##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON D.C. 20549
 FORM 10-K/A
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 0-20354
 Lighting Science Group Corporation
  Delaware
(State or other jurisdiction of incorporation)
    
    23-2596710
(I.R.S. Employer Identification Number)120 Hancock LaneWestampton, NJ
    
    08060(Address of principal executive office)
    
    (Zip Code)
 Registrants telephone number, including area code: (214) 382-3630
 Securities registered pursuant to Section 12(b) of the Exchange Act: None
 Securities registered pursuant to Section 12(g) of the Exchange Act:
 Title of each Class:COMMON STOCK, PAR VALUE$0.001 PER SHARE
 
 o þ
 o þ
 þ o
 o
 o o
  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer o
(Do not check if a smaller
reporting company)
    
    Smaller reporting company
þ
 o þ




---



##### Table of Contents



EXPLANATORY NOTE




---



##### 



TABLE OF CONTENTS
 PagePART IItem 1 and 2. Business and Properties
    
    
    1Item 1A. Risk Factors
    
    
    4Item 2. Properties (see Item 1. Business and Properties)
    
    
    11Item 3. Legal Proceedings
    
    
    11Item 4. Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    12Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 8. Financial Statements and Supplementary Data
    
    
    20Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    20Item 9A. Controls and Procedures
    
    
    20Item 9B. Other Information
    
    
    21PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    21Item 11. Executive Compensation
    
    
    24Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    29Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    31Item 14. Principal Accountant Fees and Services
    
    
    32PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    32SIGNATURES
    
    
    33Certification of Chief Executive Officer Pursuant to Section 302Certification of Senior Vice President, Strategy and Finance Pursuant to
Section 302Certification Pursuant to 18 U.S.C. Section 1350EX-24.1EX-31.1EX-31.2EX-32.1




---



##### Table of Contents



PART I
 
 Items 1 and 2. Business and Properties.
         1




---



##### Table of Contents



Recent Developments
  Target Markets
   Gaming
 Architainment
 Commercial & Industrial
 Retail
 Public Infrastructure
 Sales and Distribution Strategy
  2




---



##### Table of Contents



OEM Partnerships
  Direct Sales Efforts in Emerging Markets
  Competition
   Properties
  3




---



##### Table of Contents



Item 1A. Risk Factors.
 Risks Related to Our Business
 Because we have a limited amount of revenues and a history of losses, we may be unable to
continue operations unless we can generate sufficient operating income by completing the
development of, and the successful marketing of, our products.
  It is difficult to evaluate the likelihood that we will achieve or maintain profitability in
the future.
  If we are unable to obtain outside sufficient capital when needed, our business and future
prospects will or could be adversely affected and we could be forced to suspend or discontinue
operations.
   If we are unable to integrate the assets of LED Holdings into our operations, our business and
future prospects will or could be adversely affected.
  4




---



##### Table of Contents




    
    consolidating research and development operations, where appropriate;
    
    coordinating sales, distribution and marketing functions;
    
    preserving the important research and development, manufacturing and supply,
distribution, marketing, customer and other relationships of LED Holdings;
    
    minimizing the diversion of managements attention from ongoing business concerns;
and
    
    coordinating geographically separate organizations.
  If our Optimized Digital Lighting technology does not achieve market acceptance, prospects for
our growth and profitability may be limited.
   Because we rely upon Govi Rao, Ken Honeycutt, Kevin Furry, Frederic S. Maxik and other key
personnel, a loss of any key personnel could prevent or significantly delay the achievement of our
goals.
  5




---



##### Table of Contents



If critical components and raw materials that we utilize in our products become unavailable,
we may incur delays in shipment that could damage our business.
    If the companies to which we outsource the manufacture of our products fail to meet our
requirements for quality, quantity and timeliness, our revenues and reputation in the marketplace
could be harmed.
   
    
    lack of direct control over production capacity and delivery schedules;
    
    lack of direct control over quality assurance, manufacturing yields and production
costs; and
    
    risk of loss of inventory while in transit.
  If we are unable to increase production capacity for our products in a timely manner, we may
incur delays in shipment and our revenues and reputation in the marketplace could be harmed.
  
    
    identification and availability of appropriate and affordable contract
manufacturers;
 6




---



##### Table of Contents




    
    ability of our current contract manufacturers to allocate more existing capacity to
us or their ability to add new capacity quickly;
    
    availability of critical components used in the manufacture of our products;
    
    establishment of adequate management information systems, financial controls and
supply chain management and quality control procedures; and
    
    ability of our future contract manufacturers to implement our manufacturing
processes.
  If we are not able to compete effectively against larger lighting manufacturers with greater
resources, our prospects for future success will be jeopardized.
     If we are unable to manage any future growth effectively, our profitability and liquidity
could be adversely affected.
  We are subject to legal, political and economic risks abroad.
  7




---



##### Table of Contents




    
    intellectual property protection risks;
    
    foreign currency risks;
    
    dependence on foreign manufacturers, shippers and distributors;
    
    compliance with multiple, conflicting and changing governmental laws and
regulations; and
    
    import and export restrictions and tariffs.
  Our products could contain defects that could reduce sales or result in claims against us.
  We are currently subject to litigation with Philips Solid State Lighting Solutions, Inc., the
unfavorable outcome of which might have a material adverse effect on our financial condition,
results of operations and cash flows.
  Risks Related to Intellectual Property
 If we are unable to respond effectively as new lighting technologies and market trends emerge,
our competitive position and our ability to generate revenues and profits may be harmed.
  8




---



##### Table of Contents



If we are unable to obtain and protect our intellectual property rights, our ability to
commercialize our products could be substantially limited.
 .
   Risks Related to Our Common Stock
 Because our stock price is volatile, it can be difficult for stockholders to predict the value
of our shares at any given time.
  
    
    changes in expectations as to our future financial performance;
    
    announcements of technological innovations or new products by us or our competitors;
    
    announcements by us or our competitors of significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments;
    
    changes in laws and government regulations;
    
    developments concerning our proprietary rights;
    
    public perception relating to the commercial value or reliability of any of our
lighting products;
    
    future sales of our common stock or issues of other equity securities convertible
into or exercisable for the purchase of common stock; and
    
    general stock market conditions.
 Trading in our common stock is sporadic and an established trading market may not be developed
or sustained.
  9




---



##### Table of Contents



Our common stock is considered a penny stock and may be difficult to sell.
  Because we have never paid dividends on our common stock and have no plans to do so, the only
return on your investment will come from any increase in the value of the common stock.
  One stockholder owns a significant portion of our outstanding capital stock and is able to
influence our actions.
  Because there is a potential for significant future dilution of our existing stockholders,
their percentage ownership and control over company matters could be reduced.
  Anti-takeover provisions in our charter documents and under Delaware law could prevent or
delay a change in control of our company.
  10




---



##### Table of Contents



ITEM 2. Properties (see Items 1 and 2. Business and Properties).
 
 ITEM 3. Legal Proceedings.
 Philips Solid-State Lighting Solutions, Inc. v. Lighting
Science Group Corporation, et al.
 :
 
    
    Since 1994, LED Effects has been developing and selling custom-designed,
pulse-with-modulation (PWM) controlled, color-changing LED fixtures and components. As
successor to the assets of LED Effects, we believe we are (and LED Effects has been since
its inception) considered a leader in this fixture and component space, and we continue to
develop and sell cutting-edge LED-based products today.
    
    Prior to Phillips acquisition of CK, a Philips affiliate conducted extensive due
diligence relating to the intellectual property of LED Effects. The Philips affiliate
subsequently (i) proposed and consummated a joint development agreement with LED Effects
and (ii) proposed a minority investment in LED Effects.
    
    The Philips affiliate previously contracted with LED Effects to develop and manufacture
products in accordance with the Philips affiliates specifications and using LED Effects
proprietary technology. The Philips affiliate then used such products to compete
successfully against CK before CK was subsequently acquired by Philips.
    
    Since the CK acquisition, Philips has continued to purchase and distribute linear
products employing the technology of LED Effects, as indicated on Philips web site.
(www.nam.lighting.philips.com/us/luminaires/products.php).
  Lighting Science Group Corp. et al. v. Koninklijke Philips Electronics N.V., et
al.
 11




---



##### Table of Contents



ITEM 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 ITEM 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
   Common Stock
    
    HIGH
    
    LOW2007Fourth Quarter
    
    $
    10.60
    
    
    
    4.40Third Quarter
    
    
    11.40
    
    
    
    6.60Second Quarter
    
    
    10.40
    
    
    
    5.00First Quarter
    
    
    8.40
    
    
    
    5.802006Fourth Quarter
    
    $
    9.00
    
    
    
    3.40Third Quarter
    
    
    6.40
    
    
    
    3.00Second Quarter
    
    
    9.60
    
    
    
    4.40First Quarter
    
    
    13.00
    
    
    
    5.80
   12




---



##### Table of Contents



Number of SecuritiesNumber of Securities to be
    
    Weighted-Average
    
    Remaining AvailableIssued Upon Exercise of
    
    Exercise Price of
    
    for Future IssuanceOutstanding Options,
    
    Outstanding Options,
    
    Under EquityPlan
    
    Warrants and Rights
    
    Warrants and Rights
    
    Compensation PlansLighting Science
Group Corporation
2005 Equity Based
Incentive
Compensation Plan
(approved by
security holders)
    
    
    267,667
    
    
    $
    7.60
    
    
    
    232,333
  
    
    On November 13, 2007, we issued 4,167 shares of common stock in a private placement
to a holder of 6% Convertible Preferred Stock upon conversion of 7,813 shares of 6%
Convertible Preferred Stock.
    
    On November 14, 2007, we issued 153,334 shares of common stock in a private
placement to a holder of 6% Convertible Preferred Stock upon conversion of 287,500
shares of 6% Convertible Preferred Stock.
  
    
    On February 11, 2008, we issued 5,438 shares of common stock, in the aggregate, to
four directors in a private placement as compensation for serving as a director during
the third quarter of 2007.
    
    On February 11, 2008, we issued 2,143 shares of common stock to an employee in a
private placement pursuant to such employees employment agreement.
    
    On February 11, 2008, we issued 93,750 shares of common stock in a private placement
to two warrant holders pursuant to the exercise of warrants.
    
    On March 12, 2008, we issued 10,000 shares of common stock in a private placement to
a holder of 6% Convertible Preferred Stock upon conversion of 18,750 shares of 6%
Convertible Preferred Stock.
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS
 This Annual Report contains certain forward-looking statements regarding managements plans
and objectives for future operations including plans and objectives relating to our marketing
efforts and future economic performance. Any statement in this Annual Report and in the documents
incorporated by reference into this Annual
 13




---



##### Table of Contents



Report that is not a statement of an historical fact constitutes a forward-looking
statement. Further, when we use the words may, expect, anticipate, plan, believe,
seek, estimate, intend, and similar words, we intend to identify statements and expressions
that may be forward-looking statements. We believe it is important to communicate certain of our
expectations to our investors. The forward-looking statements and associated risks set forth in
this Annual Report include or relate to, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our ability
to obtain and retain sufficient capital for future operations, (e) our anticipated needs for
working capital, and (f) the outcome of any litigation against us. These statements may be found
under  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS  and  DESCRIPTION OF BUSINESS , as well as in this Annual Report generally.
Actual events or results may differ materially from those discussed in forward-looking statements
as a result of various factors, including, without limitation, the risks outlined under  RISK
FACTORS  and matters described in this Annual Report generally.
 Overview
       14




---



##### Table of Contents




    
    Kevin Furry  Chief Technology Officer
    
    Fred Maxik  Chief Scientific Officer
    
    Stephen Hamilton  Vice President  Finance
    
    Zach Gibler  Chief Business Development Officer
    
    Lynn Vera  Chief Human Resources Officer
    
    Paul Kallmes  IP Strategist
 Results of Operations
 Period from June 14, 2007 through December 31, 2007 Compared to the Results of Operations of LED
Effects, Inc. for the Period from January 1, 2007 through June 13, 2007 and Together Compared to
the Results of Operations of LED Effects, Inc. for the Year Ended December 31, 2006
 Revenues
  Cost of Goods Sold
  Selling, General and Administrative Expenses
  December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007
    
    Year endedDecember 31, 2007)
    
    through June 13, 2007)
    
    December 31, 2006SG&A expenses
    
    $
    2,438,000
    
    
    $
    227,000
    
    
    $
    517,000
  15




---



##### Table of Contents



Compensation and Related Expenses
  December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007
    
    Year endedDecember 31, 2007)
    
    through June 13, 2007)
    
    December 31, 2006Compensation and
related expenses
    
    $
    2,418,000
    
    
    $
    221,000
    
    
    $
    429,000Compensation and related expenses incurred by the Company in the December 2007 Stub Period
increased by approximately $2,197,000 compared to the amounts incurred in the June 2007 Stub Period
primarily as a result of the increase in staff costs resulting from the Acquisition. Specifically,
following the Acquisition, we increased the size of our management team, our sales and marketing
group and our research and development group. Compensation and related expenses for the year ended
December 31, 2007 increased significantly from the amounts incurred by LED Effects for the year
ended December 31, 2006 primarily because of an increase in the size of the management team, sales
and marketing groups and our research and development group.Professional FeesSummarized in the table below are professional fees comparing the December 2007 Stub Period,
the June 2007 Stub Period and the year ended December 31, 2006:December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007 through
    
    Year endedDecember 31, 2007)
    
    June 13, 2007)
    
    December 31, 2006Professional fees
    
    $
    1,291,000
    
    
    $
    118,000
    
    
    $
    52,000Professional fees incurred by the Company in the December 2007 Stub Period increased by
approximately $1,173,000 from the amount incurred during the June 2007 Stub Period. The principal
reason for this increase was that we incurred legal fees in conjunction with the filing and
issuance of patents as well as expenses for contract accounting and audit services related to the
integration of the business processes of LED Holdings and Lighting Science Group. We also had an
increase in consulting costs relating to marketing, supply chain development and information
technology outsourcing. These costs were incurred in an effort to accelerate the roll out of our
new products and enhance our capacity to manage increased customer activity. The total
professional fees incurred for the year ended December 31, 2007 increased from the amounts that
were incurred by LED Effects for the year ended December 31, 2006 mainly due to higher legal costs
in conjunction with the filing and issuance of patents as well as expenses for contract accounting
and audit services related to the integration of the business processes of LED Holdings and
Lighting Science Group.Directors FeesSummarized in the table below are directors fees comparing the December 2007 Stub Period, the
June 2007 Stub Period and the year ended December 31, 2006:December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007 through
    
    Year endedDecember 31, 2007)
    
    June 13, 2007)
    
    December 31, 2006Directors fees
    
    $
    88,000
    
    
    $
    
    
    
    $
    
  16




---



##### Table of Contents



Depreciation and Amortization Expenses
  December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007
    
    Year endedDecember 31, 2007)
    
    through June 13, 2007)
    
    December 31, 2006Depreciation and
amortization
expense
    
    $
    670,000
    
    
    $
    7,000
    
    
    $
    26,000The increase in the Companys depreciation and amortization expense for the December 2007 Stub
Period over the amounts incurred during the June 2007 Stub Period and for the year ended December
31, 2006, is mainly due to the increase in amortization of the intangible assets acquired pursuant
to the asset acquisition between LED Effects and LED Holdings in June 2007 and the Acquisition in
October 2007.Interest Income (Net)Summarized in the table below is interest income, net of interest expense, comparing the
December 2007 Stub Period, the June 2007 Stub Period and the year ended December 31, 2006:December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007
    
    Year endedDecember 31, 2007)
    
    through June 13, 2007)
    
    December 31, 2006Interest income, net
    
    $
    172,000
    
    
    $
    1,000
    
    
    $
    Interest income, net of interest expense, realized by the Company in the December 2007 Stub
Period increased over the amount realized in the June 2007 Stub Period and the year ended December
31, 2006 because of increased total average cash balances held by the Company during the December
2007 Stub Period. The higher cash balances were primarily a result of certain private placements
completed in June 2007 and September 2007.Other Income (Net)Summarized in the table below is other income, net of other expenses, comparing the December
2007 Stub Period, the June 2007 Stub Period and the year ended December 31, 2006:December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007
    
    Year endedDecember 31, 2007)
    
    through June 13, 2007)
    
    December 31, 2006Other income, net
    
    $
    330,000
    
    
    $
    (35,000
    )
    
    $
    (1,000
    )
  Provision for income tax expense
  17




---



##### Table of Contents



December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007
    
    Year endedDecember 31, 2007)
    
    through June 13, 2007)
    
    December 31, 2006Provisions for
income tax expense
    
    
    $
    
    
    $
    172,000
    
    
    $
    667,000For the December 2007 Stub Period, the Company realized a significant loss for tax purposes.
The Company did not record any benefit related to these tax losses because of the level of
accumulated tax losses that are being carried forward by Lighting Science Group. The provision for
income taxes recorded by LED Effects for the June 2007 Stub Period was significantly less than the
provision for income taxes that it recorded for the year ended December 31, 2006 because the total
income before provision for income taxes was higher for the year ended December 31, 2006.Dividends and Accretion (Reversal of Accretion) of Preferred Stock Redemption ValueSummarized in the table below are dividends on 6% Convertible Preferred Stock and accretion
(reversal of accretion) of preferred stock redemption value comparing the December 2007 Stub
Period, the June 2007 Stub Period and the year ended December 31, 2006:December 2007 Stub Period
    
    June 2007 Stub Period(June 14, 2007 through
    
    (January 1, 2007
    
    Year endedDecember 31, 2007)
    
    through June 13, 2007)
    
    December 31, 2006Dividends on 6% Convertible Preferred 
Stock and reversal of accretion of 
preferred stock redemption value
    
    $
    (414,000
    )
    
    
    $
    
    
    
    $
  Liquidity and Capital Resources
   18




---



##### Table of Contents



19




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Managements Annual Report on Internal Control over Financial Reporting
  Internal ControlIntegrated Framework
   20




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
    Name
    
    Age
    
    PositionGovi Rao
    
    
    45
    
    
    Chief Executive Officer and ChairmanKenneth Honeycutt
    
    
    56
    
    
    President and Chief Operating OfficerStephen Hamilton
    
    
    43
    
    
    Vice President  FinanceKevin Furry
    
    
    43
    
    
    Chief Technology OfficerFrederic S. Maxik
    
    
    46
    
    
    Chief Scientific OfficerRobert E. Bachman
    
    
    65
    
    
    DirectorDavid Bell
    
    
    64
    
    
    DirectorDonald R. Harkleroad
    
    
    62
    
    
    DirectorRichard Kelson
    
    
    61
    
    
    DirectorBonnie Reiss
    
    
    52
    
    
    DirectorDaryl N. Snadon
    
    
    61
    
    
    DirectorRichard Weinberg
    
    
    48
    
    
    Director
 Govi Rao, 45
 Kenneth Honeycutt, 56
 21




---



##### Table of Contents



Stephen Hamilton, 43
 Kevin Furry, 43
 Fredric S. Maxik, 46
 Robert E. Bachman, 65
 David Bell, 64
 Donald R. Harkleroad, 62
 Richard Kelson, 61
 22




---



##### Table of Contents



Bonnie Reiss, 52
 Daryl N. Snadon, 61
 Richard Weinberg, 48
 Members of Audit Committee and Audit Committee Financial Expert
  
  23




---



##### Table of Contents



Code of Ethics
  
 Section 16(a) Beneficial Ownership Reporting Compliance
   
 Item 11. Executive Compensation.
  24




---



##### Table of Contents



Summary Compensation Table
 Change in Pension Valueand NonqualifiedName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    Option
    
    Non-Equity
    
    Deferred Compensation
    
    All OtherPrincipal
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Incentive Plan
    
    Earnings
    
    CompensationPosition
    
    Year
    
    ($)
    
    ($)
    
    ($) (1)
    
    ($) (1)
    
    Compensation
    
    ($)
    
    ($) (2)
    
    Total ($)Ronald E. Lusk
    
    
    2007
    
    
    $
    294,647
    
    
    $
    300,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    51,900
    (4)
    
    $
    646,547(Chairman, President and 
Chief Executive Officer) (3)
    
    
    2006
    
    
    $
    250,000
    
    
    
    
    
    
    
    
    
    
    $
    41,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    291,133Govi Rao
    
    
    2007
    
    
    $
    109,193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    109,193(Chairman and Chief 
Executive Officer) (5)
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ken Honeycutt
    
    
    2007
    
    
    $
    154,304
    
    
    
    
    
    
    $
    662,500
    (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    816,804(President and Chief 
Operating Officer) (6)
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Frederic Maxik
    
    
    2007
    
    
    $
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    250,000(Chief Scientific
Officer)
    
    
    2006
    
    
    $
    250,000
    
    
    
    
    
    
    
    
    
    
    $
    1,660
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    251,660
 
 (1)
    
    Reflects dollar amount expensed by us during the applicable fiscal year for financial statement
reporting purposes pursuant to FAS 123R. FAS 123R requires us to determine the overall value of the
options as of the date of grant based upon the Black-Scholes method of valuation, and to then
expense that value over the service period over which the options become exercisable (vest). As a
general rule, for time-in-service-based options, we will immediately expense any option or portion
thereof which is vested upon grant, while expensing the balance on a pro rata basis over the
remaining vesting term of the option. For a description FAS 123R and the assumptions used in
determining the value of the options under the Black-Scholes model of valuation, see the notes to
the financial statements included with this Form 10-K.(2)
    
    Includes all other compensation not reported in the preceding columns, including (i)
perquisites and other personal benefits, or property, unless the aggregate amount of such
compensation is less than $10,000; (ii) any gross-ups or other amounts reimbursed during the
fiscal year for the payment of taxes; (iii) discounts from market price with respect to securities
purchased from the company except to the extent available generally to all security holders or to
all salaried employees; (iv) any amounts paid or accrued in connection with any termination
(including without limitation through retirement, resignation, severance or constructive
termination, including change of responsibilities) or change in control; (v) contributions to
vested and unvested defined contribution plans; (vi) any insurance premiums paid by, or on behalf
of, the company relating to life insurance for the benefit of the named executive officer; and
(vii) any dividends or other earnings paid on stock or option awards that are not factored into the
grant date fair value required to be reported in a preceding column.(3)
    
    Mr. Lusk was paid $195,833 as salary for serving as our Chairman and Chief Executive Officer
from January 1, 2007 through October 3, 2007. Mr. Lusk was paid $98,814 as salary for serving as
our Vice Chairman from October 4, 2007 to December 31, 2007. Mr. Lusk resigned on March 10, 2008.(4)
    
    Includes $51,900 that was indirectly paid to Mr. Lusk for the business use of a private
airplane.(5)
    
    Mr. Rao joined us as our Chairman and Chief Executive Officer on October 4, 2007.(6)
    
    Mr. Honeycutt became our President and Chief Operating Officer on June 5, 2007.(7)
    
    Includes 62,500 shares of restricted stock awarded to Mr. Honeycutt pursuant to his employment
agreement that vested during the year. The total restricted stock award for Mr. Honeycutt was
250,000 shares of common stock. The restricted stock award vests 25% on each of the grant date and
each of the three anniversaries thereafter. Employment Agreements
 Govi Rao
  25




---



##### Table of Contents



Ronald E. Lusk
  Kevin Furry
  Frederic S. Maxik
  26




---



##### Table of Contents



Kenneth H. Honeycutt
  Outstanding Equity Awards At Fiscal Year-End
  Option Awards
    
    Stock AwardsEquity Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity Incentive
    
    Equity IncentivePlan Awards:Plan Awards:
    
    
    
    
    
    
    
    
    
    Number
    
    Market Value
    
    Plan Awards:
    
    Market orNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    of Shares
    
    of Shares
    
    Number of
    
    Payout Value ofSecurities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    or Units
    
    or Units
    
    Unearned
    
    UnearnedUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    of Stock
    
    of Stock
    
    Shares, Units or
    
    Shares, Units orUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    
    
    
    
    That
    
    That
    
    Other Rights That
    
    Other RightsOptions
    
    Options
    
    Unearned
    
    Exercise
    
    Option
    
    Have Not
    
    Have Not
    
    Have Not
    
    That Have Not(#)
    
    (#)
    
    Options
    
    Price
    
    Expiration
    
    Vested
    
    Vested
    
    Vested
    
    VestedName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    Date
    
    (#)
    
    ($)
    
    (#)
    
    ($)Ronald E. Lusk
    
    
    6,667
    (2)
    
    
    3,334
    (3)
    
    
    
    
    
    $
    6.40
    
    
    
    2/21/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Chairman and Chief
Executive Officer) (1)Govi Rao
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Chairman and Chief
Executive Officer) (4)Ken Honeycutt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,500
    (6)
    
    $
    1,612,500
    (7)
    
    
    
    
    
    
    (President) (5)Frederic Maxik
    
    
    334
    (8)
    
    
    167
    (9)
    
    
    
    
    
    $
    6.40
    
    
    
    2/21/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Chief Technology
Officer)
 27




---



##### Table of Contents



(1)
    
    Mr. Lusk served as our Chairman and Chief Executive Officer from January 1, 2007 through October 3, 2007. Thereafter, he served
as our Vice Chairman. Mr. Lusk resigned on March 10, 2008.(2)
    
    These options were granted on February 21, 2006. 3,334 of these options were fully exercisable (vested) upon grant and 3,333
became fully exercisable (vested) on February 21, 2007.(3)
    
    These options were granted on February 21, 2006. These options will become exercisable (vested) on February 21, 2008, assuming
continued provision of services as an officer or director.(4)
    
    Mr. Rao became Chairman and Chief Executive Officer on October 4, 2007.(5)
    
    Mr. Honeycutt became our President and Chief Operating Officer on June 5, 2007.(6)
    
    Mr. Honeycutt was awarded 250,000 shares of restricted stock on August 5, 2007, pursuant to his employment agreement. 62,500
shares vested on August 5, 2007. 62,500 shares, 62,500 shares and 62,500 shares vest on August 5, 2008, August 5, 2009 and August
5, 2010, respectively.(7)
    
    Assumes a market value of $8.60 per share of common stock, as reported by the over the counter bulletin board on December 31,
2007.(8)
    
    These options were granted on February 21, 2006. 167 of these options were fully exercisable (vested) upon grant and 167 became
fully exercisable (vested) on February 21, 2007.(9)
    
    These options were granted on February 21, 2006. These options will become exercisable (vested) on February 21, 2008, assuming
continued provision of services as an officer. Director Compensation
  Change in PensionValue andNon-Equity
    
    NonqualifiedFees Earned or
    
    
    
    
    
    
    
    
    
    Incentive Plan
    
    Deferred
    
    All OtherPaid in Cash
    
    Stock Awards
    
    Option Awards
    
    Compensation
    
    Compensation
    
    Compensation
    
    TotalName
    
    ($) (1)
    
    ($)
    
    ($) (2)
    
    ($)
    
    Earnings
    
    ($)
    
    ($)Robert E. Bachman (3)
    
    $
    47,500
    
    
    
    
    
    
    $
    49,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    97,125John Collingwood (4)
    
    $
    37,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,500Donald Harkleroad (5)
    
    $
    47,500
    
    
    
    
    
    
    $
    49,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    97,125Ronald E. Lusk (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Daryl Snadon (7)
    
    $
    37,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,500Robert Woodson III (8)
    
    $
    9,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    58,302Robert H. Warshauer (9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Govi Rao (10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Richard Kelson (11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David Bell (11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Richard Weinberg (11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bonnie Reiss (11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 28




---



##### Table of Contents



(1)
    
    No fees have been shown as earned or paid in cash for the fourth quarter of 2007. We anticipate
that we will finalize the compensation arrangements for the current members of the board of directors
in the second quarter of 2008.(2)
    
    Reflects dollar amount expensed by us during the applicable fiscal year for financial statement
reporting purposes pursuant to FAS 123R. FAS 123R requires us to determine the overall value of the
options as of the date of grant based upon the Black-Scholes method of valuation, and to then expense
that value over the service period over which the options become exercisable (vest). As a general
rule, for time-in-service-based options, we will immediately expense any option or portion thereof
which is vested upon grant, while expensing the balance on a pro rata basis over the remaining
vesting term of the option. For a description FAS 123R and the assumptions used in determining the
value of the options under the Black-Scholes model of valuation, see the notes to the financial
statements included with this Form 10-K.(3)
    
    As of December 31, 2007, Mr. Bachman held options to purchase 51,250 shares of our common stock.(4)
    
    As of December 31, 2007, Mr. Collingwood held options to purchase 3,500 shares of our common
stock. Mr. Woodson resigned from the board of directors in March 2007.(5)
    
    As of December 31, 2007, Mr. Harkleroad held options to purchase 56,250 shares of our common
stock.(6)
    
    Pursuant to Mr. Lusks employment agreement, he was paid an annual salary of $400,000 for service
as our Vice-Chairman. The salary paid to Mr. Lusk in his capacity as Vice Chairman during 2007 was
included in the Summary Compensation Table. Mr. Lusk served as our Chairman and Chief Executive
Officer from January 1, 2007 through October 3, 2007. Thereafter, he served as our Vice Chairman.
Mr. Lusk resigned on March 10, 2008.(7)
    
    As of December 31, 2007, Mr. Snadon held options to purchase 3,500 shares of our common stock.(8)
    
    As of December 31, 2007, Mr. Woodson, III held options to purchase 3,500 shares of our common
stock. Mr. Woodson resigned from the board of directors in March 2007.(9)
    
    Mr. Warshauer resigned as our President and a director in March 2007.(10)
    
    Mr. Rao joined us as our Chairman and Chief Executive Officer on October 4, 2007. As an
executive officer of the Company, Mr. Rao does not receive any additional compensation as a member of
the board of directors.(11)
    
    Joined the board of directors in October 2007.    
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  Shares BeneficiallyOwned(1)Name and Address of Beneficial Owner
    
    Number
    
    PercentDirectors and OfficersRobert E. Bachman (2)
    
    
    131,205
    
    
    
    *
    %David Bell
    
    
    
    
    
    
    
    %Kevin Furry
    
    
    
    
    
    
    
    %Stephen Hamilton (3)
    
    
    19,285
    
    
    
    *
    %Donald R. Harkleroad (4)
    
    
    124,154
    
    
    
    *
    %Kenneth Honeycutt (5)
    
    
    250,000
    
    
    
    1.1
    %
 29




---



##### Table of Contents



Shares BeneficiallyOwned(1)Name and Address of Beneficial Owner
    
    Number
    
    PercentRichard Kelson
    
    
    
    
    
    
    
    %Ron E. Lusk (6)
    
    
    270,513
    
    
    
    1.2
    %Fredric S. Maxik (7)
    
    
    3,613
    
    
    
    *
    %Govi Rao
    
    
    
    
    
    
    
    %Bonnie Reiss
    
    
    
    
    
    
    
    %Daryl N. Snadon (8)
    
    
    146,807
    
    
    
    
    %Richard Weinberg
    
    
    
    
    
    
    
    %Directors and Executive Officers as a Group (12 persons)
    
    
    675,063
    
    
    
    3.0
    %Certain PersonsLED Holdings, LLC (8)
    
    
    18,583,523
    
    
    
    75.2
    %
 
 *
    
    Less than 1%.(1)
    
    Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended. The persons and entities named in the table
have sole voting and investment power with respect to all shares shown
as beneficially owned by them, except as noted below.(2)
    
    Includes 5,554 shares of common stock issuable to USGT Investors, L.P.
pursuant to the conversion of 6% Convertible Preferred Stock, 22,187
shares of common stock issuable to USGT Investors, L.P. upon the
exercise of warrants, and 51,250 shares of common stock issuable to
USGT Investors, L.P. pursuant to the exercise of stock options issued
under the 2005 Plan. Mr. Bachman is controlling shareholder in the
sole corporate general partner of USGT Investors, L.P. and may be
deemed to have voting and/or investment power with respect to the
shares owned by USGT Investors, L.P.(3)
    
    Includes 19,000 shares of common stock issuable upon the exercise of
incentive stock options issued under the 2005 Plan.(4)
    
    Includes 8,334 shares of common stock issuable to The Bristol Company
pursuant to the conversion of 6% Convertible Preferred Stock, 2,344
shares of common stock issuable to The Bristol Company upon exercise
of warrants, and 56,250 shares of common stock issuable to The Bristol
Company upon exercise of stock options issued under the 2005 Plan.
Mr. Harkleroad is sole shareholder of The Bristol Company and may be
deemed to have sole voting and/or investment power with respect to the
shares owned by The Bristol Company.(5)
    
    Includes 250,000 shares of common stock issuable pursuant to Mr.
Honeycutts restricted stock award agreement.(6)
    
    Includes 22,500 shares of common stock issuable upon exercise of
warrants and 10,000 shares of common stock issuable upon the exercise
of stock options issued under the 2005 Plan. Includes shares of
common stock held by the Ronald E. Lusk Revocable Trust. Mr. Lusk is
the trustee of the Ronald E. Lusk Revocable Trust and may be deemed to
have voting and/or investment power with respect to the shares owned
by the Ronald E. Lusk Revocable Trust. Mr. Lusk served as our
Chairman and Chief Executive Officer from January 1, 2007 through
October 3, 2007. Thereafter, he served as our Vice Chairman. Mr.
Lusk resigned on March 10, 2008.(7)
    
    Includes 500 shares of common stock issuable upon the exercise of
incentive stock options issued under the 2005 Plan.(8)
    
    Includes 15,594 shares of common stock issuable upon conversion of 6%
Convertible Preferred Stock, 31,886 shares of common stock issuable
upon the exercise of warrants and 3,500 shares of common stock
issuable upon exercise of incentive stock options issued under the
2005 Plan.(9)
    
    Includes 2,654,789 shares of common stock issuable upon conversion of
2,000,000 shares of Series B Preferred Stock. PP IV (AIV) LED, LLC
(PPAIV), PP IV LED, LLC (PPLED), Richard Kelson (Mr. Kelson) and
LED Effects, Inc. (LED, together with PPAIV, PPLED, and Mr. Kelson,
the LED Holdings Members) are members of LED Holdings. PPAIV and
PPLED are funds managed by Pegasus Capital Partners, L.P. The LED
Holdings Members do not directly own any of the common stock or Series
B Preferred Stock of the Lighting Science Group Corporation. The LED
Holdings Members share voting and dispositive power over the shares of
common stock and Series B Preferred Stock of Lighting Science Group
Corporation only as members of LED Holdings and by virtue of such
status may be deemed to be the beneficial owner of the shares of
common stock and Series B Preferred Stock of the Lighting Science
Group Corporation held by LED Holdings. The LED Holdings Members
disclaim beneficial ownership of the shares of common stock and Series
B Preferred Stock held by LED Holdings, except to the extent of any 30




---



##### Table of Contents



pecuniary interest, and this statement shall not be deemed to be an
admission that they are the beneficial owners of such securities. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
 Guarantors of Line of Credit
   Warrant Shares/Total Value of Debt
    
    
    Common Shares to beName of Guarantor
    
    Position
    
    Guaranteed
    
    
    IssuedUGT Investors LP (1)
    
    Director
    
    $
    150,000
    
    
    
    26,250Daryl Snadon
    
    Director
    
    
    200,000
    
    
    
    35,000John Collingwood
    
    Director
    
    
    200,000
    
    
    
    35,000Ron Lusk
    
    Vice Chairman
    
    
    50,000
    
    
    
    8,750Jerome Hill
    
    Stockholder
    
    
    100,000
    
    
    
    17,500George Parker Young
    
    Stockholder
    
    
    50,000
    
    
    
    8,750Phil Lacerte
    
    Stockholder
    
    
    1,250,000
    
    
    
    118,750TOTAL
    
    
    
    $
    2,000,000
    
    
    
    250,000
 
 (1)
    
    Mr. Bachman is controlling shareholder in the sole corporate general partner of USGT Investors,
L.P.   Amount of Guarantees
    
    
    Warrant Shares to beName of Guarantor
    
    Position
    
    Provided
    
    
    IssuedRon Lusk
    
    Vice Chairman
    
    $
    275,000
    
    
    
    13,750Phibian S. Trust
    
    Stockholder
    
    
    75,000
    
    
    
    3,750Phil Lacerte
    
    Stockholder
    
    
    65,000
    
    
    
    3,250Daryl Snadon
    
    Director
    
    
    50,000
    
    
    
    2,500Edward Hawes
    
    Stockholder
    
    
    50,000
    
    
    
    2,500USGT Investors, LP (1)
    
    Director
    
    
    37,500
    
    
    
    1,875Baron Cass
    
    Stockholder
    
    
    48,750
    
    
    
    2,438Paul Schlosberg
    
    Stockholder
    
    
    48,750
    
    
    
    2,438TOTAL
    
    
    
    $
    650,000
    
    
    
    32,501
 
 (1)
    
    Mr. Bachman is controlling shareholder in the sole corporate general partner of USGT Investors, L.P. 31




---



##### Table of Contents



Parent Company
  
 Item 14. Principal Accounting Fees and Services.
  Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
  Pre-Approval Policies
   
 PART IV
 
 Item 15. Exhibits, Financial Statements and Schedules.
   32




---



##### Table of Contents



SIGNATURES
 Form 10-K
 LIGHTING SCIENCE GROUP CORPORATIONMay 19, 2009
    /s/ Govi RaoGovi Rao, Chairman and Chief Executive Officer  Signature
    
    Capacity in which Signed
    
    Date/s/ Govi Rao

Govi Rao
    
    Chairman of the Board and Chief Executive Officer(Principal Executive Officer)
    
    May 19, 2009/s/ Kathryn Reynolds Wallbrink

Kathryn Reynolds Wallbrink
    
    Senior Vice President, Strategy and Finance (Principal Financial Officer)
    
    May 19, 2009/s/ Stephen Hamilton

Stephen Hamilton
    
    Vice President  Finance(Principal Accounting Officer)
    
    May 19, 2009/s/ Robert E. Bachman

(by Govi Rao, Attorney-in-Fact*) Robert E. Bachman
    
    Director
    
    May 19, 2009
 33




---



##### Table of Contents



Signature
    
    Capacity in which Signed
    
    Date/s/ David Bell

(by Govi Rao, Attorney-in-Fact*) 
David Bell
    
    Director
    
    May 19, 2009/s/ Donald R. Harkleroad

(by Govi Rao, Attorney-in-Fact*) 
Donald R. Harkleroad
    
    Director
    
    May 19, 2009/s/ Richard Kelson

(by Govi Rao, Attorney-in-Fact*) 
Richard Kelson
    
    Director
    
    May 19, 2009/s/ Bonnie Reiss

(by Govi Rao, Attorney-in-Fact*) 
Bonnie Reiss
    
    Director
    
    May 19, 2009/s/ Daryl N. Snadon

(by Govi Rao, Attorney-in-Fact*) 
Daryl N. Snadon
    
    Director
    
    May 19, 2009/s/ Richard Weinberg

(by Govi Rao, Attorney-in-Fact*) 
Richard Weinberg
    
    Director
    
    May 19, 2009
 
 *
    
    Pursuant to Power of Attorney filed herewith 34




---



##### Table of Contents



INDEX TO EXHIBITS
 EXHIBITNUMBER
    
    DESCRIPTION2.1
    
    Stock Purchase Agreement dated as of June 1, 2004, by and among
The Phoenix Group Corporation, Lighting Science, Inc., certain
stockholders of The Phoenix Group Corporation and Frederic Maxik
(previously filed as Exhibit 2.1 to the Current Report on Form 8-K
filed on June 15, 2004, File No. 0-20354, and incorporated herein
by reference).2.2
    
    Exchange and Contribution Agreement, dated as of October 4, 2007
between the Company and LED Holdings LLC (previously filed as
Exhibit 4.1 to the Current Report on Form 8-K filed on October 11,
2007, File No. 0-20354, and incorporated herein by reference).3.1
    
    Amended and Restated Certificate of Incorporation of Lighting
Science Group Corporation (previously filed as Exhibit 3.1 to the
Registration Statement on Form S-1 (333-142018) filed on February
12, 2008, File No. 0-20354, and incorporated herein by reference).3.2
    
    Amended and Restated By-laws of Lighting Science Group Corporation
(previously filed as Exhibit 3.1 to the Current Report on Form 8-K
filed on October 11, 2007, File No. 0-20354, and incorporated
herein by reference).4.1
    
    Securities Purchase Agreement dated as of May 12, 2005, by and
among Lighting Science Group Corporation and the purchasers set
forth on Exhibit A thereto (previously filed as Exhibit 99.2 to
the Current Report on Form 8-K filed on May 16, 2005, File No.
0-20354, and incorporated herein by reference).4.2
    
    Form of Warrant granted pursuant to the Securities Purchase
Agreement dated as of May 12, 2005 (previously filed as Exhibit
99.3 to the Current Report on Form 8-K filed on May 16, 2005, File
No. 0-20354, and incorporated herein by reference).4.3
    
    Form of Warrant issued to certain directors, officers and security
holders as consideration for providing guarantees pursuant to the
Line of Credit (previously filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on September 22, 2006, File No. 0-20354,
and incorporated herein by reference).4.4
    
    Amended and Restated Certificate of Designation of 6% Convertible
Preferred Stock (previously filed as Exhibit 4.1 to the Current
Report on Form 8-K filed on January 9, 2007, File No. 0-20354, and
incorporated herein by reference).4.5
    
    Securities Purchase Agreement, dated as of March 9, 2007 among
Lighting Science Group Corporation and the purchasers identified
on the signature pages thereto (previously filed as Exhibit 10.1
to the Current Report on Form 8-K filed on March 12, 2007, File
No. 0-20354, and incorporated herein by reference).4.6
    
    Form of Warrant A, dated March 9, 2007 (previously filed as
Exhibit 10.2 to the Current Report on Form 8-K filed on March 12,
2007, File No. 0-20354, and incorporated herein by reference).4.7
    
    Form of Warrant B, dated March 9, 2007 (previously filed as
Exhibit 10.3 to the Current Report on Form 8-K filed on March 12,
2007, File No. 0-20354, and incorporated herein by reference).4.8
    
    Form of Warrant, dated , 2007 (previously filed as
Exhibit 10.4 to the Current Report on Form 8-K filed on March 12,
2007, File No. 0-20354, and incorporated herein by reference).
 35




---



##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION4.9
    
    Certificate of Designation of Series B Stock (previously filed as
Exhibit 4.2 to the Current Report on Form 8-K filed on October 11,
2007, File No. 0-20354, and incorporated herein by reference).4.10
    
    Registration Rights Agreement dated October 4, 2007 between the
Company and LED Holdings LLC (previously filed as Exhibit 4.3 to
the Current Report on Form 8-K filed on October 11, 2007, File No.
0-20354, and incorporated herein by reference).4.11
    
    Stockholder Voting Agreement dated October 4, 2007 among the
Company, LED Holdings LLC, Ronald Lusk, Robert Bachman, Daryl
Snadon and Donald Harkleroad (previously filed as Exhibit 4.4 to
the Current Report on Form 8-K filed on October 11, 2007, File No.
0-20354, and incorporated herein by reference).10.1+
    
    Lighting Science Group 2005 Equity Based Compensation Plan
(previously filed as Exhibit A to the Proxy Statement on Schedule
14A filed on November 29, 2006, File No. 0-20354, and incorporated
herein by reference).10.2
    
    Trademark Assignment Agreement dated October 4, 2007 between the
Company and LED Holdings, LLC (previously filed as Exhibit 10.1 to
the Current Report on Form 8-K filed on October 11, 2007, File No.
0-20354, and incorporated herein by reference).10.3
    
    Indemnification Letter Agreement dated October 4, 2007 between the
Company and LED Holdings, LLC (previously filed as Exhibit 10.2 to
the Current Report on Form 8-K filed on October 11, 2007, File No.
0-20354, and incorporated herein by reference).10.4+
    
    Employment Agreement dated as of October 4, 2007 by and between
Lighting Science Group Corporation and Ronald E. Lusk (previously
filed as Exhibit 10.5 to the Current Report on Form 8-K filed on
October 11, 2007, File No. 0-20354, and incorporated herein by
reference).10.5+
    
    Employment Agreement, dated as of October 4, 2007, by and between
Lighting Science Group Corporation and Fredric Maxik (previously
filed as Exhibit 10.6 to the Current Report on Form 8-K filed on
October 11, 2007, File No. 0-20354, and incorporated herein by
reference).10.6+
    
    Employment Agreement dated as of October 4, 2007 by and between
Lighting Science Group Corporation and Kevin Furry (previously
filed as Exhibit 10.3 to the Current Report on Form 8-K filed on
October 11, 2007, File No. 0-20354, and incorporated herein by
reference).10.7+
    
    Employment Agreement dated October 4, 2007 between Lighting
Science Group Corporation and Kenneth Honeycutt (previously filed
as Exhibit 10.7 to the Current Report on Form 8-K filed on October
11, 2007, File No. 0-20354, and incorporated herein by reference).10.8+
    
    Employment Agreement dated October 4, 2007 between Lighting
Science Group Corporation and Govi Rao (previously filed as
Exhibit 10.4 to the Current Report on Form 8-K filed on October
11, 2007, File No. 0-20354, and incorporated herein by reference).10.9+
    
    Letter Agreement dated March 10, 2008 between Lighting Science
Group Corporation and Ronald E. Lusk (previously filed as Exhibit
10.1 to the Current Report on Form 8-K filed on March 11, 2008,
File No. 0-20354, and incorporated herein by reference).21.1
    
    Subsidiaries of Lighting Science Group Corporation. (previously
filed as Exhibit 21.1 to the Annual Report on Form 10-K filed on
March 31, 2008, File No. 0-20354, and incorporated herein by
reference)
 36




---



##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION24.1*
    
    Power of Attorney.31.1*
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of  1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.31.2*
    
    Certification of Senior Vice
President, Strategy and Finance pursuant to Rule 13a-14(a) of the Securities Exchange Act of  1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.32.1*
    
    Certification of Chief Executive
Officer and Vice President, Strategy and Finance pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith+
    
    Management contract or compensatory plan 37




---



##### Table of Contents



Item 8. Financial Statements.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2007 and 2006 of
Lighting Science Group Corporation and LED Effects, Inc., respectively
    
    F-3Consolidated Statements of Operations for Lighting Science Group Corporation for the period
June 14, 2007 through December 31, 2007, for LED Effects, Inc. for the period January 1, 2007
through June 13, 2007 and for LED Effects, Inc. for the year ended December 31, 2006
    
    F-4Consolidated Statements of Stockholders Equity for Lighting Science Group Corporation
for the period June 14, 2007 through December 31, 2007 and for LED Effects, Inc. for the
period January 1, 2007 through June 13, 2007 and for the year ended December 31, 2006
    
    F-5Consolidated Statements of Cash Flows for Lighting Science Group Corporation for the period
June 14, 2007 through December 31, 2007 and for LED Effects, Inc. for the period
January 1, 2007 through June 13, 2007 and for the year ended December 31, 2006
    
    F-7Notes to the Consolidated Financial Statements
    
    F-8
 F - 1




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     /s/ Turner, Stone & Company, LLP
 
 F - 2




---



##### Table of Contents



LIGHTING SCIENCE GROUP CORPORATION AND LED EFFECTS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 Lighting Science Group
    
    
    LED Effects, Inc.Corporation
    
    
    and SubsidiaryConsolidated
    
    
    ConsolidatedBalance Sheet
    
    
    Balance SheetDecember 31, 2007
    
    
    December 31, 2006ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    11,399,429
    
    
    $
    1,828,776Accounts receivable, net of allowances for doubtful accounts
    
    
    1,392,064
    
    
    
    634,467Inventories, net of allowances
    
    
    3,786,966
    
    
    
    1,128,530Prepaid expenses and other current assets
    
    
    1,180,028
    
    
    
    92,237Total current assets
    
    
    17,758,487
    
    
    
    3,684,010PROPERTY AND EQUIPMENT, net
    
    
    1,149,024
    
    
    
    169,820OTHER ASSETSMinority investment, at cost
    
    
    
    
    
    
    86,528Intangible assets, net
    
    
    9,314,982
    
    
    
    Goodwill
    
    
    44,222,226
    
    
    
    Other long-term assets
    
    
    1,141,532
    
    
    
    13,320Total other assets
    
    
    54,678,740
    
    
    
    99,848TOTAL ASSETS
    
    $
    73,586,251
    
    
    $
    3,953,678LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    
    2,357,399
    
    
    
    329,013Accrued expenses
    
    
    3,668,104
    
    
    
    Note payable to bank
    
    
    
    
    
    
    100,000Total current liabilities
    
    
    6,025,503
    
    
    
    429,013OTHER LIABILITIESMinority interest in income of subsidiary
    
    
    
    
    
    
    84,523Deferred income taxes
    
    
    
    
    
    
    395,375Liability under derivative contracts
    
    
    1,007,600
    
    
    
    Total other liabilities
    
    
    1,007,600
    
    
    
    479,898TOTAL LIABILITIES
    
    
    7,033,103
    
    
    
    908,911COMMITMENTS AND CONTIGENCIES (Note 12)6% CONVERTIBLE PREFERRED STOCK, $.001 par value, 2,656,250
shares authorized,
215,652 shares issued and outstanding in 2007, liquidation
value of $690,086
    
    
    364,895
    
    
    
    STOCKHOLDERS EQUITYSeries B Preferred Stock, $.001 par value, 2,000,000
shares authorized, issued and outstanding in 2007
    
    
    2,000
    
    
    
    Common stock, $.001 par value, 495,000,000 shares
authorized, 21,958,482 shares issued and
outstanding in 2007
    
    
    21,959
    
    
    
    11,541Additional paid-in-capital
    
    
    71,056,282
    
    
    
    Retained earnings (deficit)
    
    
    (4,902,269
    )
    
    
    3,042,203Accumulated other comprehensive income (loss)
    
    
    10,281
    
    
    
    (8,977
    )TOTAL STOCKHOLDERS EQUITY
    
    
    66,188,253
    
    
    
    3,044,767TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    73,586,251
    
    
    $
    3,953,678
  F - 3




---



##### Table of Contents



LIGHTING SCIENCE GROUP CORPORATION AND LED EFFECTS, INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS
 Lighting Science GroupCorporationConsolidated Statement
    
    
    LED Effects, Incof Operations For
    
    
    Consolidated Statement
    
    
    LED Effects, Inc.Period From June 14,
    
    
    of Operations For The
    
    
    Consolidated Statement of2007 to December 31,
    
    
    Period January 1, 2007
    
    
    Operations For The Year2007
    
    
    to June 13, 2007
    
    
    Ended December 31, 2006Revenue
    
    $
    4,616,111
    
    
    $
    3,675,132
    
    
    $
    8,858,068Cost of goods sold
    
    
    3,526,750
    
    
    
    2,606,445
    
    
    
    6,061,922Gross margin
    
    
    1,089,361
    
    
    
    1,068,687
    
    
    
    2,796,146Operating expenses:Selling, general and administrative
    
    
    2,437,756
    
    
    
    226,758
    
    
    
    516,538Compensation and related expenses
    
    
    2,417,704
    
    
    
    221,013
    
    
    
    428,755Professional fees
    
    
    1,291,068
    
    
    
    117,780
    
    
    
    52,201Directors fees
    
    
    87,500
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    669,861
    
    
    
    6,691
    
    
    
    25,969Total operating expenses
    
    
    6,903,889
    
    
    
    572,242
    
    
    
    1,023,463Income (loss) from operations
    
    
    (5,814,528
    )
    
    
    496,445
    
    
    
    1,772,683Other income (expense)Interest income
    
    
    211,043
    
    
    
    1,520
    
    
    
    3,102Interest expense
    
    
    (39,366
    )
    
    
    (454
    )
    
    
    (3,386
    )Other, net
    
    
    329,785
    
    
    
    (35,472
    )
    
    
    (883
    )Total other income (expense)
    
    
    501,462
    
    
    
    (34,406
    )
    
    
    (1,167
    )Income (loss) before provision for income tax expenses, minority
interest in income (loss) of subsidiary, dividends on 6%
Convertible
Preferred Stock and accretion (reversal of accretion) of preferred
stock redemption value
    
    
    (5,313,066
    )
    
    
    462,039
    
    
    
    1,771,516Provision for income tax expense
    
    
    
    
    
    
    172,244
    
    
    
    666,665Dividends on 6% Convertible Preferred Stock and accretion (reversal
of accretion) of preferred stock redemption value
    
    
    (413,999
    )
    
    
    
    
    
    
    Income (loss) before minority interest in loss of subsidiary
    
    $
    (4,899,067
    )
    
    $
    289,795
    
    
    $
    1,104,851Minority interest in loss of subsidiary
    
    
    (3,902
    )
    
    
    (2,583
    )
    
    
    (84,523
    )Net income (loss) attributable to common stock
    
    $
    (4,902,969
    )
    
    $
    287,212
    
    
    $
    1,020,328Items included in comprehensive incomeForeign currency translation income (loss)
    
    
    10,281
    
    
    
    (82,135
    )
    
    
    (8,977
    )Net comprehensive income (loss)
    
    $
    (4,892,688
    )
    
    $
    205,077
    
    
    $
    1,011,351Basic and
diluted net loss per weighted average common share
    
    $
    (0.28
    )Basic and
diluted weighted average number of common shares outstanding
    
    
    17,419,959
  F - 4




---



##### Table of Contents



Lighting Science Group Corporation
 
 Consolidated Statement of Stockholders Equity
 For the Period From June 14, 2007 to December 31, 2007
 AccumulatedOtherSeries B Preferred Stock
    
    Common Stock
    
    Additional
    
    Accumulated
    
    ComprehensiveShares
    
    Amount
    
    Shares
    
    Amount
    
    Paid In Capital
    
    Deficit
    
    Income
    
    TotalBalance June 14, 2007
    
    
    
    
    
    $
    
    
    
    
    13,947,472
    
    
    $
    13,948
    
    
    $
    18,078,086
    
    
    $
    
    
    
    $
    
    
    
    $
    18,092,034Issuance of capital stock by LED Holdings
    
    
    2,000,000
    
    
    
    2,000
    
    
    
    1,981,175
    
    
    
    1,981
    
    
    
    7,750,060
    
    
    
    
    
    
    
    
    
    
    
    7,754,041Lighting Science Group common stock deemed acquired by
LED Holdings in conjuction with the reverse merger
transaction
    
    
    
    
    
    
    
    
    
    
    5,778,449
    
    
    
    5,778
    
    
    
    44,053,646
    
    
    
    
    
    
    
    
    
    
    
    44,059,424Conversion of 6% Convertible Preferred Stock to common
stock
    
    
    
    
    
    
    
    
    
    
    160,001
    
    
    
    172
    
    
    
    534,612
    
    
    
    
    
    
    
    
    
    
    
    534,784Issuance of common stock upon the exercise of warrants
    
    
    
    
    
    
    
    
    
    
    91,385
    
    
    
    80
    
    
    
    546,719
    
    
    
    
    
    
    
    
    
    
    
    546,799Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,159
    
    
    
    
    
    
    
    
    
    
    
    93,159Net loss for the period June 14, 2007 to December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,902,269
    )
    
    
    
    
    
    
    (4,902,269
    )Foreign currency translation gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,281
    
    
    
    10,281Balance December 31, 2007
    
    
    2,000,000
    
    
    $
    2,000
    
    
    
    21,958,482
    
    
    $
    21,959
    
    
    $
    71,056,282
    
    
    $
    (4,902,269
    )
    
    $
    10,281
    
    
    $
    66,188,253
  F - 5




---



##### Table of Contents



LED Effects, Inc. and Subsidiary
Consolidated Statement of Stockholders Equity
 AccumulatedOtherCommon Stock
    
    Retained
    
    ComprehensiveShares
    
    Amount
    
    Earnings
    
    Loss
    
    TotalBalance December 31,
2005
    
    
    756
    
    
    $
    11,541
    
    
    $
    2,021,875
    
    
    $
    
    
    
    $
    2,033,416Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,977
    )
    
    
    (8,977
    )Net income
    
    
    
    
    
    
    
    
    
    
    1,020,328
    
    
    
    
    
    
    
    1,020,328Balance December 31,
2006
    
    
    756
    
    
    
    11,541
    
    
    
    3,042,203
    
    
    
    (8,977
    )
    
    
    3,044,767Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,135
    )
    
    
    (82,135
    )Net income
    
    
    
    
    
    
    
    
    
    
    287,212
    
    
    
    
    
    
    
    287,212Balance June 13, 2007
    
    
    756
    
    
    $
    11,541
    
    
    $
    3,329,415
    
    
    $
    (91,112
    )
    
    $
    3,249,844
  F - 6




---



##### Table of Contents



LIGHTING SCIENCE GROUP CORPORATION AND LED EFFECTS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 LED Effects, Inc. and
    
    
    LED Effects, Inc.Lighting Science
    
    
    Subsidiary
    
    
    and SubsidiaryGroup Corporation
    
    
    Consolidated
    
    
    ConsolidatedConsolidated
    
    
    Statement of Cash
    
    
    Statement of CashStatement of Cash
    
    
    Flows For The
    
    
    Flows For TheFlows For The Period
    
    
    Period From January
    
    
    Year EndedFrom June 14, 2007 to
    
    
    1, 2007 to June 13,
    
    
    December 31,December 31, 2007
    
    
    2007
    
    
    2006OPERATING ACTIVITIESNet income (loss) for the period attributable to common stock
    
    $
    (4,902,969
    )
    
    $
    287,212
    
    
    $
    1,020,328Adjustments to reconcile net income (net loss) to net cash provided by (used by) operating activities:Non-cash stock option compensation expense
    
    
    93,159
    
    
    
    
    
    
    
    Accretion of 6% convertible preferred stock redemption value
    
    
    132,277
    
    
    
    
    
    
    
    Fair value adjustment to liabilities under derivative contracts
    
    
    (895,507
    )
    
    
    
    
    
    
    Provision for deferred income tax expense
    
    
    
    
    
    
    5,737
    
    
    
    498,602Depreciation and amortization
    
    
    669,861
    
    
    
    6,691
    
    
    
    25,969Changes in:Accounts receivable
    
    
    186,577
    
    
    
    (902,313
    )
    
    
    (61,892
    )Prepaid expenses and other long-term assets
    
    
    (64,784
    )
    
    
    (2,499
    )
    
    
    16,464Inventories
    
    
    (656,781
    )
    
    
    135,925
    
    
    
    (117,051
    )Accounts payable
    
    
    1,389,845
    
    
    
    (97,932
    )
    
    
    190,788Income taxes payable
    
    
    
    
    
    
    160,062
    
    
    
    36,674Accrued expenses and other liabilities
    
    
    (1,699,542
    )
    
    
    
    
    
    
    Deposits on contracts
    
    
    
    
    
    
    
    
    
    
    (981,100
    )Net cash provided by (used by) operating activities
    
    
    (5,747,864
    )
    
    
    (407,117
    )
    
    
    628,782INVESTING ACTIVITIESCash held by Lighting Science Group upon acquisition
    
    
    1,234,871
    
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (1,236,899
    )
    
    
    
    
    
    
    (52,953
    )Other, net
    
    
    
    
    
    
    3,545
    
    
    
    Net cash provided by (used by) investing activities
    
    
    (2,028
    )
    
    
    3,545
    
    
    
    (52,953
    )FINANCING ACTIVITIESNote payable borrowings
    
    
    
    
    
    
    
    
    
    
    100,000Repayment of amounts due under notes payable
    
    
    (87,500
    )
    
    
    (100,000
    )
    
    
    Minority investment, at cost
    
    
    
    
    
    
    
    
    
    
    (86,528
    )Amount due minority shareholder
    
    
    
    
    
    
    2,583
    
    
    
    84,523Proceeds from exercise of common stock warrants, net of related costs
    
    
    546,799
    
    
    
    
    
    
    
    Proceeds from issuance of stock for cash
    
    
    7,754,041
    
    
    
    
    
    
    
    Net cash provided by (used by) financing activities
    
    
    8,213,340
    
    
    
    (97,417
    )
    
    
    97,995Effect of exchange rate fluctuations on cash and cash equivalents
    
    
    10,281
    
    
    
    (82,135
    )
    
    
    (8,977
    )Net increase (decrease) in cash
    
    
    2,473,729
    
    
    
    (583,124
    )
    
    
    664,847Cash balance at beginning of period
    
    
    8,925,700
    
    
    
    1,828,776
    
    
    
    1,163,929Cash balance at end of period
    
    $
    11,399,429
    
    
    $
    1,245,652
    
    
    $
    1,828,776Interest paid during the period
    
    $
    39,366
    
    
    $
    454
    
    
    $
    3,386Taxes paid during the period
    
    $
    
    
    
    $
    62,915
    
    
    $
    138,557SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIESConversion of 6% Convertible Preferred Stock to common stock
    
    $
    534,784
    
    
    $
    
    
    
    $
    Non-cash
portion of reverse merger net acquisition price
    
    $
    36,305,383
    
    
    $
    
    
    
    $
    
  F - 7




---



##### Table of Contents



LIGHTING SCIENCE GROUP CORPORATION  AND SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1: BASIS OF PRESENTATION AND CHANGE OF REPORTING ENTITY
      F - 8




---



##### Table of Contents



December 31, 2007December 31, 2007
    
    
    as reported in
    
    
    Effect ofas restated
    
    
    original filing
    
    
    changeASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    11,399,429
    
    
    $
    11,399,429
    
    
    $
    Accounts receivable, net of allowances for
doubtful accounts
    
    
    1,392,064
    
    
    
    1,392,064
    
    
    
    Inventories, net of allowances
    
    
    3,786,966
    
    
    
    3,786,966
    
    
    
    Prepaid expenses and other current assets
    
    
    1,180,028
    
    
    
    1,180,028
    
    
    
    Total current assets
    
    
    17,758,487
    
    
    
    17,758,487
    
    
    
    PROPERTY AND EQUIPMENT, net
    
    
    1,149,024
    
    
    
    1,149,024
    
    
    
    OTHER ASSETSIntangible assets, net
    
    
    9,314,982
    
    
    
    9,314,982
    
    
    
    Goodwill
    
    
    44,222,226
    
    
    
    13,479,900
    
    
    
    30,742,326Other long-term assets
    
    
    1,141,532
    
    
    
    1,141,532
    
    
    
    Total other assets
    
    
    54,678,740
    
    
    
    23,936,414
    
    
    
    30,742,326TOTAL ASSETS
    
    $
    73,586,251
    
    
    $
    42,843,925
    
    
    $
    30,742,326LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    2,357,399
    
    
    $
    2,357,399
    
    
    $
    Accrued expenses
    
    
    3,668,104
    
    
    
    3,668,104
    
    
    
    Total current liabilities
    
    
    6,025,503
    
    
    
    6,025,503
    
    
    
    OTHER LIABILITIESLiability under derivative contracts
    
    
    1,007,600
    
    
    
    1,007,600
    
    
    
    TOTAL LIABILITIES
    
    
    7,033,103
    
    
    
    7,033,103
    
    
    
    6% CONVERTIBLE PREFERRED STOCK, $0.001 par
value, 2,656,250 shares authorized, 215,652
shares issued and outstanding (liquidation
value of $690,086)
    
    
    364,895
    
    
    
    364,895
    
    
    
    STOCKHOLDERS EQUITYSeries B Preferred stock $0.001 par value,
2,000,000 shares authorized and issued
    
    
    2,000
    
    
    
    2,000
    
    
    
    Common stock $0.001 par value, 495,000,000
shares authorized, 21,958,482 shares issued
and outstanding
    
    
    21,959
    
    
    
    21,959
    
    
    
    Additional paid in capital
    
    
    71,056,282
    
    
    
    68,523,254
    
    
    
    2,533,028Deficit
    
    
    (4,902,269
    )
    
    
    (33,111,567
    )
    
    
    28,209,298Accumulated comprehensive income
    
    
    10,281
    
    
    
    10,281
    
    
    
    TOTAL STOCKHOLDERS EQUITY
    
    
    66,188,253
    
    
    
    35,445,927
    
    
    
    30,742,326TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    73,586,251
    
    
    $
    42,843,925
    
    
    $
    30,742,326
 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
 Acquisition of LED Effects
  F - 9




---



##### Table of Contents



Current assetsCash and cash equivalents
    
    $
    1,245,652Accounts receivable,
    
    
    1,536,780Inventory
    
    
    992,604Non-Current assetsProperty and equipment
    
    
    159,585Minority interest at cost
    
    
    86,528Intangible assets
    
    
    5,980,000Deposits
    
    
    15,819Goodwill
    
    
    1,620,000Current liabilities assumedAccounts payable and accrued liabilities
    
    
    (298,906
    )Total purchase price of LED Effects
    
    $
    11,338,062
 Reverse Takeover of LSG by LED Holdings
   Market value of Common Stock of LSG issued to LED Holdings
    
    $
    47,382,573Add: Transaction costs
    
    
    1,091,453Total purchase price of LSG
    
    $
    48,474,026
  Cash and cash equivalents
    
    $
    824,900Other current assets
    
    
    5,090,592Fixed assets
    
    
    587,000Patents and technology
    
    
    3,900,000Other long-term assets
    
    
    1,214,588Goodwill
    
    
    42,605,552Estimated fair value of assets
    
    
    54,222,632Less: Fair value of current liabilities
    
    
    (3,845,499
    )Liability under derivative contracts
    
    
    (1,903,107
    )Total estimated fair value of net assets at the closing date
of the transaction
    
    $
    48,474,026
 F - 10




---



##### Table of Contents



Reverse Stock Split
  Summary of Significant Accounting Policies
 Use of Estimates
  Cash and Cash Equivalents
   Accounts Receivable
  Inventory
  Prepaid Expenses and Other Current Assets
  Property and Equipment
   F - 11




---



##### Table of Contents



Other Assets
  Intangible Assets
  LSG for the
    
    
    LED Effects for
    
    
    LED Effectsperiod June 14,
    
    
    the period
    
    
    for the year2007 through
    
    
    January 1, 2007
    
    
    endedDecember 31,
    
    
    through June 13,
    
    
    December 31,2007
    
    
    2007
    
    
    2006Technology and patents
    
    $
    207,792
    
    
    $
    
    
    
    $
    Trademarks
    
    
    9,000
    
    
    
    
    
    
    
    Customer relationships
    
    
    24,334
    
    
    
    
    
    
    
    Software
    
    
    200,000
    
    
    
    
    
    
    
    $
    441,126
    
    
    $
    
    
    
    $
    
 Impairment
   Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities
  F - 12




---



##### Table of Contents



Revenue
   Research and Development
  Stock Based Compensation
 Share-Based Payment
 Income taxes
 Accounting for Income Taxes
  Earnings per share
  NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
 Disclosures About Fair Value of Financial Instruments
  F - 13




---



##### Table of Contents



NOTE 4: INVENTORY
  December 31,December 31,
    
    
    2006 LED2007 LSG
    
    
    EffectsDeposits paid to contract manufacturers
    
    $
    159,820
    
    
    $
    Raw materials and components
    
    
    3,273,774
    
    
    
    853,471Work-in-process
    
    
    221,493
    
    
    
    275,059Finished goods
    
    
    131,879
    
    
    
    $
    3,786,966
    
    
    $
    1,128,530
  NOTE 5: PROPERTY, EQUIPMENT AND OTHER ASSETS
  December 31,December 31,
    
    
    2006 LED2007 LSG
    
    
    EffectsLeasehold improvements
    
    $
    184,609
    
    
    $
    207,750Office furniture, fixtures and telephone
equipment
    
    
    201,301
    
    
    
    168,138Computer equipment
    
    
    439,435
    
    
    
    Production and test equipment
    
    
    320,961
    
    
    
    Tooling and molds
    
    
    328,843
    
    
    
    Total property and equipment
    
    
    1,475,149
    
    
    
    375,888Accumulated depreciation
    
    
    (326,125
    )
    
    
    (206,068
    )$
    1,149,024
    
    
    $
    169,820
   December 31,December 31,
    
    
    2006 LED2007 LSG
    
    
    EffectsTechnology and patents
    
    $
    8,069,764
    
    
    $
    Trademarks
    
    
    360,000
    
    
    
    Software
    
    
    2,000,000
    
    
    
    Customer relationships
    
    
    730,000
    
    
    
    Total intangible assets
    
    
    11,159,764
    
    
    
    Less: accumulated amortization
    
    
    (1,844,782
    )
    
    
    $
    9,314,982
    
    
    $
    
 F - 14




---



##### Table of Contents



Original Fair
    
    Estimated UsefulIntangible asset
    
    Value
    
    LifeTechnology and intellectual property
    
    $
    8,069,764
    
    
    7.5 yearsTrademarks
    
    
    360,000
    
    
    20.0 yearsSoftware
    
    
    2,000,000
    
    
    5.0 yearsCustomer relationships
    
    
    730,000
    
    
    15 yearsGoodwill
    
    
    44,222,226
    
    
    Not determinable
  2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012Technology and
intellectual
property
    
    $
    905,000
    
    
    $
    905,000
    
    
    $
    905,000
    
    
    $
    905,000
    
    
    $
    905,000Trademarks
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000
    
    
    
    18,000Software
    
    
    400,000
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    200,000Customer
relationships
    
    
    49,000
    
    
    
    49,000
    
    
    
    49,000
    
    
    
    49,000
    
    
    
    49,000$
    1,372,000
    
    
    $
    1,372,000
    
    
    $
    1,372,000
    
    
    $
    1,372,000
    
    
    $
    1,172,000
 NOTE 6: LINE OF CREDIT AND GUARANTEES
   NOTE 7: INCOME TAXES
 Accounting for
Income Taxes
 F - 15




---



##### Table of Contents



Year of Expiration
    
    Income Tax Loss2012
    
    $
    2,293,4322018
    
    
    2,293,4322019
    
    
    2,293,4322020
    
    
    2,293,4322021
    
    
    2,293,4322022
    
    
    2,293,4322023
    
    
    2,293,4322024
    
    
    2,293,4322025
    
    
    2,293,4322026
    
    
    2,293,4322027
    
    
    9,937,230Total
    
    $
    32,871,550
   LED Effects
  F - 16




---



##### Table of Contents



For the period
    
    
    For the yearJanuary 1, 2007
    
    
    endedthrough June 13,
    
    
    December 31,2007
    
    
    2006Income before taxes and minority
interest in income of subsidiaryDomestic
    
    $
    429,793
    
    
    $
    461,117Foreign
    
    
    32,246
    
    
    
    1,310,399Total
    
    $
    462,039
    
    
    $
    1,771,516Income tax expenseCurrent provisionFederal
    
    $
    121,176
    
    
    $
    127,055State
    
    
    45,331
    
    
    
    41,008Foreign
    
    
    
    
    
    
    Total current income tax expense
    
    
    166,507
    
    
    
    168,063Deferred income tax expenseFederal
    
    
    890
    
    
    
    40,577State
    
    
    (6,117
    )
    
    
    12,490Foreign
    
    
    10,964
    
    
    
    445,535Total deferred income tax expense
    
    
    5,737
    
    
    
    498,602Income tax expense
    
    $
    172,244
    
    
    $
    666,665
 NOTE 8: RELATED PARTY TRANSACTIONS
 Loans from Directors and Officers
   NOTE 9: PREFERRED STOCK
 Private Placement with Institutional and Accredited Investors
  F - 17




---



##### Table of Contents



F - 18




---



##### Table of Contents



Period June 14, 2007through December 31, 2007Fair value of liability for
derivative contracts, beginning of
period
    
    $
    Fair value of derivative liability
assumed through the reverse merger
with LSG
    
    
    1,903,107Adjustment to fair value of current
derivative contacts during the
period, recorded in Other Income
(Expense) during the period
    
    
    (357,461
    )Less allocation of fair value of
derivative liability to additional
paid-in capital on conversion or
exercise of derivative instruments
    
    
    (538,046
    )Fair value of liability for
derivative contracts, end of period
    
    $
    1,007,600
  Embedded conversion featureassociated with the 6%Warrants
    
    Convertible Preferred StockExercise/Conversion Price
    
    $
    6.00
    
    
    $
    6.00Fair Value of the Companys
Common Stock
    
    $
    8.60
    
    
    $
    8.60Expected life in years
    
    
    2.4
    
    
    
    2.4Expected volatility
    
    
    75
    %
    
    
    75
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Risk free rate
    
    
    3.06
    %
    
    
    3.06
    %Calculated fair value per share
    
    $
    4.80
    
    
    $
    4.80
 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity Redeemable Preferred Stocks
 F - 19




---



##### Table of Contents



NOTE 10: STOCKHOLDERS EQUITY
 March 2007 Private Placement
 th
  Series B Stock
   Equity Based Compensation Plan
   F - 20




---



##### Table of Contents



Exercise price
    
    
    $17.40 - $6.00Fair market value of the underlying stock on date
of grant
    
    
    $8.20 - $3.00Option term
    
    
    3.0 years  7.0 yearsEstimated volatility
    
    
    75%Expected dividend yield
    
    
    0.0%Risk free rate
    
    
    5.25% - 3.75%Calculated fair value per share
    
    
    $8.20 - $3.00
   WeightedAverageUnderlying
    
    
    ExerciseStock Options
    
    Shares
    
    
    PriceOutstanding and exercisable, beginning of period
    
    
    
    
    
    
    Granted during period
    
    
    
    
    
    
    Stock option agreements assumed pursuant to
Exchange Agreement
    
    
    267,667
    
    
    $
    7.80Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding and exercisable, end of period
    
    
    267,667
    
    
    $
    7.80Options vested at end of period
    
    
    267,667
    
    
    $
    7.80Weighted average fair value of options granted
during the period June 14, 2007 through
December 31, 2007
    
    
    
    
    
    
    
 F - 21




---



##### Table of Contents



Restricted Stock Agreement
   December 31, 2007Prepaid expenses and other current assets
    
    $
    662,508Other long-term assets
    
    
    1,048,952$
    1,711,460
 Warrants for the Purchase of Common Stock
  No. ofReason for
    
    common
    
    ExerciseWarrant Holder
    
    Issuance
    
    shares
    
    Price
    
    Expiry dateInvestors in March 2007 Private Placement (Note 9)
    
    March 2007 Private Placement A Warrants
    
    
    722,365
    
    
    $
    7.00
    
    
    March 9, 2012 to June 29, 2012Line of Credit Guarantors (Note 5)
    
    Financing guarantees
    
    
    126,250
    
    
    $
    6.00
    
    
    September 22, 2011 through March 31, 20126% Convertible Preferred stockholders(Note 8)
    
    Private Placement
    
    
    326,255
    
    
    $
    6.00
    
    
    May 10, 2010The Equity Group
    
    Consulting services
    
    
    37,500
    
    
    $
    16.00
    
    
    February 10, 2010ICurie
    
    Marketing Agreement
    
    
    6,250
    
    
    $
    6.40
    
    
    September 13, 2011Officers and Directors (Note 7)
    
    Bridge Financing
    
    
    8,000
    
    
    $
    30.00
    
    
    April 20, 2010ABM Industries Inc.
    
    Marketing services
    
    
    57,500
    
    
    $$
    8.0010.40
    
    
    March 2, 2008 through July 31, 2009Total
    
    
    
    
    1,284,120
   F - 22




---



##### Table of Contents



NOTE 11: SEGMENT INFORMATION
   US
    
    Japan
    
    TotalLED Effects  Year ended December 31, 2006
    
    $
    6,453,361
    
    
    $
    2,404,707
    
    
    $
    8,858,068
  US
    
    Japan
    
    TotalLED Effects  Year ended December 31, 2006
    
    $
    2,274,556
    
    
    $
    1,679,122
    
    
    $
    3,953,678
 NOTE 12: COMMITMENTS AND CONTINGENCIES
 Lease Commitments
  Year
    
    Amount2008
    
    $
    899,4262009
    
    
    906,1202010
    
    
    926,5262011
    
    
    960,1302012
    
    
    682,815Thereafter
    
    
    187,407
  Commission Agreements with Directors
  Registration Rights Agreement
  F - 23




---



##### Table of Contents



Agreements with Contract Manufacturers
  Other Contingencies
  NOTE 13: SUBSEQUENT EVENTS
 Legal Action
   F - 24




---



##### Table of Contents



F - 25




---



##### Table of Contents



Termination of Employment Agreement
   Acquisition of Lighting Partner B.V.
 ,
      F - 26




---



##### Table of Contents



Acquisition of Net Assets of Lamina Lighting, Inc. (Lamina)
    F - 27




---



##### Table of Contents



Bridge Financing
  Issue of Series C Preferred Stock and Warrants
  Borrowing under Promissory Notes
   F - 28




---



##### Table of Contents



Convertible Note Issuance
     Goodwill and Intangible Asset Impairment
  Goodwill arising in the Transaction
    
    $
    42,605,552Technology and patents acquired in the Transaction
    
    
    2,419,984Total impairment charge
    
    $
    45,025,536


F - 29