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, 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 June 30, 1996: Class A Common Stock, $.001 par value 1,428,466 shares Class B Common Stock, $.001 par value 3,375,134 shares Traditional Small Business Disclosure Format Yes X No 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, 1996 and December 31, 1995 1 Condensed Statements of Operations for the Three and Six Months Ended June 30, 1996 and 1995 2 Condensed Statement of Stockholders' Equity 3 Condensed Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 5 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 Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security-Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 11 SUPER VISION INTERNATIONAL, INC. CONDENSED BALANCE SHEETS June 30, December 31, ASSETS 1996 1995 --------------- -------------- Current Assets: Cash and cash equivalents $ 2,123,372 $ 2,327,775 Trade accounts receivable, less allowance for doubtful accounts of $17,659 and $19,952 731,164 330,570 Inventory, less reserve for excess inventory of $33,340 and $28,340 1,332,518 899,348 Advances to employees 34,200 16,390 Other assets 78,918 51,236 -------------- -------------- Total current assets 4,300,172 3,625,319 -------------- -------------- Equipment and Furniture 1,606,386 1,404,368 Accumulated depreciation (230,194) (172,697) -------------- -------------- Net equipment and furniture 1,376,192 1,231,671 -------------- -------------- Other Assets 75,705 59,176 -------------- -------------- $ 5,752,069 $ 4,916,166 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Note payable to officer $ 22,968 $ 22,968 Accounts payable 629,308 344,853 Accrued liabilities 23,936 22,443 Accrued warranty 40,000 -- Payments in excess of costs and recognized profit on uncompleted contracts -- 10,333 Deposits 529,445 50,834 -------------- -------------- Total current liabilities 1,245,657 451,431 -------------- -------------- 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, 1,431,466 issued and outstanding 1,431 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 5,688,171 5,669,423 Retained earnings (1,186,565) (1,209,492) ---------------- -------------- Total stockholders' equity 4,506,412 4,464,735 ---------------- -------------- $ 5,752,069 $ 4,916,166 ================ ==============
See accompanying notes to condensed financial statements. -1- SUPER VISION INTERNATIONAL, INC. CONDENSED STATEMENTS OF OPERATIONS Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 ------ ------ ------ ----- Revenues: Net Sales $1,134,655 $745,033 $2,503,644 $1,239,494 Licensing and royalty fees - 45,000 - 45,000 ---------- -------- ---------- ---------- Total Revenues 1,134,655 790,033 2,503,644 1,284,494 ---------- -------- ---------- ---------- Costs and Expenses: Cost of sales 734,435 494,351 1,605,794 792,271 Selling, general and administrative 472,998 272,343 836,595 659,738 Research and development 17,443 42,199 80,236 96,078 ---------- -------- ---------- ---------- Total costs and expenses 1,224,876 808,893 2,522,625 1,548,087 ---------- -------- ---------- ---------- Operating Loss (90,221) (18,860) (18,981) (263,593) --------- -------- ---------- ---------- Non-Operating Income (Expenses): Interest income 27,619 48,776 50,931 105,753 Interest expense (734) (715) (1,480) (1,508) Gain (loss) on disposal of assets (7,230) 11,357 (7,543) 11,357 ---------- -------- --------- ---------- Total non-operating income (expenses) 19,655 59,418 41,908 115,602 ---------- -------- --------- ---------- Net Income (Loss) $ (70,566) $ 40,558 $ 22,927 $ (147,991) ========== ========= ========= =========== Income (Loss) Per Common Share: Primary $ (0.04) $ 0.02 $ 0.01 $ (0.08) ========== ======== ======== ========= Weighted Average Shares of Common Stock Outstanding: Primary 1,886,292 1,882,100 1,886,196 1,882,100 ========== ========== ========== ==========
See accompanying notes to condensed financial statements. -2- 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, 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 - Net Income for the Three Months Ended June 30, 1996 - - - - - 22,927 ------------ ------------ ----------- ------------- ------------ ------------- Balance, June 30, 1996 1,431,466 $ 1,431 3,375,134 $ 3,375 $ 5,688,171 $ (1,186,565) ============ ============ =========== ============= ============ ===========
See accompanying notes to condensed financial statements. -3- SUPER VISION INTERNATIONAL, INC. CONDENSED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 1996 1995 --------------- --------------- Cash Flows from Operating Activities: Net income (loss) $ 22,927 $ (147,991) --------------- --------------- Adjustments to reconcile net increase (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 77,281 58,955 (Gain) loss on disposal of fixed assets 7,543 (11,357) Increase in: Accounts receivable, net (400,594) (193,790) Inventory (433,170) (154,885) Other assets (61,092) (55,792) Increase in: Accounts payable 284,455 190,393 Accrued and other liabilities 31,160 1,422 Deposits 478,611 13,658 --------------- --------------- Total adjustments (15,806) (151,396) --------------- --------------- Net cash provided by (used in) operating activities 7,121 (299,387) --------------- --------------- Cash Flows from Investing Activities: Acquisition of patents and trademarks (12,642) -- Purchase of equipment and furniture (224,681) (89,634) Proceeds from disposal of equipment and furniture 7,049 34,700 --------------- --------------- Net cash used in investing activities (230,274) (54,934) --------------- --------------- Cash Flows form Financing Avctivities: Issuance of common stock, gross 18,750 -- --------------- --------------- Net cash provided by financing activities 18,750 -- --------------- --------------- Net Increase (Decrease) in Cash and Cash Equivalents (204,403) (354,321) Cash and Cash Equivalents, beginning of period 2,327,775 3,626,290 --------------- --------------- Cash and Cash Equivalents, end of period $ 2,123,372 $ 3,271,969 =============== ===============
See accompanying notes to condensed financial statements. -4- SUPER VISION INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS For the Three-Month and Six-Month Period Ended June 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. STOCK OPTION PLAN: 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. 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. The following table summarizes activity of the stock option plan for the period ended June 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-$7.38 Options granted (38,400) 38,400 Options exercised -- -- Options cancelled 6,100 (6,100) ------- -------- Balance, June 30, 1996 6,509 139,391 ======= =======
Options granted vest ratably over a three-year period. As of June 30, 1996, 84,484 options were vested and exercisable. -5- SUPER VISION INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED For the Three-Month and Six-Month Periods Ended June 30, 1996 and 1995 3. INCOME TAXES: The components of the net deferred tax liability recognized in the accompanying balance sheet at June 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 June 30, 1996, the Company had approximately $1,074,000 in net operating loss carryforwards for federal and state income tax purposes, which expire in 2009 and 2010. 4. INVENTORY: Inventory at June 30, 1996 and December 31, 1995 consisted of the following components: June 30, December 31, 1996 1995 ---- ---- Raw Materials $1,024,042 $ 665,441 Work in progress 27,456 8,729 Finished goods 314,360 253,518 ------------ ----------- 1,365,858 927,688 Less reserve for excess inventory (33,340) (28,340) ------------ ----------- $1,332,518 $ 899,348 ------------ ----------- -6- 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. RESULTS OF OPERATIONS Revenues are derived primarily from the sale of fiber optic side-glowTMand end glowTMcable and light sources, custom fiber optic displays, point of purchase fiber optic signs and sales of component parts. Total revenues for the three months ("1996 quarter") and six months ended June 30, 1996 ("1996 six months") were approximately $1,135,000 and $2,504,000, respectively. This represented a 44% and 95% increase, respectively, over the three months ("1995 quarter") and six months ended June 30, 1995 ("1995 six months"). The increase in revenues during the 1996 quarter is primarily 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. Additionally, sales of the Company's standard products through the Company's distribution network continued to show improvements in sales volume as compared to the comparable prior period. The increase in revenues during the 1996 six months is also attributable to $710,000 of revenue recognized 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 $734,000 or 65% of revenues, during the 1996 quarter, compared to 66% in the 1995 quarter. The gross margin was 35% for the 1996 six months and 34% for the 1995 six months. The 1996 margin was negatively impacted due to entrance into the swimming pool market which included the granting of price discounts to introduce builders and distributors to the Company's product line. Further, the Company discounted prices in the swimming pool market to meet price decreases initiated by competitors reacting to the Company's entrance into this market. These discounts were given in order to obtain market recognition and market share. The Company believes that as volume sales of these products increase and market share is obtained, the discounts will no longer be granted. Additionally, as the volume of sales of the Company's products increase management believes that the costs of the products will decrease, leading to potential gross margin improvements. The decreases in margins experienced in the swimming pool market were offset by margin improvements in the Company's other standard product lines, particularly the Company's architectural lighting products, and in the Company's custom endpoint fiber optic display products. Selling, general and administrative expenses were approximately $473,000 and $837,000 during the 1996 quarter and six months, respectively, as compared to approximately $272,000 and $660,000 for the 1995 quarter and six months, respectively. This represented increases of 74% and 27%, respectively. During the 1996 quarter, the Company incurred increased expenses in connection with trade show attendance in the swimming pool and spa lighting market prior to the summer construction season. Additionally, the Company undertook an intensive -7- training program to educate its representation network in the pool and spa lighting market prior to the installation season. Additionally, the Company incurred expenses in new literature and advertising for this market. Further increases in selling expenses were incurred in the formulation of training programs for electrical contractors and sign companies. The Company has targeted electrical contractors as a key group in the Company's marketing strategy to penetrate the residential lighting market. Research and development costs were approximately $17,000 and $80,000 during the 1996 quarter and six months as compared to approximately $42,000 and $96,000 for the 1995 quarter and six months, respectively. This represented decreases of 59% and 16%, respectively. The Company continues to achieve successful new product introductions and product enhancements with lower research costs. This has been made possible due to prior research efforts which have formed the basis for current product development efforts. The Company continues research into the improvement of its fiber optic side glowTM cables, as well as new lamp technologies and materials which may yield improvements in the brightness of the Company's fiber optic products. The Company expects that these efforts will require an increase in research expenditures. Additionally, during the 1996 quarter the Company was awarded a patent on its light source and reflector design, as well as several key components related to the coupling of fiber optic cables to light sources. The Company believes this patent may afford the Company a market advantage in the ease of installation of fiber optics in the field. 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 six months was approximately $28,000 and $51,00, respectively, as compared to approximately $49,000 and $106,000 for the 1995 quarter and six months, respectively. The decrease is attributable to reduced cash balances available for investment. At the end of 1995, the Company paid approximately $850,000 for its fiber optic cabling and extrusion equipment. Additionally, cash was invested in the expansion of inventory and receivables in support of the higher revenue levels experienced during the 1996 quarter and six months. Income taxes for the 1996 six 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 loss for the 1996 quarter was approximately ($70,600) or ($.04) per common share, as compared to net income of approximately $40,600, or $.02 per common share, in the 1995 quarter. The decrease is due to increased sales and marketing expenses incurred by the Company which Management believes are necessary to sustain future revenue growth. -8- LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had working capital of $3,054,515. During the 1996 six months, the Company experienced an increase in accounts receivable of approximately $401,000 as a result of the increase in revenue levels. The Company increased inventory levels by approximately $433,000. This increase resulted from the expansion of the Company's product lines, particularly in the swimming pool and spa market. Additionally, the Company was awarded a large contract for a custom fiber optic display during the 1996 quarter. The contract amount is approximately $1,007,000. Inventory of approximately $250,000 was purchased during the 1996 quarter 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 June 30, 1996, and therefore, no revenue from the contract has been included in the 1996 quarter or six months. Accounts payable increased by approximately $284,000 related to the expansion of inventory. Deposits increased by approximately $479,000 primarily as a result of a deposit of $457,000 on the custom display contract, discussed above. The Company also used approximately $225,000 in the expansion of capital equipment, primarily in the upgrade of cabling equipment to achieve increases in production speed and quality of product. The Company acquired a patent related to its light source and reflector design with a cost of approximately $13,000. 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. -9- 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 June 30, 1996. -10- 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 9, 1996 ----------------------------------------- Brett M. Kingstone, President and Chief Executive Officer (Principal Executive Officer) By: /S/JOHN P. STANNEY Date: August 9, 1996 ----------------------------------------- John P. Stanney, Chief Financial Officer (Principal Financial and Accounting Officer) -11-