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 June 30, 1997 [ ] 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) ncorporation 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 August 12, 1997 Class A Common Stock, $.001 par value 1,721,714 Class B Common Stock, $.001 par value 483,264 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 June 30, 1997 and December 31, 1996 1 Condensed Statements of Operations for the Three Months and Six Months Ended June 30, 1997 and 1996 2 Condensed Statement of Stockholders' Equity 3 Condensed Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 4 Notes to Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security-Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 Super Vision International, Inc. Condensed Balance Sheets
June 30, December 31, Assets 1997 1996 ------------------ ------------------ Current Assets: Cash and cash equivalents $ 2,393,086 $ 3,327,965 Investments 107,667 107,667 Trade accounts receivable, less allowance for doubtful accounts of $46,909 and $41,866 1,742,686 1,310,057 Inventory, less reserve for excess inventory of $74,061 2,097,759 1,921,103 Advances to employees 29,031 25,524 Deferred tax asset 137,353 185,865 Other assets 108,749 72,781 ------------------ ------------------ Total current assets 6,616,331 6,950,962 ------------------ ------------------ Equipment and Furniture 1,818,780 1,764,706 Accumulated depreciation (432,404) (325,957) ------------------ ------------------ Net equipment and furniture 1,386,376 1,438,749 ------------------ ------------------ Other Assets 199,643 229,489 ------------------ ------------------ Deposits on Equipment 386,999 - ------------------ ------------------ $ 8,589,349 $ 8,619,200 ================== ================== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 723,266 $ 1,020,478 Accrued liabilities 188,000 194,247 Accrued compensation and benefits 32,000 139,769 Payments in excess of costs and recognized profit on uncompleted contracts - 53,702 Deposits 63,424 51,814 Income tax payable 58,915 19,388 ------------------ ------------------ Total current liabilities 1,065,605 1,479,398 ------------------ ------------------ 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, 1,685,213 issued and outstanding 1,685 1,681 Class B common stock, $.001 par value, 3,389,134 shares authorized, 483,264 and 3,375,134 issued and outstanding 483 3,375 Additional paid-in capital 7,643,876 7,633,653 Retained earnings (deficit) (122,300) (498,907) ------------------ ------------------ Total stockholders' equity 7,523,744 7,139,802 ------------------ ------------------ $ 8,589,349 $ 8,619,200 ================== ==================
See accompanying notes to condensed financial statements. Super Vision International, Inc. Condensed Statements of Operations
Three Months Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 ----------------- ----------------- ---------------- --------------- Revenues $ 2,541,851 $ 1,134,655 $ 4,745,722 $ 2,503,644 ----------------- ----------------- ---------------- --------------- Costs and Expenses: Cost of sales 1,524,263 734,435 2,844,615 1,605,794 Selling, general and administrative 634,029 472,998 1,300,438 836,595 Research and development 83,176 17,443 131,995 80,236 ----------------- ----------------- ---------------- --------------- Total costs and expenses 2,241,468 1,224,876 4,277,048 2,522,625 ----------------- ----------------- ---------------- --------------- Operating Income (Loss) 300,383 (90,221) 468,674 (18,981) ----------------- ----------------- ---------------- --------------- Non-Operating Income (Expenses): Interest income 37,456 27,619 75,772 50,931 Interest expense - (734) - (1,480) Loss on disposal of assets - (7,230) - (7,543) ----------------- ----------------- ---------------- --------------- Total non-operating income 37,456 19,655 75,772 41,908 ----------------- ----------------- ---------------- --------------- Income (Loss) Before Income Taxes 337,839 (70,566) 544,446 22,927 Income Tax Expense 109,894 - 167,838 - ----------------- ----------------- ---------------- --------------- Net Income (Loss) $ 227,945 $ (70,566) $ 376,608 $ 22,927 ================= ================= ================ =============== Income (Loss) Per Common Share: Primary $ 0.10 $ (0.04) $ 0.17 $ 0.01 ================= ================= ================ =============== Weighted Average Shares of Common Stock Outstanding: Primary 2,198,575 1,886,292 2,183,168 1,886,196 ================= ================= ================ ===============
See accompanying notes to condensed financial statements. Super Vision International, Inc. Condensed Statement of Stockholders' Equity
Common Stock ----------------------------------------------------- Class A Class B Additional Retained -------------------------- -------------------------- Paid-In Earnings Shares Amount Shares Amount Capital (Deficit) ------------- ------------ ------------- ----------- -------------- -------------- Balance, December 31, 1996 1,680,946 $ 1,681 3,375,134 $ 3,375 $ 7,633,653 $ (498,907) Retirement of Class B Escrow Shares - - (2,891,870) (2,892) 2,892 - Issuance Costs for Shares Underlying Class A and B Warrants - - - - (15,000) - Exercise of Employee Stock Options 4,267 4 - - 22,331 - Net Income for the Six Months Ended June 30, 1997 - - - - - 376,607 ------------- ------------ ------------- ----------- -------------- -------------- Balance, June 30, 1997 1,685,213 $ 1,685 483,264 $ 483 $ 7,643,876 $ (122,300) ============= ============ ============= =========== ============== ==============
See accompanying notes to condensed financial statements. Super Vision International, Inc. Condensed Statements of Cash Flows
Six Months Ended June 30, 1997 1996 ----------------- ----------------- Cash Flows from Operating Activities: Net income $ 376,608 $ 22,927 ----------------- ----------------- Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 109,182 77,281 Gain on disposal of fixed assets - 7,543 (Increase) decrease in: Accounts receivable, net (432,629) (400,594) Inventory (176,656) (433,170) Other assets 48,559 (61,092) Increase (decrease) in: Accounts payable (297,212) 284,455 Accrued and other liabilities (128,188) 31,160 Deposits 11,610 478,611 ----------------- ----------------- Total adjustments (865,334) (15,806) ----------------- ----------------- Net cash provided by (used in) operating activities (488,726) 7,121 ----------------- ----------------- Cash Flows from Investing Activities: Acquisition of patents and trademarks (12,411) (12,642) Purchase of equipment and furniture (54,074) (224,681) Proceeds from disposal of equipment and furniture - 7,049 Deposits on equipment (386,999) - ----------------- ----------------- Net cash used in investing activities (453,484) (230,274) ----------------- ----------------- Cash Flows from Financing Activities: Issuance costs (15,000) 18,750 Proceeds from exercise of employee stock options 22,331 - ----------------- ----------------- Net cash provided by financing activities 7,331 18,750 ----------------- ----------------- Net Decrease in Cash and Cash Equivalents (934,879) (204,403) Cash and Cash Equivalents, beginning of period 3,327,965 2,327,775 ----------------- ----------------- Cash and Cash Equivalents, end of period $ 2,393,086 $ 2,123,372 ================= =================
See accompanying notes to condensed financial statements. Super Vision International, Inc. Notes to Condensed Financial Statements For the Six-Month Periods Ended June 30, 1997 and 1996 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 26, 1997, filed with the Securities and Exchange Commission. 2.Stock Option Plan: The Company has a stock option plan that provides for the grant of incentive stock options and nonqualified stock options for up to 250,000 shares of the Company's Class A common stock under the plan. The option price must be at least 100% of market value at the date of the grant. The following table summarizes activity of the stock option plan for the period ended June 30, 1997: Options Number Option Available for of Price Future Grant Shares Per Share ------------- ----------- ----------- Balance, December 31, 1996 69,769 176,131 $5.00-$9.25 Options granted (53,900) 53,900 Options exercised - (4,267) Options cancelled 8,933 (8,933) ------------ ------------ Balance, June 30, 1997 24,802 216,831 ============ ============ Options granted vest ratably over a three-year period. As of June 30, 1997, 175,400 options were vested and exercisable. Super Vision International, Inc. Notes to Condensed Financial Statements - Continued For the Six-Month Periods Ended June 30, 1997 and 1996 3.Income Taxes: The components of the net deferred tax asset recognized in the accompanying balance sheet at June 30, 1997 are as follows: Deferred tax liability $ (55,353) Deferred tax asset 234,521 Valuation allowance (41,815) ---------------- $ 137,353 ================ 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 June 30, 1997, the Company had approximately $232,479 in net operating loss carryforwards for federal and state income tax purposes, which expire in 2011. 5.Inventory: Inventory at June 30, 1997 and December 31, 1996 consisted of the following components: June 30, December 31, 1997 1996 -------------- ------------- Raw materials $ 1,478,038 $ 1,334,429 Work in progress 5,586 50,122 Finished goods 688,196 618,180 -------------- ------------- 2,171,820 2,002,731 Less: Reserve for excess inventory (74,061) (81,628) -------------- ------------- $ 2,097,759 $ 1,921,103 ============== ============= 6.Recent Accounting Pronouncements: In February, 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, Earnings Per Share. This statement, which is effective for the Company's annual report for the year ended December 31, 1997, establishes new requirements for the calculation, presentation and disclosure of earnings per share. The Company estimates that earnings per share presented in accordance with Statement No. 128 would not differ materially from what is currently presented. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this report. The following discussion contains certain forward-looking statements, within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995, the attainment of which involve various risks and uncertainties. Forward-looking statements may be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "anticipate", "continue", or similar terms, variations of those terms or the negative of those terms. The Company's actual results may differ materially from those described in these forward-looking statements due to, among other factors, competition in each of the Company's product areas, dependence on suppliers, the Company's limited manufacturing experience and the evolving nature of the Company's fiber optic technology. Results of Operations Revenues are derived primarily from the sale of fiber optic side glow(TM) and end glow(TM) cable and light sources, point of purchase fiber optic signs and displays and sales of fiber optic landscape and task lighting systems. Total revenues for the three months ("1997 quarter") and six months ended June 30, 1997 ("1997 six months") were approximately $2,542,000 and $4,746,000, respectively, as compared to approximately $1,135,000 and $2,504,000 for the three months ("1996 quarter") and six months ended June 30, 1996 ("1996 six months"). This represented increases of 124% and 90%, respectively. The increase in revenues is primarily attributable to strong sales of the Company's pool and spa lighting products, and continued growth in the sign market segment. Sales in the pool and spa market rebounded strongly after a prolonged lull in the construction market due to weather conditions. The summer building season resulted in strong demand for this product line. The Company also noted growth in the sign market as the Company continued expansion of marketing efforts targeted to this industry. The increase in revenues during the 1997 six months is also attributable to approximately $830,000 of revenue recognized under a long-term contract completed in May 1997 for what the Company believes to be the world's largest custom fiber optic display. Management believes the overall market available to fiber optic lighting products is increasing as the lighting, sign and pool and spa industries become aware of the benefits and applications of fiber optics in these market segments. Cost of sales were approximately $1,524,000, or 60% of revenues, during the 1997 quarter and $2,845,000, or 60% of revenues, for the 1997 six months as compared to $734,000, or 65% of revenues, for the 1996 quarter and $1,606,000, or 64% of revenues, for the 1996 six months. The gross margin was 40% for both the 1997 quarter and 1997 six months, respectively, and 35% and 36%, respectively, for the 1996 quarter and 1996 six months. Gross margins for the 1997 six months were improved due to process improvements in the Company's fiber optic cabling and extrusion production lines which improved product performance and resulted in increased yields, thereby increasing margin experience. The 1997 gross margin was also favorably impacted by the effects of volume purchase discounts of product components. The Company has increased inventory levels of standard product components in order to take advantage of quantity discounts. These components are common to many of the Company's product lines and are not associated with one particular product or market. Additionally, the gross margin improved due to the implementation of improved manufacturing flow methods, particularly relating to the Company's light source product lines, which have resulted in lower unit overhead costs. Selling, general and administrative expenses were approximately $634,000 and $1,300,000 during the 1997 quarter and 1997 six months, respectively, as compared to approximately $473,000 and $837,000 for the 1996 quarter and 1996 six months, respectively. This represented increases of 34% and 55%, respectively. During the 1997 quarter, the Company attended several trade shows targeted towards expanding the sign market which resulted in increased promotional and travel costs. The Company also experienced increased costs in the area of investor and public relations, and other costs associated with the public trading of the Company's securities. Additionally, the Company produced new product catalogs to include newly introduced products, as well as a price guide and marketing video. During the 1997 six months, the Company increased personnel levels in the sales, marketing and customer service areas to support increased requests for information regarding the Company's products, which increased selling and marketing expenses. Research and development costs were approximately $83,000 and $132,000 during the 1997 quarter and 1997 six months, respectively, as compared to approximately $17,000 and $80,000 during the 1996 quarter and 1996 six months, respectively. This represented increases of 388% and 65%, respectively. The Company increased personnel levels in the area of research and development in order to shorten development time of several new light sources, as well as modifications to existing products to meet market requests. In addition, the Company is actively exploring several new market applications for its endpoint fiber optic technology which required increased costs associated with developing prototypes for field testing. Interest income is derived from the short-term investments of liquid cash balances in low risk commercial paper and money market funds. Net interest income for the 1997 quarter and 1997 six months was approximately $37,000 and $76,000, respectively, as compared to approximately $28,000 and $51,000 for the 1996 quarter and 1996 six months, respectively. The increase is attributable to increased cash balances available for investment during the 1997 quarter and 1997 six months, primarily as a result of the sale by the Company of 249,480 shares of Class A Common Stock for an aggregate amount of approximately $1,945,000, net of issuance costs, in September 1996. Income taxes for the 1997 six months include a provision for income taxes of approximately $179,000 which was offset by tax benefits of approximately $42,000 as a result of the carryforward of prior year tax losses. The net income for the 1997 quarter was approximately $228,000, or $.10 per common share, as compared to a net loss of approximately $(71,000), or $(.04) per common share, in the 1996 quarter. Net income is due to higher sales volumes and improvements in gross margins. Liquidity and Capital Resources At June 30, 1997, the Company had working capital of approximately $5,551,000. Cash decreased by approximately $935,000 during the 1997 six months. Accounts receivable increased by approximately $433,000 during the 1997 six months, primarily due to increased sales of the Company's pool and spa lighting products to Hayward Pool Products in support of the summer building season. Inventory increased by approximately $177,000 during the 1997 six months. Inventory was expanded in order to take advantage of volume purchase discounts. Accounts payable decreased by approximately $297,000 as the Company took advantage of discounts for early payment in order to further increase gross margins. Accrued and other liabilities decreased by approximately $128,000 primarily due to the payment of compensation amounts accrued as of December 31, 1996 which were paid in the 1997 six months. The Company has signed a lease for an approximately 70,000 square foot headquarters and production facility in Orlando, Florida. Cash of approximately $453,000 has been paid to date for buildout costs and deposits on furniture and equipment. Management expects to incur total costs of approximately $850,000 relating to the interior buildout and related equipment purchased for the facility. Completion and relocation to the new facility is projected for August 1997. Escrowed Shares In January 1994, the Company and certain stockholders of the Company entered into an agreement providing for the escrow of 2,918,000 shares held by such individuals (the "Escrow Shares"). In the event any of the shares were released from escrow to officers, directors and other employees of the Company, compensation expense would be recorded for financial reporting purposes as required by GAAP. As of March 31, 1997, Brett Kingstone, the President and Chairman, voluntarily retired 2,891,870 shares of Class B Common Stock previously held in the escrow account. These shares were returned to the Company treasury. The Company currently has 26,130 shares of Class A Common Stock held in escrow. 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 remaining 26,130 Escrow Shares, the Company may, in the event of the release of such shares from escrow, recognize during the period in which the earnings threshold are met or are probable of being met or such minimum bid prices attained, charges to earnings as compensation expense which would have the effect of increasing the Company's loss or reducing earnings, if any, at such time. 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 10.7 - Warrant Agreement dated as of March 31, 1997 between the Company and Brett M. Kingstone -------------- 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: August 14, 1997 --------------------------------- Brett M. Kingstone, President and Chief Executive Officer (Principal Executive Officer) By: /s/ John P. Stanney Date: August 14, 1997 ---------------------------------------- John P. Stanney, Chief Financial Officer (Principal Financial and Accounting Officer)