1986,
Mr. Calise was an Audit Supervisor for
the CPA firm PriceWaterhouseCooper's
LLP.
EDGAR PROTIVA Mr. Protiva became a director of the
Director Company in March 1994. From 1980 to
Age 60 present, Mr. Protiva has been engaged
in merchant banking with K.C.L.
Associates. Mr. Protiva is the brother
of Eric Protiva, another director of
the Company.
ERIC V. PROTIVA Mr. Protiva became a director of the
Director Company in March 1994. From 1982 to
Age 64 present Mr. Protiva has been the Chief
Executive Officer of AMS Electronic
GmbH; an entity headquartered in
Munich, Germany which he founded in
1982. AMS Electronic GmbH changed its
name in 1999 and is now known as EGORA
Holding GmbH. EGORA Holding GmbH,
together with its majority-owned
subsidiaries, is engaged in the
electronic and fiber optics components
and systems business in Europe. Mr.
Protiva also serves as director of ADVA
Optical Networking AG. Mr. Protiva is
the brother of Edgar Protiva, another
director of the Company.
BRIAN MCCANN Mr. McCann became a director of the
Director Company in October 1995. From February
Age 34 1998 until present, Mr. McCann has
served as the President of ADVA Optical
Networking, Inc., which provides
optical networking solutions for
computer operating systems. From 1996
to 1998, Mr. McCann was the Vice
President of North American Business
Development for ADVA GmbH Optical
Solutions of Munich, Germany. From 1987
to 1996, Mr. McCann has held successive
positions as Director of Sales and
Marketing and Product Manager for 3M
Specialty Optical Fibers.
ANTHONY T. CASTOR III Mr. Castor became a director of the
Director Company in September 1996. Since
Age 48 January 2000, Mr. Castor has served as
President and Chief Executive Officer
of the Morgan Group, a specialty
transportation company. Mr. Castor also
serves as a director for the Morgan
Group, Inc. From January 1998 until
December 1999, Mr. Castor has served as
President and Chief Executive Officer
of Precision Industrial Corporation, a
worldwide supplier of capital equipment
for processing sheetmetal. From 1994
until October 1997, Mr. Castor was the
President and Chief Executive Officer
of Hayward Industries, Inc., a supplier
of pumps, filters, heaters and other
accessories for the pool and spa
industries and industrial equipment.
From 1987 to 1993, Mr. Castor was
Corporate Vice President of Crompton &
Knowles Corporation, a supplier of
specialty chemicals and process
equipment and President of its
wholly-owned subsidiary, Ingredient
Technology Corporation.
FRITZ ZECK Mr. Zeck became a director of the
Director Company in January 1999. Since 1994,
Age 59 Mr. Zeck has served as President of
Cooper Lighting. Prior to this he
served as Vice President of Sales for
Cooper Lighting since he started in
1985. Mr. Zeck joined
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<PAGE> 16
Metalux in 1976 where he was Regional
Sales Manager for the Central portion
of the United States. He founded Lumark
Lighting in 1978, which was a division
of Metalux.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and greater-than-10% stockholders to file reports
with the Securities and Exchange Commission on changes in their beneficial
ownership of the Company's common stock and to provide the Company with copies
of the reports. Based solely on our review of these reports and of
certifications furnished to the Company, the Company believes that all of these
reporting persons complied with their filing requirements for fiscal year 1999.
Item 10. Executive Compensation
The tables below show salaries and bonuses paid during the last three
years, options granted in fiscal year 1999 and aggregate options exercised in
fiscal year 1999 for the Chief Executive Officer. The Company did not have any
other executive officers or other employees serving at the end of fiscal 1999
whose total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-term
Annual compensation compensation awards
--------------------------------- --------------------------------------
Securities All other
Underlying LTIP Compensation
Year Salary Bonus Options Payouts (1)
---- -------- -------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brett M. Kingstone(2) 1999 $127,154 $ 258 -- -- $ 15,822
1998 $129,846 -- -- -- $ 15,473
1997 $ 97,504 $ 25,137 64,000 -- $ 17,019
</TABLE>
(1) Represents a monthly allowance of $1,000 to include automobile and other
related expenses as well as vested portion of the Company's 401(k) plan
employer match.
(2) Mr. Kingstone is the President and Chief Executive Officer of the Company,
and the Chairman of its Board of Directors.
Employment Agreements
In January 1994, the Company entered into a three-year employment
agreement with Brett Kingstone, Chairman of the Board, Chief Executive Officer
and President of the Company. The agreement with Mr. Kingstone is renewable
automatically for successive one year terms and provides for a base annual
salary (subject to annual increases and bonuses at the discretion of the Board
of Directors) and a monthly automobile allowance of $1,000.
In the event of termination of Mr. Kingstone's agreement by the
Company other than for cause, the Company has agreed to pay him severance in an
amount equal to the annual base salary in effect for the balance of the term of
the agreement plus six months. The agreement contains confidentiality and
non-competition provisions.
The Company has no other employment agreements with its employees,
although all employees sign confidentiality and non-competition agreements.
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<PAGE> 17
AGGREGATE OPTION EXERCISES DURING FISCAL YEAR 1999 AND YEAR-END OPTION VALUES
None of the options held by the executive officer listed in the
"Summary Compensation Table" above were exercised in fiscal year 1999. The
following table shows information about the value of unexercised stock options
at December 31, 1999 for the executive officer listed below.
<TABLE>
<CAPTION>
Number of Securities Under- Value of Unexercised In-
lying Unexercised Options the-Money Options at
at December 31, 1999 December 31, 1999(1)
------------------------------ ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brett M. Kingstone........ 44,000 20,000 -- --
</TABLE>
(1) The dollar values of any In -the-Money Options would be calculated by
determining the difference between $6.00 per share, the closing bid price
of common stock on December 31, 1999, and the exercise price of the stock
options. "In-the-Money" stock options are options for which the exercise
price is less than the market price of the underlying stock on a
particular date.
Directors Compensation
Directors who are not employees of the Company are compensated with a
fee of approximately $500 for each Board and committee meeting. The Company
reimburses all directors for travel and other related expenses incurred in
attending stockholder, Board and committee meetings. The Company does not
compensate employees for service as a director but does reimburse them for
travel and other related expenses.
During fiscal year 1999, pursuant to the 1994 Stock Option Plan, the
Company granted options to purchase 1,000 shares of Class A common stock to
Messrs. Eric Protiva, Edgar Protiva, Brian McCann, Anthony Castor, and Fritz
Zeck, all directors of the Company. The options were granted on May 10, 1999 at
an expense price of $5.16 and vested on November 10, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and the Company
The following table shows, as of March 17, 2000, (a) all
persons the Company know to be "beneficial owners" of more than five percent of
the outstanding common stock of the Company, and (b) the common stock owned
beneficially by the Company's directors and named executive officers and all
executive officers and directors as a group. Each person has sole voting and
sole investment power with respect to the shares shown, except as noted.
<TABLE>
<CAPTION>
Shares Beneficially Owned (2)
---------------------------------------------------------------------------------
Name of Executive Officer, Number Percent Ownership Total
- -------------------------- -------------------------- ------------------------ ------------
Director or 5% Stockholder Class A Class B Class A Class B Voting Power
- -------------------------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Brett M. Kingstone(3).................... 335,687 483,264 16.33% 100% 61.53%
Edgar Protiva(4)......................... 12,498 * * * *
Eric Protiva(4).......................... 12,498 * * * *
Brian McCann(5).......................... 10,000 * * * *
Anthony Castor III(5)(6)................. 9,000 * * * *
Fritz Zeck (5)........................... 6,000 * * * *
Hayward Industries, Inc.(7).............. 353,072 * 17.17% * 7.89%
Cooper Lighting, Inc. (8)................ 250,369 * 12.18% * 5.60%
All executive officers and
directors as a group (seven
persons) (9)........................... 385,683 483,264 18.76% 100% 62.65%
</TABLE>
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<PAGE> 18
* Represents a percentage of beneficial ownership that is less than 1%.
(1) Unless otherwise stated, the address for all persons listed above is Super
Vision International, Inc., 8210 Presidents Drive, Orlando, Florida 32809.
(2) "Beneficial ownership" is a technical term broadly defined by the
Securities and Exchange Commission to mean more than ownership in the
usual sense. For example, you "beneficially" own the Company common stock
not only if you hold it directly, but also if you indirectly (through a
relationship, a position as a director or trustee, or a contract or
understanding) have or share the power to vote the stock, or to sell it,
or if you have the right to acquire it within 60 days. The percent of
shares beneficially owned as of March 17, 2000 was calculated based upon
2,539,366 outstanding shares, consisting of 2,056,102 shares of Class A
and 483,264 shares of Class B common stock outstanding.
(3) This amount includes 289,187 shares of Class A common stock that may be
acquired upon exercise of warrants that were exercisable as of March 17,
2000, or that will become exercisable within 60 days after March 17, 2000.
Mr. Kingstone has granted Hayward Industries, Inc. an option to purchase
up to 28,918 shares of Class A common stock that may be acquired upon
exercise of Mr. Kingstone's warrants to purchase 289,187 shares of Class A
common stock. These warrants granted to Hayward will vest only if Mr.
Kingstone fully or partially exercises his option to purchase 289,187
shares of Class A common stock. Similarly, Mr. Kingstone has granted
Cooper Lighting, Inc. an option to purchase up to 28,918 shares of Class A
common stock that may be exercised upon exercise of Mr. Kingstone's
warrants to purchase 289,187 shares of Class A common stock. These
warrants granted to Cooper will vest only if Mr. Kingstone fully or
partially exercises his option to purchase the 289,187 shares of Class A
common stock.
(4) This amount includes 1,498 shares of Class A common stock. The balance of
11,000 shares of Class A common stock may be acquired upon the exercise of
options granted for serving as a director of the Company that were
exercisable as of March 17, 2000, or that will become exercisable within
60 days after March 17, 2000.
(5) All of these shares consist of Class A common stock, and all may be
acquired upon the exercise of options granted for serving as a director of
the Company that were exercisable as of March 17, 2000, or that will
become exercisable within 60 days after March 17, 2000.
(6) This amount does not include shares of Class A common stock beneficially
owned by Hayward Industries, Inc. Mr. Castor previously served as the
President and Chief Executive Officer of Hayward Industries, Inc.
(7) The address of Hayward Industries, Inc. is 900 Fairmont Avenue, Elizabeth,
New Jersey 07207. This amount represents shares of Class A common stock,
and also includes 103,592 warrants to purchase Class A common stock that
were exercisable as of March 17, 2000, or that will become exercisable
within 60 days after March 17, 2000. Included in the 103,592 warrants are
99,792 warrants that have vested based on attainment of minimum purchase
commitments as defined in the distributor agreement with Hayward
Industries. However, this amount does not include (a) warrants to purchase
up to 149,688 shares of Class A common stock at $8.02 per share, subject
to the satisfaction of certain contingencies set forth in a
distributorship agreement with the Company and (b) up to 28,918 shares
that maybe acquired upon exercise of the options owned by Hayward
Industries described in footnote (3) above.
(8) The address of Cooper Lighting, Inc. is 400 Busse Road, Elk Grove Village,
Illinois 60007-2195. This amount represents shares of Class A common
stock, but does not include (a) warrants to purchase up to 250,369 shares
of Class A common stock at $8.02 per share, subject to the satisfaction of
certain contingencies set forth in a distributorship agreement with the
Company and (b) up to 28,918 shares that may be acquired upon exercise of
the options owned by Cooper Lighting Inc. described in footnote (3) above.
(9) This amount includes shares that may be acquired upon exercise of options
and warrants held by directors and executive officers of the Company that
were exercisable as of March 17, 2000, or that will become exercisable
within 60 days after March 17, 2000. This amount does not include an
aggregate of 20,000 shares that may be acquired upon exercise of options
held by executive officers of the Company which are not exercisable during
the next 60 days.
Item 12. Certain Relationships and Related Transactions
Prior to September 1996, the Company's executive offices and
production facilities were located in Orlando, Florida in approximately 17,000
square feet of leased space. Max King Realty, an entity controlled by Mr.
Kingstone, owned the building, which housed the Company's executive offices. On
September 27, 1996, the Company entered into a lease agreement with Max King
Realty for new warehouse and office space. The new space consists of
approximately 70,000 square feet that the Company began occupying on August 15,
1997. The lease term expires in June 2012. Rental payments in 1999 amounted to
approximately $553,095.
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<PAGE> 19
On September 25, 1996, the Company entered into a Stock Purchase
Agreement and a Distributorship Agreement with Hayward Industries, Inc. Under
the terms of the Distributorship Agreement, Hayward acts as the exclusive,
worldwide distributor for the Company in the pool, spa and hot tub market.
Under the terms of the Stock Purchase Agreement, Hayward purchased 249,480
shares of the Company's Class A common stock from the Company, at a price of
$8.02 per share. In addition, the Company granted warrants for the purchase of
up to 249,480 additional shares, at an exercise price of $8.02 per share.
Vesting of the warrants is tied to achievement of annual minimum purchase
commitments contained in the Distributorship Agreement. The warrants have a
10-year life and expire September 25, 2006. As of December 31, 1999, total
vested warrants related to Hayward's achievement of annual minimum purchase
commitments were 99,792.
The Company has granted Hayward rights of first refusal to acquire any
securities proposed to be sold by the Company to competitors of Hayward. The
Company has granted Hayward certain registration rights with respect to the
shares of common stock acquired under the Stock Purchase Agreement and shares
issuable upon exercise of the warrants described above under the Securities Act
of 1933, as amended. Hayward also has the right to designate one director to
the Company's Board of Directors. Hayward exercised this right to designate
Anthony T. Castor III in September 1996. Mr. Castor previously served as
President and Chief Executive Officer of Hayward Industries, Inc., until
October 1997.
On November 23, 1998, the Company entered into a Stock Purchase
Agreement with Cooper Lighting, Inc., a subsidiary of Cooper Industries, Inc.
(a New York Stock Exchange company trading under the symbol "CBE"), pursuant to
which the Company sold to Cooper Lighting, Inc., 250,369 shares of its Class A
common stock for a purchase price of $2,000,000. In addition, the Company
entered into a Distributorship Agreement with Cooper Lighting Inc. and Cooper
Industries (Canada), Inc., another subsidiary of Cooper Industries, Inc.,
collectively, pursuant to which Cooper Lighting, Inc. and Cooper Canada were
granted the exclusive distribution rights in the United States and Canada to
the Company'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 Lighting,
Inc. and Cooper Industries, (Canada), Inc., have agreed collectively, in
accordance with the terms of the Distributorship Agreement, to purchase up to
$47,000,000 of the Company's products over the next five years, with the
possibility for renewal after such period.
Cooper Lighting, Inc., was also granted a ten year warrant to purchase
an additional 250,369 shares of Class A common stock of the Company at $8.02 per
share. Vesting of the warrant is tied to achievement of annual minimum purchase
commitments in accordance with the terms of the Distributor Agreement. Cooper
Lighting, Inc., was also granted 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 the Company is increased as a result of the
exercise of the Company's then-outstanding warrants. The warrant expired in
March 1999. Cooper Lighting 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 Lighting also has the right to designate one director to the Company's
Board of Directors, and in January 1999, Cooper Lighting appointed Fritz Zeck to
the Board of Directors of the Company.
Item 13. Exhibits, Lists and Reports on Form 8-K
(a)
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment to Certificate of
Incorporation (1)
3.3 Certificate of Merger (1)
3.4 By Laws (1)
10.1 1994 Stock Option Plan (1)
10.1.1 Amendment to 1994 Stock Option Plan (1)
19
<PAGE> 20
10.2 Employment Agreement with Brett Kingstone (1)
10.3 Form of Indemnification Agreement (1)
10.4.1 Lease for Facility at Presidents Drive (4)
10.4.2 Amendment One to Lease for Facility at Presidents
Drive (4)
10.4.3 Amendment Two to Lease for Facility at Presidents
Drive (4)
10.6 Stock Purchase Agreement with Hayward Industries,
Inc. (2)
10.7 Warrant Agreement with Brett M. Kingstone (3)
10.8 Stock Purchase Agreement between Registrant and
Cooper Lighting, Inc., dated November 23, 1998,
including exhibits (5)
16 Letter on change in certifying accountant (6)
21.0 Subsidiaries of the Registrant (7)
23.1 Consent of Ernst & Young LLP (7)
27.1 Financial Data Schedule for the Year ended
December 31, 1999 (7)
(1) Incorporated by reference from the Company's Registration
Statement on Form SB-2 (File No. 33-74742)
(2) Incorporated by reference from the Company's Form 8-K
filed on October 9, 1997 (File No. 0-23590)
(3) Incorporated by reference from the Company's Form 10-QSB
for the quarter ended June 30, 1997 (File No. 0-23590)
(4) Incorporated by reference from the Company's Form 10-QSB
for the quarter ended September 30, 1997 (File No.
0-23590)
(5) Incorporated by reference from the Company's Form 10-QSB/A
for the quarter ended September 30, 1998 (File No.
0-23590)
(6) Incorporated by reference from the Company's Form 10-KSB
for the year ended December 31, 1997 (File No. 0-23590)
(7) Filed herewith (in electronic format only)
(b) Reports on Form 8-K. The Company did not file any report on Form 8-K
during the fourth quarter of 1999.
20
<PAGE> 21
SUPER VISION INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants
- Ernst & Young LLP F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Super Vision International, Inc.
We have audited the accompanying consolidated balance sheets of Super Vision
International, Inc. and its subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Super Vision
International, Inc. and its subsidiary as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Orlando, Florida
March 6, 2000
F-2
<PAGE> 23
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,172,855 $ 2,798,142
Investments 369,916 --
Trade accounts receivable, less allowance for
doubtful accounts of $133,819 and $142,576 at 2,039,042 915,570
December 31, 1999 and 1998, respectively
Inventories, less reserve of $300,686 and $155,815
at December 31, 1999 and 1998, respectively 2,254,533 2,545,684
Advances to employees 3,081 7,206
Prepaid expense 14,251 100,809
Other assets 12,557 27,982
------------ ------------
Total current assets 5,866,235 6,395,393
------------ ------------
Property and Equipment:
Machinery and equipment 1,573,769 1,381,693
Furniture and fixtures 423,466 411,814
Computers 735,655 378,485
Vehicles 16,581 16,581
Leasehold improvements 909,246 898,824
Property held under capital lease 3,081,000 3,081,000
------------ ------------
6,739,717 6,168,397
Accumulated depreciation and amortization (1,641,034) (1,054,151)
------------ ------------
5,098,683 5,114,246
Construction in progress -- 259,201
------------ ------------
Net property and equipment 5,098,683 5,373,447
Investments 997,740 --
Goodwill, less accumulated amortization of $936 at
December 31, 1999 25,268 --
Patents and trademarks less amortization of $29,441 and
$20,151 at December 31, 1999 and 1998, respectively 113,456 105,774
Other assets 172,273 85,288
------------ ------------
$ 12,273,655 $ 11,959,902
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 922,245 $ 338,700
Accrued compensation and benefits 69,104 134,423
Deposits 30,542 4,451
Current portion of obligation under capital lease 46,788 13,283
------------ ------------
Total current liabilities 1,068,679 490,857
Obligation under capital lease 3,128,944 3,175,732
Stockholders' Equity:
Preferred stock, $.001 par value, 5,000,000 shares
Authorized, none issued -- --
Class A common stock, $.001 par value, authorized
16,610,866 shares, 2,054,102 and 2,020,418 issued and
outstanding at December 31, 1999 and 1998, respectively 2,054 2,020
Class B common stock, $.001 par value, 3,389,134 shares
Authorized, 483,264 issued and outstanding at
December 31, 1999 and 1998, respectively 483 483
Additional paid-in capital 10,374,565 10,236,139
Accumulated deficit (2,301,070) (1,945,329)
------------ ------------
Total stockholders' equity 8,076,032 8,293,313
------------ ------------
$ 12,273,655 $ 11,959,902
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 24
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 9,809,260 $ 8,349,559
Cost and Expenses:
Cost of sales 6,327,123 5,369,262
Selling, general and administrative 2,978,481 3,623,363
Research and development 544,256 387,042
----------- -----------
Total costs and expenses 9,849,860 9,379,667
----------- -----------
Operating loss (40,600) (1,030,108)
Non-operating income (expense):
Interest income 131,283 90,695
Interest expense (443,930) (440,216)
Loss on disposal of assets (2,494) (3,033)
----------- -----------
Total non-operating expense (315,141) (352,554)
----------- -----------
Loss before income taxes (355,741) (1,382,662)
Income taxes -- (158,816)
----------- -----------
Net loss $ (355,741) $(1,541,478)
=========== ===========
Loss Per Common Share:
Basic $ (0.14) $ (0.68)
=========== ===========
Diluted $ (0.14) $ (0.68)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------
CLASS A CLASS B ADDITIONAL
---------------------- ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- -------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 1,770,049 $ 1,770 483,264 $ 483 $ 8,201,040 $ (403,851)
Issuance of common stock warrants - - - - 106,777 -
Sale of common stock, net of
issuance costs 250,369 250 - - 1,928,322 -
Net loss - - - - - (1,541,478)
--------- -------- ------- ------ ------------ ------------
Balance, December 31, 1998 2,020,418 2,020 483,264 483 10,236,139 (1,945,329)
Issuance of common stock warrants - - - - (4,377) -
Exercise of employee stock options 2,434 3 - - 10,022 -
Common stock issued in connection with
acquisition 31,250 31 - - 132,781 -
Net loss - - - - - (355,741)
--------- -------- ------- ------ ------------ ------------
Balance, December 31, 1999 2,054,102 $ 2,054 483,264 $ 483 $ 10,374,565 $ (2,301,070)
========= ======== ======= ====== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (355,741) $(1,541,478)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 595,998 532,570
Net loss on disposal of fixed assets 2,494 3,033
Amortization of intangible assets and goodwill 10,225 8,382
Increase in inventory reserve 144,871 103,770
Increase in other assets (64,663) --
Accretion of capital lease obligation -- 40,656
Deferred income taxes -- 158,816
Common stock warrants expense -- 106,777
Changes in operating assets and liabilities,
net of effects of acquisition in 1999:
(Increase) decrease in:
Accounts receivable, net (1,123,472) 585,770
Inventory 199,609 (506,700)
Prepaid expense 86,558 (1,998)
Other assets and advances to employees 17,378 (11,781)
Increase (decrease) in:
Accounts payable 583,545 (597,243)
Accrued compensation and benefits (65,319) 89,198
Deposits 26,091 (93,388)
----------- -----------
Total adjustments 413,315 417,862
----------- -----------
Net cash provided by (used in) operating activities 57,574 (1,123,616)
----------- -----------
Cash Flows from Investing Activities:
Purchase of investments (1,367,656) --
Proceeds from the sale of investments -- 102,121
Purchase of property and equipment (283,773) (564,835)
Proceeds from disposal of equipment and furniture 1,327 3,258
Acquisition of patents and trademarks (25,124) (25,503)
----------- -----------
Net cash used in investing activities (1,675,226) (484,959)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from short term borrowings 404,715 275,000
Payments on short tern borrowings (404,715) (275,000)
Payments on capital lease obligation (13,283) --
Cost of issuance of common stock warrants (4,377) (71,428)
Proceeds from exercise of employee stock options 10,025 --
Sale of common stock -- 2,000,000
----------- -----------
Net cash (used in) provided by financing activities (7,635) 1,928,572
----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents (1,625,287) 319,997
Cash and Cash Equivalents, beginning of period 2,798,142 2,478,145
----------- -----------
Cash and Cash Equivalents, end of period $ 1,172,855 $ 2,798,142
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest $ 432,645 $ 378,540
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 27
SUPER VISION INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information Continued:
Non-Cash Investing Activities:
Assets acquired through issuance of common stock $132,812 $ --
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 28
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS - Super Vision International, Inc. (the "Company") is engaged
in the design, manufacture and marketing of SIDE-GLOW(R) and END
GLOW(R) fiber optic lighting cables, light sources and "point-to-point"
fiber optic signs and displays. The Company's products have a wide
variety of applications in the signage, swimming pool, architectural,
advertising and retail industries.
BASIS OF CONSOLIDATION - The consolidated financial statements include
the accounts of Super Vision International, Inc. and its wholly-owned
subsidiary Oasis Waterfalls, LLC. (collectively "the Company"). All
significant inter-company balances and transactions have been
eliminated.
REVENUE RECOGNITION - Generally, the Company recognizes revenue for its
products upon delivery to customers, provided no significant obligation
remain and collection is probable.
CASH EQUIVALENTS - Temporary cash investments with an original maturity
of three months or less are considered to be cash equivalents.
INVESTMENTS - Marketable equity securities and debt securities are
classified as available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of
tax, reported in a separate component of shareholders' equity. The
amortized costs of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in investment income. Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in investment income. The
cost of securities sold are based on the specific identification
method. Interest and dividends on securities classified as
available-for-sales are included in investment income. There were no
material unrealized gains or losses on securities at December 31, 1999
or 1998.
At December 31, 1999 investments were comprised of U.S. Corporate
Securities and equity securities of approximately $1,021,000 and
$371,000 respectively. The investment in U.S. Corporate Securities
matures in 2001.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out method), or market. Provision is made for any inventory
deemed excessive or obsolete.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed by the straight-line method and is charged to
operations over the estimated useful lives of the assets. The estimated
useful lives of the property and equipment range from 3 to 20 years.
Property held under capital lease is amortized over the life of the
lease. Related amortization expense is included with depreciation in
the accompanying consolidated statements of operations and accumulated
depreciation in the accompanying consolidated balance sheets.
Maintenance and repairs are charged to expense as incurred. The
carrying amount and accumulated depreciation of assets sold or retired
are removed from the accounts in the year of disposal and any resulting
gain or loss is included in results of operations.
INTANGIBLE ASSETS AND GOODWILL - Intangible assets, which are recorded
at cost, consist of patents and trademarks which are owned by the
Company and are being amortized over their contractual lives using the
straight-line method. Goodwill represents the excess cost of the
acquired business over the fair value of net assets acquired (see Note
3 to Consolidated Financial Statements) and is being amortized on a
straight line basis over 7 years. At each balance sheet date,
management assesses whether there has been any permanent impairment in
the value of intangibles. The factors considered by management include
trends and prospects as well as the effects of obsolescence, demand,
competition and other economic factors. No impairment losses have been
recognized in any of the periods presented.
F-8
<PAGE> 29
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
LONG-LIVED ASSETS - The Company periodically evaluates the
recoverability of its long-lived assets based on expected undiscounted
cash flows and will recognize impairment of the carrying value of
long-lived assets, if any is indicated, based on the fair value of such
assets.
DEPOSITS - Payments received by the Company for services to be provided
in the following year are deferred and recognized as revenue in the
period the services are provided.
RESEARCH AND DEVELOPMENT - Research and development costs to develop
new products are charged to expense as incurred.
ADVERTISING - Advertising costs, included in selling, general and
administrative expenses, are expensed when the advertising first takes
place.
RECLASSIFICATIONS - Certain prior years' amounts have been reclassified
to conform to the current year's presentations. These reclassifications
had no impact on operating results previously reported.
INCOME TAXES - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes resulting from temporary differences.
Such temporary differences result from differences in the carrying
value of assets and liabilities for tax and financial reporting
purposes. The deferred tax assets and liabilities represent the future
tax consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EARNINGS PER SHARE - Basic loss per share is computed by dividing net
loss available to common stockholders by the weighted average common
shares outstanding for the period. Diluted loss per share is computed
giving effect to all potentially dilutive common shares. Potentially
dilutive common shares may consist of incremental shares issuable upon
the exercise of stock options, adjusted for the assumed repurchase of
the Company's common stock, at the average market price, from the
exercise proceeds and also may include incremental shares issuable in
connection with convertible securities. In periods in which a net loss
has been incurred, all potentially dillutive common shares are
considered antidilutive and thus are excluded from the calculation.
STOCK-BASED COMPENSATION - The Company follows Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock-based compensation
plans rather than the alternative fair value accounting provided under
SFAS No. 123 "Accounting for Stock-Based Compensation."
COMPREHENSIVE INCOME - Pursuant to SFAS No. 130, "Reporting
Comprehensive Income," the Company is required to report comprehensive
income and its components in its financial statements. The Company does
not have any components of comprehensive income to be reported under
SFAS 130. Therefore, total comprehensive income (loss) is the net
income (loss) reported in the financial statements.
BUSINESS SEGMENTS - Pursuant to SFAS No. 131, "Disclosure About
Segments of a Business Enterprise and Related Information," the Company
is required to report segment information. As the Company only operates
in principally one business segment, no additional reporting is
required.
F-9
<PAGE> 30
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE - In February
1998, the Accounting Standards Executive Committee issued Statement of
Position No. 98-1, Accounting for the Costs of Computer Software
Developed for Internal Use (SOP 98-1). SOP 98-1 establishes the
accounting for costs of software products developed or purchased for
internal use, including when these costs should be capitalized. The
adoption of this pronouncement did not materially impact the Company's
results of operations for the year ended December 31, 1999.
SFAS NO. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS ON HEDGING
ACTIVITIES" - SFAS No. 133 is required to be adopted in years beginning
after June 15, 2000. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the
new Statement will have a significant effect on operating results or
the financial position of the Company.
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 1,770,519 $ 1,562,670
Work in process 105,428 65,107
Finished goods 679,272 1,073,722
------------ ------------
2,555,219 2,701,499
Less: Reserve for inventories (300,686) (155,815)
------------ ------------
Net inventories $ 2,254,533 $ 2,545,684
============ ============
</TABLE>
3. ACQUISITIONS:
On October 18, 1999 the Company entered into an Asset Purchase
Agreement with Oasis Falls International, Inc. and Maas Industries to
acquire substantially all of the assets of these businesses in the
amount of $132,812, in exchange for 31,250 shares of the Company's
Class A Common Stock, par value $.001 per share. The assets acquired
include inventory, tooling machinery and certain intangible assets
relating to tooling and intellectual property rights. In addition the
Company recorded approximately $26,000 in goodwill.
Proforma consolidated results of operations were not prepared as if the
acquisition had occurred at the beginning of fiscal year 1999 since the
acquisition was not significant. The acquisition has been accounted for
under the purchase method of accounting with assets acquired recorded
at fair market value as of the effective acquisition date, and the
operating results of the acquired business included in the Company's
consolidated financial statements from that date. The excess of the
purchase price over the fair value of the net assets acquired
(goodwill) aggregated approximately $26,000, and is being amortized on
a straight-line basis over 7 years.
F-10
<PAGE> 31
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
4. CAPITAL LEASE OBLIGATION:
The Company leases its operating facility from a corporation owned by
the Company's chief executive officer. The lease has a fifteen-year
term extending through June 15, 2012. Assets recorded under capital
lease and included in property and equipment are as follows:
<TABLE>
<S> <C>
Office/Warehouse building $ 3,081,000
Less accumulated amortization (513,500)
------------
$ 2,567,500
============
</TABLE>
At December 31, 1999, future minimum lease payments for the capital
lease are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
2000 $ 581,520
2001 598,481
2002 610,596
2003 620,664
2003 641,127
2004 and thereafter 5,271,591
-------------
Minimum lease payments 8,323,979
Less amount representing interest
and executory costs (5,148,247)
-------------
Present value of net minimum lease
payments under capital lease $ 3,175,732
=============
</TABLE>
Deposits paid under this lease agreement totaled $58,167 at December
31, 1999 and 1998. The Company's lease payments, including interest and
executory costs were approximately $553,000 and $472,000 in 1999 and
1998, respectively.
F-11
<PAGE> 32
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
5. FINANCIAL INSTRUMENTS AND CREDIT RISKS:
The Company's financial instruments that are exposed to concentrations
of credit risk consist of cash, cash equivalents and investments. The
Company places its cash, cash equivalents and investments with high
credit quality institutions. At times such investments may be in excess
of the FDIC insurance limit. The Company also places its cash, cash
equivalents and investments in money market funds, and debt securities
with a major brokerage firm. These funds are uninsured. The total
amount invested in money market funds at December 31, 1999 and 1998 was
$820,047 and $2,690,750 respectively. The carrying values of cash
equivalents, accounts receivable and accounts payable approximate fair
value due to their short-term nature.
The Company relies on several Japanese companies as suppliers for fiber
optics. While the Company believes alternative sources for fiber optics
are available, the loss of these suppliers or significant delays in
obtaining shipments could have a material adverse effect on the
Company's operations until such time as alternative suppliers could be
found or the Company could implement its own production capabilities.
6. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Current:
Federal $ - $ -
State - -
----------- ----------
Total -
Deferred:
Federal - 135,603
State - 23,213
----------- ----------
Total - 158,816
----------- ----------
$ - $ 158,816
=========== ==========
</TABLE>
As of December 31, 1999, the Company had approximately $1,795,000 in
net operating loss carryforwards for federal and state income tax
purposes, which expire between 2010 and 2019.
F-12
<PAGE> 33
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
6. INCOME TAXES (CONTINUED):
Components of deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
--------- ---------
<S> <C> <C>
Accounts receivable $ 50,356 $ 55,218
Inventories 161,294 101,739
Accrued expenses 20,701 27,179
Depreciation (79,330) (103,029)
Stock warrants 40,181 40,181
Other 7,423 7,156
Tax credits 11,157 11,157
Net operating loss carry forwards 675,519 621,659
--------- ---------
887,301 761,260
Valuation allowance (887,301) (761,260)
--------- ---------
$ - $ -
========= =========
</TABLE>
In accordance with SFAS No. 109, "Accounting for Income Taxes",
valuation allowances are provided against deferred tax assets if, based
on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The
Company has evaluated the realizability of the deferred tax assets on
its balance sheet and has established a valuation allowance in the
amount of $ 887,298 at December 31, 1999.
The following is a reconciliation of tax computed at the statutory
federal rate to the income tax expense in the statements of operations
for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Amount % Amount %
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Tax expense (benefit) computed at
statutory federal rate $(120,952) (34.00)% $(470,105) (34.00)%
State taxes (benefits) (12,158) (3.42) (49,505) (3.58)
Change in valuation allowance 126,041 35.43 677,631 49.01
Non-deductible expenses 7,069 1.99 795 .06
Other, net -- -- --
--------- ------ --------- ------
Income tax expense $ -- -- $ 158,816 11.49%
========= ====== ========= ======
</TABLE>
F-13
<PAGE> 34
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
7. CAPITAL STOCK:
CLASS A COMMON STOCK - At December 31, 1999 the Company has reserved
Class A Common Stock for issuance in relation to the following:
<TABLE>
<S> <C>
Employee Stock Options: 450,000
Conversion of Class B Common Stock 483,264
</TABLE>
CLASS B COMMON STOCK - Each share of Class B Common Stock is entitled
to five votes on all matters on which stockholders may vote, including
the election of directors. Shares of Class B Common Stock are
automatically convertible into an equivalent number of shares of Class
A Common Stock upon the sale or transfer of such shares.
STOCK WARRANTS AND UNIT PURCHASE OPTIONS - The Company had warrants and
unit purchase options to purchase shares of Class A Common Stock and
Units as originally offered in the Company's initial public offering in
March, 1994. The Class A Warrants for 1,639,500 had an exercise price
of $7.50 and the Class B Warrants had an exercise price of $10.50, both
expired as of March 29, 1999. No warrants were exercised in the year
ended December 31, 1999.
The Unit Purchase Option had an exercise price of $7.50 per Unit, and
expired March 22, 1999. The options were not exercised. The Unit
Purchase Option was held by the Underwriter of the Company's initial
public offering or the Underwriter's designees as defined in the
initial offering. The units consisted of a share of Class A Common
Stock, a Class A Warrant and a Class B Warrant.
In addition, the Company has 789,036 warrants outstanding in connection
with the capital transactions described below.
The Company has granted a 10-year warrant for 289,187 shares of Class A
Common Stock to the Chairman and Chief Executive Officer of the
Company, Brett Kingstone. The warrant was granted on March 31, 1997,
and expires March 31, 2007. Mr. Kingstone has granted an option to
purchase up to 28,918 shares of the Class A Common Stock underlying the
warrant upon the warrant's full or partial exercise to Cooper Lighting,
Inc. ("Cooper"). Mr. Kingstone has also granted an option to purchase
up to 28,918 shares of the Class A Common Stock underlying the warrant
upon the warrant's full or partial exercise to Hayward Industries, Inc.
("Hayward").
F-14
<PAGE> 35
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
7. CAPITAL STOCK (CONTINUED):
CAPITAL STOCK TRANSACTIONS - On November 23, 1998, the Company 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 the Company
sold to Cooper 250,369 shares of its Class A Common Stock, for a
purchase price of $2,000,000. The Company incurred issuance costs
associated with this transaction of $71,368 in 1998 and $4,377 in 1999.
In addition, the Company 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
collectively granted the exclusive distribution rights in the United
States and Canada to the Company'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
and Cooper Canada have collectively agreed, in accordance with the
terms of the Distributorship Agreement, to purchase up to $47,075,000
of the Company'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 Company at
$8.02 per share. The warrant expires November 23, 2008. Vesting of
these warrants is tied to achievement of annual minimum purchase
commitments as defined in the Distributorship Agreement. Additionally,
the Company issued 517,950 warrants to Cooper to purchase shares of
Class A Common Stock at fair market value if the number of outstanding
shares of Class A Common Stock of the Company is increased as a result
of the exercise of the Company's currently outstanding warrants (the
"Warrants"). The warrant for 517,950 shares expired on March 29, 1999.
Cooper also has the right to designate one director to the Company's
Board of Directors.
The Company had sales to Cooper and Cooper Canada in the amount of
$2,327,392 and $274,603 respectively during 1999. Trade accounts
receivable from Cooper and Cooper Canada amounted to $350,563 and
$202,166 respectively as of December 31, 1999. The Company had no sales
to Cooper during 1998, and no receivables from Cooper as of December
31, 1998.
On September 25, 1996, the Company entered into a Stock Purchase
Agreement and Distributorship Agreement with Hayward. Under the terms
of the Stock Purchase Agreement, Hayward purchased 249,480 shares of
the Company's Class A Common Stock from the Company, at a price of
$8.02 per share, the approximate market value of the Class A Common
Stock at the time. In addition, the Company granted 249,480 matching
warrants for the purchase of additional shares, at an exercise price of
$8.02 per share. Vesting of the warrants is tied to achievement of
annual minimum purchase commitments contained in the Distributorship
Agreement. The warrants have a 10-year life and expire September 25,
2006. As of December 31, 1999, total vested warrants in relation to
Hayward's achievement of annual minimum purchase commitments is 99,792.
Additionally, the Company issued 522,000 warrants to Hayward, as well
as certain other pre-emptive rights, intended to ensure that Hayward's
ownership of the Company does not fall below 10% of the Company's
publicly traded shares. These warrants expired in May 1999. As of
December 31, 1999, 28,837 warrants were exercisable as defined in the
Stock Purchase Agreement.
The Company had sales of $1,858,884 and $1,727,689 to Hayward during
1999 and 1998, respectively. Trade accounts receivable includes
$444,908 and $195,534 due from Hayward at December 31, 1999 and 1998,
respectively.
The weighted average grant fair value of warrants issued during the
year ended December 31, 1998 was $3.16.
F-15
<PAGE> 36
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
7. CAPITAL STOCK (CONTINUED):
ESCROWED SHARES - In connection with the Company's initial public
offering, certain stockholders agreed to place an aggregate of
2,891,870 shares of their Class B Common Stock and 26,130 shares of
Class A Common Stock into escrow. The escrowed shares would be
transferred to the Company for no consideration if future earnings
thresholds or stock bid price levels were not achieved. In the event
the Company attained any of the earnings thresholds or stock bid prices
for the release of escrowed shares to such stockholders, the Company
would recognize compensation expense at such time based on the fair
market value of the shares released to directors and employees. During
1997, 2,891,870 shares of Class B Common Stock held in escrow were
voluntarily retired and returned to the Company treasury. Until March
29, 1999, 26,130 shares of Class A Common Stock were held in escrow.
These shares were returned to the Company and retired in 1999.
8. STOCK OPTION PLAN:
The Company adopted a stock option plan that provides for the grant of
incentive stock options and nonqualified stock options, and reserved
450,000 shares of the Company's Class A Common Stock for future
issuance under the plan. The option price must be at least 100% of
market value at the date of the grant and the options have a maximum
term of 10 years.
The following table summarizes activity of the stock option plan for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
OPTIONS NUMBER OF WEIGHTED
AVAILABLE FOR SHARES AVERAGE
FUTURE GRANT UNDER OPTION OPTION PRICE
------------- ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1998 22,702 272,095
Options authorized 100,000 - -
Options granted (49,200) 49,200 $ 4.44
Options cancelled 36,866 (36,866) $ 7.10
-------- --------
Balance, December 31, 1998 110,368 284,429
Options granted (111,500) 111,500 $ 4.58
Options exercised - (2,434) $ 4.15
Options cancelled 105,116 (105,116) $ 7.15
-------- --------
Balance, December 31, 1999 103,984 288,379
======== ========
</TABLE>
The weighted average fair value of options granted during 1999 and 1998
was $1.69 and $1.62 per option, respectively. At December 31, 1999, the
288,379 options outstanding under the plan are summarized in the
following table:
<TABLE>
<CAPTION>
Weighted Weighted
Option Range of Average Average
Shares Exercise Prices Exercise Price Remaining Life
------ --------------- -------------- --------------
<S> <C> <C> <C>
98,600 $3.00 - $4.50 $4.24 8.80
96,525 $4.51 - $6.75 $5.73 7.16
93,254 $6.76 - $9.25 $8.24 6.51
</TABLE>
F-16
<PAGE> 37
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
8. STOCK OPTION PLAN (CONTINUED):
Options granted vest ratably over a three-year period or vest based on
achievement of performance criteria. As of December 31, 1999, 175,262
options were vested and exercisable. These options are summarized
below:
<TABLE>
<CAPTION>
Weighted Weighted
Option Range of Average Average
Shares Exercise Prices Exercise Price Remaining Life
------ --------------- -------------- --------------
<S> <C> <C> <C>
35,716 $3.00 - $4.50 $4.20 8.71
66,492 $4.51 - $6.75 $5.85 7.46
73,054 $6.76 - $9.25 $8.15 7.04
</TABLE>
The Company applies the disclosure-only provisions of SFAS No. 123, but
applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, no
compensation expense has been recognized for stock options granted
under the plan. If the Company had elected to recognize compensation
expense for stock options based on the fair value at grant date,
consistent with the method prescribed by SFAS No. 123, net loss and
loss per share would have been increased to the proforma amounts shown
below:
<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C>
Net loss:
As reported $(355,741) $(1,541,478)
Proforma loss $(548,437) $(1,738,773)
Basic EPS:
As reported $ (0.14) $ (0.68)
Proforma loss $ (0.22) $ (0.77)
Diluted EPS:
As reported $ (0.14) $ (0.68)
Proforma loss $ (0.22) $ (0.77)
</TABLE>
These proforma amounts were determined using the Black-Scholes
Valuation model with the following key assumptions: (a) an average
discount rate of 6.17%; (b) a volatility factor of 35% based upon
volatility of a comparable group of companies; and (c) an average
expected option life of 7 years.
F-17
<PAGE> 38
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
9. SIGNIFICANT CUSTOMERS/EXPORT SALES:
Sales to foreign markets and significant customers as a percentage of
the Company's total revenues were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Foreign markets 26% 26%
Significant customers 45% 21%
</TABLE>
10. LOSS PER SHARE:
The following table sets for the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1999 1998
------------ --------------
<S> <C> <C>
Numerator:
Net loss (numerator for basic and
Diluted loss per share) $ (355,741) $ (1,541,478)
=========== =============
Denominator:
Denominator for basic loss per share
-weighted average shares 2,504,583 2,253,249
Effect of dilutive securities:
Options -- --
Warrants -- --
----------- -------------
Dilutive potential shares -- --
----------- -------------
Denominator for diluted loss per share
-adjusted weighted average shares 2,504,583 2,253,249
=========== =============
Basic loss per share $ (0.14) $ (.68)
=========== =============
Diluted loss per share $ (0.14) $ (.68)
=========== =============
</TABLE>
The employee stock options and certain warrants issued to Hayward (see
Notes 7 and 8) are not included in the computation of loss per share
for 1999 because the related shares are contingently issuable or to do
so would have been anti-dilutive. The Class A and Class B warrants,
employee stock options, certain warrants issued to Hayward and the
escrowed shares (see Notes 7 and 8) are not included in the computation
of loss per share for 1998 because the related shares are contingently
issuable or to do so would have been anti-dilutive.
F-18
<PAGE> 39
SUPER VISION INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
11. BENEFIT PLANS:
The Company has established a profit sharing plan that permits
participants to make contributions by salary reduction pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended. The
Company made matching contributions equal to 50%, of the participants'
contributions, to a maximum of 3% of the participants' salary, totaling
$29,874 and $28,717 for 1999 and 1998, respectively.
The Company has established a bonus plan, based on targeted sales
levels, which provides incentive compensation for sales employees.
Amounts charged to expense for bonuses to these employees were $33,049
and $20,026 for 1999 and 1998, respectively.
12. ADVERTISING COSTS:
The Company promotes its product lines primarily through print media.
Such media includes trade publications, trade shows and promotional
brochures. Advertising expenses included in selling, general and
administrative expenses were approximately $193,300 and $411,200 for
the years ended December 31, 1999 and 1998, respectively.
13. LINE OF CREDIT:
The Company had available a one million dollar bank line of credit.
Amounts outstanding under the line were due on demand with interest
payable monthly at the prime rate. Certain securities served as
collateral for this line of credit. As of July 15, 1999, the bank line
of credit was closed. There were no outstanding balances as of December
31, 1999 and 1998, respectively.
F-19
<PAGE> 40
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SUPER VISION INTERNATIONAL, INC.
Date: March 29, 2000 By: /s/ Brett M. Kingstone
------------------------------
Brett M. Kingstone - Chairman,
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<S> <C>
/s/ Brett M. Kingstone March 29, 2000 ---
- -----------------------------------------
Brett M. Kingstone - Chairman of
the Board of Directors, Chief
Executive Officer
(Principal Executive Officer)
/s/ Larry J. Calise March 29, 2000 ---
- -----------------------------------------
Larry J. Calise - Chief Financial Officer
(Principal Financial and Accounting
Officer)
/s/ Edgar Protiva March 29, 2000 ---
- -----------------------------------------
Edgar Protiva - Director
/s/ Eric Protiva March 29, 2000 ---
- -----------------------------------------
Eric Protiva - Director
/s/ Brian McCann March 29, 2000 ---
- -----------------------------------------
Brian McCann - Director
/s/ Anthony Castor March 29, 2000 ---
- -----------------------------------------
Anthony Castor - Director
/s/ Fritz Zeck March 29, 2000 ---
- -----------------------------------------
Fritz Zeck - Director
</TABLE>
F-20
<PAGE> 41
EXHIBIT INDEX
21.0 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule for year ended December 31, 1999
(in electronic format only)
<PAGE> 1
Exhibit 21.0
Subsidiaries of the Registrant
Oasis Waterfalls, LLC - a Florida limited liability company.
<PAGE> 1
Exhibit 23.1
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-23689) pertaining to the Super Vision
International, Inc. 1994 Stock Option Plan and in the Registration Statement
(Form S-8 No. 333-32007) pertaining to the 1994 Stock Option Plan, as amended,
of our report dated March 6, 2000, with respect to the consolidated financial
statements of Super Vision International, Inc. included in the Annual Report
(Form 10-KSB) for the year ended December 31, 1999.
Ernst & Young LLP
Orlando, Florida
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,172,855
<SECURITIES> 369,916
<RECEIVABLES> 2,039,042
<ALLOWANCES> 133,819
<INVENTORY> 2,254,533
<CURRENT-ASSETS> 5,866,235
<PP&E> 6,739,717
<DEPRECIATION> (1,641,034)
<TOTAL-ASSETS> 12,273,655
<CURRENT-LIABILITIES> 1,068,679
<BONDS> 0
0
0
<COMMON> 2,537
<OTHER-SE> 10,374,565
<TOTAL-LIABILITY-AND-EQUITY> 12,273,655
<SALES> 9,809,260
<TOTAL-REVENUES> 9,809,260
<CGS> 6,327,123
<TOTAL-COSTS> 9,849,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,930
<INCOME-PRETAX> (355,741)
<INCOME-TAX> 0
<INCOME-CONTINUING> (355,741)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (355,741)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
