U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended December 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required)
For the transition period from ________ to ________
Commission File No. 0-23590
Super Vision International, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 59-3046866
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2442 Viscount Road, Orlando, Florida 32809
- ------------------------------------ -----
(Address of Principal Executive Offices)
(407) 857-9900
(Issuer's Telephone Number, Including Area Code)
Securities registered under to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- ---------------------
None None
Securities registered under to Section 12(g) of the Exchange Act:
Class A Common Stock, $.001 par value
-------------------------------------
(Title of Class)
Class A Warrants
-------------------------------------
(Title of Class)
Class B Warrants
-------------------------------------
(Title of Class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $6,805,473.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 26, 1997. $11,985,000.
State the number of shares outstanding of each of the issuer's common equity as
of March 26, 1997. 1,680,946 shares of Class A Common Stock, $.001 par
value and 3,375,134 shares of Class B Common Stock, $.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with reference to incorporation by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act.
<PAGE>
PART I
Item 1. Description of Business.
GENERAL
Super Vision International, Inc. (the "Company") is a
world leader in the design and manufacture of fiber optic lighting products,
signs and displays for applications in the signage, swimming pool,
architectural, and retail industries. The Company completed an initial public
offering of its securities in March 1994.
The Company was incorporated in Delaware on December
16, 1993 and is the successor by merger to a Florida corporation of the same
name which was incorporated in January 1991. The Company's executive offices
are located at 2442 Viscount Row, Orlando, Florida 32809 and its telephone
number is (407) 857-9900.
PRODUCTS AND SERVICES
SIDE-GLOW(TM) AND END GLOW(TM) CABLES
The Company's SIDE-GLOW(TM) fiber optic lighting cables
are marketed as an alternative to neon and other conventional lighting products.
SIDE-GLOW(TM) fiber optic lighting cable is flexible and easy to install, is not
prone to the breakage associated with glass neon tubes and is energy efficient,
providing significant savings in electrical costs and maintenance. In addition,
unlike neon, the Company's product is capable of changing color. The cables are
offered in a variety of diameters with a range of light sources. This allows
flexibility to the market in the choice of the integration of a variety of
products to produce a "custom" fiber optic lighting system. When combined with
the Company's light source control systems, multiple light sources and cables
can be synchronized to provide large scale controlled lighting systems and to
create unique lighting effects.
END GLOW(TM) cables are utilized to transmit cool, ultra
violet and heat free light from a remote light source to the object or area
being lighted. The Company markets its END GLOW(TM) cables in conjunction with
its line of light sources and lighting accessories for a variety of applications
from showcase lighting to functional lighting of work spaces and residences. END
GLOW(TM) cables allow for unique lighting of areas or objects with the added
benefits of fiber optics.
The Company's SIDE-GLOW(TM) and END GLOW(TM) cables have
been incorporated in major lighting installations worldwide from the Victorian
Arts Center in Sydney, Australia to AMC Theaters Ontario Mills 30 Plex in
Ontario, California.
<PAGE>
During 1996, SIDE-GLOW(TM) and END GLOW(TM) cable
products accounted for approximately 42% of the Company's total revenues.
The Company believes that this product area offers the largest growth potential
and therefore, the Company intends to devote the majority of its engineering and
sales and marketing efforts to expand this area of its business and the related
light source product line described below.
LIGHT SOURCES
The Company manufactures a variety of light sources used
in conjunction with the Company's SIDE-GLOW(TM) and END GLOW(TM) fiber optic
cables and lighting accessories to create full lighting systems. Each line of
light sources was created to meet specific market needs and applications. The
light sources are manufactured to meet standards established by Underwriters
Laboratories and comparable certifying bodies worldwide. The Company currently
manufactures the SV750 light source series for endpoint fiber optic applications
and certain SIDE-GLOW(TM) applications; the SV250 series for swimming pool and
residential applications; the SV2000 series for commercial lighting and signage;
and the SV4000 series for high end lighting projects.
The Company also utilizes control systems with its
light sources to allow for customization of lighting systems. All of the
Company's light sources are designed to accept a variety of unique controller
options, allowing the basic light sources to meet a wide variety of market
needs. Multiple light sources can be sequenced using the Company's proprietary
control systems to create special lighting effects.
The Company's light source product lines represented
approximately 30% of the Company's total revenue during 1996. Management
believes that maintaining a competitively priced and commercially superior line
of light sources is critical to continued growth in all of the Company's product
lines and markets. The Company plans to devote significant resources to continue
development of these products and markets.
ENDPOINT SIGNS AND DISPLAYS
The Company designs, manufactures, and installs endpoint
fiber optic signs and custom displays for advertising, signage and point of
purchase displays. Custom patterns are created using sophisticated design tools
and software, which are then tailored to customer specifications. These patterns
are fed into automated equipment to produce drilled patterns in the subject
material. Fiber optic filaments are then placed, treated and gathered to a light
source. Utilizing a variety of techniques, the fibers are then ordered within
the light source and color disk assemble to create the desired visual effects.
In June, 1996, the Company entered into a contract to
provide the world's largest single integrated fiber optic display. The display
is projected for completion in May 1997. The Company also designed and produced
the previous two world's largest displays. Management believes this type of
acknowledged industry expertise enhances the Company's position as the world
leader in the full range of fiber optic lighting options, and provides
visibility for the marketing of the Company's other fiber optic lighting
products.
<PAGE>
During 1996, endpoint signs and displays accounted for
approximately 28% of the Company's total revenues.
LIGHTING ACCESSORIES
During 1996, the Company developed several unique
lighting accessories designed to complement the Company's fiber optic cable and
light source products, and thereby offer complete fiber optic lighting solutions
to end users. These products were designed and engineered to provide the
advantages of fiber optics for lighting applications previously addressed by
traditional lighting methods. The Company believes that the reduced maintenance,
energy savings and aesthetic qualities of its fiber optic systems may result in
significant market acceptance.
The Company expanded its line of fiber optic landscape
lighting for marker and decorative lighting during 1996. These fixtures were
designed to complement the Company's line of fiber optic swimming pool lights,
and have received positive responses from the landscape lighting industry. The
Company also augmented its line of accent lights and feature lights for dramatic
highlighting of landscape architecture.
In late 1996, the Company introduced a complete line of
fiber optic task lighting fixtures, including down lights. These fixtures are
designed to provide functional, rather than decorative, lighting for use in
office and residential settings, display case lighting, and food service
lighting. These fixtures, when combined with the Company's light sources and END
GLOW(TM) fiber optic cables, provide cool, non-invasive light to highlight the
objects or work area, without the disadvantages of heat and ultra-violet
radiation produced by other lighting products.
These product lines were released in late 1996;
therefore, the impact on 1996 revenues was minimal. Management believes these
products and markets have significant potential, however, and plans to increase
development efforts relating to these types of complementary product lines.
These products are designed to offer the benefits of fiber optic lighting for
functional lighting situations previously serviced by florescent or incandescent
lighting, at competitive prices.
SALES AND MARKETING
The Company's products are utilized in a wide variety of
applications; consequently, the Company utilizes numerous marketing channels and
strategies to address target users. The Company currently markets to the
Architectural Lighting market through a network of lighting agents and
specifiers throughout the United States. In September 1996, the Company signed
an exclusive distribution and marketing agreement with Hayward Pool Products
("Hayward"), the world's largest pool products supplier, pursuant to which
Hayward acquired the worldwide rights to market and sell the Company's fiber
optic swimming pool lighting products in the Pool and Spa lighting market. The
Company utilizes direct marketing for its Signage product lines worldwide in
order to reduce end use costs. Endpoint signs and displays are also marketed
direct to end users, principally Fortune 500 companies worldwide.
<PAGE>
The Company derived 29% of total revenues from
international sales. The Company has entered into exclusive and non-exclusive
marketing and sales arrangements with leading lighting companies in
international territories. The Company provides technical expertise and limited
marketing support, while its international distributors provide sales staff,
local marketing, and product service. The Company believes its international
distributors are better able to service international markets due to their
understanding of local market conditions and business practices.
MANUFACTURING AND SUPPLIERS
The fiber optic strands used in the Company's endpoint
signs and displays as well as the production of its SIDE-GLOW(TM) and END
GLOW(TM) cables are purchased from several key suppliers. In October 1994, the
Company entered into a contract for the design and purchase of customized
cabling and extrusion equipment in order to produce its SIDE-GLOW(TM) and END
GLOW(TM) cables. The equipment became operational in December 1995. Integration
of the manufacturing process has allowed the Company to realize increased gross
margins on its SIDE-GLOW(TM) and END GLOW(TM) cable products. The Company
believes that as the volume of product produced increases, the equipment may
reduce the manufacturing costs of its SIDE-GLOW(TM) and END GLOW(TM) cables, and
therefore allow the Company to offer its products to the market at prices
equivalent to neon lighting. The Company maintains outside manufacturing
capabilities for these products in the event the cabling and extrusion equipment
were to disable for any period of time. The Company manufactures the light
sources and control systems used with its SIDE-GLOW(TM) and END GLOW(TM) cables
and endpoint displays in its facilities in Orlando, Florida. The designs of the
light sources are considered proprietary and the Company has U.S. patent
applications pending with respect to this design. All endpoint displays are
manufactured directly by the Company based on the clients' specifications, or
designed jointly with the Company's highly experienced personnel. The Company
believes its ability to offer a full range of products and design, engineering
and support services are unique in the market place, and are important to its
future prospects for growth.
The Company's strategy is to continue to strive for
lower manufacturing and material costs and reduce its dependence on outside
suppliers by expanding its manufacturing capabilities and engineering its
products around off the shelf components combined with its proprietary designs.
The Company continues to perform research and development to further lower the
cost of production of all existing products. The Company also plans to develop
additional products and identify new markets and distribution channels.
The Company will continue to purchase the fiber optic
strands from several Japanese suppliers. While the Company believes alternative
sources for fiber optics are available to enable it to produce its endpoint
signs and displays, the SIDE-GLOW(TM) and END GLOW(TM) cables require fiber
optic material of a higher quality than the Company believes is currently
available elsewhere. Accordingly, the loss of these suppliers or delays in
obtaining shipments could have a material adverse affect on the Company's
operations until such time, if ever, as an alternative supplier could be found
which could provide the quality level in the amounts the Company requires
(several possible suppliers have been identified) or the Company could implement
its own production capabilities.
<PAGE>
RESEARCH AND PRODUCT DEVELOPMENT
The Company's engineering, research and product
development staff is responsible for the design of standard and custom products
developed to meet specific market needs identified by the Company and requested
by its customers. The Company considers its ability to constantly improve
existing products, rapidly introduce new products to fill identified needs, and
design solutions for custom applications to be critical to the growth of the
Company. The Company believes this responsiveness to the market to be an
important differentiating factor, and will continue to seek rapid response to
market trends.
During 1996, the Company spent approximately $192,000
on engineering and product development activities. The Company believes
its success will depend, in large part, on its ability to continue to improve
and enhance its existing products (for example, by increasing the level of
brightness of its SIDE-GLOW(TM) and END GLOW(TM) cables, increasing the
temperature resistance of its fiber optic products and developing brighter, less
costly light sources) and to develop new products and applications for its
technologies.
Management believes increased levels of spending on
research and development may be necessary to successfully develop a product
which has the brightness of neon and which can be sold at a comparable price.
Additionally, as new market opportunities are found, increased levels of product
development may be warranted to rapidly design, engineer and produce products to
fill these market needs.
COMPETITION
The Company currently faces competition from both
traditional lighting technologies such as neon and florescent lighting, and from
competitors specifically engaged in fiber optic lighting.
Traditional lighting technologies have the advantage of
a long history of market acceptance and familiarity as compared to the Company's
products. The Company is actively seeking to educate its target markets as to
the advantages of fiber optic lighting systems. The Company believes that
achievement of this objective is critical to the Company's future. The Company
must also compete with traditional lighting on the issues of maintenance costs,
safety issues, energy usage, price and brightness.
<PAGE>
The Company believes its products can effectively
compete against traditional lighting in the areas of maintenance, safety and
energy consumption. The Company's lighting systems offer the advantage of
centralized light source maintenance for lamp replacement. This feature is
superior to other lighting systems, such as neon, which require maintenance
through out the lighting system. Additionally, the Company's SIDE-GLOW(TM) and
END GLOW(TM) cables are virtually maintenance and breakage free, as opposed to
neon and other comparable lighting products which experience high field and in
shipment breakage rates. This reduced breakage also favorably compares in the
area of safety. Further, the Company's products result in a voltage free light,
which is particularly beneficial in wet and under water applications where risk
of shock from electricity in the lighted path is an issue. The Company's
products also eliminate the majority of heat and radiation at the light output,
which can be advantageous in applications where these factors may not be
desirable, particularly with respect to Lighting Accessories such as task
lighting and display case lighting. The Company's products may not favorably
compete with traditional lighting on the basis of price for smaller lighting
systems and in particular with neon systems in smaller scale applications, which
comprise a large portion of the available market. Additionally, fiber optic
lighting systems do not equal neon brightness in a cost effective manner for
many applications. In applications calling for maximum brightness and
competitive cost, the Company's products may not be able to compete effectively
with traditional lighting products.
The Company currently faces competition from a defined
number of companies directly involved in the field of fiber optic lighting
addressed by the Company's SIDE-GLOW(TM) and END GLOW(TM) cables and light
source products. These companies utilize a similar technology to that used by
the Company and compete generally on the basis of price and quality. The Company
believes it has the lowest price structure of all current competitors in this
industry, and may compete favorably in markets where price is the central issue.
The Company's quality control system will also allow the Company to compete on
the basis of quality of product and services delivered. There can be no
assurance, however, that the current competitors directly involved in this
industry will not develop processes or technology which will allow them to
decrease their costs, and consequently, erode the Company's price advantage.
Additionally, there can be no assurance that a large, conventional lighting
company will not enter the market and utilize its resources to capture
significant market share and adversely affect the Company's operating results.
The Company's endpoint signs and displays compete with
numerous smaller companies utilizing the same or similar technologies. In
the area of custom displays and signs, the Company's expertise in the field and
history of major installations may allow the Company to achieve a position as
the leader in this field. The Company's smaller point of purchase signs compete
directly on a price basis with these smaller companies, including several
foreign competitors whose lower labor costs allow them to achieve a price
advantage over the Company's products. These point of purchase products also
compete to some extent with customary signage which is considerably less
expensive than fiber optic products. The Company believes that the quality of
its products is equal to or superior to those offered by its competitors and
that its products offer unique advantages over customary signage, such as color
changing, aesthetically pleasing special effects, and motion.
<PAGE>
PATENTS AND PROPRIETARY RIGHTS
The Company considers its technology and procedures
proprietary and relies primarily on patent and trade secret laws and
confidentiality agreements to protect its technology and innovations. Employees
of the Company, as well as technical consultants which from time to time may be
hired, enter into confidentiality and/or invention assignment agreements
providing for non-disclosure of proprietary and trade secret information of the
Company and the assignment to the Company of all inventions, improvements,
technical information and suggestions relating in any way to the business of the
Company (whether patentable or not) which the employee or consultant develops
during the period of their employment or association with the Company. Despite
these restrictions, it may be possible for competitors or customers to copy one
or more aspects of the Company's products or obtain information that the Company
regards as proprietary. Furthermore, there can be no assurance that others will
not independently develop products similar to those sold by the Company. The
Company therefore believes that producing the highest possible quality products
at the most competitive prices is the best means to protect against competitive
innovations.
The Company has been issued a United States patent
relating to the reflective center core used in the process of manufacturing its
SIDE-GLOW(TM) cables and has received Patent Cooperation Treaty protection of
this patent overseas. Additionally, the Company has acquired a United States
patent related to the method of manufacture of a fiber optic image magnification
device. While there is no guarantee that this patent can be developed into a
commercially viable product, the Company believes that expansion of the
applications for its fiber optic technologies are important to the possible
achievement of future growth objectives. The Company has a third patent related
to its light source technology and a device for connecting fiber optic cables to
the light source.
The Company will continue to seek patent protection
where appropriate for future developments, improvements and enhancements to its
technology. There can be no assurance, however, that the Company's patent, or
patents which may be issued in the future, will provide the Company with
sufficient protection in the case of an infringement of its technology or that
others will not independently develop technology comparable or superior to the
Company's. Although the Company believes that the products sold by it do not and
will not infringe upon the patents or violate the proprietary rights of others,
it is possible that such infringement or violation has occurred or may occur. In
the event that products sold by the Company are deemed to infringe upon the
patents or proprietary rights of others, the Company could be required to modify
its products or obtain a license for the manufacture and/or sale of such
products.
The Company has obtained approval for a registered
trademark for the "Super Vision" name. Additionally, the Company has
obtained a trademark on the brand name SIDE-GLOW(TM) related to the Company's
fiber optic cables. The Company also has applied for a trademark on the brand
name END GLOW(TM), and received provisional approval. One or more companies have
challenged the END GLOW(TM) application, and while the Company intends to
aggressively defend its position, there can be no assurance that it will be
successful in defending these challenges to the END GLOW(TM) mark. The Company
believes the trademarks may help in its efforts to achieve brand recognition,
although there can be no assurance to such effect.
<PAGE>
EMPLOYEES
At March 26, 1997, the Company had sixty nine full-time employees,
of which two were in research and development, twelve were involved in sales,
marketing and customer service, six were involved in finance and administration
and forty nine were involved in production and quality control. None of the
Company's employees is currently covered by a collective bargaining agreement
and the Company considers its employee relations to be good. The Company also
utilizes temporary and part time employees as required by the volume of
business, primarily in the area of production.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C>
Brett M. Kingstone 37 Chairman of the Board, Chief Executive Officer and President
John P. Stanney 33 Chief Operating Officer, Chief Financial Officer and Secretary
</TABLE>
BRETT M. KINGSTONE has been the Chairman of the Board,
Chief Executive Officer and President of the Company since he founded the
Company in January 1991. From October 1985 until January 1991, Mr. Kingstone
acted as an independent consultant in the area of fiber optic technology. From
December 1988 until October 1989, he served as President of Fibermedia
Corporation in Boulder, Colorado. From January 1984 to August 1985, he was a
partner in Kingstone Prato, Inc., a venture capital partnership in Boulder,
Colorado. From August 1981 through December 1983, he served as Vice President of
Sales of Gekee Fiber Optics, Inc. in Palo Alto, California. Mr. Kingstone is a
graduate of Stanford University and the author of two books - THE STUDENT
ENTREPRENEUR'S GUIDE (McGraw-Hill) and THE DYNAMOS (John Wiley & Sons; Koksaido
Press).
JOHN P. STANNEY joined the Company as Chief Operating
Officer, Chief Financial Officer and Secretary in May 1994. From August 1992
until joining the Company, Mr. Stanney, a certified public accountant, served as
Controller of Graseby Electro Optics, Inc. From July 1989 until July 1992, Mr.
Stanney was a certified public accountant with Greenwalt Sponsel & Company in
Indianapolis, Indiana. From July 1986 to July 1989, he served as an auditor for
Ernst & Young in San Jose, California.
<PAGE>
Item 2. Description of Property.
The Company's executive offices and one production
facility are located in an approximately 17,000 square foot space in Orlando,
Florida which is occupied pursuant to a lease which expires in March 1999 and
provides for a base monthly rental of approximately $9,000. An entity ("Max King
Realty") controlled by Brett Kingstone, the Chairman, Chief Executive Officer
and President of the Company, owns the building which houses the Company's
executive offices.
The Company currently has a second production facility
in an approximately 10,000 square foot space also in Orlando, Florida which is
occupied pursuant to a lease which expires in April 1997 and provides for a base
monthly rental of approximately $3,500. Subsequent to April 1997, the Company
has the ability to lease the facility on a month-to-month basis for the same
amount.
On September 27, 1996, the Company entered into a lease
agreement with Max King Realty for warehouse and office space of approximately
70,000 square feet that the Company expects to occupy in June 1997. This
facility is intended to replace the existing executive office and production
facilities. Lease payments begin May 1, 1997 and last until the lease expires in
May 2012, with an average monthly lease payment of approximately $64,500.
Item 3. Legal Proceedings.
There are currently no material legal proceedings to
which the Company is a party.
Item 4. Submission of Matters to a Vote of
Security-Holders.
No matters were submitted during the fourth quarter of
the fiscal year covered by this report to a vote of the security holders of the
Company.
<PAGE>
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters.
(a) The Company's Class A Common Stock has
traded on the Nasdaq SmallCap Market under the symbol SUPVA since March 22,
1994. The following sets forth the average of the high and low bid prices of
the Class A Common Stock for the fiscal years ended December 31, 1994,
1995 and 1996 as reported by The Nasdaq Stock Market, Inc.
Bid Prices
High Low
---- ---
Year ended
December 31, 1994
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First Quarter (Commencing March 22, 1994) 4-1/4 3
Second Quarter 3-5/8 3-1/4
Third Quarter 6-1/8 4-7/8
Fourth Quarter 6-1/2 6
Year ended
December 31, 1995
- -----------------
First Quarter 7-1/4 6-1/4
Second Quarter 7 6
Third Quarter 8 6-3/4
Fourth Quarter 7-3/4 6-3/4
Year ended
December 31, 1996
- -----------------
First Quarter 7-1/8 6-13/16
Second Quarter 8-9/16 8
Third Quarter 8-3/16 7-11/16
Fourth Quarter 8-1/8 7-11/16
(b) The number of holders of record of the
Company's Class A Common Stock as of March 26, 1997 is 45.
(c) The Company has never paid a cash dividend
on its Common Stock and intends to continue to follow a policy of retaining
earnings to finance future growth. Accordingly, the Company does not anticipate
the payment of cash dividends to holders of Common Stock in the foreseeable
future.
<PAGE>
Item 6. 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, 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.
Liquidity and Capital Resources
At December 31, 1996, the Company had working capital of
$5,535,087.
Cash increased by approximately $1,000,000 during
the year ended December 31, 1996 primarily as a result of the purchase by
Hayward Industries, Inc. of 249,480 shares of the Company's Class A Common Stock
for an amount of $1,945,480, net of issuance costs. The Company entered into a
Distribution Agreement ("Agreement") with Hayward Pool Products ("Hayward")
whereby Hayward acquired the worldwide rights to market and sell the Company's
fiber optic swimming pool lighting products. The Agreement has a five year term,
which renews automatically. The Agreement calls for an aggregate of $12,000,000
of minimum purchase commitments by Hayward of the Company's products over the
initial five year term. In conjunction with the purchase of the Company's Class
A Common Stock, Hayward Industries, Inc. received warrants for the purchase of
an additional 249,480 shares of the Company's Class A Common Stock at an
exercise price of $8.02 per share. The warrants will vest and are exercisable in
equal 20% increments upon achievement of each year's minimum purchase
commitment. These warrants expire in October 2006. Hayward Industries, Inc. also
received warrants to purchase up to 522,000 additional shares of the Company's
Class A Common Stock. These warrants are exercisable at fair market value only
in the event that the number of outstanding shares of Class A Common Stock is
increased as a result of the exercise of the Company's currently outstanding
Class A or Class B warrants, and are exercisable in pro-rata amounts equal to
the amount of the aforementioned Class A and Class B warrants exercised. These
warrants expire in May 1999.
Trade accounts receivable increased to approximately
$1,310,000 for the year ended December 31, 1996. The increase was due primarily
to purchases of swimming pool lighting products by Hayward under special dated
credit terms which are commonly extended in the swimming pool industry. The
amount of the dated receivables is approximately $530,000. Further increases in
accounts receivable were due to increased overall sales volume.
<PAGE>
During the year ended December 31, 1996, the Company
expanded inventory by approximately $1,022,000. This expansion was due to
increased levels of the Company's swimming pool and spa product lines to support
the Agreement, and to the addition of several new product lines, particularly
the Company's recently introduced down light products. The Company also
increased base levels of standard raw material components in order to achieve
volume purchase discounts. Management believes that these increased inventory
levels may be necessary to support future planned revenue growth.
The Company acquired a patent in 1996 related to its
light sources for a cost of approximately $16,000. The devices contained in
the patent allow for an improved method of coupling fiber optics to the
Company's light sources and management believes these devices may assist in the
Company's efforts to obtain a competitive advantage. The Company also paid
approximately $89,000 in rental deposits on a planned new facility during the
year ended December 31, 1996. The facility will be occupied under a fifteen year
lease, and is being rented from an entity controlled by the Chairman of the
Board and President of the Company. Management believes the new facility will
allow for greater production capacity and could reduce material handling and
storage costs.
The Company also used approximately $391,000 in 1996
towards the expansion of capital equipment, primarily in the upgrade of
cabling equipment to achieve increases in production speed and quality of the
products, and upgrades in computer hardware and software.
During the year ended December 31, 1996, the Company
repaid a note payable of approximately $23,000 owed to the President of the
Company. The note was only to be repaid from the proceeds received from the
exercise of the Class B warrants; however, the Company received approval from
the underwriter of the Company's initial public offering and the Board of
Director's of the Company to repay the outstanding note, plus accrued interest
of approximately $25,000. The note previously accrued interest at 13% per annum.
Accounts payable increased approximately $722,000
for the year ended December 31, 1996, primarily due to expansion of
inventory. Accrued liabilities increased from approximately $69,000 as of
December 31, 1995 to approximately $194,000 as of December 31, 1996. The
increase was due to amounts accrued in connection with the Company's relocation
to the planned new facility projected for May 1997, as well as amounts accrued
for the estimated registration costs of the shares sold to Hayward Industries,
Inc. Accrued compensation consisted of accrued payroll amounts and year end
bonuses.
During the year ended December 31, 1996, the Company was
awarded a contract for what is believed to be the world's largest custom fiber
optic display. The total amount of the contract was $1,152,000. The contract is
accounted for under the percentage of completion method; accordingly, gross
revenues of approximately $195,000 and gross profit of approximately $82,000
were recognized for the year ended December 31, 1996. A deposit in the amount of
approximately $457,000 was received under the contract. The excess of the
deposit over costs incurred and recognized profit is recorded as a liability at
December 31, 1996 in the amount of approximately $54,000.
<PAGE>
The Company believes that available cash, together with
funds expected to be generated from operations, will be sufficient to finance
the Company's working capital requirements as well as planned expansion.
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 (the "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 stockholder's equity or its working capital, it may have a
depressive effect on the market price of the Company's securities.
Results of Operations
Fiscal 1996 Compared to Fiscal 1995
Revenues are derived primarily from sales of
SIDE-GLOW(TM) and END GLOW(TM) fiber optic cables, light sources, endpoint signs
and displays and lighting accessories. Revenues for the year ended December 31,
1996 ("1996") were approximately $6,805,000. This represented a 168% increase
over the year ended December 31, 1995 ("1995"). Revenues for 1996 increased
primarily as a result of the expansion of the Company's product lines in the
area of light sources and SIDE-GLOW(TM) and END GLOW(TM) fiber optic cables,
primarily in the lighting and sign markets. Sales of these product lines
accounted for a combined 72% of total revenues for 1996. Additionally, the
increase in revenues was due to sales of the Company's pool and spa lighting
products. During 1996, the Company signed the aforementioned exclusive worldwide
marketing and sales agreement with Hayward. The increase in revenues 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
which was completed in March 1996.
Included in 1996 revenues is approximately $195,000
recognized under the percentage of completion method related to a contract to
produce a large scale custom fiber optic display. The total contract value is
approximately $1,159,000, and completion is anticipated in the second quarter of
1997.
<PAGE>
The gross margin increased 3% from 35% in 1995 to 38%
in 1996. The 1996 gross margin experience was favorably impacted by the
higher relative sales mix of SIDE-GLOW(TM) and END GLOW(TM) fiber optic cables
and related light source products. These products have higher gross margins than
end point signs and custom displays. Favorable increase in the margins of the
SIDE-GLOW(TM) and END GLOW(TM) fiber optic cables were also derived from
improved manufacturing methods and yields due to the use of the Company's
customized fiber optic cabling and extrusion equipment. Management believes
margins may continue to be favorably impacted by the use of this equipment as
volumes increase and unit overhead costs are thereby reduced. There can be no
assurance of such efficiencies, however. Additional margin improvements resulted
from purchase discounts as the Company's raw material purchase levels increased.
However, these positive margins were negatively impacted by increases in
facilities costs necessitated by the need for short-term manufacturing space.
The Company rented a second production facility to house its endpoint products
group and accommodate several large projects. This resulted in an additional
10,000 square feet of space and resulting rent and facilities overhead expenses.
Additionally, the Company entered into a lease agreement for a custom designed
70,000 square foot production facility during 1996. As a result, the Company
recognized $90,000 of accrued costs related to the relocation to the new
facility which is projected for May 1997. Management believes this new facility
may result in manufacturing efficiencies due to the ability to utilize improved
manufacturing flow methods, materials handling technology and inventory storage.
Selling, general and administrative expenses were
approximately $2,042,000 for 1996 as compared to approximately $1,440,000 for
1995, an increase of 42%. Such increased expenses were offset in part as a
result of a reimbursement of $100,000 in costs by Hayward related to the
marketing of the Company's swimming pool and spa products. 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. The Company incurred expenses in the marketing
and advertising of several new product lines during 1996 which were not released
until late in the year, and, therefore, resulted in minimal revenue for 1996.
Management believes these products may contribute to increases in revenue in
future periods. During 1996, the Company increased its general and
administrative expenses due to the expansion of the Company's facility from
11,000 to 17,000 square feet, and the subsequent overhead costs associated with
servicing and maintaining this facility. Finally, the Company added a Customer
Service department and increased Sales and Marketing personnel levels to support
current activity and to support planned future growth levels.
Research and development costs were approximately
$192,000 for 1996 as compared to approximately $234,000 for 1995. This
represented a decrease of 18%. The Company has been able to utilize previous
product related research to decrease the costs of product development in 1996.
The Company has therefore been able to introduce its new down light product line
and expand its light source line, fiber optic cable sizes and landscape lights
while reducing overall development expenses. Management believes research and
development costs may rise in future periods as the Company performs research
which is based on improving existing technologies, or developing new technology,
as opposed to adaptation of current technology to new products. While the
Company intends to continue its low cost development efforts, new research into
lamp technology, improved cable brightness and other long term efforts may
require sustained increases in research and development costs.
<PAGE>
The Company had net interest income for 1996 of
approximately $136,000 compared with approximately $201,000 for 1995. The
1996 amounts were lower despite the overall increase in end of year cash
balances due to a lower average balance during the year. The increase in cash
was due to the purchase by Hayward Industries, Inc. of Class A Common Stock,
which occurred in September 1996. Net interest expense for 1996 was
approximately $2,500 compared to approximately $3,800 for 1995, which reflected
the repayment of the note payable to officer.
The income tax benefit for 1996 was due to recognition
of a deferred tax asset of $230,000 under FAS 109. Management believes that it
is more likely than not that the Company will generate taxable income sufficient
to realize a portion of the tax benefit associated with future deductible
temporary differences and NOL carryforwards prior to their expiration.
Management believes that some valuation allowance is appropriate given a
conservative estimate of future taxable income. If the Company achieves
sufficient profitability to utilize a greater portion of the deferred tax asset,
the valuation allowance will be reduced through a credit to income. See Note 8
of Notes to Financial Statements.
Net income for 1996 was approximately $711,000, or
$0.35 per share, as compared to a net loss of approximately ($572,000), or
$(0.30) for 1995. Included in 1996 net income was $230,000 of income tax
benefits, or $0.11 per share.
Item 7. Financial Statements
Report of Independent Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996
and 1995
Statements of Stockholders' Equity for the years ended December
31, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996
and 1995
Notes to the Financial Statements
This information appears in a separate section of this Report
<PAGE>
PART III
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.
Not Applicable.
The information called for by Item 9 (Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act), Item 10 (Executive Compensation), Item 11 (Security
Ownership of Certain Beneficial Owners and Management), and Item 12 (Certain
Relationships and Related Transactions) is incorporated by reference from the
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A.
<PAGE>
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) 3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment to Certificate of
Incorporation (1)
3.3 Certificate of Merger (1)
3.4 By laws (1)
4.1 Form of Unit Purchase Option (1)
4.2 Form of Warrant Agreement (including Forms of Class A
and Class B Warrant Certificates) (1)
4.3 Escrow Agreement (1)
4.4 Form of Amendment to Escrow Agreement (1)
10.1 1994 Stock Option Plan (1)
10.2 Employment Agreement with Brett Kingstone (1)
10.3 Form of Indemnification Agreement (1)
10.4 Lease for Facility at Viscount Row (1)
10.5 Bank Loan Agreement with Barnett Bank (1)
Xxx Form S-8
(1) Incorporated by reference from the Company's Registration
Statement on Form SB-2 (File No. 33-74742)
(b) Reports on Form 8-K. The Company filed a report on Form 8-K
on October 1, 1996 to report the agreement with Hayward
Industries, Inc. to sell 249,420 shares of stock and enter
into a distributorship arrangement for sale of fiber optic
pool and spa lighting products.
(c) Consent of Independent Accountants
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Super Vision International, Inc.
Orlando, Florida
We have audited the accompanying balance sheets of Super Vision International,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Super Vision International,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Orlando, Florida
February 14, 1997
<PAGE>
SUPER VISION INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1996 1995
-------------- -------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 3,327,965 $ 2,327,775
Investments 107,667 -
Trade accounts receivable, less allowance for doubtful
accounts of $41,866 and $19,952 1,310,057 330,570
Inventories, less inventory reserve of $81,628 and $28,340 1,921,103 899,348
Advances to employees 25,524 16,390
Deferred tax asset 185,865 -
Other assets 72,781 51,236
-------------- -------------
Total current assets 6,950,962 3,625,319
-------------- -------------
Property and Equipment:
Machinery and equipment 1,240,042 1,013,016
Furniture and fixtures 136,264 93,551
Computers 225,002 142,758
Vehicles 16,581 16,581
Leasehold improvements 146,817 138,462
-------------- -------------
1,764,706 1,404,368
Less accumulated depreciation (325,957) (172,697)
-------------- -------------
Net property and equipment 1,438,749 1,231,671
-------------- -------------
Deferred Tax Asset 63,523 -
-------------- -------------
Other Assets 165,966 59,176
-------------- -------------
$ 8,619,200 $ 4,916,166
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to officer $ - $ 22,968
Accounts payable 1,020,478 298,661
Accrued liabilities 194,247 68,635
Accrued compensation and benefits 139,769 -
Payments in excess of costs and recognized profit on uncompleted
contracts 53,702 10,333
Deposits 51,814 50,834
Income tax payable 19,388 -
-------------- -------------
Total current liabilities 1,479,398 451,431
-------------- -------------
Commitments
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 7,633,653 5,669,423
Retained earnings (deficit) (498,907) (1,209,492)
-------------- -------------
Total stockholders' equity 7,139,802 4,464,735
-------------- -------------
$ 8,619,200 $ 4,916,166
============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
SUPER VISION INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------------
1996 1995
------------------ -----------------
<S> <C>
Revenues:
Net sales $ 6,805,473 $ 2,493,459
Licensing and royalty fees - 45,000
------------------ -----------------
Total revenues 6,805,473 2,538,459
------------------ -----------------
Costs and Expenses:
Cost of sales 4,216,104 1,649,130
Selling, general and administrative 2,041,732 1,440,106
Research and development 192,042 233,916
----------------- ----------------
Total costs and expenses 6,449,878 3,323,152
----------------- ----------------
Operating Income (Loss) 355,595 (784,693)
----------------- ----------------
Non-Operating Income (Expenses):
Interest income 136,274 201,408
Interest expense (2,509) (3,754)
Net gain (loss) on disposal of assets (8,775) 15,153
Total non-operating income 124,990 212,807
----------------- ----------------
Income (Loss) Before Income Taxes 480,585 (571,886)
Income Taxes (Benefits) (230,000) -
----------------- ----------------
Net Income (Loss) $ 710,585 $ (571,886)
================= ================
Income (Loss) Per Common Share:
Primary $ 0.35 $ (0.30)
================= ================
Weighted Average Shares of Common Stock Outstanding:
Primary 2,012,483 1,883,799
================= ================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
SUPER VISION INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------
CLASS A CLASS B ADDITIONAL RETAINED
----------------------- ------------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
--------- -------- -------- --------
<S> <C>
Balance, December 31, 1994 1,410,966 $ 1,411 3,389,134 $ 3,389 $ 5,649,427 $ (637,606)
Conversion of Class B common
stock to Class A common stock 14,000 14 (14,000) (14) - -
Exercise of employee stock options 4,000 4 - - 19,996 -
Net loss - - - - - (571,886)
--------- -------- --------- -------- ------------ ----------
Balance, December 31, 1995 1,428,966 1,429 3,375,134 3,375 5,669,423 (1,209,492)
Sale of common stock, net of
issuance costs 249,480 250 - - 1,945,480 -
Exercise of Class A warrants 2,500 2 - - 18,750 710,585
--------- -------- --------- -------- ------------ ----------
Balance, December 31, 1996 1,680,946 $ 1,681 3,375,134 $ 3,375 $ 7,633,653 $ (498,907)
========= ======== ========= ========= ============= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
SUPER VISION INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
----------- ------------
<S> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 710,585 $ (571,886)
----------- ------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 165,030 102,665
Gain on disposal of fixed assets 8,775 (15,153)
Amortization of intangible assets 13,786 30,012
Deferred tax benefit (249,388) -
Decrease (increase) in:
Accounts receivable (979,487) (112,267)
Inventories (1,021,755) (318,955)
Other assets (132,187) (21,035)
(Decrease) increase in:
Accounts payable 721,817 224,623
Accrued liabilities 125,612 3,591
Accrued compensation and benefits 139,769 -
Deposits 980 43,641
Payments in excess of costs and recognized profit
on uncompleted contracts 43,369 10,333
Income tax payable 19,388 -
---------- -----------
Total adjustments (1,144,291) (52,545)
---------- -----------
Net cash used in operating activities (433,706) (624,431)
---------- -----------
Cash Flows from Investing Activities:
Purchase of investments (107,667) -
Acquisition of patents (16,043) (36,101)
Purchase of equipment and furniture (390,618) (714,817)
Acquisition of trademarks (3,025) (1,100)
Proceeds from disposal of equipment and furniture 9,735 57,934
---------- -----------
Net cash used in investing activities (507,618) (694,084)
---------- -----------
Cash Flows from Financing Activities:
Repayment of note to officer (22,968) -
Sale of common stock 2,000,000 -
Cost of issuance of common stock (54,268) -
Proceeds from exercise of stock options - 20,000
Proceeds from Class A warrants exercised 18,750 -
---------- -----------
Net cash provided by financing activities $ 1,941,514 20,000
---------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 1,000,190 (1,298,515)
Cash and Cash Equivalents, Beginning of Year 2,327,775 3,626,290
---------- -----------
Cash and Cash Equivalents, End of Year $ 3,327,965 $ 2,327,775
========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
SUPER VISION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS - Super Vision International, Inc. (the "Company") is engaged
in the design, manufacture and marketing of SIDE-GLOW(TM) and END
GLOW(TM) fiber optic lighting cables, light sources and
"point-to-point" fiber optic signs and displays. The Company's products
have a wide variety of applications in the signage, swimming pool,
architectural, advertising and retail industries.
REVENUE RECOGNITION - Generally, the Company recognizes revenue for its
products upon delivery to customers. A portion of the Company's income
is derived from sales contracts accounted for on the percentage of
completion method whereby the Company recognizes income on the basis of
costs incurred during the period plus profit earned, measured by the
percentage of direct labor incurred relative to total direct labor
budgeted. When contract cost estimates indicate costs in excess of the
contract price, the Company records the entire loss. The paid portion
of the contract in excess of cost incurred and gross profit recognized
is included in current liabilities as Payments in Excess of Costs and
Recognized Profit on Uncompleted Contracts.
Licensing and royalty fees are recorded when amounts become payable to
the Company based on royalty agreements and the services required as
set forth in royalty agreements have been rendered.
CASH EQUIVALENTS - Temporary cash investments with an original maturity
of three months or less are considered to be cash equivalents.
INVESTMENTS - Investments consist of held to maturity debt securities
carried at amortized cost.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out method), or market. Provision is made for any inventory
deemed excessive or obsolete.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed by the straight-line method and is charged to
operations over the estimated useful lives of the assets. The estimated
useful lives of the property and equipment range from 3 to 20 years.
Maintenance and repairs are charged to expense as incurred. The
carrying amount and accumulated depreciation of assets which are sold
or retired are removed from the accounts in the year of disposal and
any resulting gain or loss is included in results of operations.
INTANGIBLE ASSETS - Intangible assets, which are recorded at cost,
consist of patents and trademarks which are owned by the Company and
are being amortized over their contractual lives using the
straight-line method. At each balance sheet date, management assesses
whether there has been any permanent impairment in the value of
intangibles. The factors considered by management include trends and
prospects as well as the effects of obsolescence, demand, competition
and other economic factors.
<PAGE>
SUPER VISION INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
DEPOSITS - Payments received by the Company for services to be provided
in the following year are deferred and recognized as revenue in the
period the services are provided.
RESEARCH AND DEVELOPMENT - Research and development costs to develop
new products are charged to expense as incurred.
ADVERTISING - Advertising costs, included in selling, general and
administrative expenses, are expensed when the advertising first takes
place.
INCOME TAXES - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes resulting from temporary differences.
Such temporary differences result from differences in the carrying
value of assets and liabilities for tax and financial reporting
purposes. The deferred tax assets and liabilities represent the future
tax consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
NET INCOME (LOSS) PER SHARE - Primary income (loss) per share is
computed by dividing net income (loss) by the weighted average number
of shares of common stock outstanding during each period excluding the
shares placed in escrow (Note 9).
RECLASSIFICATIONS - For comparability purposes, certain
reclassifications have been made to the 1995 financial statements to
conform with the 1996 financial statement presentation.
<PAGE>
2. INVENTORIES:
Inventories consist of the following at December 31, 1996 and 1995:
1996 1995
------------- ------------
Raw materials $ 1,334,429 $ 665,441
Work in process 50,122 8,729
Finished goods 618,180 253,518
------------- ------------
2,002,731 927,688
Less: Reserve for excess inventory (81,628) (28,340)
------------- ------------
Net inventory $ 1,921,103 $ 899,348
============= ============
3. COMMITMENTS:
The Company leases warehouse and office space and a vehicle under
operating leases expiring from June, 1997 to October, 1997. On
September 27, 1996, the Company entered into a lease agreement with a
company owned by the Company's president for warehouse and office space
that the Company will occupy beginning in May, 1997. Lease payments
begin May 1, 1997 and last until the lease expires in May, 2012.
At December 31, 1996, the future minimum lease payments under these
leases are as follows:
Year Ending December 31,
1997 $ 306,234
1998 453,000
1999 539,383
2000 585,800
2001 615,090
Thereafter 9,175,375
--------------
$ 11,674,882
==============
Total rent expenses amounted to $132,712 and $97,145 for the fiscal
years ended December 31, 1996 and 1995, respectively.
4. NOTE PAYABLE TO OFFICER:
Note payable to officer consisted of a demand note payable owed to the
president of the Company. This note was only to be repaid from proceeds
due to the exercise of the Class B warrants. However, during 1996, the
Company received approval from the underwriter of the Company's initial
public offering and the Board of Directors to repay the outstanding
balance on the loan. Repayment of the loan consisted of $22,968 in
principal and $24,883 in accrued interest.
<PAGE>
5. RELATED-PARTY TRANSACTIONS:
The Company leases operating facility space from a corporation owned by
the Company's president. Rents paid under this lease agreement were
$113,272 and $88,722 for the years ended December 31, 1996 and 1995,
respectively.
During 1997, the Company expects to occupy operating facility space
through a building lease from a corporation owned by the Company's
president (see Note 3). Deposits paid under this lease agreement
amounted to $88,750 for the year ended December 31, 1996.
6. CONCENTRATION OF RISK:
The Company's financial instruments that are exposed to concentrations
of credit risk consist of cash and cash equivalents. The Company places
its cash and cash equivalents with high credit quality institutions. At
times such investments may be in excess of the FDIC insurance limit.
The Company also places its cash and cash equivalents in money market
funds with a major brokerage firm. These money market funds are
uninsured. The total amount invested in money market funds at December
31, 1996 and 1995 was $2,868,561 and $2,269,183, respectively.
The Company relies on several Japanese companies as suppliers for fiber
optics. While the Company believes alternative sources for fiber optics
are available, the loss of these suppliers or significant delays in
obtaining shipments could have a material adverse affect on the
Company's operations until such time as alternative suppliers could be
found or the Company could implement its own production capabilities.
7. ADVERTISING COSTS:
The Company promotes its product lines primarily through print media.
Such media includes trade publications, trade shows and promotional
brochures. Advertising expenses included in selling, general and
administrative expenses were approximately $77,000 and $44,000 for the
years ended December 31, 1996 and 1995, respectively.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During 1996, the Company paid approximately $25,000 of accrued interest
on a note payable to an officer (see Note 4). No interest was paid in
1995.
Accounts payable at December 31, 1995 included $50,000 incurred in
connection with the acquisition of equipment.
<PAGE>
9. INCOME TAXES:
The provision (benefit) for income taxes for the years ended December
31, 1996 and 1995 are as follows:
1996 1995
---------- -------------
Current:
Federal $ 19,388 $ -
State - -
---------- -------------
Total 19,388
---------- -------------
Deferred:
Federal (216,144) -
State (33,244) -
---------- -------------
Total (249,388) -
---------- -------------
Total benefit $ (230,000) $ -
========== =============
As of December 31, 1996, the Company had approximately $445,000 in
net operating loss carryforwards for federal and state income tax
purposes, which expire in 2011.
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the
deferred tax assets (liabilities) are as follows:
December 31,
1996 1995
----------- ----------
Long-term contract $ 84,521 $ -
Inventory 62,912 88,013
Accrued expenses 42,522 8,865
Depreciation (63,708) (19,023)
Other 19,834 (18,044)
Tax credits 19,388 -
Net operating loss carryforwards 167,548 457,925
----------- ----------
333,017 517,736
Valuation allowance (83,629) (517,736)
----------- ----------
$ 249,388 $ -
=========== ==========
<PAGE>
9. INCOME TAXES - CONTINUED:
The following is a reconciliation of tax computed at the statutory
Federal rate to the income tax expense (benefit) in the statement of
operations for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------- ------------------------
Amount % Amount %
------------ --------- ----------- ----------
<S> <C>
Tax (benefit) computed at
statutory Federal rate $ 163,399 34.00% $ (194,441) (34.00)%
State taxes (21,941) (4.56) - -
Addition to (reduction of)
valuation allowances (374,017) (77.83) 186,843 32.70
Non-deductible expenses 3,992 0.83 7,598 1.30
Other, net (1,433) (0.30) - -
------------ --------- ----------- ----------
Income tax expense (benefit) $ (230,000) (47.86)% $ - - %
============= ========= =========== ==========
</TABLE>
10. CAPITAL STOCK:
CLASS B COMMON STOCK - Each share of Class B Common Stock is entitled
to five votes on all matters on which stockholders may vote, including
the election of directors. Shares of Class B Common Stock are
automatically convertible into an equivalent number of shares of Class
A Common Stock upon the sale or transfer of such shares.
STOCK WARRANTS - At December 31, 1996, the Company has Class A and
Class B Warrants to purchase shares of Class A Common Stock. The
following warrants were outstanding at year end:
Number of Exercise
Class Shares Price Expiration Date
----- --------- -------- ---------------
A 1,677,500 $7.50 March 29, 1999
B 1,382,500 $10.50 March 29, 1999
<PAGE>
10. CAPITAL STOCK - CONTINUED:
STOCK WARRANTS - CONTINUED - The Class A Warrants are redeemable by the
Company on 30 days' written notice at a redemption price of $.05 per
Class A Warrant if the "closing price" of the Company's Class A Common
Stock for any 30 consecutive trading days ending within 15 days of the
notice of redemption averages in excess of $10.50 per share. The Class
B Warrants are redeemable by the Company on 30 days' written notice at
a redemption price of $.05 per Class B Warrant if the "closing price"
of the Company's Class A Common Stock for any 30 consecutive trading
days ending within 15 days of the notice of redemption averages in
excess of $14.70 per share. In addition, the Company has 771,480 Class
A Warrants outstanding in connection with the capital transaction
described below.
CAPITAL STOCK TRANSACTION - 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 approximate market value of the Class A Common Stock at the time.
In addition, the Company granted 249,480 matching warrants for the
purchase of additional shares, at an exercise price of $8.02 per share.
Vesting of the warrants is tied to achievement of annual minimum
purchase commitments contained in the Distributorship Agreement. The
warrants have a 10-year life and expire September 25, 2006.
Additionally, the Company issued 522,000 warrants to Hayward, as well
as certain other pre-emptive rights, intended to ensure that Hayward's
ownership of the Company does not fall below 10% of the Company's
publicly traded shares. 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.
ESCROWED SHARES - In connection with the Company's initial public
offering, certain stockholders agreed to place an aggregate of
2,918,000 shares of their Class B Common Stock into escrow. The first
1,898,000 escrowed shares will be released to the stockholders on a pro
rata basis, if and only if, any of the following conditions are met:
minimum pretax income (as defined) is at least $5.0 million for fiscal
year 1996; $6.9 million for fiscal year 1997; $8.9 million for fiscal
year 1998 or the bid price of the Company's common stock averages, for
30 consecutive business days, in excess of $13.30 during the 18-month
period following the date of the public offering or $16.65 during the
18-month period following the 18-month period from the date of the
public offering. Also, if the Company is acquired or merged into
another company for which the stockholders receive per share
consideration equal to or greater than those stated above, the shares
will be released.
<PAGE>
10. CAPITAL STOCK - CONTINUED:
ESCROWED SHARES - CONTINUED - The remaining 1,020,000 escrowed shares
will be released to the stockholders on a pro rata basis, if and only
if, any of the following conditions are met: minimum pretax income (as
defined) is at least $8.5 million for fiscal year 1996; $10.2 million
for fiscal year 1997; $12.7 million for fiscal year 1998 or the bid
price of the Company's common stock averages, for 30 consecutive
business days, in excess of $18.30 during the 18-month period following
the date of the public offering or $23.30 during the 18-month period
following the 18-month period from the date of the public offering.
Also, if the Company is acquired or merged into another company for
which the stockholders receive per share consideration equal to or
greater than those stated above, the shares will be released.
The escrowed shares will be transferred to the Company for no
consideration if the future earnings thresholds or stock bid price
levels are not achieved. In the event the Company attains any of the
earnings thresholds or stock bid prices for the release of escrowed
shares to such stockholders, the Company will recognize compensation
expense at such time based on the fair market value of the shares
released to officers, directors and employees.
11. 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. 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 and the options have a maximum term of 10 years.
<PAGE>
11. STOCK OPTION PLAN - CONTINUED:
The following table summarizes activity of the stock option plan for
the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Options Number of Weighted
Available for Shares Average
Future Grant Under Option Option Price
------------- ------------ ------------
<S> <C>
Balance, January 1, 1995 83,840 66,060 $5.00
Options granted (55,571) 55,571 $6.69
Options exercised - (4,000 $5.00
Options cancelled 10,000 (10,000) $5.17
------------- ------------
Balance, December 31, 1995 38,269 107,631 $5.86
Options authorized 100,000 - -
Options granted (74,900) 74,900 $7.71
Options exercised - - -
Options cancelled 6,400 (6,400) $6.51
------------- ------------
Balance, December 31, 1996 69,769 176,131
============= ============
</TABLE>
The weighted average fair value of options granted during 1996 and 1995
were $2.80 and $2.44 per option, respectively. At December 31, 1996,
the 176,131 options outstanding under the plan are summarized in the
following table:
Range of
Option Exercise Weighted Average Weighted Average
Shares Prices Exercise Price Remaining Life
------- -------------- ---------------- ----------------
116,610 $5.00 - $7.49 $5.90 8.1
59,521 $7.50 - $10.31 $8.03 9.4
Options granted vest ratably over a three-year period or vest based on
achievement of performance criteria. As of December 31, 1996, 106,080
options were vested and exercisable. These options and their weighted
average exercise price are summarized below:
Option Weighted Average
Shares Exercise Price
------ -----------------
91,659 $5.84
14,421 $8.41
<PAGE>
11. STOCK OPTION PLAN - CONTINUED:
The Company applies the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, but applies Accounting
Principles Board Opinion No. 25 and related interpretations in
accounting for its plan. Accordingly, no compensation expense has been
recognized for stock options granted under the plan. If the Company had
elected to recognize compensation expense for stock options based on
the fair value at grant date, consistent with the method prescribed by
SFAS No. 123, net income and earnings per share would have been reduced
to the proforma amounts shown below:
1996 1995
---------- -------------
Net Income (Loss):
As reported $ 710,585 $ (571,886)
Proforma 678,979 (595,912)
EPS:
As reported $ 0.35 $ (0.30)
Proforma 0.34 (0.32)
These proforma amounts were determined using the Black-Scholes
Valuation model with the following key assumptions:
(a) an average discount rate of 6.17%;
(b) a volatility factor of 35% based upon volatility of a
comparable group companies; and
(c) an average expected option life of 4 years.
12. MAJOR CUSTOMERS/EXPORT SALES:
During 1996, the Company had export sales of 29% of net sales. The
Company also had sales totalling 12% of revenues to a major sign
company for the year ended December 31, 1996.
Export sales from 1995 were 49% of net sales. The Company had sales
totalling 11.2% of revenues to an international distributor of the
Company's products for the year ended December 31, 1995.
<PAGE>
13. BENEFIT PLANS:
The Company has established a profit sharing plan which permits
participants to make contributions by salary reduction pursuant to
Section 401(k) of the Internal Revenue Code. As of December 31, 1996,
the Company had made no contributions under the plan. Effective January
1, 1997, the Company will make matching contributions equal to a
discretionary percentage, to be determined by the Company, of the
participants' salary reductions.
Beginning in early 1996, the Company implemented a bonus plan, based on
targeted sales levels, which provides incentive compensation for sales
employees. Amounts charged to expense for bonuses to these employees
was $199,213 for the fiscal year ended 1996.
14. CONTINGENCY:
The Company has available a $100,000 bank line of credit. Amounts
outstanding under the line are due on demand with interest payable
monthly at the prime rate (8.25% at December 31, 1996) and are
collateralized by certain securities. As of December 31, 1996, there
was no balance outstanding.
15. FOURTH QUARTER ADJUSTMENTS:
During the fourth quarter of 1996, the Company recorded a deferred tax
benefit of $230,000 as management now believes it is more likely than
not that the Company will generate taxable income sufficient to realize
a portion of the tax benefit associated with future deductible
temporary differences and NOL carryforwards. Additionally, they
increased their reserve for excess inventory by $50,000 partially
offsetting the positive income tax adjustment.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SUPER VISION INTERNATIONAL, INC.
Date: March 26, 1997 By: /s/ Brett M. Kingstone
-----------------------
Brett M. Kingstone - Chairman,
President and Chief Executive Officer
In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
/s/ Brett M. Kingstone March 26, 1997
- ----------------------------------
Brett M. Kingstone - Chairman of
the Board of Directors, President
and Chief Executive Officer
(Principal Executive Officer)
/s/ John P. Stanney March 26, 1997
- -----------------------------
John P. Stanney - Chief
Operating Officer and Chief
Financial Officer (Principal
Financial and Accounting Officer)
/s/ Edgar Protiva March 26, 1997
- ------------------------
Edgar Protiva - Director
/s/ Eric Protiva March 26, 1997
- -----------------------
Eric Protiva - Director
/s/ Brian McCann March 26, 1997
- -----------------------
Brian McCann - Director
/s/ Anthony Castor March 26, 1997
- -------------------------
Anthony Castor - Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,327,965
<SECURITIES> 107,667
<RECEIVABLES> 1,351,923
<ALLOWANCES> (41,866)
<INVENTORY> 1,921,103
<CURRENT-ASSETS> 6,950,962
<PP&E> 1,764,706
<DEPRECIATION> (325,957)
<TOTAL-ASSETS> 8,619,200
<CURRENT-LIABILITIES> 1,479,398
<BONDS> 0
0
0
<COMMON> 5,056
<OTHER-SE> 7,134,746
<TOTAL-LIABILITY-AND-EQUITY> 8,619,200
<SALES> 6,805,473
<TOTAL-REVENUES> 6,805,473
<CGS> 4,216,104
<TOTAL-COSTS> 6,449,878
<OTHER-EXPENSES> (127,499)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,509
<INCOME-PRETAX> 480,585
<INCOME-TAX> (230,000)
<INCOME-CONTINUING> 710,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 710,585
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
