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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

For the quarterly period ended June 30, 2005

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)

8210 PRESIDENTS DR., ORLANDO, FLORIDA 32809

(Address of Principal Executive Offices) (Zip Code)

(407) 857-9900

(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

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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.

Transitional Small Business Disclosure Format

    Yes  ¨        No  x

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Super Vision International, Inc.

Index to Form 10-QSB

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Super Vision International, Inc.

Condensed Balance Sheets

See accompanying notes to unaudited condensed financial statements.

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Super Vision International, Inc.

Condensed Statements of Operations – Unaudited

See accompanying notes to unaudited condensed financial statements.

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Super Vision International, Inc.

Condensed Statements of Cash Flows – Unaudited

See accompanying notes to unaudited condensed financial statements.

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Super Vision International, Inc.

Notes to Condensed Financial Statements (unaudited)

The accompanying condensed financial statements are unaudited, but in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.

These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004 filed with the Securities and Exchange Commission. The results of operations for the six month period ended June 30, 2005 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2005 or for any future period.

Our accounting policies are as set forth in the notes to financial statements referred to above.

Revenue recognition - Generally, the Company recognizes revenue for its products upon shipment to customers, provided no significant obligations remain and collection is probable. For sales that include customer acceptance terms, revenues are recorded after customer acceptance.

Investments – All investments securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of deferred income taxes, reported as a separate component of stockholders’ equity. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in other income. The costs of securities sold are based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in other income.

The amortized cost, unrealized gains, and fair values of the Company’s investments held at June 30, 2005 are summarized as follows:

Stock-based compensation - The Company accounts for its stock-based employee compensation plans under the accounting provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and has furnished the pro forma disclosures required under SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure.

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 stock-based employee compensation plans. Accordingly, no compensation expense has been recognized for stock options granted under the plans since they were granted at or above market price. 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 income (loss) and income (loss) per share would have been adjusted to the pro forma amounts shown below:

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Super Vision International, Inc.

Notes to Condensed Financial Statements (unaudited)

Stock-based compensation – cont’d:

These pro forma amounts were determined using the Black-Scholes Valuation model with the following key assumptions: (a) an average discount rate of 3% for 2005 and 2004; (b) a volatility factor of 40.9% and 42.8% for 2005 and 2004, respectively; and (c) an average expected option life of 7 years for 2005 and 2004; and (d) no dividend yield for 2005 and 2004.

Recent accounting pronouncements – In December 2004, FASB issued Statement No. 123 (revised) (“SFAS 123R”), Share-Based Payment. SFAS 123R is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance, and establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. This statement requires small business filers to recognize the fair value of stock options and other stock-based compensation to employees prospectively, effective for awards granted, modified, repurchased or cancelled during the first interim or annual reporting period that begins after December 15, 2005, which for the Company will be the first quarter of the year ending December 31, 2006. We anticipate adopting SFAS 123R on January 1, 2006. We currently measure stock-based compensation in accordance with APB Opinion No. 25. The impact on our financial condition or results of operations will depend on the number and terms of stock options outstanding on the date of change, as well as future options that may be granted. See Stock-Based Compensation above for the pro forma impact that the fair value method would have had on our net income (loss) for each of the quarters ended June 30, 2005, and 2004. We do not expect the adoption of SFAS 123R to have an impact on our cash flows or liquidity.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs (SFAS 151). SFAS 151 requires that abnormal amounts of idle facility expense, freight, handling costs and spoilage be recognized as current-period charges. Further, SFAS 151 requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. SFAS 151 is effective for inventory costs incurred beginning in 2006. The Company is currently evaluating the effect of SFAS 151 on the financial statements and related disclosures.

In May 2005, FASB issued Statement No. 154 (“SFAS 154”), Accounting Changes and Error Corrections. SFAS 154 replaces APB No. 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements, and establishes retrospective application as the required method for reporting a change in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 applies to all voluntary changes in accounting principles and to changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not anticipate that the adoption of SFAS 154 will have a material effect on its results of operations.

Reclassifications - Certain items in the financial statements of prior periods have been reclassified to conform to current period presentation.

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Super Vision International, Inc.

Notes to Condensed Financial Statements (unaudited)

Inventories consist of the following:

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 this capital lease included in property and equipment are as follows:

Future minimum annual lease payments for the remainder of 2005 and years subsequent thereto in the aggregate are as follows:

Deposits included in other assets paid under this lease agreement totaled $59,167 at June 30, 2005.

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Super Vision International, Inc.

Notes to Condensed Financial Statements (unaudited)

The Company adopted a stock option plan in 1994 (the “1994 Plan”) that provided 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.

Options granted typically vest ratably over a three-year period or based on achievement of performance criteria. As of June 30, 2005, options to purchase 230,984 shares of Class A common stock were vested and exercisable under this plan. The Board of Directors has determined that no new options will be granted under the 1994 Plan.

On September 18, 2003, the Company adopted a new stock option plan (the “2003 Plan”) that provides for the grant of incentive stock options and nonqualified stock options, and reserved 450,000 additional shares of the Company’s Class A Common Stock for future issuance under the plan. The option price of incentive stock options must be at least 100% of market value at the date of the grant and incentive stock options have a maximum term of 10 years.

Options granted typically vest ratably over a three-year period or based on achievement of performance criteria. As of June 30, 2005, 70,583 shares of Class A common stock were vested and exercisable under the 2003 Plan.

The following table summarizes activity in the stock option plans for the six months ended June 30, 2005:

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Super Vision International, Inc.

Notes to Condensed Financial Statements (unaudited)

The following is a reconciliation of basic net earnings (loss) per share to diluted net earnings (loss) per share:

Certain employee stock options and outstanding warrants are not included in the computation of earnings (loss) per share for the three and six months ended June 30, 2004 and the six months ended June 30, 2005 because the related shares are contingently issuable or to do so would have been anti-dilutive. For the three months ended June 30, 2005 and 2004, the Company had 682,663 and 798,592 potentially dilutive common shares, respectively, that were not included in the calculation of diluted earnings (loss) per share. For the six months ended June 30, 2005 and 2004, the Company had 886,463 and 798,592 potentially dilutive common shares, respectively, that were not included in the calculation of diluted earnings (loss) per share.

In the ordinary course of business the Company has various pending legal proceedings generally involving contractual matters, infringement actions, product liability claims and other matters. Except as stated below, there has been no material developments in the Company’s pending legal proceedings from the descriptions contained in Part I, Item 3 of the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004 and Footnote 10 to the Company’s Financial Statements contained therein as supplemented by the description contained in Part II, Item 1 of the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005 and Footnote 6 to the Company’s Condensed Financial Statements contained therein.

On January 11, 2002, Super Vision filed a lawsuit (Case number CI 02-393) against Allen, Dyer, Doppelt, Milbrath & Gilchrist, P.A. (“Allen Dyer”), Brian R. Gilchrist, Esq., Jeffrey S. Whittle, Esq., and Rothwell Figg Ernst & Manbeck, P.C. in the 9^th Judicial Circuit in and for Orange County Florida alleging that the defendants aided and abetted certain of the Wu Defendants in the theft of the Company’s trade secrets, fraud, violations of Florida’s RICO Act, negligent destruction of evidence and civil theft. The Company has alleged that the defendants in this lawsuit represented certain of the Wu Defendants and their enterprises in the filing of trade secret information belonging to Super Vision in order to obtain U.S. Patents on their client’s behalf. In June 2005 Allen Dyer and the individual defendants reached a confidential settlement on mutually acceptable terms and the lawsuit against Allen Dyer and the individual defendants was dismissed. The lawsuit against Rothwell Figg Ernst & Manbeck, P.C. is still pending.

In July 2003 Super Vision filed suit against Schiederwerk AG of Frankfurt, Germany in Federal Court in Orlando, Florida (case number 6: 03-CV-727-ORL-18-JGG) regarding power supplies that failed in Super Vision products. In June 2005 the parties reached a settlement resulting in the payment of $45,000 by Scheiderwerk to Super Vision and the lawsuit has been dismissed. In addition, Schiederwerk’s insurer has agreed to pay Super Vision $195,000 in insurance proceeds related to the settlement of this litigation. Super Vision collected the $195,000 in July 2005 and has recorded the $195,000 as a current asset in the balance sheet line Other Assets. Super Vision recorded both the $45,000 and the $195,000 settlement as a reduction to cost of sales for the three months ended June 30, 2005.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that management believes is useful in understanding our operating results, cash flows and financial condition. The discussion should be read in conjunction with, and is qualified in its entirety by reference to, the unaudited Condensed Financial Statements and Notes thereto appearing elsewhere in this report and in the audited Financial Statements and related Notes to Financial Statements contained in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004.

Except for the historical information contained here, the discussions in this report contain certain forward-looking statements within the meaning of the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended, 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”, “should”, “expect”, “plan”, “believe”, “estimate”, “anticipate”, “continue”, “predict”, “forecast”, “intend”, “potential”, 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, the condition of the international marketplace and the evolving nature of the Company’s fiber optic and LED lighting technology. 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 filings. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004. 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. Neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company is under no duty to update any of the forward-looking statements after the date of this report on Form 10-QSB to conform its prior statements to actual results.

Overview

The Company designs, manufactures, markets and sells LED and fiber optic lighting products and systems for applications in the commercial, architectural, signage, swimming pool, spa and retail industries. The Company derives its revenues primarily from sales of SIDE-GLOW® and END-GLOW® fiber optic lighting cables, and fiber optic lighting sources, accessories, endpoint signs and displays and LED lighting products and systems. The Company also designs, manufactures, markets and sells fiber optically lit waterfalls and water features. The Company markets and distributes products both in the domestic and international markets primarily through a network of independent sales representatives and distributors.

Sales of fiber optic lighting products and systems accounted for 45% and 58% of the Company’s revenue during the quarters ended June 30, 2005 and 2004, respectively, while sales of LED lighting products and systems accounted for 51% and 37% of the Company’s revenue for the quarters ended June 30, 2005 and 2004, respectively. Sales of waterfall products accounted for 4% and 5% of the Company’s revenue during the quarters ended June 30, 2005 and 2004, respectively. Although we anticipate that our market share for LED applications will continue to increase, we believe that sales of our fiber optic applications will remain strong in certain markets such as international, pools and certain architectural and specialized applications such as display case lighting. The Company is in the process of broadening market applications for both product lines through the development of products designed to capture market segments that have not been serviced by either fiber optic or LED lighting. The Company believes that this may result in a strong source of additional revenue in the future.

Management focuses on key indicators in order to measure the Company’s performance. In the short-term (1-3 years), management is working towards achieving and maintaining positive trends in the following areas:

In the long term (over 3 years), management is striving to generate consistent and predictable net sales growth while incrementally enhancing net cash flow from operations.

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Three months ended June 30, 2005 vs. 2004

Results of Operations

Revenues for the three months ended June 30, 2005 were approximately $3,203,000 as compared to approximately $2,771,000 for the three months ended June 30, 2004, an increase of approximately $432,000 or 16%. Revenue growth in the period was seen primarily in the pool & spa market, $346,000, and the international market, $75,000. The increase in revenue in the pool and spa market was primarily due to a strong start entering the summer pool season and original equipment manufacturer (OEM) sales to several major spa manufacturers. The pool market gained substantial momentum in the second quarter by surpassing comparative period sales in the second quarter of 2004 by 28%. Increase in revenue in the international market was mainly due to sales in Europe, the Middle East and Asia. Sequentially, the commercial market also showed a modest 2% revenue growth in the quarter from being behind by 7% in the first quarter of 2005. This improvement in the commercial market is partly as a result of the effect of price increases in architectural products which took effect at the end of the first quarter of 2005, and to the timing of new architectural projects introduced in the second quarter of 2005. The Company anticipates that this trend will continue to increase as LED products and systems continues to gain traction in the architectural application as the Company is beginning to see its new SaVi^™ LED products gain global market acceptance.

Gross margin for the quarter ended June 30, 2005 was approximately $1,481,000 or 46% as compared to approximately $1,046,000 or 38% for the quarter ended June 30, 2004. Increased gross margin in the second quarter was attributable to a recovery of costs resulting from two out-of-court legal settlements totaling $240,000 relating to charges to cost of sales in prior years to replace damaged and faulty parts on fiber optic light sources. See Note 6 to our condensed financial statements included herein for further discussion). Excluding this recovery of costs, the gross margin improved to 39% for the quarter ended June 30, 2005 compared to 38% for the quarter ended June 30, 2004. Gross margin is dependent, in part, on product, market, and customer mix, which fluctuates from time to time. Excluding the $240,000 recovery of costs, the increase in gross margin primarily resulted from better vendor pricing negotiations especially on LED lighting products and systems and continued cost improvement in production overhead.

Management expects to see improvement in its gross margin in the remainder of 2005 and beyond through improving new product cost management, improving product quality, continuing manufacturing process improvements and introducing new LED product applications that the Company expects to introduce to the market at higher gross margins as part of its plans to maximize market share. Management recognizes the continued market pressure to offer fiber optic products in both international and domestic markets at reduced prices. The Company anticipates that increased volume will help compensate for the lost gross margin dollars as a result of increased revenue and reduced product costing across the board due to increased demand for these products. Specific initiatives which management is implementing include, but are not limited to, the following:

1. Product Quality:

2. Product Pricing and Sourcing:

3. Inventory Management

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4. Lean Manufacturing and Cross Functional Training

  Operating Income (Loss)

Selling, general and administrative (SG&A) expenses were approximately $1,196,000 during the three months ended June 30, 2005 as compared to approximately $1,015,000 for the same period in 2004, an increase of approximately $181,000 or 18%. The increase was attributed to increase in wages and benefits of $85,000, advertising and promotion, training and tradeshow expenses of approximately $58,000, taxes and insurance expenses of $67,000 and professional fees of $25,000 offset by the decreases in commission expenses of $17,000, temporary services of $19,000 and other indirect selling expenses of $4,000. While reducing SG&A remains the focus of the management, the Company experienced a substantial increase in total wages and benefits mainly due to increased health insurance costs and in taxes resulting from additional sales and use taxes accrued for in prior years based on recently concluded sales tax audit. Regulatory compliance requirements relating to the Sarbanes-Oxley Act of 2002 has also led to the increase in professional fees for the quarter ended June 30, 2005. In addition, increased marketing efforts to introduce new products and distributor training on their features contributed to the increase in selling expenses. Management however expects that training and trade show expenses will taper off in subsequent periods due to timing of these expenses and fewer scheduled trade shows for the remainder of 2005. The Company currently implements aggressive budget to actual expense assessments to ensure adherence to company projections.

Research and development costs were approximately $151,000 during the three months ended June 30, 2005 as compared to approximately $110,000 during the same period in 2004, an increase of approximately $42,000 or 38%. Management attributes this increase in research and development expenses due to its expanded product development initiatives to compete with the ever-changing market for LED and fiber optic lighting technology. Management believes that the Company’s long-term success will depend, in large measure, on its new product design and development efforts and thus expects to see further increases in R&D expenses in the future as a result of anticipated new product development and other related R&D activities.

Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measure provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. EBITDA is not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. However, Super Vision’s management believes that EBITDA may provide additional information with respect to the Company’s performance and its ability to meet future debt service, capital expenditures and working capital requirements.

Whenever we refer to a non-GAAP financial measure we will present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference with such comparable GAAP financial measure.

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The following table reconciles the GAAP measure net income / (loss) to the non-GAAP financial measure EBITDA:

The improvement in EBITDA for the three months ending June 30, 2005 compared to the same period in 2004, was primarily due to recovery of costs resulting from two out-of-court legal settlements totaling $240,000 relating to charges to cost of sales in prior years to replace damaged and faulty parts on fiber optic light source.

Interest expense of approximately $93,000 for the quarter ended June 30, 2005, as compared to approximately $98,000 for the same period in 2004, relates to the capital lease for the Company’s facility in Orlando, Florida.

Other income was approximately $45,000 for the three months ended June 30, 2005 compared to approximately $34,000 for the same period in 2004. The increase was mainly from licensing activity of approximately $36,000. The Company entered into a number of license agreements relating to its patent portfolio and intellectual property used in the LED technology previously acquired from High End Systems, Inc. and Jerry Laidman in 2004. Management anticipates that more LED companies may license this intellectual property but this activity is not expected to have a material financial impact on the Company. The increase in licensing was partially offset by a reduction in rental income. The source of other income for the quarter ended June 30, 2004 was primarily rental income from subleasing excess warehouse capacity. There was no income from subleasing activities during the quarter ended June 30, 2005. The excess capacity is currently available for sublease and the Company is actively seeking sub-lessees.

The Company has provided a full valuation allowance against income tax benefits resulting from losses incurred and accumulated on operations and as a result there was no provision for income tax during the six months ended June 30, 2005 and 2004, respectively.

Net income for the three months ended June 30, 2005 was approximately $107,000 or $0.04 per basic and diluted common share, as compared to a net loss of approximately $136,000, or $0.05 per basic and diluted common share, for the quarter ended June 30, 2004. The income for the period was primarily due to the improvement in the Company’s gross margin resulting from two out-of-court legal settlements totaling $240,000.

Six months ended June 30, 2005 vs. 2004

Results of Operations

Total revenues for the six months ended June 30, 2005 were approximately $6,087,000 as compared to approximately $5,879,000 for the six months ended June 30, 2004 an increase of approximately $208,000 or 4%. Overall revenue growth in the period was seen in both the pool & spa market, $68,000, and the international market, $204,000. Increase in revenue in the pool and spa market was primarily due to original equipment manufacturer (OEM) sales to several major spa manufacturers while the increase in revenue in the

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international market was mainly due to sales in Asia, Europe, and the Middle East. The increases in revenue for the period were offset by a slight decrease in commercial lighting of $58,000. The decrease in revenue in the commercial market was attributed to a large one-time project that shipped in the 1^st Quarter of 2004 that did not repeat in 2005. The Company anticipates that sales for commercial lighting will continue to strengthen, as evidenced in our 2^nd quarter of 2005 growth, and this trend is expected to continue with the increase in traction of the new SaVi™ LED product line.

Gross margin for the six months ended June 30, 2005 was approximately $2,637,000 or 43% as compared to approximately $2,308,000 or 39% for the six months ended June 30, 2004. Gross margin is dependent, in part, on product mix, as well as the mix of customers, which fluctuates from time to time. The increase in gross margin primarily resulted from higher margins from the international and commercial markets, offset in part by lower margins from the pool market. Furthermore, increased gross margin in the second quarter of 2005 was attributable to a recovery of costs resulting from two out-of-court settlements totaling $240,000 relating to charges to cost of sales in prior years to replace damaged and faulty parts on fiber optic light sources. Without this recovery of costs, 2005 year-to-date gross margins remain the same at 39% as compared to 2004 year-to-date- gross margins.

Operating Income