SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
---------
[x] QUARTERLY REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-23590
SUPER VISION INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 59-3046866
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
2442 Viscount Road
Orlando, Florida 32809
(Address of Principal Executive Offices)
(407) 857-9900
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at November 11, 1996:
Class A Common Stock, $.001
par value 1,680,946
Class B Common Stock, $.001
par value 3,375,134
Traditional Small Business Disclosure Format
Yes |X| No |_|
SUPER VISION INTERNATIONAL, INC.
Super Vision International, Inc.
Index to Form 10-QSB
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Financial Statements:
Condensed Balance Sheets as of September 30, 1996 and
December 31, 1995 1
Condensed Statements of Operations for the Three and Nine
Months Ended September 30, 1996 and 1995 2
Condensed Statement of Stockholders' Equity 3
Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Super Vision International, Inc.
Condensed Balance Sheets
September 30, December 31,
Assets 1996 1995
----------- -----------
Current Assets:
Cash and cash equivalents $ 3,538,070 $ 2,327,775
Trade accounts receivable, less allowance for doubtful
accounts of $25,579 and $19,952 970,076 330,570
Inventory, less reserve for excess inventory of $53,340 and $28,340 2,003,762 899,348
Advances to employees 37,527 16,390
Other assets 90,208 51,236
----------- -----------
Total current assets 6,639,643 3,625,319
----------- -----------
Equipment and Furniture 1,698,000 1,404,368
Accumulated depreciation (257,423) (172,697)
----------- -----------
Net equipment and furniture 1,440,577 1,231,671
----------- -----------
Other Assets 141,012 59,176
----------- -----------
$ 8,221,232 $ 4,916,166
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Note payable to officer $ 22,968 $ 22,968
Accounts payable 697,314 344,853
Accrued liabilities 247,606 22,443
Payments in excess of cost and recognized profit on
uncompleted contracts -- 10,333
Deposits 524,851 50,834
----------- -----------
Total current liabilities 1,492,739 451,431
----------- -----------
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, 1,680,946 and 1,428,966 issued and outstanding 1,681 1,429
Class B common stock, $.001 par value, 3,389,134
shares authorized, 3,375,134 issued
and outstanding 3,375 3,375
Additional paid-in capital 7,636,149 5,669,423
Retained earnings (912,712) (1,209,492)
----------- -----------
Total stockholders' equity 6,728,493 4,464,735
----------- -----------
$ 8,221,232 $ 4,916,166
=========== ===========
See accompanying notes to condensed financial statements.
1
Super Vision International, Inc.
Condensed Statements of Operations
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues:
Net sales $ 1,695,285 $ 473,161 $ 4,198,929 $ 1,712,655
Licensing and royalty fees -- -- -- 45,000
----------- ----------- ----------- -----------
Total revenues 1,695,285 473,161 4,198,929 1,757,655
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 938,480 374,083 2,544,274 1,166,354
Selling, general and administrative 468,236 352,224 1,304,831 1,011,962
Research and development 46,825 75,509 127,061 171,587
----------- ----------- ----------- -----------
Total costs and expenses 1,453,541 801,816 3,976,166 2,349,903
----------- ----------- ----------- -----------
Operating Income (Loss) 241,744 (328,655) 222,763 (592,248)
----------- ----------- ----------- -----------
Non-Operating Income (Expenses):
Interest income 32,856 49,941 83,787 155,694
Interest expense (747) (77) (2,227) (1,585)
Gain (loss) on disposal of assets -- (250) (7,543) 11,107
----------- ----------- ----------- -----------
Total non-operating income 32,109 49,614 74,017 165,216
----------- ----------- ----------- -----------
Net Income (Loss) $ 273,853 $ (279,041) $ 296,780 $ (427,032)
=========== =========== =========== ===========
Income (Loss) Per Common Share:
Primary $ 0.14 $ (0.15) $ 0.16 $ (0.22)
=========== =========== =========== ===========
Weighted Average Shares of
Common Stock Outstanding:
Primary 1,902,159 1,913,878 1,852,540 1,915,691
=========== =========== =========== ===========
See accompanying notes to condensed financial statements.
2
Super Vision International, Inc.
Condensed Statement of Stockholders' Equity
Common Stock
--------------------------------------------------------
Class A Class B Additional
-------------------------- -------------------------- Paid-In Retained
Shares Amount Shares Amount Capital (Deficit)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 1,428,966 $ 1,429 3,375,134 $ 3,375 $ 5,669,423 $(1,209,492)
Exercise of Class A Warrants 2,500 2 -- -- 18,748 --
Sale of Class A Common Stock 249,480 250 -- -- 1,947,978 --
Net Income for the Nine Months
Ended September 30, 1996 -- -- -- -- -- 296,780
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 1996 1,680,946 $ 1,681 3,375,134 $ 3,375 $ 7,636,149 $ (912,712)
=========== =========== =========== =========== =========== ===========
See accompanying notes to condensed financial statements.
3
Super Vision International, Inc.
Condensed Statements of Cash Flows
Nine Months
Ended September 30,
1996 1995
----------- -----------
Cash Flows from Operating Activities:
Net income ( loss) $ 296,780 ($ 427,032)
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 105,536 81,732
(Gain) loss on disposal of fixed assets 7,543 (11,107)
Increase in:
Accounts receivable, net (639,506) (131,781)
Inventory (1,104,414) (273,621)
Other assets (138,633) (76,287)
Increase (decrease) in:
Accounts payable 352,461 133,869
Accrued and other liabilities 214,830 1,422
Deposits 474,017 (569)
----------- -----------
Total adjustments (728,166) (276,342)
----------- -----------
Net cash used in operating activities (431,386) (703,374)
----------- -----------
Cash Flows from Investing Activities:
Acquisition of patents and trademarks (16,051) (1,100)
Purchase of equipment and furniture (316,295) (139,296)
Proceeds from disposal of equipment and furniture 7,049 34,700
----------- -----------
Net cash used in investing activities (325,297) (105,696)
----------- -----------
Cash Flows from Financing Activities:
Issuance of common stock, net 1,966,978 --
Proceeds from exercise of employee stock options -- 20,000
----------- -----------
Net cash provided by financing activities 1,966,978 20,000
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 1,210,295 (789,070)
Cash and Cash Equivalents, beginning of period 2,327,775 3,626,290
----------- -----------
Cash and Cash Equivalents, end of period $ 3,538,070 $ 2,837,220
=========== ===========
See accompanying notes to condensed financial statements.
4
Super Vision International, Inc.
Notes to Condensed Financial Statements
For the Three-Month and Nine-Month Periods Ended September 30, 1996 and 1995
1. Basis of Presentation:
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the Company's financial position,
results of operations and cash flows for the periods presented. The
results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
The condensed financial statements should be read in conjunction with the
financial statements and the related disclosures contained in the
Company's Form 10-KSB dated March 25, 1996, filed with the Securities and
Exchange Commission.
2. Equity:
On September 25, 1996, the Company entered into a Stock Purchase
Agreement and Distributorship Agreement with Hayward Industries, Inc.
("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 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. Additionally, the Company issued 522,000 warrants to Hayward, as
well as certain other pre-emptive rights, intended to maintain Hayward's
ownership of the Company at 10% of the Company's publicly traded shares.
The 522,000 warrants are exercisable only upon the occurrence of a
dilutive event as defined in the Stock Purchase Agreement, at a price
equal to the average closing sale price for 30 consecutive business days
ending within 15 days of the dilutive event. These warrants expire in
May, 1999.
On December 27, 1993, the Company adopted a stock option plan that
provides for the grant of incentive stock options and nonqualified stock
options, and reserved 150,000 shares of the Company's Class A common
stock for future issuance under the plan. Effective August 27, 1996, the
Company reserved an additional 100,000 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. The Company
applies APB Opinion 25 and related Interpretations in accounting for its
plan. Accordingly, no compensation cost has been recognized for its stock
option plan.
5
Super Vision International, Inc.
Notes to Condensed Financial Statements - Continued
For the Three-Month and Nine-Month Periods Ended September 30, 1996 and 1995
2. Equity - Continued:
The following table summarizes activity of the stock option plan for the
period ended September 30, 1996:
Number
Options of Shares Option
Available for Under Price
Future Grant Option Per Share
------------ ------- ------------
Balance, December 31, 1995 38,809 107,091 $5.00-$10.31
Options authorized 100,000 --
Options granted (44,900) 44,900
Options exercised -- --
Options cancelled 6,100 (6,100)
------- -------
Balance, September 30, 1996 100,009 145,891
======= =======
Options granted vest ratably over a three-year period. As of September 30,
1996, 88,119 options were vested and exercisable.
3. Income Taxes:
The components of the net deferred tax liability recognized in the
accompanying balance sheet at September 30, 1996 are as follows:
Deferred tax liability $ --
Deferred tax asset 504,593
Valuation allowance (504,593)
---------
$ --
=========
The types of temporary differences between the tax basis of assets and
liabilities and their financial statement reporting amounts are
attributable principally to depreciation methods, deferred gains, and
different accounting methods used.
As of September 30, 1996, the Company had approximately $825,000 in net
operating loss carryforwards for federal and state income tax purposes,
which expire in 2009 and 2010.
6
Super Vision International, Inc.
Notes to Condensed Financial Statements - Continued
For the Three-Month and Nine-Month Periods Ended September 30, 1996 and 1995
4. Inventory:
Inventory at September 30, 1996 and December 31, 1995 consisted of the
following components:
September 30, December 31,
1996 1995
----------- -----------
Raw materials $ 1,334,961 $ 665,441
Work in progress 211,339 8,729
Finished goods 510,802 253,518
----------- -----------
2,057,102 927,688
Less reserve for excess inventory (53,340) (28,340)
----------- -----------
$ 2,003,762 $ 899,348
=========== ===========
7
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report.
The following discussion contains certain forward-looking statements, within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the attainment of which involve various risks and
uncertainties. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may", "will", "expect", "believe",
"estimate", "anticipate", "continue", or similar terms, variations of those
terms or the negative of those terms. The Company's actual results may differ
materially from those described in these forward-looking statements due to,
amongh other factors, competition in each if the Company's product areas,
dependence on suppliers, the Company's limited manufacturing experience and the
evolving nature of the Company's fiber optic technology.
Results of Operations
Revenues are derived primarily from the sale of fiber optic side glowTM and end
glowTM cable and light sources, point of purchase fiber optic signs and displays
and sales of fiber optic landscape and task lighting systems. Total revenues for
the three months ("1996 quarter") and nine months ended September 30, 1996
("1996 nine months") were approximately $1,695,000 and $4,199,000, respectively.
This represented a 258% and 139% increase, respectively, over the three months
("1995 quarter") and nine months ended September 30, 1995 ("1995 nine months").
The increase in revenues is primarily attributable to sales of fiber optic
cables and light sources in the lighting and sign markets. Management believes
that increased marketing activities have resulted in greater awareness of the
Company's products, which has resulted in increased sales of the Company's
products. Additionally, the increase in revenues during the 1996 quarter is
attributable to sales of the Company's swimming pool and spa product line. The
Company did not have sales of this product line during the 1995 quarter. The
increase in revenues during the 1996 nine months is also attributable to
$710,000 of revenue received by the Company as a result of the completion of a
large contract for delivery of a custom fiber optic display. The contract was
completed in March 1996.
Cost of sales were approximately $938,000 or 55% of revenues, during the 1996
quarter, compared to 79% in the 1995 quarter. The gross margin was 39% for the
1996 nine months as compared to 32% for the 1995 nine months. The 1996 gross
margin was favorably impacted by the increase in volume of sales of the
Company's products, which resulted in manufacturing efficiencies and improved
yields. Additionally, the sales mix included a higher percentage of the
Company's standard fiber optic side glowTM and end glowTM cables, and fiber
optic light sources, designed for the architectural lighting and sign markets.
These products have higher margins relative to custom fiber optic systems.
Improvements in manufacturing methods also contributed to increases in gross
margins in the Company's point of purchase sign products.
8
Selling, general and administrative expenses were approximately $468,000 and
$1,305,000 during the 1996 quarter and 1996 nine months, respectively, as
compared to approximately $352,000 and $1,012,000 for the 1995 quarter and 1995
nine months, respectively. This represented increases of 33% and 29%,
respectively. The 1996 quarter and 1996 nine months expenses have been reduced
for a reimbursement of costs related to the marketing of the Company's swimming
pool and spa products of $100,000 from Hayward Pool Products ("Hayward"). During
the 1996 quarter, the Company entered into an agreement ("Hayward Distribution
Agreement") with Hayward whereby Hayward acquired the exclusive worldwide rights
to market the Company's products in the pool and spa market. As part of the
agreement, Hayward reimbursed current year marketing expenses of the Company
related to the pool and spa market, and purchased the Company's existing
marketing and sales literature. Exclusive of this reimbursement, selling,
general and administrative expenses were $568,000 and $1,405,000 during the 1996
quarter and 1996 nine months, respectively, representing increases of 61% and
39%, respectively, as compared to the 1995 quarter and 1995 nine months. During
the 1996 quarter, the Company entered into a lease agreement for a new
manufacturing and office facility; consequently, the Company recognized an
additional $40,000 of depreciation on the leasehold improvements in its current
facility. The new lease commences in the first quarter of 1997. Additionally,
the Company created a Customer Service department and increased personnel levels
in sales and marketing during the 1996 quarter. Management believes these
increases are necessary to support and sustain future revenue growth. The
Company also increased advertising expense in current and potential future
markets to further market awareness of the products.
Research and development costs were approximately $47,000 and $127,000 during
the 1996 quarter and 1996 nine months compared with approximately $76,000 and
$172,000 for the 1995 quarter and 1995 nine months, respectively. This
represented decreases of 38% and 26%, respectively. The Company has pursued a
strategy of adapting its current technology to new products and applications,
thereby decreasing the costs of bringing these products to market. During the
1996 quarter, the Company introduced several new landscape lights and task
lights. Management believes research and development costs may rise in future
periods as the Company enters into research which is based on improving current
technology or developing new technology, including lamp, reflector and fiber
optic cable research with the goal of increasing the brightness of the Company's
products.
Interest income is derived from the short term investment of the proceeds of the
Company's initial public offering in March 1994. Net interest income for the
1996 quarter and 1996 nine months was approximately $33,000 and $84,000,
respectively, as compared to approximately $50,000 and $156,000 for the 1995
quarter and 1995 nine months, respectively. The decrease is attributable to
reduced cash balances available for investment, as the Company has expanded
inventory and receivables levels in conjunction with revenue increases as well
as decreases due to the acquisition of capital equipment.
Income taxes for the 1996 nine months include a provision for income taxes which
was offset by tax benefits as a result of the carryforward of prior year tax
losses.
The net income for the 1996 quarter was approximately $274,000, or $.14 per
common share, as compared to a net loss of approximately ($279,000), or ($.15)
per common share, in the 1995 quarter. The increase is due to higher sales
volumes and improvements in sales mix and manufacturing methods.
9
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of $5,146,904.
Cash increased by approximately $1,210,000 during the 1996 nine months as a
result of the purchase by Hayward of 249,480 shares of the Company's Class A
Common Stock for an amount of $1,948,228, net of issuance costs. During the 1996
nine months, the Company experienced an increase in accounts receivable of
approximately $640,000 as a result of the increase in revenue levels. The
Company increased inventory levels by approximately $1,104,000. This increase
resulted from the expansion of the Company's product lines, particularly in the
swimming pool and spa market, to support the Hayward Distribution Agreement. The
Company also expanded inventory of its architectural lighting products and raw
fiber optic materials to support shorter lead times on delivery demanded by this
market. Additionally, the Company was awarded a large contract for a custom
fiber optic display during the 1996 nine months. The contract amount is
approximately $1,007,000. Inventory of approximately $250,000 was purchased
during the 1996 nine months which is related to this project. Although the
contract will be accounted for on a percentage of completion basis, no work had
been performed as of September 30, 1996, and therefore, no revenue from the
contract has been included in the 1996 quarter or nine months. Accounts payable
increased by approximately $352,000 relating to the expansion of inventory.
Deposits increased by approximately $474,000 as a result of the deposit on the
custom display contract, discussed above. The Company also used approximately
$316,000 in the expansion of capital equipment, primarily in the upgrade of
cabling equipment to achieve increases in production speed and quality of
product, and upgrades in computer hardware and software.
The Company acquired a patent related to its light sources during the 1996 nine
months for a cost of approximately $16,000. Management believes these
expenditures may assist in the efforts to obtain a marketing advantage in the
ease of use of fiber optics for field installation.
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 continued expansion.
Charge to Income in the Event of Release of Escrowed Shares
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 individuals (see "Escrow Shares"). In the event any shares are released
from escrow to persons who are officers and other employees of the Company,
compensation expense will be recorded for financial reporting purposes as
required by GAAP. Therefore, in the event the Company attains any of the
earnings thresholds or the Company's Class A Common Stock meets certain minimum
bid prices required for the release of the Escrow Shares, such release will be
deemed additional compensation expense of the Company. Accordingly, the Company
will, in the event of the release of shares from escrow, recognize during the
period in which the earnings thresholds are met or are probable of being met or
such minimum bid prices attained, what will likely be one or more substantial
charges which would have the effect of substantially increasing the Company's
loss or reducing or eliminating earnings, if any, at such time. Although the
amount of compensation recognized by the Company will not affect the Company's
total stockholders' equity or its working capital, it may have a depressive
effect on the market price of the Company's securities.
10
PART II
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) 4.1 - Form of Unit Purchase Option *
4.2 - Form of Warrant Agreement (including forms of Class A and
Class B Warrant Certificates) *
4.3 - Escrow Agreement *
4.4 - Form of Amendment to Escrow Agreement *
10.1 - 1994 Stock Option Plan *
10.2 - Employment Agreement with Brett Kingstone *
10.3 - Form of Indemnification Agreement *
10.4 - Lease for Facility at Viscount Row *
10.5 - Registrant's Bank Loan Agreements with Barnett Bank *
---------------
* Incorporated by reference to the Company's Registration
Statement on Form SB-2 (file no. 33-74742)
(b) No reports on Form 8-K were filed during the three months
ended September 30, 1996.
11
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunder duly authorized.
SUPER VISION INTERNATIONAL, INC.
By: /s/ Brett M. Kingstone Date: November 11, 1996
----------------------------------------------
Brett M. Kingstone, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ John P. Stanney Date: November 11, 1996
----------------------------------------------
John P. Stanney, Chief Financial Officer
(Principal Financial and Accounting Officer)
12