SUPVA Super Vision International (MM)

Super Vision International, Inc. (NASDAQ:SUPVA) (Class A Common), a world leader in solid-state LED and fiber optic lighting systems and controls used in commercial, architectural, signage, swimming pool and retail lighting applications today announced financial results for the year ended December 31, 2006. The year ended December 31, 2006 was a transformational year for the Company. During 2006, new management began a process of change that ultimately brought about the restructuring and right-sizing of the Company, the termination of the Company�s long-term capital lease obligation, the resolution of all outstanding legal proceedings and, finally, in December 2006, the closing of a $9 million private placement of equity to strengthen the Company�s balance sheet and enable management to execute the Company�s new Nexxus Lighting strategy. Management believes that these long-term strategic actions have positioned the Company well for the future. However, although positive, the number and timing of these one-time events had a significant adverse financial impact on the Company in the 4th quarter of 2006, and had a material negative impact on the year over year variances between 2006 and 2005. Revenue from our commercial lighting division led the Company in 2006, with sales of light emitting diode (LED) products increasing 24% and overall sales in this division increasing 2% over 2005. The LED sales increase was partially offset by a 9% decline in the sale of fiber optic products in our commercial lighting division. Despite the positive trend in commercial lighting and exciting new product introductions, the impact of ongoing litigation prior to settlement, the decrease in international sales resulting from changes in distribution, and the impact of reduced purchases by pool distributors and builders as a result of the slow-down in the residential housing market resulted in an 8% decrease in sales from $12 million in 2005 to $11.0 million in 2006. Revenue from LED lighting systems and control products accounted for approximately 50% of our sales in 2006 as compared to approximately 49% in 2005. Sales of fiber optic lighting systems accounted for approximately 45% of the Company�s revenue in 2006 as compared to approximately 47% in 2005. The balance of our sales came from our Oasis� waterfall and water feature line of products. We believe that our LED product lines are still in their growth mode and offer significant revenue potential for both the commercial/architectural and pool and spa lighting markets. �We recently announced the upcoming change of our name to Nexxus Lighting, Inc. Our strategic vision is now focused on connecting advanced technology, including white light LED technology, with general lighting products and systems. With all that we accomplished in 2006 to restructure the Company, we feel that we have positioned the Company well to drive growth in the future,� stated Mike Bauer, President / CEO of Super Vision International. Fiber optic lighting sales decreased 11% in 2006, driven by an 18% decline in fiber optic sales in our international market. However, we are planning on introducing new LED light sources that drive light into fiber in 2007. These new products are expected to serve as a platform for several new applications involving fiber in advanced lighting systems. �During 2006, we also invested in new product tooling on a number of new Savi� products and we introduced six major new products. We believe these new product investments are essential to repositioning the Company to capitalize on the growth potential of the high brightness `white light' LED lighting systems market, and enabling the Company to emerge as one of the leaders in this market going forward,� continued Mr. Bauer. Gross margins in 2006 decreased to 36% from 41% in 2005. The $936,000 reduction in gross margin was mainly attributable to lower revenue in 2006 combined with increased variable cost of sales of approximately $42,000. Although revenue decreased 8%, cost of sales remained almost flat at approximately $7,064,000 in 2006 as compared to approximately $7,111,000 in 2005. The loss of revenue was attributable in part to pricing pressures in the international markets combined with pricing discounts in the commercial market in order to maintain a competitive advantage, which were not accompanied by reduced costs from suppliers. Increased fuel costs also contributed to the higher cost of sales, resulting in increased freight in costs and increased product costs for petroleum based products. �We anticipate an increase in gross margins from LED products as we gain traction in the higher gross margin commercial market with our Savi� line,� concluded Mr. Bauer. The Company posted an operating loss of approximately $2,135,000 for the year ended December 31, 2006 as compared to an operating loss of approximately $365,000 for the same period in 2005. The increased operating loss was due primarily to increased general and administrative expenses and a slight increase in selling expense. General and administrative (G&A) expenses increased $1,273,000 or 55% and selling expense increased $76,000 or 3% over selling, general and administrative expenses in the prior year. Increases in legal expenses of $715,000, consulting and professional fees of $331,000 and stock-based compensation expense of $222,300 contributed to the increase in G&A expenses. The increase in legal expenses was primarily due to the negotiated settlement or final resolution of pending litigation. As of today, the Company is no longer involved in any pending litigation. Sales and marketing expenses increased $75,600 to approximately $2,466,000 in 2006 as compared to $2,390,000 for the same period in 2005, primarily due to new marketing and sales materials created to support the introduction of the new Savi Pool and Spa Light, the new DLS-2 System and the new Pool Catalog in 2006. The net loss for the year ended December 31, 2006 was approximately $2,235,000, or $0.80 per basic and diluted common share, as compared to a net loss of approximately $488,500, or $0.19 per basic and diluted common share, for the year ended December 31, 2005. The increase in net loss was primarily due to lower revenues and gross margins and higher legal expenses related to the settlement or resolution of all outstanding litigation and stock-based compensation expenses as a result of the adoption of FAS 123(R) offset in part by the gain on termination of capital lease, net of impairment. For the year ended December 31, 2006, EBITDA was approximately ($1,307,000) compared to approximately $467,500 in 2005. The decrease was primarily due to an increase in net operating loss in 2006. The increase in net operating loss was primarily attributable to the $936,000 decrease in gross margin as a result of lower revenues and the increase in selling, general and administrative expenses of approximately $1,349,000 over prior year expenses primarily as a result of increased legal expenses, professional fees and stock-based compensation expense relating to the adoption of FAS 123(R). Despite the lower EBITDA in 2006 compared to 2005, management anticipates that positive trends in gross margins and continued focus on revenue growth and cost management will yield positive contributions to our EBITDA in 2007. On November 29, 2006, the Company entered into a lease termination agreement with Max King Realty, Inc. (�Max King Realty�), a company controlled by Brett M. Kingstone, the Company�s chairman of the board, to terminate the capital lease with Max King Realty for the Company�s existing facility. The lease had a fifteen-year term extending through June 15, 2012. Max King Realty was willing to accommodate the Company�s desire to terminate its obligations under the lease by terminating the lease, repaying the third party indebtedness secured by the premises and selling the premises to an unrelated third party. Upon executing the lease termination agreement, the balance of the capital lease obligation of $2,312,900, less the promissory note payable to Max King Realty of approximately $332,800 and the net book value of the related office/warehouse building of approximately $1,232,400 resulted in a gain on termination of capital lease of approximately $747,700. This gain was offset in part by an impairment loss of $241,300 for leasehold improvements made to the facility resulting in a net gain of $506,400 which is reflected in the accompanying statement of operations as gain on termination of capital lease, net of impairment. The Company has since relocated its Orlando operations to a new facility at 9400-200 Southridge Park Court, Orlando Florida. In addition, effective March 26, 2007, the Company redeemed all of the outstanding shares of Class B Common Stock in exchange for 604,080 shares of Class A Common Stock, or 1.25 shares of Class A Common Stock for each share of Class B Common Stock exchanged. The transaction was effected pursuant to an Exchange Agreement between the Company and the Kingstone Family Limited Partnership II (�KFLP�), an entity controlled by Brett M. Kingstone, the Company�s chairman of the board, dated March 26, 2007. Pursuant to the Exchange Agreement, KFLP exchanged 483,264 shares of the Company�s Class B Common Stock, constituting all of the issued and outstanding shares of the Company�s Class B Common Stock, for 604,080 shares of the Company�s Class A Common Stock (the �Exchange�). The Exchange eliminated the disparity in voting rights between the Class B Common Stock, which is entitled to five votes per share and the Class A Common Stock, which is entitled to one vote per share. As of December 31, 2006, the Company had cash and investments of approximately $7.5 million and a current ratio of 5.1 to 1. For more information, please visit the existing Super Vision International web site at www.svision.com. Our new web site, www.nexxuslighting.com, will be operational soon. Certain of the above statements contained in this press release are forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Reference is made to Super Vision's filings under the Securities Exchange Act for factors that could cause actual results to differ materially. Super Vision undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Readers are cautioned not to place undue reliance on these forward-looking statements. Financial Summary � SUPER VISION INTERNATIONAL, INC. BALANCE SHEETS December 31, 2006� 2005� ASSETS Current Assets: Cash and cash equivalents $ 531,181� $ 248,080� Restricted cash --� 82,943� Restricted investments 500,000� --� Investments 6,471,400� 943,127� Trade accounts receivable, less allowance for doubtful accounts of $121,535 and $98,688 1,231,277� 1,516,979� Inventories, less reserve of $274,128 and $221,286 3,463,367� 3,279,182� Prepaid expenses 261,852� 235,692� Other assets 21,751� 5,187� Total current assets 12,480,828� 6,311,190� Property and Equipment: Machinery and equipment 2,297,239� 2,079,491� Furniture and fixtures 420,374� 403,674� Computers and software 797,077� 739,812� Leasehold improvements 213,595� 1,141,047� Property held under capital lease --� 3,081,000� 3,728,285� 7,445,024� Accumulated depreciation and amortization (2,699,239) (4,737,067) Net property and equipment 1,029,046� 2,707,957� � Deposits on equipment --� 4,200� Patents and trademarks, less accumulated amortization of $122,747 and $100,075 213,131� 177,892� Other intangible assets, less accumulated amortization of $84,627 and $56,915 60,359� 62,151� Other assets 67,020� 60,418� $ 13,850,384� $ 9,323,808� LIABILITIES AND STOCKHOLDERS� EQUITY Current Liabilities: Accounts payable $ 1,155,162� $ 1,484,921� Related party payable 20,700� --� Accrued compensation and benefits 111,932� 261,652� Notes payable 1,157,846� --� Deposits 22,697� 23,143� Current portion of obligation under capital lease with related party --� 225,814� Total current liabilities 2,468,337� 1,995,530� � Obligation under capital lease with related party, less current portion --� 2,292,856� Total liabilities 2,468,337� 4,288,386� � Stockholders� Equity: Preferred stock, $.001 par value, 5,000,000 shares authorized, none issued --� --� Class A common stock, $.001 par value, 16,610,866 shares authorized, 6,097,476 and 2,061,299 issued and outstanding 6,098� 2,061� Class B common stock, $.001 par value, 3,389,134 shares authorized, 483,264 issued and outstanding. Each share of Class B common stock is entitled to five votes per share. 483� 483� Additional paid-in capital 19,142,231� 10,572,958� Accumulated deficit (7,766,765) (5,531,762) Accumulated other comprehensive loss, net of deferred income taxes --� (8,318) Total stockholders� equity 11,382,047� 5,035,422� $ 13,850,384� $ 9,323,808� SUPER VISION INTERNATIONAL, INC. STATEMENTS OF OPERATIONS � � Year Ended December 31 2006� 2005� � Revenues $ 11,001,011� $ 11,983,223� Cost of sales 7,064,461� 7,110,595� Gross margin 3,936,550� 4,872,628� � Operating expenses: Selling, general and administrative 6,040,523� 4,691,905� Research and development 538,298� 552,209� Gain on disposal of property and equipment (593) (6,000) Gain on termination of capital lease, net of impairment (506,367) --� Total operating expenses 6,071,861� 5,238,114� � Operating loss (2,135,311) (365,486) � Non-operating income (expense): Interest income 38,488� 55,540� Other income 221,622� 189,480� Loss on investments (3,482) --� Interest expense (356,320) (367,992) Total non-operating expense, net (99,692) (122,972) � Net loss $ (2,235,003) $ (488,458) � Basic and diluted loss per common share $ (0.80) $ (0.19) � Basic and diluted weighted average shares outstanding 2,810,187� 2,542,579�