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Financial Information


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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, 1995

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 number 0-23590

Super Vision International, Inc.

(Name of Small Business Issuer in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)

59-3046866 (I.R.S. Employer Identification No.)

2442 Viscount Row, Orlando, Florida (Address of Principal Executive Offices)

32809 (Zip Code)

(407) 857-9900 (Issuer's Telephone Number, Including Area Code)

Securities registered under to Section 12(b) of the Exchange Act:

Title of Each Class: None

Name of Each Exchange on Which Registered: 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)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 I O-KSB or any amendment to this Form 1 O-KSB.

State issuer's revenues for its most recent fiscal year. $2,538,459.

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 25, 1996. $10,005,000.

State the number of shares outstanding of each of the issuer's common equity as of March 25, 1996. 1,428,966 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.

PART I

Item 1. Description of Business

General

Super Vision International, Inc. (the "Company") is engaged in the design, manufacture and marketing of Side Glow (tm) fiber optic lighting cable, 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. 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 utilize a patented reflective center core in the manufacturing process to produce a plastic cable which gives off light along its length, rather than just at the end points. The Company markets these cables with a variety of halogen or metal-halide light sources as an alternative to neon lighting for indoor and outdoor architectural accents, signs, underwater lighting and large displays. While the Company's Side Glow (tm)' cable currently does not achieve the level of brightness of neon, the Company believes its benefits outweigh the brightness factor for a large segment of the current neon market. 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. In addition, when combined with the Company's light sources, unlike neon, the Company's products are capable of changing color. The Company currently sells Side Glow (tm) cables in four diameters designed to meet customer needs and specifications. Additionally, during the fourth quarter the Company introduced a line of End Glow (tm) cables designed for underwater spot lighting and interior task down lighting.

To date, the Company's Side Glow (tm) and End Glow (tm) cables have been used in major installations worldwide. Additionally, as a result of the expansion of the Company's international distribution network and other distribution channels in various markets the Company's products have been introduced to the mainstream lighting market. The Company also filed for Patent Cooperation Treaty protection of its Side Glow (tm) fiber optic cables in over 20 foreign countries during 1995.

In December 1995, the Company completed the acquisition of custom-.for-Super Vision fiber optic cabling and extrusion equipment which will be utilized by the Company to manufacture its Side Glow(tm) and End Glow (tm) cables in house. The Company believes that the vertical integration of processes formerly performed by subcontractors will allow the Company to achieve significant cost reductions in this product line.

During 1995, Side Glow (tm) and End Glow (tm) cable products accounted for approximately 38% 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 and markets a proprietary line of internally manufactured light sources, each designed for specialized applications. During 1995, the Company expanded its light source product offerings from its original two SV2000 Series metal halide sources to five metal halide and halogen light sources targeted to meet specific market needs. Each model is produced to meet a variety of voltage needs and indoor or outdoor uses. The Company also produces a line of light source controllers which allow multiple light sources to be sequenced in simple or complex links to simulate an array of special lighting effects.

In addition to the introduction of its proprietary light source line, the Company perfected a new method of coupling fiber optic cables to its light sources. This fiber head system allows for a much simpler installation of fiber optic cables than has ever been possible with competing fiber optic systems. The Company has a patent pending on this system, and believes the system will afford a significant competitive advantage over existing market systems.

Although several of these light source products were only on the market for a short period of time during 1995, sales of the Company's light sources represented approximately 34% of the Company's total revenue during 1995. The Company's light source products are complementary to the Company's Side Glow (tm) and End Glow (tm) fiber optic cables, and the Company plans to devote significant resources to continue development of these products and markets.

Endpoint Signs and Displays

The Company manufactures endpoint fiber optic signs and custom displays for advertising, signage and point of purchase displays. Fiber optic strands are used with customized light sources to create a virtually limitless combination of designs, patterns and effects. The Company has utilized this technology to create custom designs for clients such as Planet Hollywood, Walt Disney World and Coca Cola. The Company entered into a contract in the fourth quarter of 1995 to produce what is believed to be the world's largest fiber optic sign, which is scheduled to be completed in March, 1996. While these types of displays are produced on a custom only basis, the Company believes this type of contract will enhance the visibility of fiber optics in the advertising and sign market, and provide a marketing platform for the Company's standard fiber optic products. The Company utilizes the same technology used in large scale custom displays in the manufacture of its point of purchase displays. Point of purchase signs are utilized by retailers and advertisers in the promotion of their products and services. The Company has produced point of purchase signs for many Fortune 500 clients.

During 1995, endpoint signs and displays accounted for approximately 28% of the Company's total revenues.

Sales and Marketing

The Company's products are utilized in a wide variety of markets and applications, including: Architectural Lighting; Signage; Advertising; Swimming Pool and Spa Lighting; Tasklighting (i.e., conference room down lighting); and Specialty Theme Lighting. The Company previously relied on internally generated sales efforts for the majority of revenues. During 1995, the Company continued development of its distribution channels in the aforementioned markets, and expended significant resources to acquire, educate, and train international distributors, domestic lighting agents, pool lighting contractors, and to promote the Company's products to major sign manufacturers. Consequently, the majority of 1995 revenues were derived through these distribution channels. The Company will also continue to directly market custom endpoint displays and signs, as a method of increasing revenues and to expand overall exposure to fiber optic lighting technology.

Manufacturing, Suppliers, and Quality Control

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 exclusively from a Japanese company. 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. The Company believes 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 competitive with neon lighting. The Company maintains outside manufacturing capabilities for these products in the event additional capacity is required. 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 facility in Orlando, Florida. The designs of the light sources are considered proprietary and the Company has a U.S. patent application 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 in the future prospects for growth.

The Company's strategy is to continue to strive for lower manufacturing costs and reduce its dependence on outside suppliers by expanding its manufacturing capabilities and engineering its products around off the shelf components combined in 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. These efforts resulted in the introduction of the Company's Swimming Pool and Spa line in the fourth quarter of 1995. These products are designed to be price competitive with traditional under water lighting products, while offering the advantages of voltage free light and color changing in the water. The Company also introduced a line of fiber optic landscape, feature and accent lights for the pool and architectural lighting markets.

The Company will continue to purchase the fiber optic strands from its sole source Japanese supplier. 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 requires fiber optic material of a higher quality than the Company believes is currently available elsewhere. Accordingly, the loss of this supplier or delays in obtaining shipments would 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 (one possible supplier has been identified) or the Company could implement its own production capabilities.

The Company has implemented a quality control (QC) system based on total quality models, and joined a Florida round table consortium of companies working towards certification of their QC systems under IS09000. The Company believes certification is important in the achievement of a quality conscious manufacturing environment, and may be critical in further expansion of overseas market acceptance. While their can be no assurance that the Company will achieve certification, the Company believes the implementation of this integrated QC system could have a positive impact on the quality of its products and services.

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 1995, the Company spent approximately $234,000 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 extending the life of the lamp in its light source) and to develop new products and applications for its technologies.

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.

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, 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.

Competitors in the traditional lighting markets include such companies as General Electric, Philips, Cooper Industries, American Products and other large companies with greater financial resources than those possessed by the Company. Additionally, the Company's products compete with many local and regional neon manufacturers and installers with established market presence.

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.

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 and commissioned salespersons 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 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 filed for 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 pending 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 names Side Glow (tm) and End Glow (tm) related to the Company's fiber optic cables. The Company believes the trademarks may help in its efforts to achieve brand recognition, although there can be no assurance to such effect.

Employees

At March 11, 1996, the Company had 23 full-time employees, of which two were in research and development, seven were involved in sales, marketing and customer service, three were involved in finance and administration and eleven 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:

Name: Brett M. Kingstone
Age: 36
Position: Chairman of the Board, Chief Executive Officer and President

Name: John P. Stanney
Age: 32
Position: Chief Operating Officer, Chief Financial Officer and Secretary

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 199 1. 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.

Item 2. Description of Property.

The Company's executive offices and production facility are located in an

approximately 11,000 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 $8,300. An entity controlled by Kingstone, the Chairman, Chief Executive Officer and President of the Company, owns the building which houses the Company's facilities.

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.

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 and 1995 as reported by The Nasdaq Stock Market, Inc.

Bid Prices
HighLow
Year Ended
31-Dec-94
First Quarter (Commencing March 22, 1994)4.253
Second Quarter3.6253.25
Third Quarter6.1254.88
Fourth Quarter6.56
Year ended
31-Dec-95
First Quarter7.256.25
Second Quarter76
Third Quarter86.75
Fourth Quarter7.756.75

Last Update: 4/24/96

(b) The number of holders of record of the Company's Class A Common Stock as of March 11, 1995 is 25.

(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.

Item 6. Management's Discussion and Analysis or Plan of Operation.

Liquidity and Capital Resources

At December 31, 1995, the Company had working capital of $3,173,888.

The Company entered into an agreement in November 1994 for the acquisition of certain equipment related to the production of its fiber optic cables. The purchase and installation price for the equipment is approximately $814,000. The-Company paid a deposit of $252,000 upon signing the agreement. The equipment was delivered and tested in November 1995, and became operational in December 1995. Upon delivery, the Company paid an additional $432,000 on the contract. Costs related to site preparation of approximately $80,000 were also incurred. As of December 31, 1995, the equipment was in operation, but several modifications were required under the terms of the agreement. Accordingly, a retainage of $50,000 against final approval is being withheld by the Company pending final settlement of the contractual obligations by the vendor. The Company believes this equipment will enhance its production capability and reduce lead times in the manufacture of its fiber optic cable products, and could reduce costs of manufacturing these products. Due to the limited operating history of the equipment, however, no estimate of the potential cost reductions can be made at this time. The Company also used approximately $203,000 of funds in the acquisition of computer systems and tooling designed to aid in the automation of several of its other product lines, and in the redesign of its office area.

The Company expended approximately $37,000 during the year ended December 315 1995 in the acquisition and filing of patents and trademarks designed to aid in the protection of the Company's proprietary technologies and attempt to achieve brand recognition for the Company's products.

During the year ended December 31, 1995, the Company used proceeds from the Company's initial public offering in March 1994 to expand inventory by approximately $319,000. This expansion was due to the addition of three new light sources and three additional sizes of fiber optic cables to the Company's product line. The Company also modified existing products and added a line of landscape, accent, and feature lights in order to enter the fiber optic pools and spa lighting market, which further increased inventory levels. Management believes the increased levels are necessary to support anticipated revenue growth, and support the short lead time required by the pool and spa lighting market.

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 1995 Compared to Fiscal 1994

Revenues are derived primarily from the sales of Side Glow (tm) and End Glow (tm) fiber optic cables, light sources, fiber optic displays and point of purchase signage. Revenues for the year ended December 31, 1995 ("1995") were approximately $2,538,000. This represented a 79% increase over the year ended December 31, 1994 ("1994"). Revenues for 1995 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. Three new light sources were added during 1995, as well as two new fiber optic cables. The Company also added a line of landscape, accent and feature lights which are used in combination with the Company's cables and light sources. The introduction of these new products combined with the continued expansion of the Company's international distribution system, the formation of a domestic lighting agency representation network and the addition of a pool and spa lighting group accounted for the majority of the revenue increase. Sales of these product lines accounted for a combined 72% of total revenues for 1995 as compared to 53% in 1994. Sales of endpoint signs and displays were 28% of total 1995 revenues as compared to 40% of 1994 total revenues. The Company believes that this decline in sales of endpoint signs and displays as a percentage of total revenue is a result of strong sales in its expanding cable and light source product lines, and is not indicative of weaker sales in the endpoint product areas.

Included in 1995 revenues is approximately $107,000 recognized under the percentage of completion method related to a contract to produce a large scale custom fiber optic sign. The total contract value is approximately $816,000, and completion is anticipated in the first quarter of 1996. Additionally, the Company signed a licensing agreement with one of its international distributors for the manufacture of one of the Company's point of purchase signage products pursuant to which the Company received a fee of $45,000. The agreement has a fifteen year term, and calls for the payment of royalties to the Company based on direct sales of the licensed product by the distributor. The Company is also guaranteed a fixed unit price on purchases of the licensed product for resale by the Company, if the Company chooses to do so. Fees recognized during the 1995 nine months represented payment for initial training of the distributor by the Company. The Company has no further obligation related to these fees. Further revenues from the license, if any, are dependent on sales of the licensed product by the distributor, which Management cannot predict.

The gross margin increased 14% from 21% in 1994 to 35% in 1995. The 1995 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, as well as custom fiber optic endpoint displays. These products have higher margins than the point of purchase signage products. The 1994 gross margin contained a higher relative mix of point of purchase signage. The Company continues research into new methods of manufacturing point of purchase products. Additionally, the aforementioned licensing agreement may also reduce costs of this product due to lower offshore labor costs; however, Management is unable to determine the extent to which, if any, these proposed manufacturing methods or the licensing agreement may reduce costs, if at all. During December 1995, the Company received delivery of its custom-for-Super Vision fiber optic cabling and extrusion equipment. The equipment is utilized in the manufacture of the Company's Side Glow (tm) and End Glow (tm) fiber optic cables, and may reduce the manufacturing costs of these products due to the integration of processes formerly performed by subcontractors. Additionally, the Company is conducting research into the use of the same equipment to manufacture certain other items in its product lines which are currently purchased from outside vendors. If this research is successful, Management believes costs reductions in other products are also possible. As the equipment was received late in 1995, however, data to quantify the possible cost reductions, if any, are not available.

Selling, general and administrative expenses were approximately $1,440,000 for 1995 as compared to approximately $949,000 for 1994, an increase of 52%. Increases in selling and marketing expenses included printed materials designed specifically for the Company's recently formed lighting agency representation network as well as product literature required with the introduction of the Company's new products. The Company also provided training at the agents' sites in order to increase awareness relating to the capabilities of the Company's products and in an effort to increase revenues through these agents. Additionally, the Company increased the levels of advertising and trade show attendance in order to introduce new products and attract additional lighting representatives. The introduction of the Pool and Spa group and its related landscape product line also contributed to increased marketing costs, particularly for literature, product catalogs and demonstration equipment required by distributors and representatives of the Company's products in this market. The Company also held its first international distributor training seminar in October 1995, in order to provide centralized training on the Company's existing and new products in the Orlando facility. General and administrative expenses increased due to the expansion of the Company's facility from 6,000 to 11,000 square feet, and the subsequent overhead costs associated with servicing and maintaining this facility. Finally, the Company has experienced increased professional costs associated with becoming a publicly held entity.

Research and development costs were approximately $234,000 for 1995 as compared to approximately $232,000 for 1994. The Company introduced twelve new products during 1995, as well as adapting existing products for new markets such as the Pool and Spa product line. Additionally, the Company performed research on eight new products to be introduced in early 1996. Despite these new product introductions, research and development expenses remained constant with 1994 levels. The Company was able to adapt previous efforts and work closely with key vendors to decrease the time and costs associated with these introductions. New costs were incurred in the final testing and development of the Company's custom fiber optic cabling equipment, including material and travel. Management believes continued research into increasing the brightness of the lighting cable, expanding the applications of fiber optic lighting technology and new product development are critical for the achievement of continuing sales growth.

The Company had net interest income for 1995 of approximately $201,000 compared with approximately $128,000 for 1994. The 1995 amounts were favorably impacted by increased yields on the Company's investments, despite decreased available cash balances for investment. Net interest expense for 1995 was approximately $3,800 compared to approximately $78,000 for 1994. The 1994 amount includes a one-time charge of $65,000 for issuance costs relating to the $500,000 bridge loan completed in January 1994, which was repaid from the proceeds of the Company's initial public offering in March 1994.

Income taxes for 1994 included a tax provision reflecting a change in the Company's tax status from an S-corporation to a C-corporation, which was offset by tax benefits as a result of the Company's 1994 tax losses. See Note 8 of Notes to Financial Statements.

The net loss for 1995 was approximately ($572,000) as compared to a loss of approximately ($816,000) for 1994. The decreased losses are attributable to higher revenue levels achieved through the Company's distribution channels, as well as improved gross margins resulting from the introduction of new products and overall sales mix. Loss per common share decreased from $.53 in 1994 to $.30 in 1995.

Item 7. Financial Statements

Report of Independent Accountants

Balance Sheets as of December 31, 1995 and 1994

Statements of Operations for the years ended December 31, 1995 and 1994

Statements of Stockholders' Equity for the years ended December 3 1, 1995 and 1994

Statements of Cash Flows for the years ended December 31, 1995 and 1994

Notes to the Financial Statements

This information appears in a separate section of this Report following.

Part III.

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not Applicable.

PART III

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.

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)

10.11994 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)

(1) Incorporated by reference from the Company's Registration Statement on Form SB-2 (File No. 33-74742)

(b) Reports on Form 8-K. No reports on Form 8-K have been filed during the three months ended December 31, 1995.

(c) Consent of Independent Accountants

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, 1995 and 1994, 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, 1995 and 1994, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.

Orlando, Florida

February 16, 1996

Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a limited liability association incorporated in Switzerland.

Super Vision International, Inc.
Balance Sheets
DecemberDecember
Assets19951994
Current Assets:
Cash and cash equivalents$2,327,775 $3,626,290
Trade accounts receivable, less allowance for doubtful accounts of $19,952 and $4,803$330,570 $218,303
Inventories, less reserve for excess inventory of $28,340 in 1995$899,348 $580,393
Advances to employees$16,390 $4,623
Other assets$51,236 $71,383
Total current assets$3,625,319 $4,500,992
Property and Equipment:
Machinery and equipment$1,013,016 $191,843
Furniture and fixtures$93,551 $76,453
Computers$142,758 $114,864
Vehicles$16,581 $16,581
Leasehold improvements$138,462 $46,469
$1,404,368 $446,210
Less accumulated depreciation($172,697)($85,910)
Net property and equipment$1,231,671 $360,300
Other Assets$59,176 $22,572
Deposits on Equipment-$252,000
$4,916,166 $5,135,864
Liabilities and Stockholders' Equity
Current Liabilities:
Note payable to officer$22,968 $22,968
Accounts payable$344,853 $70,230
Accrued liabilities$22,443 $18,852
Payments in excess of costs and recognized profit on uncompleted contracts$10,333 -
Deposits$50,834 $7,193
Total current Liabilities$451,431 $119,243
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, 1,428,966 and 1,410,966 issued and outstanding$1,429 $1,411
Class B common stock, $.001 par value, 3,389,134 shares authorized, 3,375,134 and 3,389,134 issued and outstanding$3,375 $3,389
Additional paid-in capital$5,669,423 $5,649,427
Retained earnings (deficit)($1,209,492)($637,606)
Total stockholders' equity$4,464,735 $5,016,621
$4,916,166 $5,135,864

Last Update: 4/22/96

Super Vision International, Inc.
Statement of Operations
DecemberDecember
19951994
Revenues:
Net Sales$2,493,459 $1,414,542
Licensing and royalty fees$45,000 -
Total revenues$2,538,459 $1,414,542
Costs and Expenses:
Cost of sales$1,649,130 $1,111,679
Selling, general and administrative$1,440,106 $948,861
Research and development$233,916 $232,265
Total costs and expenses$3,323,152 $2,292,805
Operating Loss($784,693)($878,263)
Non-Operating Income (Expenses):
Interest income$201,408 $128,443
Interest expense($3,754)($78,473)
Gain on disposal of assets$15,153 $12,331
Total non-operating income$212,807 $62,301
Loss Before Income Taxes($571,886)($815,962)
Income Taxes--
Net Loss($571,886)($815,962)
Loss Per Common Share:
Primary($0.30)($0.53)
Weighted Average Shares of Common Stock Outstanding:
Primary$1,883,799 $1,534,824

Last Update: 4/22/96

Super Vision International, Inc.
Statement of Stockholders' Equity
Years Ended December 31, 1995 and 1994
Common Stock: Class ACommon Stock: Class B
SharesAmountSharesAmountAdditional Paid-In CapitalRetained Earnings (Deficit)
Balance, December 31, 1993--3,420,000$3,420 $57 $178,356
Sale of common stock, net of offering costs1,380,0001,380--5,648,870-
Exercise of employee stock options100---500-
Conversion of Class B common stock to Class A common stock30,86631(30,866)(31)--
Net loss-----($815,962)
Balance, December 31, 19941,410,9661,4113,389,1343,3895,649,427($637,606)
Conversion of Class B common stock to Class A common stock14,00014(14,000)(14)--
Exercise of employee stock options4,0004--19,996-
Net loss-----($571,886)
Balance, December 31, 19951,428,966$1,429 3,375,134$3,375 $5,669,423 ($1,209,492)

Last Update: 4/22/96

Super Vision International, Inc.
Statements of Cash Flows
DecemberDecember
19951994
Cash Flows from Operating Activities:
Net loss($571,886)($815,962)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation$102,665 $52,884
Gain on disposal of fixed assets($15,153)($12,331)
Amortization of intangible assets$30,012 $22,749
Decrease (increase) in:
Accounts receivable($112,267)($143,171)
Inventories($318,955)($458,610)
Cost and estimated earnings in excess of billings on uncompleted contracts-$17,055
Other assets($21,035)($111,261)
(Decrease) increase in:
Accounts payable$224,623 $33,049
Accrued liabilities$3,591 ($14,488)
Deposits$43,641 ($2,807)
Payments in excess of costs and recognized profit on uncompleted contracts$10,333 -
Total adjustments($52,545)($616,931)
Net cash used in operating activities($624,431)($1,432,893)
Cash Flows from Investing Activities:
Acquisition of patents($36,101)($5,640)
Purchase of equipment and furniture($714,817)($349,079)
Acquisition of trademarks($1,100)-
Deposits on equipment-($252,000)
Proceeds from disposal of equipment and furniture$57,934 $19,500
Net cash used in investing activities($694,084)($587,219)
Cash Flows from Financing Activities:
Proceeds from line of credit-$14,563
Repayment of line of credit-($74,563)
Sale of common stock-$6,900,000
Cost of issuance of common stock-($1,214,450)
Proceeds from exercised stock options$20,000 $500
Proceeds from bridge loan-$500,000
Repayment of bridge loan-($500,000)
Net cash provided by financing activities$20,000 $5,626,050
Net Increase (Decrease) in Cash and Cash Equivalents($1,298,515)$3,605,938
Cash and Cash Equivalents, Beginning of Year$3,626,290 $20,352
Cash and Cash Equivalents, End of Year$2,327,775 $3,626,290

Last Update: 4/22/96

Notes to Financial Statements

Years Ended December 31, 1995 and 1994

1. Summary of Significant Accounting Policies:

Organization - Super Vision International, Inc. (the "Company") was originally incorporated as a Florida corporation on January 21, 1991. On December 16, 1993, the Company was merged into Super Vision International, Inc., a newly formed Delaware corporation, to carry on the business of the Florida corporation. At that time, the merged companies were recapitalized, and the sole stockholder of the Florida corporation contributed all of his stock to the Company in exchange for newly issued shares of the Delaware corporation. References to the Company in these financial statements and notes thereto include the activities of the Florida corporation.

The Company is engaged in the design, manufacture and marketing of Side Glow' fiber optic lighting cable, fight 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 1995 income is derived from a sales contract 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.

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. 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.

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.

Income Taxes - Effective January 1, 1994, the Company was required to elect C-corporation status for income tax reporting purposes and at this time adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109).

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 loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period after giving effect to the stock splits and excluding the shares placed in escrow (Note 9).

New Pronouncements - Effective December 15, 1995, the Company was required to comply with the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123). FAS 123 establishes fair value-based financial accounting and reporting standards for arrangements under which employees receive shares of stock of an employer. The Company will elect the disclosure-only provisions as outlined in FAS 123. The proforma effects for 1995 have not been calculated as of December 31, 1995.

Reclassifications - For comparability purposes, certain reclassifications have been made to the 1994 financial statements to conform with the 1995 financial statement presentation.

2. Inventories

Inventories consist of the following at December 31, 1995 and 1994:

19951994
Raw materials$665,441 $218,134
Work in process$8,729 $48,484
Finished goods$253,518 $313,775
$927,688 $580,393
Less: Reserve for excess inventory($28,340)-
Net inventory$899,348 $580,393

Last Update: 4/23/96

3. Commitments:

The Company leases warehouse and office space and a vehicle under operating leases expiring from October, 1997 to March, 1999.

At December 31, 1995, the future minimum lease payments under these operating leases are as follows:

Year Ending December 31,
1996$114,249
1997$121,201
1998$119,641
1999$19,547
2000-
$374,638

Included in future minimum lease payments are payments due to a corporation owned by the President of the Company totalling $359,463 (see Note 5).

Total rent expenses amounted to $97,145 and $51,246 for the fiscal years ended December 31, 1995 and 1994, respectively.

In 1994, the Company entered into a contract for the purchase of fiber optic cabling and extrusion machinery. The equipment was installed and in operation in December, 1995, and was undergoing final certification. the remaining balance on the contract is scheduled to be paid upon certification of the equipment, subject to certain performance criteria specified in the agreement. An installment payment of $252,000 had been made on the contract and is included as a deposit on the balance sheet as of December 31, 1994.

The Company has a consulting agreement with the underwriter of the public offering to act as an investment banker to the Company for a two-year period for an annual fee of $30,000. The agreement expires in March, 1996.

4. Note Payable to Officer:

Note payable to officer consists of a demand note payable owed to the president of the Company. This note may only be repaid from the proceeds of the exercise of the Class B warrants. Interest accrued to date at an annual interest rate of 13% was $22,443 and $18,852 at December 31, 1995 and 1994, respectively.

5. Related-Party Transactions:

The Company leases operating facility space from a corporation owned by the president of the Company. Rents paid under this lease agreement were $88,722 and $47,700 for the years ended December 31, 1995 and 1994, respectively.

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, 1995 and 1994 was $2,269,183 and $3,576,552, respectively.

The Company relies on a Japanese company as a sole suppliers for fiber optics. While the Company believes alternative sources for fiber optics are available, the loss of this supplier or significant delays in obtaining shipments could have a material adverse affect on the Company's operations until such time as an alternative supplier could be found or the Company could implement its own production capabilities.

7. Supplemental Disclosures of Cash Flow Information:

Cash paid for interest for the year ended December 31, 1994 was $76,174. No interest was paid in 1995. Interest paid in 1994 includes $65,000 of issuance costs related to the $500,000 bridge loan completed in January, 1994.

Accounts payable at December 31, 1995 includes $50,000 incurred in connection with the acquisition of equipment (see Note 3).

8. Income Taxes:

Prior to January 1, 1994, the Company had elected to be taxed as an S-corporation and thus, all income of the Company was passed through to the sole stockholder and taxed at his level. Effective January 1, 1994, the Company was required to elect C-corporation status for income tax reporting purposes and at this time adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109). To account for this change in tax status, the Company recorded deferred expense in the amount of $43,445. This provision reflected the temporary differences between the tax basis of assets and liabilities and their financial statement carrying values. The tax expense has been offset by benefits generated in 1994 from operating losses leaving no provision for income tax expense in 1994. There was no valuation allowance established upon the adoption of FAS 109.

The provision (benefit) for income taxes for the period ended December 31, 1995 and 1994 are as follows:

19951994
Current:
Federal--
State--
Total--
Deferred:
Federal--
State--
Total--
Total provision--

Last Update: 4/23/96

As of December 31, 1995 and 1994, the Company had approximately $1,159,000 and $703,000 in net operating loss carryforwards for federal and state income tax purposes, which expire in 2010 and 2009, respectively.

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,December 31,
19951994
Inventory$88,013 $27,194
Accrued expenses$8,865 $7,686
Depreciation($19,023)($24,923)
Other($18,044)($15,732)
Net operating loss carryforwards$457,925 $278,076
$517,736 $272,301
Valuation allowance($517,736)($272,301)
--

Last Update: 4/23/96

The entire balance of the deferred tax asset has been offset by a valuation allowance due to the uncertainty of the realizability of the benefits of the tax net operating loss carryforward.

The following is a reconciliation of tax computed at the statutory Federal rate to the income tax expense in the statement of operations for the years ended December 31, 1995 and 1994:

19951994
Amount%Amount%
Tax (benefit) computed at statutory Federal rate($194,441)-34.00%($227,427)34.00%
Effect of unused operating loss$186,843 32.70%$272,301 33.30%
Non-deductible expenses$7,598 1.30%$5,645 0.70%
Other, net--($519)-
Income tax expense----

Last Update: 4/23/96

9. Capital Stock:

Initial Public Offering - On March 29, 1994, the Company completed its initial public offering of 1,200,000 shares of its common stock at $5.00 per share. On May 5, 1994, the Company sold an additional aggregate 180,000 shares of its common stock to satisfy the underwriter's over-allotment. The net proceeds, after expenses, from the offering (including the sale of the over-allotment shares) were approximately $5,650,000.

In connection with its initial public offering, the Company issued to its underwriter options to purchase 120,000 units (each unit including one share of Class A Common Stock, one Class A Warrant and one Class B War-rant) at an exercise price of $7.50 per unit. These unit purchase options are exercisable prior to March 29, 1999.

Stock Splits - On February 28, 1994, the Company's Board of Directors approved a six-for-five stock split with respect to the common stock. The earnings per share calculation and all share information contained in these financial statements have been retroactively adjusted to give effect to the stock split.

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 - In connection with the public offering, the Company issued Class A and Class B Warrants to purchase shares of Class A Common Stock. At December 31, 1995 and 1994, the following warrants were outstanding:

ClassNumber of SharesExercise PriceExpiration Date
A1,680,000$7.50 29-Mar-99
B1,380,000$10.50 29-Mar-99

Last Update: 4/23/96

Under certain conditions, the Class A and Class B warrants are redeemable by the Company at a redemption price of $.05 per share.

Escrowed Shares - In connection with the 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.

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 minion 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.

10. Stock Option Plan:

On December 27, 1993, the Company adopted a stock option plan that provides for the grant of incentive stock options and nonqualified stock options and reserved 150,000 shares of the Company's Class A Common Stock for future issuance under the plan. The option price must be at least 100% of market value at the date of the grant.

The following table summarizes activity of the stock option plan for the years ended December 31, 1995 and 1994:

Options Available for Future GrantNumber of Shares Under OptionOption Price Per Share
Balance, January 1, 1994$150,000 -$5.00
Options granted($81,840)$81,840 $5.00 - $6.25
Options exercised-($100)$5.00
Options cancelled$15,620 ($15,620)-
Balance, January 1, 1995$83,780 $66,120 $5.00 - $6.50
Options granted($54,971)$54,971 $5.00 - $7.38
Options exercised-($4,000)$5.00
Options cancelled$10,000 ($10,000)$5.00
Balance, December 31, 1995$38,809 $107,091

Last Update: 4/23/96

Options granted vest ratably over a three-year period or vest based on achievement of performance criteria. As of December 31, 1995, 43,957 and 17,966 options were vested and exercisable, respectively.

11. Major Customers/Export Sales:

Export sales for 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, and 11.3% of revenues to a Japanese distributor of the Company's products for the year ended December 31, 1994.

Consent of Independent Accountants

We consent to the incorporation by reference in the Registration Statement of Super Vision International, Inc. on Form SB-2 (File No. 33-74742) of our report dated February 16, 1996, on our audits of the financial statements of Super Vision International, Inc. as of December 31, 1995 and 1994 and for the years then ended, which report is included in this Annual Report on Form 10-KSB. We also consent to the reference to our Firm under the caption "Experts".

Orlando, Florida

March 26, 1996