Nexxus Lighting reports THIRD quarter 2009 results

FOR IMMEDIATE RELEASE

November 9, 2009
For more information: Gary R. Langford, Chief Financial Officer, Nexxus Lighting, Inc.
Phone: 704-405-0416 | Email: glangford@nexxuslighting.com

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CHARLOTTE, NC, November 9, 2009 – Nexxus Lighting, Inc. (NASDAQ Capital Market: NEXS) today reported results for its third quarter ending September 30, 2009.

• Operating loss of $1.3 million flat with 3rd Quarter 2008 on lower revenue.

• Sales of new Array™ Lighting LED replacement lamps more than doubled from 2nd Quarter 2009 levels; quadrupled from 1st Quarter 2009 levels

• Revenue increased more than 10% over 2nd Quarter 2009

• Gross Margins improve over prior year and 2nd Quarter 2009

• Company benefited from cost reduction initiatives

• Company announced that it will not host an Earnings Conference Call, citing its registration statement filed with the Securities and Exchange Commission relating to a proposed follow-on offering of its common stock

Third Quarter Results

Revenue

Total revenue for the three months ended September 30, 2009 was approximately $2,894,000 as compared to approximately $3,884,000 for the three months ended September 30, 2008, a decrease of approximately $990,000.  Year-over-year quarterly sales declined approximately 25% in the third quarter compared to a 32% drop in the second quarter. 

“Although we expect any recovery to be gradual and uneven, our legacy commercial and pool businesses appear to have stabilized,” said Mike Bauer, President and Chief Executive Officer.  “ Third quarter revenue increased over 10% from the second quarter driven in large part by our Array line of LED replacement lamps as they continue to gain traction in the marketplace.  I am excited by the progress that we have made with a number of large corporations, retailers and universities.”

Sales of our new Array LED lamps more than doubled from approximately $197,000 in the second quarter of 2009 to approximately $423,000 in the third quarter of 2009.  This amount almost equals sales of our legacy commercial products, which were approximately $478,000 in the third quarter of 2009, a 62% drop from approximately $1,269,000 for the same quarter in 2008.  Sales of Lumificient products in the third quarter of 2009 and 2008 were approximately $848,000 and $1,302,000, respectively. 

Overall, revenue from sales of commercial lighting products decreased by $862,000, or 33%, from approximately $2,613,000 in the third quarter of 2008 to approximately $1,751,000 in the third quarter of 2009. The decrease in sales of our legacy commercial and Lumificient products is primarily the result of significant decreases in commercial construction and new signage activity across the US.  This decrease was offset in part by sales of our new Array LED lamps.

Revenue from sales of pool and spa lighting products was approximately $1,143,000 in the third quarter of 2009, as compared to $1,270,000 for the same period of 2008, a decrease of $127,000, or 10%.  This decrease reflects the continuation of reduced demand in pool and OEM spa markets, along with decreased inventories held by our distributors in response to these market conditions.

Gross Profit

Gross profit for the quarter ended September 30, 2009 was approximately $837,000, or 29% of revenue, as compared to approximately $1,054,000, or 27% of revenue, for the comparable period of 2008.  Direct gross margin for the third quarter of 2009, which is revenue less material cost, increased slightly as improved margins across our company were offset by a shift in sales mix. 
Production costs decreased approximately $276,000 on significantly lower sales volume.  Excluding the impact of Lumificient, we reduced production costs by approximately $313,000 to more closely match sales activity. 

Operating Expenses 

Selling, general and administrative (SG&A) expenses were approximately $1,941,000 for the quarter ended September 30, 2009 as compared to approximately $2,090,000 for the same period in 2008, a decrease of approximately $149,000, or 7%. SG&A expenses decreased primarily due to the first quarter consolidation of the operations of our Advanced Lighting Systems subsidiary into our SV Lighting Division, resulting in the elimination of SG&A costs totaling $214,000 incurred in the third quarter of 2008.  This decrease in SG&A was offset by our investment in additional sales and marketing resources related to our new Array LED lamps. 

Research and development costs were approximately $170,000 during the three months ended September 30, 2009 as compared to approximately $219,000 during the same period in 2008.  This decrease of approximately $48,000, or 22%, was primarily due to lower employee costs and project-related costs in the third quarter of 2009 as compared to the same period of 2008. 

“The initiatives that we took to manage costs and rationalize production capacity in our legacy businesses, including consolidating the operations of our Advanced Lighting Systems subsidiary with other company operations, bolstered our results in an otherwise difficult environment,” noted Gary Langford, Chief Financial Officer.  “We will continue to review these operations for ways to fuel profitability.”

Net Loss

Net loss for the three months ended September 30, 2009 and 2008 was approximately $1,488,000 and $1,432,000, respectively.  After including the effects of the dividends related to the preferred stock and warrants issued in November 2008, net loss attributable to common stockholders was approximately $1,854,000 and $1,432,000 for the three months ended September 30, 2009 and 2008, respectively.  Basic and diluted loss per common share attributable to common stockholders was $0.22 and $0.18 for the three months ended September 30, 2009 and 2008, respectively.

Year to Date Results

Revenue

Total revenue for the nine months ended September 30, 2009 was approximately $8,536,000 as compared to approximately $10,733,000 for the nine months ended September 30, 2008, a decrease of approximately $2,197,000.  Revenue increased as a result of the April 30, 2008 acquisition of Lumificient, which serves the commercial and signage lighting markets.  Excluding revenue attributable to Lumificient from our consolidated results, revenue decreased approximately 34% to approximately $5,773,000 in the first nine months of 2009 compared to approximately $8,788,000 in the same period of 2008.

Sales of our new Array LED lamps grew to approximately $713,000 in the nine months ended September 30, 2009.  Revenue from sales of our legacy commercial lighting products decreased by $3,025,000, or 61%, from approximately $4,940,000 in the first nine months of 2008 to approximately $1,915,000 in the first nine months of 2009. This decrease reflects the steep drop in commercial construction activity across the US.  Sales of Lumificient products increased approximately $817,000, as compared to the nine months ended September 30, 2008, to $2,763,000 for the nine months ended September 30, 2009.  This increase represented the full year impact of the April 30, 2008 acquisition of Lumificient, offset by a drop in commercial construction and signage activity.  Overall, our commercial product sales decreased $1,544,000, or 22%, in the first nine months of 2009 as compared to the same period in 2008.

Revenue from sales of pool and spa lighting products was approximately $3,137,000 in the first nine months of 2009, as compared to $3,790,000 for the same period of 2008, a decrease of $653,000, or 17%.  This decrease reflects the continued significant year over year reductions in the pool and OEM spa markets tied to the steep drop in demand for luxury items related to the US recession.

Gross Profit

Gross profit for the nine months ended September 30, 2009 was approximately $2,542,000, or 30% of revenue, as compared to approximately $3,103,000, or 29% of revenue, for the comparable period of 2008.   Direct gross margin for the first nine months of 2009, which is revenue less material cost, decreased as improved margins across our company were offset by a shift in sales mix.  Production costs decreased approximately $668,000 on lower sales volume. 

Operating Expenses 

Selling, general and administrative (SG&A) expenses were approximately $6,342,000 for the nine months ended September 30, 2009 as compared to approximately $6,462,000 for the same period in 2008, a decrease of approximately $120,000, or 2%. Excluding the impact of Lumificient, which was acquired on April 30, 2008, our company reduced SG&A expenses by $642,000, including $558,000 of savings from consolidating the operations of our subsidiary, ALS, into other company operations in March 2009.

Research and development costs were approximately $409,000 during the nine months ended September 30, 2009 as compared to approximately $504,000 during the same period in 2008.  This decrease of approximately $95,000, or 19%, was primarily due to lower employee and project costs in 2009 as compared to the same period of 2008. 

Net Loss

Net loss for the nine months ended September 30, 2009 and 2008 was approximately $4,447,000 and $4,009,000, respectively.  After including the effects of the dividends related to the preferred stock and warrants issued in November 2008, net loss attributable to common stockholders was approximately $5,420,000 and $4,009,000 for the nine months ended September 30, 2009 and 2008, respectively.  Basic and diluted loss per common share attributable to common stockholders was $0.65 and $0.52 for the nine months ended September 30, 2009 and 2008, respectively.

About Nexxus Lighting, Inc. (www.nexxuslighting.com)
Nexxus Lighting is a leader in advanced lighting technology, including solid-state LED and fiber optic lighting systems and controls used in commercial, architectural, signage, swimming pool, entertainment and retail lighting.  Nexxus Lighting sells its products through its Commercial Lighting, Lumificient and Nexxus Lighting Pool & Spa divisions units under the Array™ Lighting, Savi®, eLum™, LiveLED™, Super Vision® and Lumificient™ brand names.

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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 Nexxus Lighting’s filings under the Securities Exchange Act for factors that could cause actual results to differ materially.  Nexxus Lighting 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. 

Nexxus Lighting, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended

September 30,

2009

2008

Cash Flows from Operating Activities:

   Net loss

$

(4,447,061)

$

(4,008,774)

   Adjustments to reconcile net loss to net cash used in operating activities:

            Depreciation

413,376

337,499

            Amortization of intangible and other assets

206,641

     42,894

            Amortization of debt discount and debt issuance costs

131,705

131,285

            Amortization of deferred rent

(38,610)

        (26,925)

            Increase in inventory reserve

136,109

163,534

            Stock-based compensation

293,380

297,253

            Changes in operating assets and liabilities:

                     (Increase) decrease in:

                        Trade accounts receivable, net

458,889

    (292,460)

                        Inventories

(1,173,463)

(108,151) 

                        Prepaid expenses

(50,417)

     (172,101)

                        Other assets

15,601

46,489

                      Increase (decrease) in:

                         Accounts payable

(351,308)

1,311,349

                         Accrued compensation and benefits

10,704

166,746

                         Customer deposits

(59,664)

(165,938)

                             Total adjustments

(7,057)

1,731,474

                             Net cash used in operating activities

(4,454,118)

(2,277,300)

Cash Flows from Investing Activities:

   Purchase of property and equipment

(228,726)

(570,178)

   Acquisition costs and earnouts of Lumificient Corporation, net of cash acquired

(115,285)

(2,512,674)

   Acquisition earnouts of Advanced Lighting Systems, LLC, net of cash acquired

(107,539)

(102,380)

   Trademark and patent development costs

(120,532)

(112,016)

   Proceeds from sale of investments

—

2,875,000

                           Net cash used in investing activities

(572,082)

(422,248)

Cash Flows from Financing Activities:

   Proceeds from exercise of employee stock options and warrants, net

857,081

1,922,453

   Proceeds from promissory notes

3,800,000

3,500,000

   Payments on promissory notes

(116,419)

(4,080)

   Deferred financing costs

(64,205)

(179,509)

   Fees related to follow-on equity offering

(65,865)

(153,553)

   Issuance cost of preferred stock and warrants

(25,735)

—

   Net payments on revolving line of credit

—

(1,443,000)

                           Net cash provided by financing activities

4,384,857

3,642,311

Net (Decrease) Increase in Cash and Cash Equivalents

(641,343)

942,763

Cash and Cash Equivalents, beginning of period

2,948,632

170,266

Cash and Cash Equivalents, end of period

$

2,307,289

$

1,113,029

Supplemental Cash Flow Information:

Cash paid for interest

$

—

$

46,182

Non-cash Investing and Financing Activities:

   Fair value of warrants recorded as a debt discount

$

570,325

$

597,188

   Issuance of common stock for acquisitions

$

297,242

$

2,392,813

   Accrual of dividends on preferred stock

$

534,652

$

—

   Issuance of common stock to related party for settlement of lease and severance      obligations

$

565,500

$

—

   Issuance of common stock to promissory notes placement agent

$

133,000

$

—