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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-KSB







|x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDING DECEMBER 31, 2007



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM  TO

COMMISSION FILE NO. 0-23590





NEXXUS LIGHTING, INC.

(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 59-3046866                          
|(State or other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

124 FLOYD SMITH DRIVE, SUITE 300, CHARLOTTE, NORTH CAROLINA 28262

(Address of Principal Executive Offices) (Zip Code)

(704) 405-0416

(Issuers Telephone Number, Including Area Code)





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



|                              |  |                                                    
|----------------------------- |  | ---------------------------------------------------
|Title of Each Class           |  | Name of Each Exchange on Which Registered          
|Common Stock, $.001 par value |  | The NASDAQ Stock Market LLC (NASDAQ Capital Market)

Securities registered under Section 12(g) of the Exchange Act: None





Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act   ̈.

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO   ̈

Check if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB.   ̈

Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).    YES   ̈    NO  x

The issuers revenues for its most recent fiscal year were: $10,200,349.

The aggregate market value of the voting and non-voting common equity of the Registrant held by non-affiliates of the Registrant computed by reference to the last sale price at which the stock was sold on March 26, 2008 was $38,808,528

As of March 26, 2008, there were issued and outstanding: 7,056,096 shares of Common Stock, $.001 par value.

Transitional Small Business Disclosure form (check one):    Yes   ̈    No  x

Documents Incorporated by
Reference:

Portions of the Companys definitive proxy statement in connection with its Annual Meeting of Stockholders are
incorporated by reference in Part III of this Report on Form 10-KSB. The Companys definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after December 31, 2007.









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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this Annual Report on Form 10-KSB, other than historical information, may include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the Act) provides certain safe harbor
provisions for forward-looking statements. All forward-looking statements made in this Annual Report on Form 10-KSB are made pursuant to the Act. Words such as may, expect, intend, anticipate,
believe, estimate, continue, plan and similar expressions in this report identify forward-looking statements. The forward-looking statements are based on current views with respect to future events and
financial performance. Actual results may differ materially from those projected in the forward-looking statements. The forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things those:



| |  | associated with the relative success of sales, marketing and product development;
|- |  | ---------------------------------------------------------------------------------



| |  | competition, including price competition; and
|- |  | ---------------------------------------------



| |  | general economic and business conditions;
|- |  | -----------------------------------------

The factors listed under the caption Factors That May Affect Future Results and Market Price of Stock in the Managements Discussion and Analysis or Plan of Operation section of this report as well as any other
cautionary language in this report, provide examples of risks, uncertainties and events which may cause our actual results to differ materially from the expectations we described in our forward-looking statements. We do not undertake any obligation
to publicly release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I



|Item 1. | Description of Business.
|------- | ------------------------

GENERAL

In April 2007, we changed our name from Super Vision International, Inc. to Nexxus Lighting, Inc. The name change symbolizes a significant shift in the
strategic direction and market focus of the Company. This significant shift is designed to capitalize on the emerging market for advanced lighting technology, including Light Emitting Diode (LED) lighting systems and controls, as a replacement for
conventional incandescent lighting systems for general lighting applications. The Company now focuses its resources on designing, manufacturing, marketing and selling new LED lighting products and systems as well as enhancing its fiber optic
lighting product line for use in commercial, architectural, signage, swimming pool and OEM lighting applications.

During 2007 the Company
was organized into divisions, each with a defined market focus. SV Lighting serves the commercial and architectural lighting market and derives its revenues primarily from sales of Savi® brand LED lighting systems and controls and Super
Vision® fiber optic brand of products. The Companys wholly owned subsidiary, Advanced Lighting Systems, LLC serves the entertainment, theatrical and commercial lighting market through its LiveLED and eLUM LED lighting systems
and controls and Advanced Lighting Fiber Optics brand of products. The Nexxus Lighting Pool & Spa division serves the pool, spa and water feature lighting market with the broadest range of LED and fiber optic pool and spa lighting
products in the industry. Each Nexxus Lighting division markets and distributes its products globally primarily through multiple networks of independent sales representatives and distributors.

The Company was incorporated in Delaware on December 16, 1993 and is the successor by merger to a Florida corporation of the same name, which was
incorporated in January 1991. Effective July 1, 2007, the Companys executive offices were relocated to its new corporate headquarters at 124 Floyd Smith Drive, Suite 300, Charlotte, NC 28262. The Companys telephone number is
(704) 405-0416. References in this report to Super Vision, Nexxus Lighting, the Company, we, us, and our refer to Nexxus Lighting, Inc., a Delaware corporation.



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Acquisition

The
Company completed the acquisition of Advanced Lighting Systems, Inc. (ALS) in September 2007 Although this acquisition had a significant impact on the Companys financial condition and liquidity during 2007, it did not impact the
Companys consolidated results of operations until the fourth quarter of 2007. Funding the acquisition decreased cash and short-term investments by approximately $1,819,000 in 2007 and resulted in increased values for most of the balance sheet
items. This strategic acquisition is expected to strengthen the Companys position in the commercial and entertainment lighting markets.

Proposed
Acquisition

In January 2008, we announced that the Company had signed a non-binding letter of intent to acquire Lumificient
Corporation, a Maple Grove, Minnesota manufacturer of solid-state LED products for the sign lighting, commercial/architectural and retail markets. This transaction is expected to close on or before April 30, 2008, subject to satisfactory
completion of a due diligence review, approval of the Companys board of directors and other customary closing conditions. This strategic acquisition is expected to strengthen the Companys position in the signage lighting market and
enhance the Companys research and development capabilities.

PRODUCTS AND SERVICES

LED LIGHTING SYSTEMS

During 2001, the Company introduced its
first line of lighting products using Light-Emitting-Diode (LED) technology for signs, lighting strips, swimming pools and spas and architectural lighting. We believe that LED technology has many benefits over conventional incandescent, halogen and
fluorescent light sources, including much longer life and lower energy consumption. The energy efficient nature of LED technology makes it a green or environmentally friendly light source, and the compact size of LEDs has created
new possibilities in lighting fixture design. Our Flex-LED and BorderLight products are designed to reduce sign and display lighting costs through lower energy consumption and lower maintenance and service costs. LEDs are
solid-state semiconductors and, due to their robust design, LED lighting products can last up to 100,000 hours or twelve years of continuous operation vs. only 1,000-2,000 hours for incandescent and halogen light sources. LEDs typically
consume only 25-40% of the energy to produce the same amount of usable light with less heat as compared to incandescent and halogen light sources. The Companys FlexLED strip and BorderLight products are low voltage and are
available in a variety of monochromatic colors and are up to 70% more energy efficient than incandescent or neon. These products are relatively easy to install, not requiring any special training or skills.

In 2002, Nexxus introduced a new line of RGB (Red, Blue, and Green) color changing LED replacement light bulbs for the pool and spa markets. The Galaxy
Pool Light and AGS products provide a range of colors and preprogrammed effects which can be triggered by the flip of a light switch. In 2004, we expanded our LED product line to include a new modular Digital Lighting System (DLS) to service the
portable above ground spa market. We have applied for a patent on this new technology and have added several additional products to enhance the DLS product line including an LED lit waterfall and an audio system interface.

Savi®  ARCHITECTURAL LED LIGHTING

In mid-2004, we
began the strategic development of a new line of dramatic color changing, energy efficient LED lighting products targeted at the commercial/architectural lighting market. Introduced in the second quarter of 2005, the Savi® Flood, Savi® Spot,
Savi® Tube, Savi® Accent, Savi® Step Light, Savi® Flood Strip, and Savi® 512 DMX control system were the first products offered as part of our new Savi® brand. Since that time, additional Savi products have been developed and
introduced including the Savi® SHO Floodlight, Savi® Pool Light, Savi® Spa Light and the Savi® Note. Sales of our new Savi® products generated approximately $2,159,000 of revenue in 2007 compared to approximately $1,158,000 in
2006. In March of 2008 we introduced the Savi® SHO-White Floodlight, the industrys first white light LED floodlight that operates on direct line voltage without the need for a power supply. This product is the first in a series of
Architectural WhiteLED lighting systems the Company expects to introduce in 2008.

In 2007, we commenced the design, development and
tooling of five new LED products and three product enhancements that we expect to introduce in 2008. Under the new Nexxus Lighting vision of connecting advanced technology with light, we plan to expand our product development efforts for
general white light LED applications through our SV Lighting marketing division and Savi® brand, and our RGB LED products through our Advanced Lighting Systems subsidiary and its LiveLED and eLUM



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brands. As the technology continues to improve, we expect to be able to provide cost effective lighting solutions that save energy and meet commercial
specification grade requirements. The Company owns six U.S. Patents related to its LED technology and has nine LED related patent applications pending, with additional applications planned for 2008.

Revenue from sales of LED lighting systems and control products accounted for approximately 51% of our sales in 2007 as compared to approximately 50% in
2006. Sales of fiber optic lighting systems accounted for approximately 44% of the Companys revenue in 2007 as compared to approximately 45% in 2006. The balance of our revenue came from sales of entertainment related products, and our
Oasis waterfalls water features line of products. We believe that our LED product lines are still in their growth mode and offer significant revenue potential in virtually all markets served by the Company.

FIBER OPTIC CABLES

SV Lightings SIDEGLOW®fiber optic lighting cables utilize a patented center core in the manufacturing process to produce a plastic cable which, when used in conjunction with a halogen, metalhalide or Light Emitting Diode (LED) light source emits light along its
entire length. Advanced Lighting Systems Mega-Glow, Radialyte and 3M HL fiber offer the market an alternative to neon lighting for indoor and outdoor architectural accents and large signs and displays. Fiber optic lighting cable is
flexible and easy to install and is not prone to the breakage associated with glass neon tubes. It is also energy efficient, providing significant savings in electrical costs as compared to neon. In addition, unlike neon, which remains a constant
color, the use of certain light sources allows the fiber optic cable to change colors. While, in general, most fiber optic lighting products cannot achieve neons level of brightness and are generally more costly to purchase and install, we
believe the benefits of our cable outweigh these factors for certain segments of the current neon market. In addition, the cables can be combined with standard or custom manufactured light sources and control systems to create color changing
patterns and unique lighting systems. The cables are offered in a variety of diameters with a wide range of light sources.

SV Lightings END GLOW®
and Advanced Lighting Systems Mega-Lyte and Focalyte cables are utilized to transmit pure, ultra violet and heat free light from a remote light source to the object or area being lit. We market all of our cables in conjunction with
a complete line of light sources and lighting accessories for a variety of applications including swimming pool and spa lighting, accent and display case lighting and residential landscape lighting. Fiber optic cables allow for unique lighting of
areas or objects with the added benefits of fiber optics. Utilizing our state of the art fiber optic cabling system, we are able to custom manufacture our cables to user specifications, delivering the required amount of light to the object at the
most affordable cost.

FIBER OPTIC LIGHT SOURCES

Through its SV Lighting and Advanced Lighting Systems divisions, the Company manufactures a variety of light sources used in conjunction with its fiber optic cables and lighting accessories to create complete lighting systems. Each line of
light sources was created to meet specific market needs and applications. The light sources are manufactured to meet the standards established by Underwriters Laboratories and comparable certifying bodies worldwide. We currently manufacture numerous
standard light sources for the following: endpoint fiber optic applications and certain side emitting applications; swimming pool and residential applications; display case and interior theme lighting industries; and commercial lighting and signage.
We also manufacture a wide variety of custom light sources for specific market applications based on customer lighting needs.

We utilize
several control systems with our light sources to allow for customization of lighting systems. All of the Companys light sources are designed to accept a variety of unique controller options, allowing the basic light sources to meet a wide
variety of market needs. Multiple light sources can be sequenced using industry standard DMX control systems to create special lighting effects.

Fiber optic cable products and their required light sources represented approximately 44% of our total revenue in 2007 compared to 45% in 2006. We expect that revenue from our fiber optic and related light source product lines will continue
to decrease as a percentage of sales as revenue from our new LED product lines increases at a faster pace. However, we believe that maintaining a competitively priced and commercially superior line of fiber optic cable and light sources is critical
to maintaining market share in currently served markets and vital to penetrating new markets around the world.



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WATERFALLS

The company designs, manufactures, markets and sells LED and fiber optically lit waterfalls and water features primarily used in swimming pools and spas, through its Oasis brand. During 2007 revenue from the sale of Oasis
waterfall and water feature products accounted for approximately 5% of the Companys total revenue as compared to 4% in 2006.

SALES AND MARKETING

The Companys products are utilized in a wide variety of applications; consequently, we utilize several marketing channels and
strategies to address targeted users.

COMMERCIAL / ARCHITECTURAL  (SV Lighting and Advanced Lighting Systems):

We currently market and distribute our LED and fiber optic lighting products and systems through a network of individual lighting agencies covering the
United States and Canada. These independent lighting agencies provide assistance in the lighting specification process, provide local customer and project management support and direct the customer to purchase products from either SV Lighting or
Advanced Lighting Systems. The independent lighting agencies are paid on a commission basis. We also sell our FlexLED and BorderLight products directly to local sign lighting manufacturers and distributors as well as select national
accounts.

POOLS AND SPAS  (Nexxus Lighting Pool & Spa):

We market and sell our lighting products in the swimming pool and spa market to pool and spa distributors and pool builders through a network of independent manufacturers representatives. We believe this
distribution channel allows us to better serve our customers as well as offer new services such as the bundling of product and installation. In 2007, we focused our efforts on refining the products offered to the pool and spa market, adding sales
management and developing new marketing tools to drive sales in 2008. With the steps taken in 2007, we believe that the pool and spa market represents a unique and significant growth opportunity for the Company and is an excellent fit with our
technology and intellectual property platform.

INTERNATIONAL  (All Nexxus Lighting Divisions):

International sales are derived from the Companys exclusive and non-exclusive marketing and sales arrangements with leading lighting/electrical
distributors in international territories. The Company provides technical expertise and limited marketing support, while its independent international distributors provide sales staff, local marketing, and product service. The Company believes its
international distributors are better able to service international markets due to their understanding of local market conditions and best business practices.

Entertainment  (Advanced Lighting Systems):

We market and sell our lighting products to the theatrical and entertainment
lighting market through non-exclusive distributors, rental companies and production companies. Lighting applications include theatres, concert tours, night clubs, casinos, theme parks and other entertainment venues.

MANUFACTURING AND SUPPLIERS

All fiber optic strands used in our endpoint signs and displays, as well as in the production of our SIDE-GLOW®, END GLOW® ,MEGA-GLOW, RADIALYTE, MEGA-LYTE and FOCALYTE cables, are purchased from a key Japanese supplier. Purchases from this Japanese supplier represented approximately
6 % and 9% of total inventory purchases for the years ended December 31, 2007 and 2006, respectively. While we believe there are alternative sources for the fiber optic strands used in the production of our cables, we believe our unique
cabling process requires fiber optic material of a higher quality than is generally available elsewhere. The loss of this supplier or delays in obtaining shipments could have a material adverse effect on our operations until such time as an
alternative supplier could be found.

All LEDs used in the manufacture of our LED lighting products and systems are purchased from
various companies in Asia and in the United States. Approximately 82% of all purchases related to LED lighting products and systems were purchased from four suppliers in the year ending December 31, 2007 compared to approximately 86% of all
purchases related to LED lighting products



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and systems purchased from three suppliers in the year ending December 31, 2006. The loss of these suppliers or delays in obtaining shipments could have
a material adverse effect on our operations until such time as alternative suppliers could be identified.

We use customized cabling and
extrusion equipment to internally produce our fiber optic cables. Monitoring and revising the manufacturing process when required, has allowed us to increase quality, improve capabilities and maintain process control. In the event the cabling and
extrusion equipment is ever disabled for any significant period of time, we could outsource the manufacturing of our products.

We manufacture most of the light sources and control systems used with our SIDE-GLOW® and END GLOW® cables in our SV Lighting facility in Orlando, Florida. The designs of the light sources are considered
proprietary, and we have U.S. patents issued with respect to certain designs. We believe our ability to offer a full range of products, combined with design, engineering and support services, are unique in the market place, and are important to our
future growth.

Several of our LED and fiber optic lighting systems and products are produced by overseas contract manufacturers in an
effort to reduce production costs. Total purchases from contract manufacturers based in China and Taiwan were approximately 45% and 50% of total inventory purchases for the years ended December 31, 2007 and 2006, respectively. While we believe
alternative sources for the production of these products are available, we have selected certain suppliers based on their ability to consistently produce these products per our specifications ensuring the best quality product at the most cost
effective price. The Company depends on these suppliers to satisfy performance and quality specifications and to dedicate sufficient production capacity for finished products within scheduled delivery times. Accordingly, the loss of these suppliers
or delays in obtaining shipments could have a material adverse effect on the Companys operations until such time as new alternative suppliers could be found.

Effective April 1, 2007, the Company relocated its Orlando, FL manufacturing operations to a new, approximately 34,000 sq. ft., facility located in Orlando, FL. Moving to the new facility allowed the Company to
reduce its monthly rent payment by over $30,000 and to reconfigure the manufacturing and distribution space for optimum material flow and productivity.

With the acquisition of Advanced Lighting Systems in September 2007, the Company added approximately 17,200 sq. ft. of manufacturing and distribution space to assemble and distribute LED lighting systems and controls
as well as certain Advanced Lighting Fiber Optic lighting systems and fiber optic light curtains. This facility is located in Sauk Centre, MN.

RESEARCH
AND PRODUCT DEVELOPMENT

The Company constantly strives to enhance our existing products. We also plan to develop additional products
and identify new markets and distribution channels. We believe that our ability to improve existing products, rapidly introduce new products to fill identified needs, and design solutions for custom applications is critical to our growth. We believe
that our responsiveness to the market is an important differentiating factor for the Company and we plan to continue to provide rapid response to market trends. The Company has expanded its strategic alliances to offer sourced OEM products designed
to exact specifications to increase the rate of product introduction and provide a broader product platform for selling our products. The increasing market for LED lighting products in general may attract larger companies into the market with more
capital and technical personnel than the Company currently employs. Accordingly, we plan to continue to explore joint product development activities with our partners to maintain our competitive advantage and defend our market position. In addition,
the Company plans to continue exploring potential strategic acquisitions that could expand our product and technology platform as it relates to advanced lighting systems.

During 2007, we spent approximately $418,000 on engineering and product development activities, as compared to approximately $538,000 in 2006. We feel our future success will depend, in large part, on our ability to
develop new products, expand the applications for our LED and fiber optic lighting technologies and continue improving and enhancing our existing products.

We believe that increased levels of spending on research and development will be necessary to successfully develop LED lighting products that will have the brightness of conventional lighting systems and can be sold
at an acceptable premium. Additionally, as new technologies and new market opportunities are identified, increased levels of spending on product development may occur so the Company can rapidly design, engineer and produce products to fill these
market needs.



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COMPETITION

The Company currently faces competition from both traditional lighting technologies such as incandescent, neon and florescent lighting and from competitors specifically engaged in providing LED and fiber optic lighting products and systems.
There can be no assurance that additional large conventional lighting companies or others will not enter the market and utilize their resources to capture significant market share and adversely affect the Companys operating results.

Traditional lighting technologies have the advantage of a long history of market acceptance and familiarity as compared to our LED and
fiber optic products. We believe that educating our target market through our sales representatives and distributors on the advantages of LED and fiber optic lighting systems is critical to our future growth.

We compete with both traditional and strategic competitors on the basis of design, color changing effects, maintenance costs, safety issues, energy
consumption, price and brightness. We believe our products can effectively compete against traditional lighting in the areas of visual impact, maintenance costs, safety and energy consumption. Our fiber optic lighting systems offer the advantage of
centralized light source maintenance for lamp replacement and to eliminate the risk of breakage or damage to the light source. Furthermore, our fiber optic products result in a voltage free light, which is particularly beneficial in wet and
underwater applications, where risk of shock from electricity in the lighted path is an issue. Our fiber optic lighting systems also eliminate the majority of heat and ultra-violet radiation at the light output, which can be advantageous in
applications where these factors may not be desirable, particularly with respect to lighting accessories such as task lighting and display case lighting.

Our sign lighting LED products compete favorably with traditional neon lighting for signs on the basis of energy consumption and price for small to medium channel letters and back lighting. For large signs and channel
letters, our FlexMOD LED lighting systems compete effectively on the basis of energy savings, lamp life and durability. In applications calling for maximum brightness and competitive cost, the Companys products may not be able to compete
effectively with traditional lighting products. In addition, the LED sign lighting market is becoming saturated with competitors that are driving LED sign lighting products to a low price commodity. As a result, cost reduction efforts in addition to
developing new, brighter, higher quality LED sign lighting products is required to stay competitively positioned in the market.

We face
competition from an expanding number of companies directly involved in the field of LED lighting for commercial/architectural and pool and spa lighting. These companies utilize technologies similar to ours and compete generally on the basis of
product line breadth, price, quality and service. We believe we can compete favorably in markets where these factors are the central issue, however, increased pressure from new low cost manufacturers in China continues to put pressure on gross
margin levels in the sign lighting and OEM spa business. There can be no assurance that current competitors or new competitors will not develop processes or technology which will allow them to decrease their costs and related selling price, and
consequently, erode our market share. As a result, management has made research and development a priority for the future and plans on investing in and expanding the Companys R&D capabilities and resources. The proposed acquisition of
Lumificient Corporation is expected to add significant engineering resources to the Company and enhance our R&D efforts.

PATENTS AND PROPRIETARY
RIGHTS

Nexxus Lighting considers its technology and procedures proprietary and relies primarily on patent and trade secret laws and
confidentiality agreements to protect its technology and innovations. Our employees, as well as technical consultants who may be hired from time to time, enter into confidentiality and/or invention assignment agreements providing for non-disclosure
of proprietary and trade secret information and the assignment to us of all inventions, improvements, technical information and suggestions relating in any way to our business (whether patentable or not) which the employee or consultant develops
during the period of their employment or association with our Company. Despite these restrictions, it may be possible for competitors or customers to copy one or more aspects of our products or obtain information that we consider as proprietary.
Furthermore, there can be no assurance that others will not independently develop products similar to those sold by the Company. We therefore believe that producing the highest possible quality products at the most competitive prices is the best
means to protect against competitive innovations.



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We have been issued a United States patent
relating to the reflective center core used in the process of manufacturing our SIDE-GLOW® cables and have filed a patent application under the Patent Cooperation Treaty which
ultimately may result in protection of this patent overseas. We also have two United States patents on methods of manufacturing alternative versions of fiber optic cables. Additionally, we have acquired a United States patent related to the method
of manufacturing a fiber optic image magnification device. While there is no guarantee that this patent can be developed into a commercially viable product, we believe that expansion of the applications for our fiber optic technologies is important
to the possible achievement of future growth objectives.

Including the patents identified above, we currently hold twenty-six patents
related to our fiber optic and LED lighting intellectual property and have nine patent applications currently filed with the U.S. Patent and Trademark Office.

We will continue to seek patent protection where appropriate for future developments, improvements and enhancements to our technology. There can be no assurance; however, that our existing patents or patents that may
be issued in the future will provide us with sufficient protection in the case of an infringement of our technology or that others will not independently develop technology comparable or superior to ours. Although we believe that the products we
sell do not and will not infringe upon the patents or violate the proprietary rights of others, it is possible that such infringement or violation has occurred or may occur. In the event that products we sell are deemed to infringe upon the patents
or proprietary rights of others, we could be required to modify our products or obtain a license for the manufacture and/or sale of such products.

There has been litigation regarding patent and other intellectual property rights in the fiber optic and LED lighting industry, particularly in the areas in which we compete. We have defended, and in the future will likely defend, ourselves
against claims and legal actions alleging infringement of the patent rights of others. Adverse determinations in any patent litigation could subject us to significant liabilities to third parties, require us to seek licenses from third parties, and,
if licenses are not available, prevent us from manufacturing, selling or using certain of our products, some of which could have a material adverse effect on our operations.

Additionally, we may find it necessary to initiate litigation to enforce our patent rights, to protect our trade secrets or intellectual properties and
to determine the scope and validity of the proprietary rights of others. Patent litigation can be costly and time-consuming, and there can be no assurance that our litigation expenses will not be significant in the future or that the outcome of
litigation will be favorable to us. Accordingly, we may seek to settle any potential future litigation. Settlement may include cross-licensing of the patents which are the subject of the litigation as well as our other intellectual property and may
involve monetary payments to or from third parties.

We have a registered trademark
for the Savi, Super Vision, and Symphony of Light names. Additionally, we have obtained registered trademarks on the brand names SIDE-GLOW® and
END GLOW® related to our fiber optic cables, and European community trademark applications have been filed as well. We have also submitted applications to register the trademark
Nexxus Lighting, FlexLED Lifes Brighter and Savi LED. We believe that these trademarks help in our efforts to achieve brand recognition, although there can be no assurance to such effect.

EMPLOYEES

At March 27, 2008, Nexxus had 62
full-time employees. None of our employees are currently covered by a collective bargaining agreement and we consider our employee relations to be good. We also utilize temporary and part time employees as required by the volume of business,
primarily in the area of production.



|Item 2. | Description of Property.
|------- | ------------------------

On
September 28, 2007, the Company entered into a five year operating lease agreement with Streitz Properties LLC, a company owned by Paul Streitz, President of Advanced Lighting Systems, the Companys wholly owned subsidiary. This property
is used for ALS operations facility in Sauk Centre, MN and has approximately 17,200 square feet of office, distribution and light manufacturing space. Base rent under the lease is $8,815 per month for the duration of the lease. The lease
provides for a security deposit of $4,500.



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On November 30, 2006, we entered into a new five-year operating lease agreement with EastGroup
Properties, L.P. Effective April 1, 2007, the Company relocated its Orlando, Florida manufacturing operations to approximately 34,000 square feet of office, distribution and light manufacturing space in Orlando, Florida for its Orlando
operations facility. Base rent under the lease commenced on April 1, 2007, with monthly payments of $19,846 for the first twelve-month period and increases annually by 3.5% thereafter. In addition to base rent, the Company is required to pay
its pro rata share of the propertys operating expenses, including property taxes, insurance and non-structural repairs. The lease provides for a security deposit of $28,576.

In connection with executing the lease for the Companys new Orlando facility, on November 29, 2006, the Company entered into a lease
termination agreement with Max King Realty, Inc. (Max King Realty), a company controlled by Brett M. Kingstone, the Companys chairman of the board, to terminate the capital lease with Max King Realty for the Companys previous
facility. The lease had a fifteen-year term extending through June 15, 2012. The Company paid Max King Realty an amount equal to a prepayment penalty incurred by it through delivery of an unsecured promissory note in the amount of $332,846
which was paid in full in January 2007.

On November 30, 2006, the Company entered into a four month operating lease with FLIR
Systems, Inc., the new owner of the property previously leased from Max King Realty. The lease was for the use of 40,000 square feet of manufacturing and distribution space at a gross monthly amount of $29,820 through March 31, 2007. A security
deposit of $28,000 was paid and returned.

On February 27, 2007, the Company entered into a new five year operating lease agreement
with Floyd Smith Office Park, LLC, commencing approximately June 1, 2007 for the Companys new corporate headquarters in Charlotte, North Carolina. The Company leases approximately 2,100 square feet of office space at a gross rental rate
of $3,400 per month, including build-out, power and water utilities and the Companys pro rata share of the propertys operating expenses, property taxes, insurance and non-structural repairs. After the initial twelve-month period, the
rent will increase annually by 3.0%. The lease provides for a security deposit of $3,400. On August 24, 2007, the Company leased an additional 3,000 square feet in this facility for an additional gross rental rate of $4,972 per month on the
same basis and with the same provisions as the original lease with an additional security deposit of $4,972.

We consider our current
facilities adequate for our current needs and believe that suitable additional space would be available if necessary.



|Item 3. | Legal Proceedings.
|------- | ------------------

The Company is not currently a
party to any pending legal proceedings. In the ordinary course of business the Company may become a party to various legal proceedings generally involving contractual matters, infringement actions, product liability claims and other matters.



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year covered by this report.



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##### Table of Contents

PART II



|Item 5. | Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------------------------------------

(a) The Companys Common Stock, par value of $.001 per share, trades on the NASDAQCapital Market under the symbol NEXS. The following table sets
forth the high and low closing prices of the Common Stock for the fiscal years ended December 31, 2007 and 2006 as reported by NASDAQ.



|               |  |      |  |      |  |      |  |     
|-------------- |  | ---- |  | ---- |  | ---- |  | ----
|               |  | 2007 |  | 2006
|               |  | High |  | Low  |  | High |  | Low 
|First Quarter  |  | 4.50 |  | 3.11 |  | 3.60 |  | 3.14
|Second Quarter |  | 7.25 |  | 3.81 |  | 3.40 |  | 2.41
|Third Quarter  |  | 7.13 |  | 4.86 |  | 2.46 |  | 2.20
|Fourth Quarter |  | 5.50 |  | 4.45 |  | 3.32 |  | 2.05

(b) The number of holders of record of the Companys Common Stock on March 25, 2008 was
53. This number does not include beneficial owners of our Common Stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

(c) The Company has never paid a cash dividend on its Common Stock and intends to continue to follow a policy of retaining earnings to finance future
growth. Accordingly, the Company does not anticipate the payment of cash dividends to holders of Common Stock in the foreseeable future.

(d) For information regarding securities authorized for issuance under equity compensation plans, see Item 11 of this Annual Report on Form 10-KSB.



|Item 6. | Managements Discussion and Analysis or Plan of Operation
|------- | ---------------------------------------------------------

The following discussion and analysis provides information that management believes is useful in understanding our operating results, cash flows and financial condition. The discussion should be read in conjunction
with, and is qualified in its entirety by reference to, the Financial Statements and related Notes to Financial Statements appearing elsewhere in this Annual Report on Form 10-KSB. Except for the historical information contained herein, the
discussions in this document contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are
not limited to, those discussed under Factors that May Affect Future Results and Market Price of Stock below.

Overview

In April 2007, we changed our name from Super Vision International, Inc. to Nexxus Lighting, Inc. The name change symbolizes a significant shift in the
strategic direction and market focus of the Company. The shift is designed to capitalize on the emerging market for advanced lighting technology, including Light Emitting Diode (LED) lighting systems and controls as a replacement for conventional
incandescent lighting systems for general lighting applications. The Company now focuses its resources on designing, manufacturing, marketing and selling new LED lighting products and systems as well as enhancing its fiber optic lighting product
line for use in commercial, architectural, signage, swimming pool and OEM lighting applications.

During 2007 the Company was organized
into divisions, each with a defined market focus. SV Lighting serves the commercial and architectural lighting market and derives its revenues primarily from sales of Savi® brand LED lighting systems and controls and Super Vision® fiber
optic brand of products. The Companys wholly owned subsidiary, Advanced Lighting Systems, serves the entertainment, theatrical and commercial lighting market through its LiveLED and eLUM LED lighting systems and controls and
Advanced Lighting Fiber Optics brand of products. The Nexxus Lighting Pool & Spa division serves the pool, spa and water feature lighting market with the broadest range of LED and fiber optic pool and spa lighting products in the
industry. Each Nexxus Lighting division markets and distributes its products globally primarily through multiple networks of independent sales representatives and distributors.



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##### Table of Contents

During 2007, the Company continued its shift in strategic direction and is now pursuing its strategy for
growth through both product development and strategic acquisitions. As part of this growth strategy, the Company acquired Advanced Lighting Systems in September 2007. In addition, in January 2008, the Company signed a non-binding letter of intent to
acquire Lumificient Corporation, a Maple Grove, Minnesota manufacturer of solid-state LED products for the sign lighting, commercial/architectural and retail markets. This transaction is expected to close on or before April 30, 2008, subject to
satisfactory completion of a due diligence review, approval of the Companys board of directors and other customary closing conditions.

Also in 2007, the Company added senior management in several areas including a new Chief Financial Officer, a Vice President of Pool and Spa Sales and a General Manager for its SV Lighting division.

With the addition of new management with specific market expertise, a refocusing of our Nexxus Pool & Spa and SV Lighting divisions, the
introduction of the new pool and spa catalog and marketing materials in March 2008, the anticipated introduction of new SV Lighting and Advanced Lighting Systems catalogs in the second quarter of 2008 and our planned product introductions in the
second quarter of 2008, management is optimistic that the Company is positioned for growth under the new Nexxus Lighting strategy.

Revenue
from LED lighting systems and control products accounted for approximately 51% of our sales in 2007 as compared to approximately 50% in 2006. Sales of fiber optic lighting systems accounted for approximately 44% of the Companys revenue in 2007
as compared to approximately 45% in 2006. The balance of our sales came from entertainment lighting products, and Oasis waterfall and water feature line of products. We believe that our LED product lines are still in their growth mode and
offer significant revenue potential for both the commercial/architectural and pool and spa lighting markets.

Revenue from commercial/architectural and entertainment lighting sales led the Company in 2007 with sales of LED products increasing 15% and overall sales increasing 5% over 2006, on the strength of the sales of
Advanced Lighting Systems products. Excluding sales of ALS products, sales of LED products increased 4% and overall sales decreased 6% over 2006. This LED sales increase was offset by a 15% decline in the sale of fiber optic products in
commercial lighting. Sales of our new Savi® products generated approximately $ 2,159,000 of revenue in 2007 compared to $1,158,000 in 2006.

While we expect the fiber optic market to remain a significant portion of our business, we believe that the LED lighting market will drive our growth in
the future. Excluding the impact of the September 2007 acquisition of ALS, fiber optic lighting sales decreased 16% in 2007, driven by a 26% decline in fiber optic sales in our pool and spa market. However, we are investing in products to support
fiber optic lighting sales including new LED light sources introduced in 2007 that drive light into fiber optic, which are expected to serve as a platform for new products and applications for fiber optic as an advanced lighting system.

Excluding the impact from the September 2007 acquisition of ALS, our direct gross margin (revenue less the cost of direct material only) on LED
products decreased from 50% to 46% in 2007 due primarily to decreased margins in our international market and pool and spa market. Historically, our direct gross margins from fiber optic products have been higher than direct gross margins from LED
lighting products. However, as we introduce new LED lighting systems for the commercial/architectural lighting market, we anticipate that our gross margins for LED products will improve, since this market is less price sensitive than the pool and
spa and entertainment fiber optic lighting markets.

We continue to focus on key indicators in order to measure our performance. In the
short-term, (1-3 years), management is working towards achieving and maintaining positive trends in the following areas:



| |  |  | Revenue growth
| | - |  | --------------



| |  |  | Profitability
| | - |  | -------------



| |  |  | Operating cash flow
| | - |  | -------------------



| |  |  | Gross margin in dollars and percentage of gross sales
| | - |  | -----------------------------------------------------



| |  |  | Product and market mix
| | - |  | ----------------------



| |  |  | Operating expense ratios
| | - |  | ------------------------



| |  |  | Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
| | - |  | -----------------------------------------------------------------------



| |  |  | Liquidity
| | - |  | ---------



| |  |  | Key balance sheet ratios (Accounts Receivable turnover,(AR)/Accounts Payable (AP)/,Inventory turnover and working capital)
| | - |  | --------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Shareholder Value
| | - |  | -----------------

In the long term
(over 3 years), we are striving to generate consistent and predictable net sales growth while incrementally enhancing cash flow from operations.

Acquisition

In September 2007 the Company completed the acquisition of Advanced Lighting Systems, Inc. Although this
acquisition had a significant impact on the Companys financial condition and liquidity during 2007, it did not have any impact on the Companys consolidated results of operations until the fourth quarter of 2007. Funding the acquisition
decreased cash and short-term investments by approximately $1,819,000 in 2007 and resulted in increased values for most of the balance sheet items. This strategic acquisition is expected to strengthen the Companys position in the commercial
and entertainment lighting markets.

Proposed Acquisition

In January 2008, we announced we had signed a non-binding letter of intent to acquire Lumificient Corporation, a Maple Grove, Minnesota manufacturer of solid-state LED products for the sign lighting,
commercial/architectural and retail markets. The transaction is expected to close on or before April 30, 2008, subject to satisfactory completion of a due diligence review, approval of the Companys board of directors and other customary
closing conditions. This acquisition is expected to strengthen the Companys position in the signage lighting market and enhance the Companys research and development capabilities.

Revenues & Gross Margin



|               |  |                         |            |   |      |   |            |        |  |   |            |   |  |       |   
|-------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ------ |  | - | ---------- | - |  | ----- | --
|               |  | Year Ended December 31, |           
|               |  | 2007                    |            |   | 2006 |   |            | Change |  |   | %          |  
|Revenues       |  | $                       | 10,200,349 |   |      | $ | 11,001,011 |        |  | $ | (800,662   | ) |  | (7.3  | )%
|Cost of sales  |  |                         | 7,453,549  |   |      |   | 7,064,461  |        |  |   | (389,088   | ) |  | (5.5  | )%
|               |  |                         |            |   |      |   |            |        |  |   |            |   |  |       |   
|Gross profit   |  | $                       | 2,746,800  |   |      | $ | 3,936,550  |        |  |   | (1,189,750 | ) |  | (30.2 | )%
|               |  |                         |            |   |      |   |            |        |  |   |            |   |  |       |   
|Gross margin % |  |                         | 27         | % |      |   | 36         | %      |  |   |            |   |  |       |   

Revenues for 2007 decreased 7% to approximately $10,200,000 as compared to approximately
$11,001,000 during the preceding year. Excluding the impact of approximately $448,000 in sales of ALS products, the Companys revenues decreased $1,243,000 or 11% in a year over year comparison.

Commercial lighting sales (includes sales in the architectural and entertainment markets) increased 5%, or $192,900 in 2007, driven by $392,000 in
commercial sales from the Companys September 2007 acquisition of ALS. Excluding sales attributable to ALS, the Companys commercial sales decreased 6%, or $241,000 in 2007 driven primarily by a 15% decrease in sales of fiber optic
products in the commercial market due to customer shifts to LED based lighting products. In the fourth quarter of 2007, the Company implemented a strategic upgrade to its sale representation in North America by making sales representative changes in
Las Vegas, Los Angeles and Raleigh. As a result, fourth quarter 2007 commercial revenue increased 18%, or $178,000. In February 2008, the Company changed its SV Lighting representation in Chicago and has plans to continue to align itself with the
top manufacturers representatives in every major city in North America.

Pool and spa sales decreased by 17%, or $788,088 in 2007 as
compared to 2006, with both fiber optic sales declining 26% and LED sales declining 15% due to significant year over year reductions in new pool construction tied to the steep drop in residential construction nationally and more specifically in the
states of Florida, California and Arizona where pool construction has led the rest of the country in the last five years. The overall portable spa market is also suffering a steep decline, which, we believe, directly corresponds to the housing
market. However, in September, the Company hired a new Vice President for its Pool and Spa Division. Under this new direction, management has begun several initiatives to position the Company for potential future growth and market share gains
despite the current housing market conditions and their overall effect on pool and spa construction. We believe the results are beginning to show. Pool and Spa sales in the fourth quarter of 2007 increased 13% over the comparable quarter of 2006. A
13% increase in revenue from pool and spa sales in the fourth quarter of 2007 compares to a decrease in revenue of 17% in the third quarter, a 20% decrease in the second quarter, and a 32% decrease in the first quarter of 2007. We believe that this
positive trend



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##### Table of Contents

indicates that our new management team is having an impact as our pool and spa revenues are improving despite the severely depressed market. These results
are being accomplished through new product introductions and specifically sales of the Companys new Savi Note lighting system and focused marketing efforts.

International sales decreased 10%, or $249,196 in 2007 as compared to 2006, with LED and fiber optic sales down 17% and 3%, respectively. The decline in international sales was primarily driven by decreases in sales
in several markets where the Company had enjoyed previous successes. We experienced the most significant decline in Asia and Mexico partially offset by sales gains in the Middle East. With the acquisition of Advanced Lighting Systems, the Company is
in the process of consolidating international sales and customer service at its new headquarters in Charlotte, North Carolina. This will allow the Companys international distributors and customers to have a one-stop shop for receiving design
assistance and project proposals as well as placing orders with any of the Nexxus Lighting divisions. In addition, Advanced Lighting Systems products will be introduced to the Companys complete network of international distributors as
new products to sell in the first quarter of 2008.

Gross margins in 2007 decreased to 27% from 36% in 2006 due to consolidated cost of
goods sold increasing 5.5% to approximately $7,454,000 in 2007 as compared to approximately $7,064,000 in 2006 while revenue decreased 7% in 2007. This increase in cost of goods sold resulted from increased variable cost of goods sold of
approximately $484,000 as direct gross margin (revenue less cost of direct material only) eroded to 56% as compared to 58% in 2006.

Excluding the impact of sales by ALS in the 4thquarter of 2007, revenue decreased 11% and cost of goods sold increased to approximately $7,138,000, an increase of approximately $74,000 or 1% resulting in a decline in gross
margin to 27%. While the loss of revenue was attributable primarily to the significant year over year reduction in new pool construction, pricing pressures in the international markets combined with pricing discounts in the commercial market in
order to maintain a competitive advantage also contributed to the revenue decline and this required discounting was not accompanied by reduced costs from suppliers. This caused a decrease in direct gross margins from 57% to 52% in 2007.

Offsetting the decrease in cost of goods sold from decreasing revenue, production costs increased approximately $419,000 due primarily to a $158,000
increase in charges for excess and obsolete inventories, $185,000 higher expense for capitalized labor and overhead as the Company reduced its inventory, increases in health insurance expense of $58,000, $37,000 in relocation expenses for the
Companys move to its new Orlando operating facility, and $36,000 in higher wages and temporary labor costs due to higher assembly requirements in 2007 versus contract manufactured products in 2006. These increased expenses were offset slightly
by a $62,000 decrease in physical inventory adjustments over 2006.

Operating Loss and Expenses



|                                                        |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   
|------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ------ |  | - | ---------- | - |  | --- | --
|                                                        |  | Year ended December 31, |           
|                                                        |  | 2007                    |            |   | 2006 |   |            | Change |  |   | %          |  
|Gross Profit                                            |  | $                       | 2,746,800  |   |      | $ | 3,936,550  |        |  | $ | (1,189,750 | ) |  | (30 | )%
|Less operating expenses:                                |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   
|Selling, general & administrative                       |  |                         | 5,561,273  |   |      |   | 6,040,523  |        |  |   | (479,250   | ) |  | (8  | )%
|Research & development                                  |  |                         | 417,661    |   |      |   | 538,298    |        |  |   | (120,637   | ) |  | (24 | )%
|Gain on disposal of property and equipment              |  |                         | 1,125      |   |      |   | (593       | )      |  |   | 1,718      |   |  | n/a |   
|Gain on termination of capital lease, net of impairment |  |                         |           |   |      |   | (506,367   | )      |  |   | 506,367    |   |  | n/a |   
|                                                        |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   
|Total operating expenses                                |  |                         | 5,980,059  |   |      |   | 6,071,861  |        |  |   | (91,802    | ) |  | (2  | )%
|                                                        |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   
|Operating loss                                          |  | $                       | (3,233,259 | ) |      | $ | (2,135,311 | )      |  | $ | (1,097,947 | ) |  | (51 | )%
|                                                        |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   

The increased operating loss for the year ended December 31, 2007 was due to the decrease in
sales and related gross profit, as discussed above.

General and administrative (G&A) expenses decreased $388,707 or 11% and selling
expenses decreased $80,682 or 3% in 2007 as compared to the prior year. Excluding the impact of ALS expenses, G&A expenses decreased $617,000 or 17% in 2007



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##### Table of Contents

compared to 2006. These decreases in 2007 were due primarily to decreases in legal expenses of $917,000, due to the negotiated settlement or final resolution
of pending litigation in 2006, and a $262,000 decease in consulting fees paid to Brett M. Kingstone, the Companys chairman of the board, pursuant to the Participation Agreement between the Company and Mr. Kingstone in 2006.

These decreases were partially offset by increases of $105,000 in wages and taxes due to additions of management positions, $83,000 in Sarbanes Oxley
compliance related expenses, executive recruiting costs of $78,000, increases in the Companys property insurance costs of $58,000 primarily due to the changes in our insurance costs in the state of Florida, increases in health insurance costs
of $39,000, severance costs of $35,000 and employee relocation costs of $35,000.

Sales and marketing expenses decreased $81,000 to
approximately $2,385,000 in 2007 as compared to $2,466,000 for the same period in 2006 as a result of decreased commissions on lower commission-based revenue.

Research and development expenses decreased in 2007 compared to 2006 by approximately $121,000 or 22% mainly due to a reduction in wage and benefit related costs and a reduction in new product engineering and
prototype expenses. Despite the reductions, we continue to invest a significant amount of time and resources in new product development projects in 2007 that we believe will contribute to our growth in the future. Most of these products are now
entering production and we anticipate beginning selling efforts in the 2nd and 3rd quarters of 2008.

In November 2006, the Company
entered into a lease termination agreement with Max King Realty, Inc. (Max King Realty), a company controlled by Brett M. Kingstone, the Companys chairman of the board, to terminate the capital lease with Max King Realty for the
Companys previous operating facility in Orlando, FL. Upon executing the lease termination agreement, the balance of the capital lease obligation of $2,312,900, less the promissory note payable to Max King Realty of $332,800 and the net book
value of the related office/warehouse building of approximately $1,232,400 resulted in a gain on termination of capital lease of approximately $747,700. This gain was offset by an impairment loss of $241,300 for leasehold improvements made to the
facility resulting in a net gain of $506,400.

Interest

Interest expense of approximately $39,000 for 2007 was primarily related to the cost of borrowing against the Companys line of credit. Interest
expense of approximately $356,000 for 2006 was primarily related to the capital lease for the Companys previous operating facility in Orlando, Florida. Effective November 30, 2006, the Company entered into a lease termination agreement
with Max King Realty, Inc., a company controlled by the Companys Chairman of the Board, which resulted in the termination of the capital lease obligation which had a term of fifteen-years extending through June 15, 2012.

Interest income was approximately $295,000 and $38,000 for 2007 and 2006, respectively. Interest income increased in 2007 as a result of higher
investment account balances due to the investment of a portion of the net proceeds received by the Company from the sale of common stock and warrants in a private placement completed in December 2006.

Other Income

Other income for 2007
was approximately $37,000 compared to approximately $222,000 for 2006. Other income in 2007 consisted primarily of $34,000 in license and royalty fees received from a number of manufacturing companies in the lighting industry which licensed the High
End Systems (HES) Patent the Company acquired in 2004 and proceeds of $3,000 from sub-leasing part of the Companys facility through March 2007. The decrease in other income in 2007 compared to 2006 was primarily due to the $148,000 decrease in
subleasing income and a decrease of $37,000 in income from licensing and royalty fees.

Income Tax

The Company has provided a full valuation allowance against income tax benefits resulting from losses incurred on operations and as a result there was no
provision for income tax in 2007 or 2006.



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##### Table of Contents

Net Loss

The net loss for the year ended December 31, 2007 was approximately $2,940,000, or $0.44 per basic and diluted common share, as compared to a net loss of approximately $2,235,000, or $0.80 per basic and diluted
common share, for the year ended December 31, 2006.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP (Generally Accepted Accounting Principle)
financial measure provided as additional information to investors. EBITDA is an alternative method for assessing our financial condition and operating results. EBITDA is not in accordance with, or a substitute for, GAAP, and may be different from or
inconsistent with non-GAAP financial measures used by other companies. However, the Companys management believes that EBITDA may provide additional information with respect to the Companys performance and its ability to meet future debt
service, capital expenditures and working capital requirements.

Whenever we refer to a non-GAAP financial measure we will present the most
directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measures we reference with such comparable GAAP financial measure.

The following table reconciles the GAAP measure net loss to the non-GAAP financial measure EBITDA:



|                              |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   
|----------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ------ |  | - | ---------- | - |  | --- | --
|                              |  | Year Ended December 31, |           
|                              |  | 2007                    |            |   | 2006 |   |            | Change |  |   | %          |  
|Net Loss                      |  | $                       | (2,940,136 | ) |      | $ | (2,235,003 | )      |  | $ | (705,133   | ) |  | (32 | )%
|Plus:                         |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   
|Interest expense              |  |                         | 38,940     |   |      |   | 356,320    |        |  |   | (317,380   | ) |  | (89 | )%
|Depreciation and amortization |  |                         | 459,239    |   |      |   | 571,644    |        |  |   | (112,405   | ) |  | (20 | )%
|Taxes                         |  |                         |           |   |      |   |           |        |  |   |           |   |  |    |   
|                              |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   
|EBITDA                        |  | $                       | (2,441,957 | ) |      | $ | (1,307,039 | )      |  | $ | (1,134,918 | ) |  | (87 | )%
|                              |  |                         |            |   |      |   |            |        |  |   |            |   |  |     |   
|% of Revenues                 |  |                         | -24        | % |      |   | -12        | %      |  |   |            |   |  |     |   

For the year ended December 31, 2007, EBITDA was approximately ($2,442,000) compared to
approximately ($1,307,000) in 2006. The decrease was primarily due to an increase in net operating loss in 2007 offset by a decrease in interest expense as discussed above. Additionally, a decrease in depreciation, impairment and amortization was
primarily due to the termination of the capital lease with Max King Realty which was partially offset by an increase in depreciation for capital purchases in 2007. Despite the lower EBITDA in 2007 compared to 2006, management anticipates that
continued focus on revenue growth and cost management will yield positive contributions to our EBITDA in 2008.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2007, the Company had working capital of approximately $5,636,000, a decrease of approximately 44% from working
capital of approximately $10,012,000 at December 31, 2006. This decrease in working capital is primarily due to decreases in the Companys cash and investments balances discussed below, payments on a promissory note in connection with
settling a litigation matter and borrowings under the Companys line of credit to fund operating losses experienced during 2007. The reduction in working capital was offset slightly by the September 2007 addition of working capital of $545,000
from the ALS acquisition and a $277,000 decrease in inventory (excluding inventories acquired in the ALS acquisition). During 2007, the Company financed its operations primarily from borrowings under its revolving line of credit, investments,
working capital and cash on hand.



|                                                    |  |                    |            |   |      |   |            |  
|--------------------------------------------------- |  | ------------------ | ---------- | - | ---- | - | ---------- | -
|                                                    |  | For the Year Ended |           
|Summary of Cash Flows                               |  | 2007               |            |   | 2006 |  
|Net cash used in operating activities               |  | $                  | (2,160,377 | ) |      | $ | (1,675,282 | )
|Net cash provided by (used in) investing activities |  |                    | 1,596,123  |   |      |   | (6,392,644 | )
|Net cash provided by financing activities           |  |                    | 203,339    |   |      |   | 8,351,027  |  



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##### Table of Contents

Cash Flows from Operating Activities

Net cash used in operations totaled approximately $2,160,000 for the year ended December 31, 2007 compared to approximately $1,675,000 for the year
ended December 31, 2006. The net loss of approximately $2,940,000 was partially offset by the non-cash expenses for depreciation and amortization of $459,000 and stock based compensation expense of $229,000. The most significant use of cash in
operations during 2007 resulted from a decrease in accounts payable of approximately $168,000, mainly due to the timing of payments to suppliers, and an increase in prepaid expenses of $122,000, primarily from prepayments to Asian vendors. This was
offset by a decrease in inventory of approximately $211,000 due to improved management of the Companys inventories and an increase in customer deposits of $144,000 due to several deposits from customers for several large projects.

Cash Flows from Investing Activities

Net cash provided by investing activities in 2007 was approximately $1,596,000 compared to net cash used in investing activities of approximately $6,393,000 for 2006. During 2007, net cash provided by investing
activities included proceeds from the sale of investments, net of purchases of investments, of approximately $4,015,000. In addition, purchases of property and equipment of approximately $589,000 in 2007 as compared to $313,000 in 2006. Funds used
in business acquisition activities were approximately $1,818,000 which were used in the acquisition of ALS.

Cash Flows from Financing
Activities

Net cash provided by financing activities for the year ended December 31, 2007 was approximately $203,000 compared to
approximately $8,351,000 for the year ended December 31, 2006. The primary source of cash during 2006 was the net proceeds of approximately $8,350,000 received from the sale of common stock and warrants in a private placement completed in
December 2006. In 2007, the Company paid $124,000 in fees related to the December 2006 private placement.

In 2007, the cash provided by
financing activities was mainly attributable to net borrowings on our revolving line of credit of approximately $1,443,000 offset by $1,158,000 of payments on notes payable for litigation settlements in 2006, as compared to zero borrowings and no
payment on notes payable in 2006.

In February 2006 the Company obtained a $1,200,000 revolving line of credit which was amended in
June 2006, to increase the borrowing capacity under the line of credit to $1,600,000. The line of credit expires in June 2008 at which time we expect that a new agreement will be entered into with the financial institution. The Companys
obligations under the agreement are secured by substantially all of the assets of the Company. The agreement includes certain financial covenants and a requirement for a minimum investment balance of $500,000 in accounts held at the lender. Interest
on the line of credit is at LIBOR plus 1.85% per annum (7.075% at December 31, 2007) and is payable monthly. At December 31, 2007, the line of credit had an outstanding balance of $1,443,000 and there was an available balance of
$157,000.

At December 31, 2007 the Company was not in compliance with certain financial covenants as required by the agreement. The
lender has waived these covenant violations for the year ended December 31, 2007.

Nexxus liquidity is affected by many factors.
Some of these factors are based on operations of the business and others relate to the uncertainties of national and global economies and the lighting industry. Management anticipates that the cash, cash equivalents and investments on hand at
December 31, 2007 as well as availability for borrowing under the Companys revolving line of credit will be sufficient to fund the Companys foreseeable cash requirements for at least the next twelve months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We use
certain accounting policies and procedures to manage changes that occur in our business environment that may affect accounting estimates made in preparation of our financial statements. These estimates relate primarily to our allowance for doubtful
accounts receivable, provision for inventory obsolescence and stock-based compensation. Our strategy for managing doubtful accounts includes stringent, centralized credit policies and collection procedures for all customer accounts. We use a credit
risk rating system in order to measure the quality of individual credit transactions. We strive to identify potential problem receivables early, take



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appropriate collection actions, and maintain adequate reserve levels. Our strategy for providing for inventory obsolescence includes the evaluation of
existing inventory usage and realizable value. Typically, no provision is recorded for inventory items that are currently used and sold within one year of purchase. We believe that our allowance for doubtful accounts and provision for inventory
obsolescence were adequate at December 31, 2007 and 2006.

We account for stock-based compensation in accordance with SFAS
No. 123(R), Share-Based Payment. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting
period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating expected dividends. In addition, judgment is also required in estimating the amount of share-based awards that are expected to be
forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

CONTRACTUAL OBLIGATIONS

Acquisition

On August 3, 2007, the Company entered into an agreement and plan of merger with Advanced Lighting Systems, Inc., a Minnesota corporation, Advanced
Lighting Systems, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (the Merger Sub) and Paul Streitz, the sole shareholder of ALS. This agreement contains provisions for (i) earn out
payments in the form of the Companys common stock to the sole shareholder of ALS depending upon the achievement of certain performance milestones by ALS in 2007 and 2008, and (ii) a $200,000 indemnity holdback for future claims.

Operating Lease Obligations

On
September 28, 2007, the Company entered into a five year operating lease agreement with Streitz Properties LLC, a company owned by Paul Streitz, President of the Companys ALS subsidiary. This operating lease is for ALS operations
facility in Sulk Centre, MN. Base rent under the lease is $8,815 per month for the duration of the lease.

On November 30, 2006, we
entered into a new five year operating lease agreement with EastGroup Properties, L.P. Commencing April 1, 2007, the Company relocated to approximately 34,000 square feet of office, distribution and light manufacturing space in Orlando, Florida
for its Orlando operations facility. The lease contains scheduled annual rent increases. Base rent under the lease started on April 1, 2007 with monthly payments of $19,846 for the first twelve-month period and increases annually by 3.5%
thereafter. In addition to base rent, the Company is required to pay its pro rata share of the propertys operating expenses, including property taxes, insurance and non-structural repairs. The lease provides for a security deposit of $28,576.

On November 30, 2006, the Company entered into a four month operating lease with FLIR Systems, Inc., the new owner of the property
previously leased from Max King Realty, Inc., through March 31, 2007. The lease was for the use of 40,000 square feet of manufacturing and distribution space at a gross monthly amount of $29,820 through March 31, 2007. A security deposit
has been paid in the amount of $28,000 and is expected to be returned upon inspection of the property.

On February 27, 2007, the
Company entered into a new five year operating lease agreement with Floyd Smith Office Park, LLC, commencing approximately June 1, 2007 for the Companys new corporate headquarters in Charlotte, North Carolina. The Company leases
approximately 2,100 square feet of office space for a gross rental rate of $3,400 per month including build-out, power and water utilities and the Companys pro rata share of the propertys operating expenses, property taxes, insurance and
non-structural repairs. After the initial twelve-month period, the rent will increase annually by 3.0%. The lease provides for a security deposit of approximately $3,400. On August 24, 2007, the Company leased an additional 3,000 square feet in
this facility for an additional gross rental rate of $4,972 per month on the same basis and with the same provisions as the original lease with an additional security deposit of $4,972.



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Related Party Funding for Collection Activities

On November 18, 1999, the Company filed a lawsuit (case number CI-99-9392) (the
Lawsuit) in the Circuit Court of the 9thJudicial Circuit in and for Orange County Florida against various defendants (the Wu
Defendants). The Company is also pursuing litigation against certain parties related to the Wu Defendants (the Related Litigation). In June 2003, the Court issued an order of final judgment against all parties in the Lawsuit.
Pursuant to the final judgment, the Company was awarded $38,405,978 and further awarded an additional amount for legal fees and costs of $834,297. As of the date of entry of the final judgment, these amounts began accruing interest at a rate of six
percent per year. As of December 31, 2007, the total amount due including estimated accrued interest was approximately $50 million. The Company believes that the monetary judgment awarded in the Lawsuit, and any amounts that may be awarded in
the Related Litigation, will be very difficult and costly to collect, if collectable at all. The Company may not be successful in collecting any amounts awarded in the Lawsuit or that may be awarded in the Related Litigation. The Company has reached
an agreement with Brett M. Kingstone, the Companys chairman of the board (the Participation Agreement) regarding funding for collection activities in the Lawsuit or Related Litigation (the Collection Activities).
Mr. Kingstone has the option of providing personal funds (Kingstone Funds), or arranging for funds from third parties (Third Party Funds), to pursue Collection Activities. As of December 31, 2007, Mr. Kingstone
had provided $350,000 in the form of a Letter of Credit, and arranged for $350,000 of Third Party Funds, to further the Collection Activities. The Kingstone Funds and Third Party Funds were subsequently returned after being used for bonding in
connection with Collection Activities. Mr. Kingstone has also notified the Company that he has available, on a standby basis, up to an additional $3,000,000 of bonding capacity to pursue further Collection Activities. In consideration for
providing Kingstone Funds and/or Third Party Funds for Collection Activities, and pursuant to the transition agreement between the Company and Mr. Kingstone dated September 9th, 2005, the Company has agreed to pay Mr. Kingstone 50% of amounts actually received by the Company from all Collection Activities less all costs and expenses incurred from time
to time by the Company in connection with the Lawsuit, the Related Litigation and the Collection Activities, which have not been recovered by the Company. The Participation Agreement will terminate on December 31, 2009. To date, the Company has
incurred approximately $581,000 in fees and has recovered $830,000 from Collection Activities. Of the $830,000 recovered, Mr. Kingstone has been paid a total of $263,500 pursuant to the Participation Agreement.

Purchase Obligations

We are not a party to any
significant long-term service or supply contracts. We refrain from entering into any long-term purchase commitments in the ordinary course of business.

Letters of Credit

We periodically obtain guaranteed letters of credit with a financial institution to enable us to purchase
inventory from overseas, primarily from vendors in China. As of December 31, 2007 we had no outstanding letters of credit.

RECENT ACCOUNTING
PRONOUNCEMENTS

In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and Financial
Liabilities, (SFAS No. 159) which upon adoption would allow entities to choose to measure many financial instruments and certain other items at fair value through earnings. The standard allows the fair value measurement to be
applied instrument by instrument, is irrevocable for any instruments for which such selection is made, and applies to the entire instrument. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact of this standard on its financial statements.

In June 2007, the FASB ratified EITF Issue No. 07-03,
Accounting for Nonrefundable Advance Payments for Goods and Services Received for Use in Future Research and Development Activities. EITF 07-03 requires companies to defer nonrefundable advance payments for goods and services and to
expense such advance payments as the goods are delivered or services are rendered. If the Company does not expect to have the goods delivered or services performed, the advance should be expensed. EITF 07-03 is effective for fiscal years beginning
after December 15, 2007. The Company is currently evaluating the impact of adopting EITF 07-03 on its financial statements.



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In December 2007, the FASB issued Statement 141R, Business Combinations (SFAS 141R), which
applies to all transactions or other events in which an entity obtains control of one or more businesses, including those sometimes referred to as true mergers or mergers of equals and combinations achieved without the
transfer of consideration. This statement replaces FASB Statement No. 141 and applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for some business combinations. The
Company believes that adoption of the FAS 141R will have an effect on our operating results with respect to future acquisitions, if any.

In September 2006, FASB issued Statement No. 157, Fair Value Measurements (SFAS 157). This statement defines fair value and establishes a framework for measuring fair value in generally accepted accounting principles
(GAAP). More precisely, this statement sets forth a standard definition of fair value as it applies to assets or liabilities, the principle market (or most advantageous market) for determining fair value (price), the market participants, inputs and
the application of the derived fair value to those assets and liabilities. The effective date of this pronouncement is for all full fiscal and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of
this standard on its financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

The following are some of the
factors that we believe could cause our actual results to differ materially from expected and historical results. Other factors besides those listed below could also adversely affect the Company.

Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
Section 21E of the Securities Exchange Act of 1934, and the Cautionary Safe Harbor Disclosure for Forward Looking Statements under the Private Securities Litigation Reform Act of 1995, which provide that, because of the factors set forth below,
as well as other variables affecting the Companys operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends
in future periods. The statements contained herein, which are not historical facts, are forward-looking statements that are subject to meaningful risks and uncertainties, including, but not limited to, the factors set forth below. In some cases, one
can identify forward-looking statements by terminology such as may, should, expect, plan, anticipate, believe, estimate, predict, forecast,
intend, or potential. Additional information concerning these or other factors which could cause actual results to differ materially from those contained or projected in, or even implied by, such forward-looking statements is
contained in this report and also from time to time in the Companys other Securities and Exchange Commission (SEC) filings. Copies of these filings are available from the Company and/or the SEC. Although the Company believes that
the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking information will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will
be achieved.

The Company Has A History Of Operating Losses And May Not Be Able To Operate Profitably. The Company has experienced annual net losses
of ($2,940,136), ($2,235,003), ($488,458) and ($401,432) for each of the years ending December 31, 2007, 2006, 2005 and 2004, respectively. Although management believes that in 2007 and 2006, the Company addressed many of the legacy issues and
expenses that have burdened the Companys financial performance, the Company still faces significant challenges in order to reach profitability. In order for the Company to attain profitability and growth, it will need to successfully address
these challenges. Most of the Companys expenses are fixed in nature, and the Company is generally unable to reduce expenses significantly in the short-term to compensate for any unexpected delay or decrease in anticipated revenues. As a
result, the Company may continue to experience losses on a quarterly or annual basis, which could cause a reduction in cash flows and the market price of the Companys common stock to decline.



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We Expect to Acquire other Businesses, Which may Adversely Affect our Operating Results, Financial Condition and
Existing Business.The Company seeks to grow through strategic acquisitions. In 2007, the Company acquired Advanced Lighting Systems to complement and expand its business, and may acquire other businesses in the future. The success of our
acquisition program will depend on, among other things:



| |  |  | the availability of suitable candidates;
| | - |  | ----------------------------------------



| |  |  | competition from other companies for the purchase of available candidates;
| | - |  | --------------------------------------------------------------------------



| |  |  | our ability to value those candidates accurately and negotiate favorable terms for those acquisitions;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | the availability of funds to finance acquisitions; and
| | - |  | ------------------------------------------------------



| |  |  | the availability of management resources to oversee the integration and operation of the acquired businesses.
| | - |  | -------------------------------------------------------------------------------------------------------------

Financing for the acquisitions may come from several sources, including our existing cash on hand, proceeds from the exercise of outstanding warrants,
the incurrence of indebtedness or the issuance of additional common stock, preferred stock, debt (whether convertible or not) or other securities. Increased indebtedness could negatively affect our liquidity and operating flexibility. The issuance
of any additional securities could, among other things:



| |  |  | result in substantial dilution of the percentage ownership of our stockholders at the time of issuance;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | result in substantial dilution of our earnings per share; and
| | - |  | -------------------------------------------------------------



| |  |  | adversely affect the prevailing market price for our common stock.
| | - |  | ------------------------------------------------------------------

An Adverse Change in Economic Conditions Could Reduce the Demand for New Building Construction and Renovation and, as a Result, could Reduce our Earnings and Adversely affect our Financial Condition. Adverse
changes in national and regional economic conditions, as well as international economic conditions, can have a negative impact on our business. In most areas, sales of new and existing homes have slowed in recent months. Continued downturn in the
housing market, adverse changes in employment levels, job growth, consumer confidence, and interest rates and an oversupply of commercial and residential buildings for sale, may reduce demand for our products. This, in turn, can reduce our earnings
and adversely affect our financial condition.

Our Inability to Successfully Integrate Businesses we Acquire, if any, Could have Adverse Consequences on
Our Business.Acquisitions result in greater administrative burdens and operating costs and, to the extent financed with debt, additional interest costs. If we acquire additional businesses, we cannot assure you that we will be able to
manage or integrate acquired companies or businesses successfully. The process of integrating acquired businesses, if any, may be disruptive to our business and may cause an interruption of, or a loss of momentum in, our business as a result of the
following factors, among others:



| |  |  | loss of key employees or customers;
| | - |  | -----------------------------------



| |  |  | possible inconsistencies in standards, controls, procedures and policies among the combined companies and the need to implement company-wide financial, accounting,
information and other systems;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | failure to maintain the quality of services that the companies have historically provided;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the need to coordinate geographically diverse organizations; and
| | - |  | ----------------------------------------------------------------



| |  |  | the diversion of managements attention from our day-to-day business as a result of the need to deal with any disruptions and difficulties and the need to add
management resources to do so.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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These disruptions and difficulties, if they occur, may cause us to fail to realize the cost savings, revenue enhancements
and other benefits that we may expect from such acquisitions and may cause material adverse short- and long-term effects on our operating results and financial condition.

General Economic and Industry Conditions May Affect Business. Any general economic, business or industry conditions that cause customers or potential customers to reduce or delay their purchases of lighting
products, signs or displays could have a material adverse effect on the Company, its prospects and financial performance. Worldwide economic conditions could have an effect on the demand for the Companys products and could result in declining
revenue and earnings. General economic declines or a softening of the economy make it more likely that the Company may experience difficulties collecting accounts receivable, sales and demand for the Companys products may decrease, and the
Companys operating results may be adversely affected.

Quarterly Operating Results Fluctuate As A Result Of Many Factors. Quarterly revenues
and operating results have fluctuated and are likely to continue to vary from quarter to quarter due to a number of factors, many of which are not within the control of the Company. Factors that could affect revenues include, among others, the
following:



| |  |  | competitive factors, such as competitive pricing pressure and the potential introduction of new products by competitors;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | manufacturing factors, including constraints in the Companys manufacturing and assembly operations and shortages or increases in the prices of raw materials
and components;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | sales and distribution factors, such as changes in product mix or distribution channels resulting in lower margins, increases in sales and marketing expenses, the
loss of a significant distributor or sales representative, and seasonality of sales;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | product development and introduction problems, such as increased research, development and marketing expenses associated with new product introductions, delays in
the introduction of new products and technologies, and adverse effects on sales of existing products;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability to control costs, including levels of expenses relative to revenue levels;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | risk of product returns and exchanges; the Company may experience component problems in the future that could increase warranty reserves and manufacturing costs;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ability to develop, introduce, market and gain market acceptance of new products and product enhancements in a timely manner;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | the size, timing, rescheduling or cancellation of significant customer orders;
| | - |  | ------------------------------------------------------------------------------



| |  |  | the risk of loss of a significant customer;
| | - |  | -------------------------------------------



| |  |  | changes in the Companys pricing policies and the pricing policies of suppliers and competitors, pricing concessions on volume sales, as well as increased
price competition in general;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | success in expanding and implementing our sales and marketing programs;
| | - |  | -----------------------------------------------------------------------



| |  |  | relatively small level of backlog at any given time;
| | - |  | ----------------------------------------------------



| |  |  | the mix of sales among the Companys products;
| | - |  | ----------------------------------------------



| |  |  | deferrals of customer orders in anticipation of new products, or product enhancements;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | risks and uncertainties associated with international business;
| | - |  | ---------------------------------------------------------------



| |  |  | expenses that may be incurred in litigation;
| | - |  | --------------------------------------------



| |  |  | personnel changes;
| | - |  | ------------------



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| |  |  | currency fluctuations and our ability to get currency out of certain foreign countries; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | general economic and market conditions, including housing market trends, interest rates, the weather, terrorist activities and the prospect of or the actuality of
war.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, sales in any quarter may consist of a relatively small number of large customer orders. As a result,
the timing of a small number of orders may impact quarter-to-quarter results. The loss of, or a substantial reduction in, orders from any significant customer could materially harm the Companys business, financial condition and results of
operations.

Quarterly operating results are also substantially affected by the markets acceptance of the Companys products and
the level and timing of orders received. Significant portions of the Companys expenses are relatively fixed in advance based upon forecasts of future sales. If sales fall below expectations in any given quarter, operating results will be
adversely affected. In addition, certain product development and marketing expenditures may vary significantly from quarter to quarter and are made well in advance of potential resulting revenue.

Due to all of the factors listed above and other risks discussed herein, future operating results could be below the expectations of securities analysts
and investors. If that happens, the trading price of the Companys common stock could decline. As a result of these quarterly variations, securities analyst and investors should not rely on quarter-to-quarter comparisons of the Companys
operating results as an indication of the Companys future performance.

If Fiber Optic
Lighting Products and LED Lighting Products Do Not Gain Wider Market Acceptance Business and Financial Performance May Suffer. The Company derives net sales and income primarily from selling SIDE-GLOW® and END GLOW® fiber optic cables, light sources, lighting accessories, fiber optically lit waterfalls and water features, as well as new LED lighting
products. The Companys fiber optic lighting products and LED lighting products compete with traditional lighting technologies such as neon, incandescent and florescent lighting. Traditional lighting technologies have the advantage of a long
history of market acceptance and familiarity as compared to the Companys products. The initial purchase price of the Companys fiber optic lighting products and LED lighting products are typically higher than conventional lighting and due
to the nature of the technology the Companys products tend to be less bright than conventional alternatives, but more energy efficient. The Companys continued success will depend upon both the increased acceptance of fiber optic lighting
products and LED lighting systems as an alternative to neon and other traditional lighting technologies and the development of higher lumen producing products to meet traditional lighting applications. The Companys future results are dependent
upon continued growth of fiber optic and LED lighting products in the commercial, pool and spa and OEM lighting markets. As part of the Companys sales and marketing strategy, the Company actively seeks to educate its target markets as to the
advantages of fiber optic lighting systems and LED lighting systems. The Company believes that achievement of this objective is critical to its future success. Fiber optic lighting products and LED lighting products may not continue to gain market
share within the overall lighting market or competitors may introduce better lighting technologies, displacing fiber optic lighting products and LED lighting products in the market. Either of these occurrences could have a material adverse effect on
the Companys business, results of operations, and the value of its securities.

Sales Are Dependent Upon New Construction Levels and Are Subject
To Seasonal Trends. Sales of the Companys lighting products depend significantly upon the level of new building construction and renovation. Construction levels are affected by housing market trends, interest rates and the weather. Sales
of the Companys pool and spa lighting products depend substantially upon the level of new pool construction. Because of the seasonality of construction, the Companys sales of swimming pool and lighting products, and thus the
Companys overall revenues and income, have tended to be significantly lower in the first quarter of each year. Various economic and other trends may alter these seasonal trends from year to year, and the Company cannot predict the extent to
which these seasonal trends will continue.

Future Success Depends On The Successful Development And Market Acceptance Of New Products. The Company
believes revenue growth and future operating results will depend in part on its ability to complete development of new products and enhancements to existing products, introduce these products in a timely, cost-effective manner, achieve broad market
acceptance of these products and enhancements, and reduce the Companys product costs. The Company may not be able to introduce any new products or any enhancements to its existing products on a timely basis, if at all. In addition, the
introduction of any new products could adversely



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affect the sales of certain of the Companys existing products. Market acceptance of the Companys new products depends upon many factors,
including the Companys ability to accurately predict market requirements and evolving industry standards, the Companys ability to resolve technical challenges in a timely and cost-effective manner and achieve manufacturing efficiencies,
the perceived advantages of the Companys new products over traditional products, and the marketing capabilities of the Companys independent distributors and sales agents.

The Company Has Significant International Sales And Is Subject To Risks Associated With Operating In International Markets. International product sales represented approximately 30% and 26% of the
Companys total revenues for the years ended December 31, 2007 and 2006, respectively. The Company believes its international distributors are better able to service international markets due to their understanding of local market
conditions and best business practices. International business operations are subject to inherent risks, including, among others:



| |  |  | unexpected changes in regulatory requirements, tariffs and other trade barriers or restrictions;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | longer accounts receivable payment cycles;
| | - |  | ------------------------------------------



| |  |  | difficulties in managing and staffing international operations;
| | - |  | ---------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | the burdens of compliance with a wide variety of foreign laws;
| | - |  | --------------------------------------------------------------



| |  |  | import and export license requirements and restrictions of the United States and each other country in which the Company operates;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | exposure to different legal standards and reduced protection for intellectual property rights in some countries;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | currency fluctuations and restrictions; and
| | - |  | -------------------------------------------



| |  |  | political, social and economic instability including war and the threat of war.
| | - |  | -------------------------------------------------------------------------------

Any of these factors may adversely affect the Companys future international sales and, consequently, the Companys business and operating
results. Furthermore, as the Company increases its international sales, total revenues may also be affected to a greater extent by seasonal fluctuations resulting from lower sales that typically occur during the summer months in Europe and other
parts of the world.

The Company believes that international sales will continue to represent a significant portion of its revenues, and
that continued growth and profitability may require further expansion of the Companys international operations. All of the Companys international sales are currently denominated in U.S. dollars. As a result, an increase in the relative
value of the dollar could make the Companys products more expensive and potentially less price competitive in international markets. The Company does not engage in any transactions as a hedge against risks of loss due to foreign currency
fluctuations.

Competition Is Increasing In A Number Of The Companys Markets.The lighting industry is highly competitive. The Companys
product lines span major segments within the lighting industry and, accordingly, compete in a number of different markets with a number of different competitors. The Company competes with independent distributors, importers, manufacturers, and
suppliers of lighting fixtures and other consumer products. The Companys competitors include some very large and well-established companies. Many of the Companys competitors have far greater name recognition and greater financial,
technological, marketing and customer service resources than the Company. This may allow them to respond more quickly to new or emerging technologies and changes in customer requirements. It may also allow them to devote greater resources to the
development, promotion, sale and support of their products than the Company can. The Companys competitors market products that compete with the Companys products on the basis of price and other factors. Some of these competitors do not
maintain warehouse operations or do not perform all of the services the Company provides, which requires the Company to charge higher prices. The relatively low barriers to entry into the lighting industry and the limited proprietary nature of many
lighting products also permit new competitors to enter the industry easily. The Companys ability to compete successfully in this highly competitive market depends upon its ability to manufacture and purchase quality



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components on favorable terms, ensure the Companys products meet safety standards, deliver the Companys products promptly at competitive prices,
and provide a wide range of services. The Company anticipates that any future growth in fiber optic lighting and LED lighting will be accompanied by continuing increases in competition. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously harm the Companys business, financial condition and results of operations.

The Company May Not Be Able To Adequately Protect Or Enforce Its Intellectual Property Rights. The Company considers its technology and procedures proprietary. If the Company is not able to adequately protect or enforce the
proprietary aspects of its technology, competitors could be able to access the Companys proprietary technology and the Companys business, financial condition and results of operations could be harmed. The Company currently attempts to
protect its technology through a combination of patent, copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and similar means. Despite the Companys efforts, other parties may attempt to disclose,
obtain or use the Companys technologies. The Companys competitors may also be able to independently develop products that are substantially equivalent or superior to the Companys products or design around its patents. In addition,
the laws of some foreign countries do not protect the Companys proprietary rights as fully as do the laws of the United States. As a result, the Company may not be able to protect its proprietary rights adequately in the United States or
abroad.

The Company may receive notices that claim it has infringed upon the intellectual property of others. Even if these claims are not
valid, they could subject the Company to significant costs. The Company has engaged in litigation and litigation may be necessary in the future to enforce its intellectual property rights or to determine the validity and scope of the proprietary
rights of others. Litigation may also be necessary to defend against claims of infringement or invalidity by others. An adverse outcome in litigation or any similar proceedings could subject the Company to significant liabilities to third parties,
require the Company to license disputed rights from others or require the Company to cease marketing or using certain products or technologies. The Company may not be able to obtain any licenses on acceptable terms, if at all. The Company also may
have to indemnify certain customers if it is determined that it has infringed upon or misappropriated another partys intellectual property. Any of these results could adversely affect the Companys business, financial condition and
results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and expenses, and the diversion of management resources, regardless of whether the claim is valid, could be significant and
could seriously harm the Companys business, financial condition and results of operations.

Reliance On Third Parties For A Significant Portion Of
Sales; Terms And Conditions Of Sales Are Subject To Change With Very Little Notice. The Company relies significantly on indirect sales channels to market and sell its products. Most of the Companys products are sold through independent
distributors and agents. The Companys current agreements with indirect sales channels are non-exclusive with regard to lighting products in general, but exclusive with respect to fiber optic and LED lighting products. The Company anticipates
that any such agreements it enters into in the future will be on similar terms. Furthermore, the Companys agreements are generally short-term, and can be cancelled by these sales channels without significant financial consequence. The Company
cannot control how these sales channels perform and cannot be certain that either its customers or the Company will be satisfied by their performance. If these distributors and agents significantly change their terms with the Company, or change
their historical pattern of ordering products from the Company, there could be a significant impact on the Companys revenues and profits.

Dependence on Third-Party Suppliers.The Company depends on others to manufacture a significant portion of the component parts incorporated into its products. The Company purchases its component parts from third-party manufacturers
and believes that alternative sources of supply are readily available for most component parts. The Company depends on its suppliers to satisfy performance and quality specifications and to dedicate sufficient production capacity for components
within scheduled delivery times. The Company does not maintain contracts with any of its suppliers; instead, it purchases components pursuant to purchase orders placed from time to time in the ordinary course of business. This means the Company is
vulnerable to unanticipated price increases and product shortages.

In an effort to reduce manufacturing costs, the Company has outsourced
the production of certain parts and components as well as finished goods in its LED lighting product lines to a number of overseas suppliers. While the Company believes alternative sources for the production of these products are available, the
Company has selected these particular manufacturers based on their ability to consistently produce these products per the Companys specifications ensuring the best quality product at the most cost effective price. The Company depends on these
manufacturers to satisfy performance and quality specifications and to dedicate sufficient production capacity for finished products within scheduled delivery times. Accordingly, the loss of all or one of these suppliers or delays in obtaining
shipments could have a material adverse effect on the Companys operations until such time as an alternative supplier(s) could be found.



---

##### Table of Contents

The Company purchases fiber optic strands from a
single Japanese supplier. While the Company believes alternative sources for fiber optic strands are available to enable it to produce its endpoint signs and displays, the SIDE-GLOW®
and END GLOW® cables require fiber optic material of a higher quality than the Company believes is generally available elsewhere. Accordingly, the loss of this supplier or delays in
obtaining shipments could have a material adverse effect on the Companys operations until such time as an alternative supplier could be found.

The Company may be subject to various import duties applicable to materials manufactured in foreign countries and, in addition, may be affected by various other import and export restrictions, as well as other
considerations or developments impacting upon international trade, including economic or political instability, shipping delays and product quotas. These international trade factors will, under certain circumstances, have an impact both on the cost
of components (which will, in turn, have an impact on the cost to the Company of the manufactured product) and the wholesale and retail prices of its products.

The Company May Be Subject To Additional Risks. The risks and uncertainties described above are not the only ones facing the Company. Additional risks and uncertainties not presently known or currently deemed immaterial may also
adversely affect the Companys business operations.



|Item 7. | Financial Statements
|------- | --------------------

The following financial statements are filed
as part of this Annual Report on Form 10-KSB. This information appears in a separate section of this Annual Report on Form 10-KSB following the Index to Financial Statements on page F-1:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2007 and 2006

Consolidated Statements of Operations
for the years ended December 31, 2007 and 2006

Consolidated Statements of Stockholders Equity for the years ended
December 31, 2007 and 2006

Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006

Notes to Consolidated Financial Statements



|Item 8. | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None



|Item 8A(T). | Controls and Procedures
|----------- | -----------------------

We maintain disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our reports we file under the
Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions (SECs) rules and forms,
and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Furthermore, the Companys controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control and misstatements due to error or fraud may
occur and not be detected on a timely basis.



---

##### Table of Contents

An evaluation was performed under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-KSB. In making this evaluation, our management
considered the deficiencies in our internal control over financial reporting and the status of the remediation described below. Based on this evaluation, our management concluded that our disclosure controls and procedures were effective at a
reasonable assurance level as of the end of the period covered by this report.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect the Companys transactions; providing reasonable
assurance that transactions are recorded as necessary for preparation of the Companys financial statements; providing reasonable assurance that receipts and expenditures of the Companys assets are made in accordance with
managements authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements would be prevented or detected on a
timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Companys financial statements would be prevented or detected. Furthermore,
the Companys controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control and misstatements due to error or fraud may occur and not be detected
on a timely basis.

Management conducted its evaluation of the effectiveness of the Companys internal controls over financial
reporting based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation identified the following deficiency in the Companys internal
control over financial reporting:

Controls in Information Systems: Deficiencies were identified during testing of controls within
the Companys information systems processes which included, but were not limited to, the (i) physical security of the Companys networks, (ii) the logical security of the Companys software systems, (iii) management of
the documentation of certain vendor improvements to the Companys software systems and (iv) separation of user versus administrator responsibilities within the Companys software systems. Due to the number of deficiencies noted,
management concluded the accumulation of these control deficiencies represents a significant deficiency in the Companys internal controls over financial reporting.

The Company began remediation of these control deficiencies during 2007 with corrective actions expected to continue through the third quarter of 2008 to improve the security of the Companys information systems
and remediate other controls weaknesses identified during the evaluation.

In addition to managements findings, Cross, Fernandez and
Riley LLP, the Companys independent registered public accounting firm, advised the Audit Committee and management that they identified the following significant deficiency:

Control of inventory count tags: Deficiencies in our control of inventory count tags in our physical inventory controls and procedures they
considered to be a significant deficiency as that term is defined under standards established by the Public Company Accounting Oversight Board. The Company is implementing enhanced procedures and controls to ensure the accuracy and completeness of
its physical inventory controls and procedures. Management will develop corrective procedures for the control of inventory count tags in the second quarter of 2008 with implementation expected during the Companys annual physical inventory
count.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is
less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Companys financial reporting.

Based on this evaluation, including consideration of mitigating controls over the above identified deficiencies including, but not limited to manual review of the Companys financial reports, management concluded
that the Companys internal control over financial reporting was effective at a reasonable assurance level as of December 31, 2007.



---

##### Table of Contents

There was no change in our internal control over financial reporting that occurred during the quarter
ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management has excluded ALS from its assessment of internal control over financial reporting as of December 31, 2007 as it was acquired by us in a purchase business combination on September 28, 2007. ALS
is a wholly-owned subsidiary whose total assets and total revenues represent 27% and 4%, respectively, of our consolidated financial statement amounts as of, and for the year ended December 31, 2007. Under guidelines established by the
Securities and Exchange Commission, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition.

This annual report does not include an attestation report of the Companys independent registered public accounting firm regarding internal control
over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in this annual report.



|Item 8B. | Other Information
|-------- | -----------------

None

PART III



|Item 9. | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
|------- | ---------------------------------------------------------------------------------------------------------------

The information required by this item will be set forth in our definitive proxy statement to be filed with the Securities and Exchange Commission in
connection with our 2008 annual meeting of stockholders and is incorporated herein by reference. Information relating to our Code of Business Conduct and Ethics and to compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, will be set forth in our definitive proxy statement relating to our 2008 annual meeting of stockholders and is incorporated herein by reference.



|Item 10. | Executive Compensation
|-------- | ----------------------

The information required by
this item will be set forth in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with our 2008 annual meeting of stockholders and is incorporated herein by reference.



|Item 11. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

The information required by this item will be set forth in our definitive proxy statement to be filed with the Securities and Exchange Commission in
connection with our 2008 annual meeting of stockholders and is incorporated herein by reference, except for Equity Compensation Plan Information which follows:

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth additional
information as of December 31, 2007, concerning shares of our common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our
stockholders and plans or arrangements not submitted to our stockholders for approval. The information includes the number of shares covered by and the weighted average exercise price of, outstanding options and other rights and the number of shares
remaining available for future grants excluding the shares to be issued upon exercise of outstanding options, warrants, and other rights.



---

##### Table of Contents

For additional information regarding our stock option plans and the accounting effects of our stock-based compensation,
please see Notes 1 and 8 of our Notes to financial statements.

Equity Compensation Plan Information



|                                                       |  |                                                                                               |  |                                                                             |      |                                                                                                     |        
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------- | -------
|                                                       |  | (a)Number of commonshares to be issued uponexercise of outstandingoptions, warrants andrights |  | (b)Weighted-averageexercise price
ofoutstanding options,warrants and rights |      | ( c)Number of commonshares available
forfuture issuance(excluding securitiesreflected in column (a)
|Plan Category                                          |  |                                                                                               | 
|Equity compensation plans approved by stockholders     |  | 871,004                                                                                       |  | $                                                                           | 4.31 |                                                                                                     | 147,368
|Equity compensation plans not approved by stockholders |  |                                                                                              |  | $                                                                           |     |                                                                                                     |       
|                                                       |  |                                                                                               |  |                                                                             |      |                                                                                                     |        
|Totals                                                 |  | 871,004                                                                                       |  | $                                                                           | 4.31 |                                                                                                     | 147,368
|                                                       |  |                                                                                               |  |                                                                             |      |                                                                                                     |        



|Item 12. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------

The
information required by this item will be set forth in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with our 2008 annual meeting of stockholders and is incorporated herein by reference.



---

##### Table of Contents

|Item 13. | Exhibits
|-------- | --------



|        |  |                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1     |  | Certificate of Incorporation of the Company(1)                                                                                                                                                                                                   
|        | 
|3.2     |  | Amendment to Certificate of Incorporation(1)                                                                                                                                                                                                     
|        | 
|3.3     |  | Amendment to Certificate of Incorporation(3)                                                                                                                                                                                                     
|        | 
|3.4     |  | Amendment to Certificate of Incorporation(2)                                                                                                                                                                                                     
|        | 
|3.5     |  | Bylaws(1)                                                                                                                                                                                                                                        
|        | 
|4.1     |  | Form of Common Stock Certificate *                                                                                                                                                                                                               
|        | 
|4.2     |  | Form of Common Stock Purchase Warrant issued to certain accredited investors and the placement agent to purchase shares of the Companys Common Stock at an exercise price of $2.23 per share(11)                                                
|        | 
|4.3     |  | Form of Common Stock Purchase Warrant issued to certain accredited investors to purchase shares of the Companys Common Stock at an exercise price of $3.00 per share(12)                                                                        
|        | 
|10.1   |  | Form of Indemnification Agreement(1)                                                                                                                                                                                                             
|        | 
|10.2   |  | 1994 Stock Option Plan, as amended and restated(2)                                                                                                                                                                                               
|        | 
|10.3   |  | 2003 Stock Incentive Plan(7)                                                                                                                                                                                                                     
|        | 
|10.4   |  | Warrant Agreement dated as of December 21, 2005 between the Company and the Kingstone Family Ltd Partnership II(8)                                                                                                                               
|        | 
|10.5.  |  | Employment Agreement between the Company and Michael A. Bauer dated February 11, 2008(22)                                                                                                                                                        
|        | 
|10.6   |  | Transition Agreement between the Company and Brett M. Kingstone dated September 9, 2005(20)                                                                                                                                                      
|        | 
|10.7   |  | Contingent Proceeds Participation Agreement between Brett M. Kingstone and the Company dated September 19, 2003(5)                                                                                                                               
|        | 
|10.8    |  | Business Loan Agreement between the Company and RBC Centura Bank dated February 10, 2006(21)                                                                                                                                                     
|        | 
|10.9    |  | Lease for Southridge Park Court facility(14)                                                                                                                                                                                                     
|        | 
|10.10.1 |  | Lease for Floyd Smith Office Park facility(23)                                                                                                                                                                                                   
|        | 
|10.10.2 |  | Lease for Floyd Smith Office Park facility *                                                                                                                                                                                                     
|        | 
|10.11   |  | Form of Common Stock and Warrant Purchase Agreement by and between the Company and each purchaser in the private placement dated as of December 7, 2006(15)                                                                                      
|        | 
|10.12   |  | Form of Registration Rights Agreement by and between the Company and each purchaser in the private placement, dated as of December 7, 2006(16)                                                                                                   
|        | 
|10.13   |  | Registration Rights Agreement between the Company and Cooper Lighting, Inc., dated as of November 23, 1998, included as Exhibit C to the Stock Purchase Agreement between the Company and Cooper
Lighting, Inc. dated as of November 23, 1998(17)
|        | 
|10.14   |  | Escrow Agreement between the Company and RBC Centura Bank, dated as of November 30, 2006(18)                                                                                                                                                     
|        | 
|10.15   |  | Exchange Agreement between the Company and Brett M. Kingstone dated March 26, 2007(19)                                                                                                                                                           
|        | 
|10.16#  |  | Settlement and License Agreement between the Company and Color Kinetics Incorporated dated December 4, 2006(23)                                                                                                                                  
|        | 
|14.1    |  | Code of Business Conduct and Ethics(6)                                                                                                                                                                                                           
|        | 
|23.1*   |  | Consent of Cross, Fernandez & Riley LLP, Independent Registered Public Accounting Firm                                                                                                                                                           
|        | 
|31.1*   |  | Certifications by chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                              
|        | 
|31.2*   |  | Certifications by chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                              
|        | 
|32.1*   |  | Certifications by chief executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                              



---

##### Table of Contents



|* | Filed herewith
|- | --------------

|# | Confidential treatment has been granted for portions of this agreement.
|- | -----------------------------------------------------------------------

| | Management contract or compensatory plan or agreement
|- | -----------------------------------------------------

|(1) | Incorporated by Reference to the Companys Registration
Statement on Form SB-2 (File No. 33-74742)
|--- | --------------------------------------------------------------------------------------------------

|(2) | Incorporated by Reference to the Companys Definitive Proxy Statement filed April 29, 1997
|--- | ------------------------------------------------------------------------------------------

|(3) | Incorporated by Reference to the Companys Definitive Proxy Statement filed April 22, 1998
|--- | ------------------------------------------------------------------------------------------

|(4) | Incorporated by Reference to the Companys Registration
Statement on Form SB-2 (File No. 333-73804)
|--- | ---------------------------------------------------------------------------------------------------

|(5) | Incorporated by Reference to the Companys Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2003
|--- | -------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by Reference to the Companys Annual Report on Form 10-KSB for the year ended December 31, 2003
|--- | ------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by Reference to the Companys Definitive Proxy
Statement filed April 16, 2004
|--- | ------------------------------------------------------------------------------------------

|(8) | Incorporated by Reference to the Companys Definitive Proxy
Statement filed November 3, 2005
|--- | --------------------------------------------------------------------------------------------

|(9) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed September 14, 2005
|--- | ----------------------------------------------------------------------------------------------

|(10) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed October 18, 2005
|---- | --------------------------------------------------------------------------------------------

|(11) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed December 8, 2006
|---- | --------------------------------------------------------------------------------------------

|(12) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed December 8, 2006
|---- | --------------------------------------------------------------------------------------------

|(13) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed January 19, 2007
|---- | --------------------------------------------------------------------------------------------

|(14) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed December 5, 2006
|---- | --------------------------------------------------------------------------------------------

|(15) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed December 8, 2006
|---- | --------------------------------------------------------------------------------------------

|(16) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed December 8, 2006
|---- | --------------------------------------------------------------------------------------------

|(17) | Incorporated by Reference to the Companys Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1998
|---- | -------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by Reference to the Companys Registration
Statement on Form S-3 (File No. 333-140286)
|---- | ---------------------------------------------------------------------------------------------------

|(19) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed March 29, 2007
|---- | ------------------------------------------------------------------------------------------

|(20) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed September 14, 2005
|---- | ----------------------------------------------------------------------------------------------

|(21) | Incorporated by Reference to the Companys Annual Report on
Form 10-KSB for the year ended December 31, 2005
|---- | ------------------------------------------------------------------------------------------------------------

|(22) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed February 14, 2008.
|---- | ----------------------------------------------------------------------------------------------

|(23) | Incorporated by Reference to the Companys Annual Report on
Form 10-KSB for the year ended December 31, 2006.
|---- | -------------------------------------------------------------------------------------------------------------



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

The
information required by this item will be set forth in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with our 2008 annual meeting of stockholders and is incorporated herein by reference.



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##### Table of Contents

NEXXUS LIGHTING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                               |  |     
|---------------------------------------------------------------------------------------------- |  | ----
|                                                                                               |  | Page
|Report of Independent Registered Public Accounting Firm                                        |  | 37  
|                                                                                               | 
|Consolidated Balance Sheets as of December 31, 2007 and 2006                                   |  | 38  
|                                                                                               | 
|Consolidated Statements of Operations for the years ended December 31, 2007 and 2006           |  | 39  
|                                                                                               | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2007 and 2006 |  | 40  
|                                                                                               | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006           |  | 41  
|                                                                                               | 
|Notes to Consolidated Financial Statements                                                     |  | 42  



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Nexxus Lighting, Inc.

Orlando, Florida

We have audited the accompanying consolidated balance sheets of Nexxus Lighting, Inc. and subsidiary (the Company) as of December 31,
2007 and 2006, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Nexxus Lighting, Inc. and subsidiary as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.

/s/ Cross, Fernandez & Riley LLP

Orlando, Florida

March 26, 2008



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##### Table of Contents

NEXXUS LIGHTING, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                             |  |              |             |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------ |  | ------------ | ----------- | - | ---- | - | ---------- | -
|                                                                                                             |  | December 31, |            
|                                                                                                             |  | 2007         |             |   | 2006 |  
|ASSETS                                                                                                       |  |              |             |   |      |   |            |  
|Current Assets:                                                                                              |  |              |             |   |      |   |            |  
|Cash and cash equivalents                                                                                    |  | $            | 170,266     |   |      | $ | 531,181    |  
|Restricted investments                                                                                       |  |              | 500,000     |   |      |   | 500,000    |  
|Investments                                                                                                  |  |              | 2,475,000   |   |      |   | 6,471,400  |  
|Trade accounts receivable, less allowance for doubtful accounts of $84,615 and $121,535                      |  |              | 1,317,595   |   |      |   | 1,231,277  |  
|Inventories, less reserve of $299,465 and $274,128                                                           |  |              | 3,725,883   |   |      |   | 3,463,367  |  
|Prepaid expenses                                                                                             |  |              | 384,308     |   |      |   | 261,852    |  
|Other assets                                                                                                 |  |              | 32,021      |   |      |   | 21,751     |  
|                                                                                                             |  |              |             |   |      |   |            |  
|Total current assets                                                                                         |  |              | 8,605,073   |   |      |   | 12,480,828 |  
|                                                                                                             |  |              |             |   |      |   |            |  
|Property and Equipment:                                                                                      |  |              |             |   |      |   |            |  
|Machinery and equipment                                                                                      |  |              | 2,421,946   |   |      |   | 2,297,239  |  
|Furniture and fixtures                                                                                       |  |              | 497,143     |   |      |   | 420,374    |  
|Computers and software                                                                                       |  |              | 870,271     |   |      |   | 797,077    |  
|Leasehold improvements                                                                                       |  |              | 555,721     |   |      |   | 213,595    |  
|Property held under capital lease                                                                            |  |              | 19,112      |   |      |   |           |  
|                                                                                                             |  |              |             |   |      |   |            |  
|                                                                                                             |  |              | 4,364,193   |   |      |   | 3,728,285  |  
|Accumulated depreciation and amortization                                                                    |  |              | (3,006,671  | ) |      |   | (2,699,239 | )
|                                                                                                             |  |              |             |   |      |   |            |  
|Net property and equipment                                                                                   |  |              | 1,357,522   |   |      |   | 1,029,046  |  
|                                                                                                             |  |              |             |   |      |   |            |  
|Deposits on equipment                                                                                        |  |              | 55,899      |   |      |   |           |  
|Patents and trademarks, less accumulated amortization of $66,817 and $122,747                                |  |              | 296,981     |   |      |   | 213,131    |  
|Goodwill                                                                                                     |  |              | 2,880,440   |   |      |   |           |  
|Other assets, net                                                                                            |  |              | 121,047     |   |      |   | 127,379    |  
|                                                                                                             |  |              |             |   |      |   |            |  
|                                                                                                             |  | $            | 13,316,962  |   |      | $ | 13,850,384 |  
|                                                                                                             |  |              |             |   |      |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                         |  |              |             |   |      |   |            |  
|Current Liabilities:                                                                                         |  |              |             |   |      |   |            |  
|Accounts payable                                                                                             |  | $            | 1,107,720   |   |      | $ | 1,155,162  |  
|Related party payable                                                                                        |  |              |            |   |      |   | 20,700     |  
|Accrued compensation and benefits                                                                            |  |              | 160,252     |   |      |   | 111,932    |  
|Notes payable                                                                                                |  |              |            |   |      |   | 1,157,846  |  
|Current portion of payable to related party under acquisition agreement                                      |  |              | 218,250     |   |      |   |           |  
|Current portion of deferred rent                                                                             |  |              | 53,832      |   |      |   |           |  
|Revolving line of credit                                                                                     |  |              | 1,443,000   |   |      |   |           |  
|Deposits                                                                                                     |  |              | 205,711     |   |      |   | 22,697     |  
|                                                                                                             |  |              |             |   |      |   |            |  
|Total current liabilities                                                                                    |  |              | 3,188,765   |   |      |   | 2,468,337  |  
|                                                                                                             |  |              |             |   |      |   |            |  
|Payable to related party under acquisition agreement, less current portion                                   |  |              | 100,000     |   |      |   |           |  
|Deferred rent, less current portion                                                                          |  |              | 204,516     |   |      |   |           |  
|                                                                                                             |  |              |             |   |      |   |            |  
|Total liabilities                                                                                            |  |              | 3,493,281   |   |      |   | 2,468,337  |  
|                                                                                                             |  |              |             |   |      |   |            |  
|Stockholders Equity:                                                                                        |  |              |             |   |      |   |            |  
|Preferred stock, $.001 par value, 5,000,000 shares authorized, none issued                                   |  |              |            |   |      |   |           |  
|Common stock, $.001 par value, 25,000,000 shares authorized, 6,979,103 and 6,097,476 issued and outstanding  |  |              | 6,980       |   |      |   | 6,098      |  
|Class B common stock, $.001 par value, 3,389,134 shares authorized, zero and 483,264 issued and outstanding. |  |              |            |   |      |   | 483        |  
|Additional paid-in capital                                                                                   |  |              | 20,523,602  |   |      |   | 19,142,231 |  
|Accumulated deficit                                                                                          |  |              | (10,706,901 | ) |      |   | (7,766,765 | )
|Total stockholders equity                                                                                   |  |              | 9,823,681   |   |      |   | 11,382,047 |  
|                                                                                                             |  |              |             |   |      |   |            |  
|                                                                                                             |  | $            | 13,316,962  |   |      | $ | 13,850,384 |  
|                                                                                                             |  |              |             |   |      |   |            |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

NEXXUS LIGHTING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                        |  |                       |            |   |      |   |            |  
|------------------------------------------------------- |  | --------------------- | ---------- | - | ---- | - | ---------- | -
|                                                        |  | Year EndedDecember 31 |           
|                                                        |  | 2007                  |            |   | 2006 |  
|Revenues                                                |  | $                     | 10,200,349 |   |      | $ | 11,001,011 |  
|Cost of sales                                           |  |                       | 7,453,549  |   |      |   | 7,064,461  |  
|                                                        |  |                       |            |   |      |   |            |  
|Gross Profit                                            |  |                       | 2,746,800  |   |      |   | 3,936,550  |  
|                                                        |  |                      
|Operating expenses:                                     |  |                       |            |   |      |   |            |  
|Selling, general and administrative                     |  |                       | 5,561,273  |   |      |   | 6,040,523  |  
|Research and development                                |  |                       | 417,661    |   |      |   | 538,298    |  
|Loss (Gain) on disposal of property and equipment       |  |                       | 1,125      |   |      |   | (593       | )
|Gain on termination of capital lease, net of impairment |  |                       |           |   |      |   | (506,367   | )
|                                                        |  |                       |            |   |      |   |            |  
|Total operating expenses                                |  |                       | 5,980,059  |   |      |   | 6,071,861  |  
|                                                        |  |                       |            |   |      |   |            |  
|Operating loss                                          |  |                       | (3,233,259 | ) |      |   | (2,135,311 | )
|                                                        |  |                      
|Non-operating income (expense):                         |  |                       |            |   |      |   |            |  
|Interest income                                         |  |                       | 295,379    |   |      |   | 38,488     |  
|Other income                                            |  |                       | 36,684     |   |      |   | 221,622    |  
|Net realized loss on investments                        |  |                       |           |   |      |   | (3,482     | )
|Interest expense                                        |  |                       | (38,940    | ) |      |   | (356,320   | )
|                                                        |  |                       |            |   |      |   |            |  
|Total non-operating expense, net                        |  |                       | 293,123    |   |      |   | (99,692    | )
|                                                        |  |                       |            |   |      |   |            |  
|Net loss                                                |  | $                     | (2,940,136 | ) |      | $ | (2,235,003 | )
|                                                        |  |                       |            |   |      |   |            |  
|Basic and diluted loss per common share                 |  | $                     | (0.44      | ) |      | $ | (0.80      | )
|                                                        |  |                       |            |   |      |   |            |  
|Basic and diluted weighted average shares outstanding   |  |                       | 6,751,947  |   |      |   | 2,810,187  |  
|                                                        |  |                       |            |   |      |   |            |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

NEXXUS LIGHTING, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years Ended December 31, 2007 and 2006



|                                                               |  |              |  |                      |                          |        |          |                    |        |   |                                     |   |  |                          |            |   |  |   |             |   |  |   |        |   |  |   |            |  
|-------------------------------------------------------------- |  | ------------ |  | -------------------- | ------------------------ | ------ | -------- | ------------------ | ------ | - | ----------------------------------- | - |  | ------------------------ | ---------- | - |  | - | ----------- | - |  | - | ------ | - |  | - | ---------- | -
|                                                               |  | Common Stock |  |                      | AdditionalPaid-inCapital |        |          | AccumulatedDeficit |        |   | AccumulatedOtherComprehensive(Loss) |   |  | TotalStockholdersEquity |           
|                                                               |  | Common Stock |  | Class B Common Stock |                          |        |          |                    |       
|                                                               |  | Shares       |  | Amount               |                          | Shares |          |                    | Amount |   |                                     |   |  |                         
|Balance, January 1, 2006                                       |  | 2,061,299    |  | $                    | 2,061                    |        | 483,264  |                    |        | $ | 483                                 |   |  | $                        | 10,572,958 |   |  | $ | (5,531,762  | ) |  | $ | (8,318 | ) |  | $ | 5,035,422  |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Exercise of employee stock options                             |  | 300          |  |                      | 1                        |        |         |                    |        |   |                                    |   |  |                          | 629        |   |  |   |            |   |  |   |       |   |  |   | 630        |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Stock-based compensation                                       |  |             |  |                      |                         |        |         |                    |        |   |                                    |   |  |                          | 222,283    |   |  |   |            |   |  |   |       |   |  |   | 222,283    |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Sales of common stock and warrants, net                        |  | 4,035,877    |  |                      | 4,036                    |        |         |                    |        |   |                                    |   |  |                          | 8,346,361  |   |  |   |            |   |  |   |       |   |  |   | 8,350,397  |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Net loss                                                       |  |             |  |                      |                         |        |         |                    |        |   |                                    |   |  |                          |           |   |  |   | (2,235,003  | ) |  |   |       |   |  |   | (2,235,003 | )
|                                                               |  |              |  |                      |                          |        |          |                   
|Realized gain on available-for-sale securities                 |  |             |  |                      |                         |        |         |                    |        |   |                                    |   |  |                          |           |   |  |   |            |   |  |   | 8,318  |   |  |   | 8,318      |  
|                                                               |  |              |  |                      |                          |        |          |                    |        |   |                                     |   |  |                          |            |   |  |   |             |   |  |   |        |   |  |   |            |  
|Comprehensive loss                                             |  |              |  |                      |                          |        |          |                    |        |   |                                     |   |  |                          |            |   |  |   |             |   |  |   |        |   |  |   |            |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Balance, December 31, 2006                                     |  | 6,097,476    |  | $                    | 6,098                    |        | 483,264  |                    |        | $ | 483                                 |   |  | $                        | 19,142,231 |   |  | $ | (7,766,765  | ) |  | $ |       |   |  | $ | 11,382,047 |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Exercise of employee stock options                             |  | 17,547       |  |                      | 18                       |        |         |                    |        |   |                                    |   |  |                          | 48,731     |   |  |   |            |   |  |   |       |   |  |   | 48,749     |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Stock-based compensation                                       |  |             |  |                      |                         |        |         |                    |        |   |                                    |   |  |                          | 228,585    |   |  |   |            |   |  |   |       |   |  |   | 228,585    |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Expenses associated with the sale of common stock and warrants |  |             |  |                      |                         |        |         |                    |        |   |                                    |   |  |                          | (124,423   | ) |  |   |            |   |  |   |       |   |  |   | (124,423   | )
|                                                               |  |              |  |                      |                          |        |          |                   
|Exchange of Class B Stock                                      |  | 604,080      |  |                      | 604                      |        | (483,264 | )                  |        |   | (483                                | ) |  |                          | (6,262     | ) |  |   |            |   |  |   |       |   |  |   | (6,141     | )
|                                                               |  |              |  |                      |                          |        |          |                   
|Stock issuance for business acquisition                        |  | 260,000      |  |                      | 260                      |        |         |                    |        |   |                                    |   |  |                          | 1,234,740  |   |  |   |            |   |  |   |       |   |  |   | 1,235,000  |  
|                                                               |  |              |  |                      |                          |        |          |                   
|Net Loss                                                       |  |             |  |                      |                         |        |         |                    |        |   |                                    |   |  |                          |           |   |  |   | (2,940,136  | ) |  |   |       |   |  |   | (2,940,136 | )
|                                                               |  |              |  |                      |                          |        |          |                    |        |   |                                     |   |  |                          |            |   |  |   |             |   |  |   |        |   |  |   |            |  
|Balance, December 31, 2007                                     |  | 6,979,103    |  | $                    | 6,980                    |        |         |                    |        | $ |                                    |   |  | $                        | 20,523,602 |   |  | $ | (10,706,901 | ) |  | $ |       |   |  | $ | 9,823,681  |  
|                                                               |  |              |  |                      |                          |        |          |                    |        |   |                                     |   |  |                          |            |   |  |   |             |   |  |   |        |   |  |   |            |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

NEXXUS LIGHTING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                          |  |                         |            |   |      |   |            |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                          |  | Year Ended December 31, |           
|                                                                                          |  | 2007                    |            |   | 2006 |  
|Cash Flows from Operating Activities:                                                     |  |                         |            |   |      |   |            |  
|Net loss                                                                                  |  | $                       | (2,940,136 | ) |      | $ | (2,235,003 | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                         |            |   |      |   |            |  
|Depreciation                                                                              |  |                         | 491,022    |   |      |   | 521,260    |  
|Amortization of intangible assets                                                         |  |                         | (31,783    | ) |      |   | 50,384     |  
|Amortization of deferred rent                                                             |  |                         | (40,374    | ) |      |   |           |  
|Loss (gain) on disposal of property and equipment                                         |  |                         | 1,125      |   |      |   | (593       | )
|Gain on termination of capital lease, net of impairment                                   |  |                         |           |   |      |   | (506,367   | )
|Loss on legal settlement                                                                  |  |                         |           |   |      |   | 825,000    |  
|Increase (Decrease) in inventory reserve                                                  |  |                         | 25,337     |   |      |   | 274,128    |  
|Realized gain on available-for-sale securities                                            |  |                         |           |   |      |   | 8,318      |  
|Bond discount amortization                                                                |  |                         | (18,798    | ) |      |   | (4,771     | )
|Stock-based compensation                                                                  |  |                         | 228,585    |   |      |   | 222,283    |  
|Changes in operating assets and liabilities                                               |  |                         |            |   |      |   |            |  
|Decrease in restricted cash                                                               |  |                         |           |   |      |   | 82,943     |  
|Decrease in accounts receivable, net                                                      |  |                         | 31,145     |   |      |   | 285,702    |  
|(Increase) decrease in inventories                                                        |  |                         | 211,240    |   |      |   | (458,313   | )
|Increase in prepaid expenses                                                              |  |                         | (122,456   | ) |      |   | (26,160    | )
|Increase in other assets                                                                  |  |                         | (6,081     | ) |      |   | (49,086    | )
|Decrease in accounts payable and related party payable                                    |  |                         | (168,244   | ) |      |   | (514,841   | )
|Increase (decrease) in accrued compensation and benefits                                  |  |                         | 35,460     |   |      |   | (149,720   | )
|Increase (decrease) in deposits                                                           |  |                         | 143,581    |   |      |   | (446       | )
|                                                                                          |  |                         |            |   |      |   |            |  
|Total adjustments                                                                         |  |                         | 779,759    |   |      |   | 559,721    |  
|                                                                                          |  |                         |            |   |      |   |            |  
|Net cash used in operating activities                                                     |  |                         | (2,160,377 | ) |      |   | (1,675,282 | )
|                                                                                          |  |                         |            |   |      |   |            |  
|Cash Flows from Investing Activities:                                                     |  |                         |            |   |      |   |            |  
|Purchase of investments                                                                   |  |                         | (7,094,422 | ) |      |   | (8,000,860 | )
|Proceeds from sale of investments                                                         |  |                         | 11,109,620 |   |      |   | 1,977,358  |  
|Purchase of property and equipment                                                        |  |                         | (589,147   | ) |      |   | (312,509   | )
|Proceeds from disposal of property and equipment                                          |  |                         |           |   |      |   | 1,278      |  
|Acquisition of Advanced Lighting Systems                                                  |  |                         | (1,818,307 | ) |      |   |           |  
|                                                                                          |  |                         |            |   |      |   |            |  
|Acquisition of patents and trademarks                                                     |  |                         | (11,621    | ) |      |   | (57,911    | )
|                                                                                          |  |                         |            |   |      |   |            |  
|Net cash provided by (used in) investing activities                                       |  |                         | 1,596,123  |   |      |   | (6,392,644 | )
|                                                                                          |  |                         |            |   |      |   |            |  
|Cash Flows from Financing Activities:                                                     |  |                         |            |   |      |   |            |  
|Proceeds (expenses) from sale of common stock and warrants                                |  |                         | (124,423   | ) |      |   | 8,350,397  |  
|Payments on promissory note                                                               |  |                         | (1,157,846 | ) |      |   |           |  
|Net borrowings on revolving line of credit                                                |  |                         | 1,443,000  |   |      |   |           |  
|Proceeds from exercise of employee stock options                                          |  |                         | 48,749     |   |      |   | 630        |  
|Costs associated with Class B common stock conversion                                     |  |                         | (6,141     | ) |      |   |           |  
|                                                                                          |  |                         |            |   |      |   |            |  
|Net cash provided by financing activities                                                 |  |                         | 203,339    |   |      |   | 8,351,027  |  
|                                                                                          |  |                         |            |   |      |   |            |  
|Net Increase (Decrease) in Cash and Cash Equivalents                                      |  |                         | (360,915   | ) |      |   | 283,101    |  
|Cash and Cash Equivalents, beginning of period                                            |  |                         | 531,181    |   |      |   | 248,080    |  
|                                                                                          |  |                         |            |   |      |   |            |  
|Cash and Cash Equivalents, end of period                                                  |  | $                       | 170,266    |   |      | $ | 531,181    |  
|                                                                                          |  |                         |            |   |      |   |            |  
|Supplemental Disclosure of Cash Flow Information:                                         |  |                         |            |   |      |   |            |  
|Cash paid during period for Interest                                                      |  | $                       | 38,940     |   |      | $ | 356,320    |  
|                                                                                          |  |                         |            |   |      |   |            |  
|Non-cash investing and financing activities:                                              |  |                         |            |   |      |   |            |  
|Deferred rent incurred for leasehold improvement credit                                   |  | $                       | 269,160    |   |      | $ |           |  
|Capital lease termination                                                                 |  |                         |           |   |      |   | 2,312,888  |  
|Issuance of common stock for acquisition                                                  |  |                         | 1,235,000  |   |      |   |           |  
|Note payable issued in exchange for lease termination                                     |  |                         |           |   |      |   | 332,846    |  

See accompanying notes to consolidated financial statements.



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##### Table of Contents

NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|-- | -------------------------------------------

Business  In April 2007, the Company changed its name from Super Vision
International, Inc. to Nexxus Lighting, Inc. Nexxus Lighting, Inc. and its wholly owned subsidiary, Advanced Lighting Systems, LLC, designs, manufactures, markets and sells LED and fiber optic lighting products for use in applications in the
commercial, architectural, signage, entertainment, swimming pool and OEM markets. During 2007, the Company was organized into divisions, each with a defined market focus. SV Lighting serves the commercial and architectural lighting market and
derives its revenues primarily from sales of Savi® brand LED lighting systems and controls and Super Vision® fiber optic brand of
products. Advanced Lighting Systems, serves the entertainment, theatrical and commercial lighting market through its LiveLED, and eLUM LED lighting systems and controls and Advanced Lighting Fiber Optics brand of products, and the
Nexxus Lighting Pool & Spa division serves the pool, spa and water feature lighting market with the broadest range of LED and fiber optic pool and spa lighting products in the industry. Each Nexxus Lighting division markets and distributes
its products globally primarily through multiple networks of independent sales representatives and distributors.

Principles of
Consolidation  The consolidated financial statements include the accounts of Nexxus Lighting, Inc. and its wholly owed subsidiary, Advanced Lighting Systems, LLC (collectively, the Company). Significant inter-company accounts and
transactions have been eliminated.

Revenue recognition  Generally, the Company recognizes revenue for its products upon
shipment to customers, provided no significant obligations remain and collection is probable. For sales that include customer acceptance terms, revenue is recorded after customer acceptance. Our products typically carry a two-year warranty that
includes replacement of defective parts. The annual expenses associated with such warranties were not material to our operations and we do not record a reserve for future warranty costs.

Cash equivalents  Temporary cash investments with an original maturity of three months or less are considered to be cash equivalents.

Accounts receivable  Accounts receivable are customer obligations due under normal trade terms. The Company performs
continuing credit evaluations of its customers financial condition. The Company records an allowance for doubtful accounts based on specifically identified amounts that it believes to be uncollectible. Recovery of bad debt amounts previously
written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the Companys actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a receivable
have failed, the receivable is written off against the allowance.

Investments  Marketable equity securities and debt
securities are classified either as available-for-sale or held to maturity. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of shareholders equity. The
amortized costs of debt securities in this category are adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in investment income. The costs of securities sold are based on the specific identification method. Interest and dividends on securities classified as available-for-sales are
included in investment income. The Company accounts for investments in debt securities as held-to-maturity and records the investments at amortized cost when the Company has the positive intent and ability to hold those securities to maturity.

The lender for our revolving line of credit requires that we maintain a minimum investment balance of $500,000 in accounts held at our
lender which is classified as restricted investments.



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##### Table of Contents

NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):
|-- | ------------------------------------------------------

Investments (continued)



At December 31, 2007 and 2006, the Company held investments in marketable securities that were
classified as held-to-maturity with varying maturity dates up to one year consisting of the following:



|                     |  |                     |           |                           |   |                            |  |                     |     |  |   |          
|-------------------- |  | ------------------- | --------- | ------------------------- | - | -------------------------- |  | ------------------- | --- |  | - | ---------
|                     |  | Net Carrying Amount |           | UnrecognizedHolding Gains |   | UnrecognizedHolding Losses |  | EstimatedFair Value
|December 31, 2006    |  |                     |           |                           |   |                            |  |                     |     |  |   |          
|Corporate Bonds      |  | $                   | 6,971,400 |                           | $ |                           |  | $                   | 209 |  | $ | 6,971,191
|                     |  |                     |           |                          
|December 31, 2007    |  |                     |           |                           |   |                            |  |                     |     |  |   |          
|Taxable Fixed Income |  | $                   | 2,975,000 |                           | $ |                           |  | $                   | 380 |  | $ | 2,974,620

Inventories  Inventories are stated at the lower of cost (average cost), or
market. Provision is made for any inventory deemed excessive or obsolete.

Property and equipment  Property and
equipment are stated at cost. Depreciation is computed by the straight-line method and is charged to operations over the estimated useful lives of the assets. Amortization expense related to property held under capital lease is included with
depreciation in the accompanying statements of operations and accumulated depreciation in the accompanying balance sheets. Maintenance and repairs are charged to expense as incurred. The carrying amount and accumulated depreciation of assets sold or
retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:



|                        |  |                       
|----------------------- |  | ----------------------
|                        |  | Estimated useful lives
|Machinery and equipment |  | 3-20 years            
|Furniture and fixtures  |  | 5-7 years             
|Computers and software  |  | 3-7 years             
|Leasehold improvements  |  | 5 years               

Intangible assets and goodwill  The Company accounts for its intangible assets
and goodwill under Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142) and Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). There were no impairment charges of intangible assets during the years ended December 31, 2007 and 2006. Patents and trademarks are amortized using the straight-line method over their useful lives of 17 years.
Amortization expense on patents and trademarks was $(57,438) and $22,672 during 2007 and 2006, respectively. Other intangible assets consist primarily of costs associated with the acquisition of product safety certifications (UL certifications) and
technology licensing costs for certain fiber optic lighting products and systems and LED lighting products and systems and are included in other assets. Other intangible assets are amortized using the straight-line method over their useful lives,
which range from 1-17 years and are periodically evaluated for recoverability in accordance with SFAS No. 142. Amortization expense on other intangible assets was $24,148 and $27,712 during 2007 and 2006, respectively.

As of December 31, 2007, amortization expense on intangible assets for the next five years and thereafter is as follows, excluding $88,656 invested
in patents, trademarks or product certifications which are not yet being amortized as the patent, trademark or product certification is not complete:



|                      |  |        |  |        |  |        |  |        |  |        |  |            |  |        
|--------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ---------- |  | -------
|                      |  | 2008   |  | 2009   |  | 2010   |  | 2011   |  | 2012   |  | Thereafter |  | Totals 
|Patents               |  | 12,661 |  | 12,661 |  | 12,661 |  | 12,661 |  | 12,661 |  | 93,456     |  | 156,761
|Trademarks            |  | 977    |  | 977    |  | 977    |  | 977    |  | 977    |  | 5024       |  | 9,909  
|Product certification |  | 16,498 |  | 8,404  |  | 4,974  |  | 3,866  |  | 3,723  |  | 4,190      |  | 41,655 
|                      |  |        |  |        |  |        |  |        |  |        |  |            |  |        
|Total                 |  | 30,136 |  | 22,042 |  | 18612  |  | 17,504 |  | 17,361 |  | 102,670    |  | 208,325
|                      |  |        |  |        |  |        |  |        |  |        |  |            |  |        



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##### Table of Contents

NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):
|-- | ------------------------------------------------------



Long lived assets  The Company periodically evaluates the recoverability of its
long-lived assets in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, based on expected undiscounted cash flows and will recognize impairment of the carrying value of long-lived assets, if
any is indicated, based on the fair value of such assets. No impairment losses have been recognized during the year ended December 31, 2007. There was an impairment of leasehold improvements of approximately $241,300 during the year ended
December 31, 2006 which was netted against the gain on termination of capital lease as further discussed in Note 3.

Deposits  Payments received by the Company for products to be provided in the following year are deferred and recognized as revenue in the period the products are shipped.

Shipping and handling costs  The Company accounts for certain shipping and handling costs related to the acquisition of goods from its
vendors as cost of sales.

Research and development  Research and development costs to develop new products are charged
to expense as incurred.

Advertising  Advertising costs, included in selling, general and administrative expenses, are
expensed when the advertising first takes place. The Company promotes its product lines primarily through print media and trade shows, including trade publications, and promotional brochures. Advertising expenses were approximately $234,000 and
$263,000 for the years ended December 31, 2007 and 2006, respectively.

Income taxes  Income taxes are provided for
the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and
liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or
settled. The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. The Company has not recognized a liability as a result of the implementation of Interpretation 48. A
reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit as of the date of adoption. The Company has not recognized interest expense or penalties as a result of the
implementation of Interpretation 48. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected to be realized.

Use of Estimates  The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Loss per share  Basic loss per share is computed by dividing net loss by the weighted average Class A and Class B common shares
outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants. In
periods in which a net loss has been incurred, all potentially dilutive common shares are considered antidilutive and thus are excluded from the calculation. Employee stock options and warrants were not included in the computation of loss per share
for 2007 and 2006 because to do so would have been anti-dilutive. At December 31, 2007 and 2006, the Company had 4,220,775 and 4,274,239 potentially dilutive common shares, respectively.



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NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):
|-- | ------------------------------------------------------



Stock-based compensation  On January 1, 2006, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) requires the measurement and recognition
of compensation expenses for all share-based payment awards made to employees and directors including employee stock options and restricted stock based on estimated fair values. SFAS No. 123(R) supersedes the Companys previous accounting
under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The Company adopted SFAS No. 123(R) using the modified prospective method. Under the modified prospective method,
compensation costs are recognized beginning with the effective date based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and based on the requirements of SFAS No. 123 for all awards
granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. In accordance with the modified prospective transition method, the Companys financial statements for the prior periods have
not been restated to reflect, and do not include, the impact of SFAS No. 123(R).

We estimate the fair value of each
option award issued under our stock option plans on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the following table in accordance with FAS 123(R). The Company estimates the volatility of its common
stock at the date of grant based on the historical volatility of its common stock. These historical periods may exclude portions of time when unusual transactions occurred. The Company determines the expected life based on historical experience with
similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. For shares that vest contingent upon achievement of certain performance criteria, an estimate of the probability of achievement is applied
in the estimate of fair value. If the goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. The Company bases the risk-free interest rate on the implied yield currently available on U.S.
Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future.
In addition, the Company separates the grants into homogeneous groups and analyzes the assumptions for each group. The Company then computes the expense for each group utilizing these assumptions.



|                            |  |                          |   |  |              |  
|--------------------------- |  | ------------------------ | - |  | ------------ | -
|                            |  | Years Ended December 31, |  
|                            |  | 2007                     |   |  | 2006         |  
|Expected volatility         |  | 69% - 87                 | % |  | 71% -87      | %
|Weighted-average volatility |  | 73.65                    | % |  | 86.4         | %
|Risk-free interest rate     |  | 3.35% - 5.0              | % |  | 4.35% - 5.09 | %
|Expected dividend yield     |  | 0                        | % |  | 0            | %
|Expected life in years      |  | 2.9  9.1                |   |  | 3.2  9.1    |  

Under the SFAS No. 123(R), stock-based compensation expenses recognized in the accompanying
audited statement of operations for the year ended December 31, 2007 was $228,585 which caused net loss to increase by that amount and basic and diluted loss per share for 2007 to increase by $0.03, respectively.

Business segments  Pursuant to SFAS No. 131, Disclosure about Segments of a Business Enterprise and Related
Information, the Company is required to report segment information. As the Company only operates in principally one business segment, no additional reporting is required.

Major Suppliers  The Company made purchases from two major suppliers representing approximately 22% and 19% of total net purchases for
the year ending December 31, 2007 compared to purchases from three major suppliers representing approximately 29%, 11% and 10% of total net purchases for the year ending December 31, 2006.



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NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued):
|-- | ------------------------------------------------------



Reclassifications Certain items in the financial statements of the prior period
have been reclassified to conform to current period classification.

Recent accounting pronouncements  In September
2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 simplifies and codifies guidance on fair value measurements under generally accepted accounting principles. This standard defines fair value, establishes a framework for
measuring fair value and prescribes expanded disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years,
with early adoption permitted. We are currently evaluating the effect, if any, the adoption of SFAS 157 will have on our financial condition, results of operations and cash flows.

In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities,
(SFAS No. 159) which upon adoption would allow entities to choose to measure many financial instruments and certain other items at fair value through earnings. The standard allows the fair value measurement to be applied instrument by
instrument, is irrevocable for any instruments for which such selection is made, and applies to the entire instrument. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating
the impact of this standard on its financial statements.

In June 2007, the FASB ratified EITF Issue No. 07-03,
Accounting for Nonrefundable Advance Payments for Goods and Services Received for Use in Future Research and Development Activities. EITF 07-03 requires companies to defer nonrefundable advance payments for goods and services and to
expense that advance payment as the goods are delivered or services are rendered. If the company does not expect to have the goods delivered or services performed, the advance should be expensed. EITF 07-03 is effective for fiscal years beginning
after December 15, 2007. The Company is currently evaluating the impact of adopting EITF 07-03 on its financial statements.

In December 2007, the FASB issued Statement 141R, Business Combinations (SFAS 141R), which applies to all transactions or other events in which an entity obtains control of one or more businesses, including those sometimes
referred to as true mergers or mergers of equals and combinations achieved without the transfer of consideration. This statement replaces FASB Statement No. 141 and applies to all business entities, including mutual
entities that previously used the pooling-of-interests method of accounting for some business combinations. The Company believes that adoption of the FAS 141R will have an effect on future acquisitions.



|2. | ACQUISITION:
|-- | ------------

On September 28,
2007, Advanced Lighting Systems, Inc. (ALS), which is headquartered in Sauk Centre, MN, was merged with and into the Companys wholly owned subsidiary, Advanced Lighting Systems, LLC a Delaware limited liability company, pursuant to
an agreement dated August 3, 2007. The preliminary purchase price of $3,372,659 (including acquisition costs of $278,454, $6,800 of which were accrued at December 31, 2007) was funded with $1,819,409 of the Companys available cash
and short-term investment balances plus 260,000 shares of common stock valued at $1,235,000 on the date of the acquisition. The value of the stock issued in conjunction with the purchase agreement was based on the average market price of the
Companys common stock over the five-day period before and after the terms of the acquisition were agreed to and announced. Additionally, the Company recorded a liability to related party (seller) for $318,250 which represents $118,250 of stock
to be issued for achievement of the 2007 revenue milestones for ALS and a $200,000 indemnity holdback for possible future claims. This strategic acquisition is expected to strengthen the Companys position in the commercial and entertainment
lighting markets.



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NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|2. | ACQUISITION (continued):
|-- | ------------------------



This acquisition has been accounted for in accordance with SFAS No. 141,
Business Combinations and, accordingly, the consolidated statements of operations include the results of ALS since the date of acquisition, September 28, 2007. The assets acquired and liabilities assumed are recorded at estimates of
fair values as determined by management based on information available. The excess of the purchase price over the fair value of acquired assets and liabilities is allocated to goodwill. Management considers a number of factors, including third-party
valuations or appraisals which have not yet been completed, when making these determinations. We will finalize the allocation of purchase price to the fair value of the assets acquired and liabilities assumed when we obtain information sufficient to
complete the allocation, but in any case, within one year after acquisition. The preliminary allocation of the purchase price follows:



|                              |  |   |           |  
|----------------------------- |  | - | --------- | -
|Cash                          |  | $ | 1,101     |  
|Accounts receivable           |  |   | 117,463   |  
|Inventories                   |  |   | 499,093   |  
|Other current assets          |  |   | 18,005    |  
|Property, plant and equipment |  |   | 18,215    |  
|Goodwill                      |  |   | 2,880,440 |  
|Other intangible assets       |  |   | 16,298    |  
|Other long-term assets        |  |   | 4,000     |  
|Accounts payable              |  |   | (129,664  | )
|Accrued expenses              |  |   | (12,860   | )
|Deposits                      |  |   | (39,432   | )
|Preliminary purchase price    |  |   | 3,372,659 |  

The purchase price is subject to adjustment for stipulations in the purchase agreement, such as
certain additional payments subject to the achievement of revenue and earnings milestones by ALS in 2008 and claims against the indemnity holdback.

The Companys statement of operations includes sales and earnings of ALS incurred after the date on which the acquisition was closed, September 28, 2007. On an unaudited pro forma basis, assuming that the acquisition had occurred
on January 1, 2007, the Companys results for 2007 would have been as follows:



|               |  |                                      |           
|-------------- |  | ------------------------------------ | ----------
|               |  | Twelve Months EndedDecember 31,
2007
|Revenue        |  | $                                    | 12,548,000
|Net Loss       |  | $                                    | 2,999,000 
|Loss per share |  | $                                    | 0.44      

These pro forma amounts do not purport to show the exact results that would have actually been
obtained if the acquisition had occurred as of the beginning of the period presented or that may be obtained in the future.



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NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|3. | INVENTORIES:
|-- | ------------

Inventories consist of the following:



|                              |  |              |           |   |      |   |           |  
|----------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                              |  | December 31, |          
|                              |  | 2007         |           |   | 2006 |  
|Raw materials                 |  | $            | 2,531,852 |   |      | $ | 2,603,353 |  
|Work in process               |  |              | 32,434    |   |      |   | 7,771     |  
|Finished goods                |  |              | 1,461,062 |   |      |   | 1,126,371 |  
|                              |  |              |           |   |      |   |           |  
|                              |  |              | 4,025,348 |   |      |   | 3,737,495 |  
|Less reserve for obsolescence |  |              | (299,465  | ) |      |   | (274,128  | )
|                              |  |              |           |   |      |   |           |  
|Net inventories               |  | $            | 3,725,883 |   |      | $ | 3,463,367 |  
|                              |  |              |           |   |      |   |           |  



|4. | TERMINATION OF CAPITAL LEASE OBLIGATION WITH RELATED PARTY:
|-- | -----------------------------------------------------------

On November 29, 2006, the Company entered into a lease termination agreement with Max King Realty, Inc. (Max King Realty), a company controlled by Brett M. Kingstone, the Companys chairman of
the board, to terminate the capital lease with Max King Realty for the Companys Orlando, FL facility. The lease had a fifteen-year term extending through June 15, 2012. Max King Realty was willing to accommodate the Companys desire
to terminate its obligations under the lease for its then current facility by terminating the lease, repaying the third party indebtedness secured by the premises and selling the premises to an unrelated third party.

In connection with accommodating the Companys request for early termination of the lease of its existing facility, Max King Realty
incurred a prepayment penalty to a third party lender for the early repayment of the indebtedness secured by the leased premises in an amount equal to approximately $332,800. The Company agreed to pay Max King Realty the full amount of the
prepayment penalty by delivery of an unsecured promissory note in the principal amount of $332,846. The promissory note was paid in full in January 2007. The termination of the lease releases the Company and Max King Realty from all duties and
obligations to each other under the capital lease.

Upon executing the lease termination agreement, the balance of the
capital lease obligation of $2,312,900, less the promissory note payable to Max King Realty of approximately $332,800 and the net book value of the related office/warehouse building of approximately $1,232,400 resulted in a gain on termination of
capital lease of approximately $747,700. This gain was offset in part by an impairment loss of $241,300 for leasehold improvements made to the facility resulting in a net gain of $506,400 which is reflected in the accompanying statement of
operations as gain on termination of capital lease, net of impairment. Deposits paid under the lease agreement previously included in other assets, was returned to the Company in the amount of $50,000 as of December 31, 2006.



|5. | OPERATING LEASES:
|-- | -----------------

On
November 30, 2006, the Company entered into a five year operating lease agreement with EastGroup Properties, L.P., an unrelated party (Eastgroup). Pursuant to the lease, on April 1, 2007, the Company relocated to approximately
34,000 square feet of office, distribution and light manufacturing space at a new location in Orlando, Florida, which the Company uses for its Orlando operations facility. Base rent under the lease started on April 1, 2007 at monthly payments
of $19,846 for the first twelve-month period and increases annually by 3.5% thereafter. In addition to base rent, the Company is required to pay its pro rata share of the propertys operating expenses, including property taxes, insurance and
non-structural repairs. The lease provides for a security deposit of $28,576. Pursuant to this lease, Eastgroup provided a credit of $269,160 for tenant improvements. This amount has been recorded as deferred rent on the Companys balance sheet
and is being amortized as a reduction of rent expense over the life of the lease.



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NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|5. | OPERATING LEASES (continued):
|-- | -----------------------------



On November 30, 2006, the Company entered into a four month operating lease with FLIR Systems,
Inc., the new owner of the property previously leased from Max King Realty, Inc. The lease was for the use of 40,000 square feet of manufacturing and distribution space at a gross monthly amount of $29,820 through March 31, 2007. A security
deposit has been paid in the amount of $28,000 and was returned upon inspection of the property. The Company was not required to lease the premises from the new owner in connection with the capital lease termination agreement with Max King Realty.
The sale of the building was a separate transaction between Max King Realty, Inc. and FLIR Systems, Inc.

On February 27, 2007, the
Company entered into a five year operating lease agreement with Floyd Smith Office Park, LLC, commencing approximately June 1, 2007 for the Companys new corporate headquarters in Charlotte, North Carolina. The Company leases approximately
2,100 square feet of office space for a gross rental rate of $3,400 per month including build-out, power and water utilities and the Companys pro rata share of the propertys operating expenses, property taxes, insurance and
non-structural repairs. After the initial twelve-month period, the rent will increase annually by 3.0%. The lease provides for a security deposit of $3,400. On August 24, 2007, the Company leased an additional 3,000 square feet in this facility
for an additional gross rental rate of $4,972 per month on the same basis and with the same provisions as the original lease with an additional security deposit of $4,972.

On September 28, 2007, the Company entered into a five year operating lease agreement with Streitz Properties LLC, a company owned by Paul Streitz, President of the Companys ALS subsidiary. This operating
lease commenced approximately September 28, 2007 for ALS operations facility in Sulk Centre, MN. Base rent under the lease is $8,815 per month for the duration of the lease.

At December 31, 2007, future payment obligations under the operating leases described above were as follows:



|                                 |  |   |          
|-------------------------------- |  | - | ---------
|2008                             |  | $ | 527,722  
|2009                             |  |   | 540,116  
|2010                             |  |   | 552,936  
|2011                             |  |   | 567,202  
|2012 and thereafter              |  |   | 249,226  
|                                 |  |   |          
|Total future payment obligations |  | $ | 2,437,202



|6. | FINANCIAL INSTRUMENTS AND CREDIT RISKS:
|-- | ---------------------------------------

The carrying values of cash and cash equivalents, accounts receivable and accounts
payable approximate fair value due to their short-term nature. The Companys financial instruments that are exposed to concentrations of credit risk consist of cash, cash equivalents, investment and accounts payable. The Company places its cash
and cash equivalents with high credit quality institutions. At times such balances may be in excess of the FDIC insurance limit. The Company also places its investments with a major brokerage firm. These funds are uninsured. The Company purchases
all of its fiber optic strands from a single Japanese supplier. While the Company believes alternative sources for fiber optic strands are available to enable it to produce endpoint signs and displays, the SIDE-GLOW® and END GLOW®cables require fiber optic material of a higher quality than the
Company believes is generally available elsewhere. Accordingly, the loss of this supplier or delays in obtaining shipments could have a material adverse effect on the Companys operations until such time as an alternative supplier could be
found.

All of the Companys LED lighting products and systems are manufactured by select overseas suppliers in an effort to reduce
production costs. While the Company believes alternative sources for the production of these products are available, the Company has selected these particular suppliers based on their ability to consistently produce these products per the
Companys specifications ensuring the best quality product at the most cost effective price.



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NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|6. | FINANCIAL INSTRUMENTS AND CREDIT RISKS (continued):
|-- | ---------------------------------------------------

The Company depends on these suppliers to satisfy performance and quality specifications and to dedicate sufficient production capacity for finished products within scheduled delivery times. Accordingly, the loss of
one or more of these suppliers or delays in obtaining shipments could have a material adverse effect on the Companys operations until such time as an alternative supplier could be found.



|7. | INCOME TAXES:
|-- | -------------

As of
December 31, 2007, the Company had approximately $9,868,000 and $6,247,000 in net operating loss carry forwards for federal and state income tax purposes, respectively, which expire between 2011 and 2026. These can be carried forward and
applied against future taxable income. However, as a result of stock offerings and stock issued in connection with the acquisition, the use of these NOLs may be limited under the provisions of Section 382 of the Internal Revenue Code of
1986, as amended.

Components of deferred tax assets (liabilities) are as follows:



|                                  |  |              |            |   |      |   |            |  
|--------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                  |  | December 31, |           
|                                  |  | 2007         |            |   | 2006 |  
|Accounts receivable               |  | $            | 30,000     |   |      | $ | 46,000     |  
|Inventories                       |  |              | 108,000    |   |      |   | 103,000    |  
|Accrued expenses                  |  |              | 71,000     |   |      |   | 73,000     |  
|Depreciation                      |  |              | (193,000   | ) |      |   | (192,000   | )
|Intangible assets                 |  |              | 63,000     |   |      |   |           |  
|Stock warrants                    |  |              | 214,000    |   |      |   | 137,000    |  
|Other                             |  |              | 4,000      |   |      |   | 4,000      |  
|Net operating loss carry forwards |  |              | 3,598,000  |   |      |   | 2,584,000  |  
|                                  |  |              |            |   |      |   |            |  
|                                  |  |              | 3,895,000  |   |      |   | 2,755,000  |  
|Valuation allowance               |  |              | (3,895,000 | ) |      |   | (2,755,000 | )
|                                  |  |              |            |   |      |   |            |  
|                                  |  | $            |           |   |      | $ |           |  
|                                  |  |              |            |   |      |   |            |  

In accordance with SFAS No. 109, Accounting for Income Taxes,
valuation allowances are provided against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has evaluated the realizability of
the deferred tax assets on its balance sheet and has established a valuation allowance in the amount of $3,895,000 at December 31, 2007, an increase of approximately $1,140,000 over December 31, 2006. The change in the valuation allowance
includes the impact of a change in the tax rate applied to the deferred taxes from the beginning of the year rate of 37.63% to an end of the year rate of 36.46%.

The following is a reconciliation of tax computed at the statutory federal rate to the income tax expense in the statements of operations
for the years ended December 31, 2007 and 2006:



|                                               |  |        |           |   |      |       |   |        |   |          |   |  |       |  
|---------------------------------------------- |  | ------ | --------- | - | ---- | ----- | - | ------ | - | -------- | - |  | ----- | -
|                                               |  | 2007   |           |   | 2006 |      
|                                               |  | Amount |           |   | %    |       |   | Amount |   |          | % | 
|Tax benefit computed at statutory federal rate |  | $      | (999,646  | ) |      | (34.0 | ) |        | $ | (759,901 | ) |  | (34.0 | )
|Deferred state tax expense (benefit)           |  |        | (70,620   | ) |      | (2.4  | ) |        |   | (73,262  | ) |  | (3.3  | )
|Change in valuation allowance                  |  |        | 1,140,000 |   |      | 38.8  |   |        |   | 761,000  |   |  | 34.0  |  
|Adjustment to net operating loss carryforwards |  |        | (94,405   | ) |      | (3.2  | ) |        |   |         |   |  |      |  
|Non-deductible expenses                        |  |        | 7,400     |   |      | .2    |   |        |   | 6,728    |   |  | 0.3   |  
|Other, net                                     |  |        | 17,271    |   |      | .6    |   |        |   | 65,435   |   |  | 3.0   |  
|                                               |  |        |           |   |      |       |   |        |   |          |   |  |       |  
|Income tax expense                             |  | $      |          |   |      |      |   |        | $ |         |   |  |      |  
|                                               |  |        |           |   |      |       |   |        |   |          |   |  |       |  



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NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|8. | CAPITAL STOCK:
|-- | --------------

Common
stock At December 31, 2007 the Company has reserved Common Stock for issuance in relation to the following:



|                           |  |          
|-------------------------- |  | ---------
|Employee Stock Options     |  | 581,817  
|Shares Subject to Warrants |  | 3,638,958

Effective March 26, 2007, the Company redeemed all of the outstanding shares
of Class B Common Stock in exchange for 604,080 shares of Class A Common Stock, or 1.25 shares of Class A Common Stock for each share of Class B Common Stock exchanged. Each share of Class B Common Stock was entitled to five votes on all matters on
which stockholders may vote, including the election of directors. Shares of Class B Common Stock were automatically convertible into an equivalent number of shares of Class A Common Stock upon the sale or transfer of such shares. The transaction was
effected pursuant to an Exchange Agreement between the Company and the Kingstone Family Limited Partnership II (KFLP); an entity controlled by Brett M. Kingstone, the Companys chairman of the board, dated March 26, 2007.
Pursuant to the Exchange Agreement, KFLP exchanged 483,264 shares of the Companys Class B Common Stock, constituting all of the issued and outstanding shares of the Companys Class B Common Stock, for 604,080 shares of the Companys
Class A Common Stock (the Exchange). The Exchange eliminated the disparity in voting rights between the Class B Common Stock, which was entitled to five votes per share and the Class A Common Stock, which was entitled to one vote per
share. Effective April 11, 2007, each share of Class A Common Stock was automatically reclassified as and converted into one share of Common Stock, $.001 par value per share, of the Company. In addition, effective April 11, 2007 the
Companys authorized number of shares of Common Stock was increased to 25,000,000. Accordingly, all Class A Common Stock information was retroactively adjusted to reflect the conversion of Class A Common Stock to Common Stock and increase
in authorized shares. Each share of Common Stock is entitled to one vote per share.

Stock warrants  The
Company has 3,638,958 warrants outstanding in connection with the transactions described below.

The Company has granted a
10-year warrant for 289,187 shares of Common Stock at an exercise price of $4.30 per share to Brett Kingstone. Mr. Kingstone is the chairman of the board of the Company and was chief executive officer of the Company until December 31,
2005. The warrant was granted on September 9, 2005 and has been assigned by Mr. Kingstone to the Kingstone Family Ltd Partnership II, an entity controlled by Mr. Kingstone.

On December 7, 2006, the Company closed the private offering to a limited number of accredited investors of approximately 40,360
units at a price of $223 per unit, resulting in gross cash subscriptions of approximately $9 million, and net proceeds to the Company of approximately $8,350,000 (the Private Placement). Each unit consisted of 100 shares of common stock,
a warrant to purchase 60 shares of common stock exercisable at $2.23 per share, expiring five years from the date of issuance (the Base Warrants) and a second warrant to purchase 15 shares of common stock exercisable at $3.00 per share,
expiring five years from the date of issuance (the Additional Warrants). The securities were sold solely to accredited investors in a private placement offering exempt from registration under the Securities Act of 1933, as amended.

In connection with the Private Placement, the placement agent was paid $630,000 in cash and received a warrant (the
Placement Agent Warrant) to purchase 322,870 shares of the Companys Common Stock equal to 8% of the quotient obtained by dividing (a) the aggregate gross proceeds received by the Company from the sale of units in the Private
Placement, by (b) the exercise price of the Base Warrants issued to purchasers in the Private Placement. The Placement Agent Warrant has the same terms and conditions as the Base Warrants issued to purchasers in the Private Placement.



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NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|8. | CAPITAL STOCK (continued):
|-- | --------------------------



In connection with the Private Placement, the Company entered into a Common Stock and
Warrant Purchase Agreement with purchasers of the securities that contains customary representations, warranties and covenants. The warrants issued in the Private Placement have a term of five years and contain customary provisions for adjustment to
the exercise price in the event of stock splits, combinations and dividends and, in the case of the Base Warrants, include certain cashless-exercise provisions.

The total number of shares under the warrants is listed in the table below:



|              |  |                     |  |                         
|------------- |  | ------------------- |  | ------------------------
|Base Warrants |  | Additional Warrants |  | Placement Agent Warrants
|2,421,525     |  | 605,376             |  | 322,870                 

In connection with the Private Placement, the Company filed a registration
statement with the SEC covering the resale of shares of common stock sold in the Private Placement and the shares of common stock underlying the warrants sold in the Private Placement.



|9. | STOCK OPTION PLAN:
|-- | ------------------

The Company
adopted a stock option plan in 1994 (the 1994 Plan) that provided for the grant of incentive stock options and nonqualified stock options, and reserved 450,000 shares of the Companys Common Stock for future issuance under the plan.
The option price must have been at least 100% of market value at the date of the grant and the options have a maximum term of 10 years. Options granted typically vest ratably over a three-year period or based on achievement of performance criteria.
The Company typically grants selected executives and other key employees share option awards, whose vesting is contingent upon meeting various departmental and company-wide performance goals including meeting sales targets and net profit targets. As
of December 31, 2007, options to purchase 68,617 shares of common stock were vested and exercisable under the 1994 Plan. The 1994 Plan terminated in 2004.

On September 18, 2003, the Company adopted a new stock option plan (the 2003 Plan) that provides for the grant of
incentive stock options and nonqualified stock options, and reserved 450,000 additional shares of the Companys Common Stock for future issuance under the plan. The 2003 Plan was subsequently amended to increase the number of shares reserved
for issuance thereunder to 670,000. The option price of incentive stock options must be at least 100% of market value at the date of the grant and incentive stock options have a maximum term of 10 years. Options granted typically vest ratably over a
three-year period or based on achievement of performance criteria. The Company typically grants selected executives and other key employees share option awards, whose vesting is contingent upon meeting various departmental and company-wide
performance goals including meeting sales targets and net profit targets. As of December 31, 2007, 352,898 shares of common stock were vested and exercisable under the 2003 Plan.

The weighted average fair value of options granted at market during 2007 and 2006 was $2.91 and $2.06 per option, respectively. The total
intrinsic value of options exercised during the years ended December 31, 2007 and 2006 was $11,575 and $366, respectively. The aggregate intrinsic value of the outstanding options at December 31, 2007 was $438,026. At December 31,
2007, there were 581,817 options outstanding under both plans.



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##### Table of Contents

NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|9. | STOCK OPTION PLAN  (continued):
|-- | --------------------------------



The following table summarizes activity of the stock option plans for the years ended
December 31, 2007 and 2006:



|                                        |  |                                |   |  |                                        |   |  |                              |     
|--------------------------------------- |  | ------------------------------ | - |  | -------------------------------------- | - |  | ---------------------------- | ----
|                                        |  | SharesAvailablefor FutureGrant |   |  | Number ofSharesOutstandingUnder Option |   |  | WeightedAverageExercisePrice
|Balance, January 1, 2006                |  |                                |   |  | 654,932                                |   |  | $                            | 4.71
|Options granted at market               |  | (89,450                        | ) |  | 89,450                                 |   |  | $                            | 2.56
|Options exercise                        |  |                                |   |  | (300                                   | ) |  | $                            | 2.10
|Options forfeited or expired            |  | 105,817                        |   |  | (226,217                               | ) |  | $                            | 5.41
|                                        |  |                                |   |  |                                        |   |  |                              |     
|Balance, December 31, 2006              |  | 16,637                         |   |  | 517,865                                |   |  | $                            | 3.73
|                                        |  |                                |  
|Increase in options under the 2003 Plan |  | 220,000                        |   |  |                                       |   |  |                              |     
|Options granted at market               |  | (251,200                       | ) |  | 251,200                                |   |  | $                            | 2.91
|Options exercise                        |  |                                |   |  | (17,547                                | ) |  | $                            | 2.31
|Options forfeited or expired            |  | 162,201                        |   |  | (169,701                               | ) |  | $                            | 3.13
|                                        |  |                                |   |  |                                        |   |  |                              |     
|Balance, December 31, 2007              |  | 147,368                        |   |  | 581,817                                |   |  | $                            | 3.16
|                                        |  |                                |   |  |                                        |   |  |                              |     

Of the 581,817 options outstanding at December 31, 2007, 421,515 are vested
and exercisable . At December 31, 2007, the weighted average exercise price of vested options outstanding was $4.04, the weighted average remaining contractual term (in years) was 6.83, and the aggregate intrinsic value was $416,083.

A summary of the non-vested shares as of December 31, 2007 and changes during the year ending December 31, 2007
is presented below:



|                                |  |          |   |  |                                      |     
|------------------------------- |  | -------- | - |  | ------------------------------------ | ----
|Non-vested Shares               |  | Shares   |   |  | Weighted-AverageGrant-DateFair
Value
|Non-vested at January 1, 2007   |  | 114,352  |   |  | $                                    | 3.59
|Granted                         |  | 251,200  |   |  | $                                    | 2.91
|Vested                          |  | (61,382  | ) |  | $                                    | 3.69
|Forfeited                       |  | (143,868 | ) |  | $                                    | 2.98
|                                |  |          |   |  |                                      |     
|Non-vested at December 31, 2007 |  | 160,302  |   |  | $                                    | 4.98
|                                |  |          |   |  |                                      |     

As of December 31, 2007, the total future compensation cost related to
non-vested awards will be approximately $59,000, $54,000 and $42,000 for the years ending December 31, 2008, 2009, and 2010 respectively.

The total fair value of shares vested during the year was approximately $226,225.



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##### Table of Contents

NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|9. | STOCK OPTION PLAN  (continued):
|-- | --------------------------------



The Company typically grants selected executives and other key employees share option
awards, whose vesting is contingent upon meeting various departmental and company-wide performance goals including meeting sales targets and net profit targets. The grant date weighted average fair value of performance options granted during 2007
and 2006 was $2.70 and $1.84, respectively. As of December 31, 2007, there was no unrecognized compensation cost related to non-vested performance options since the attainment of the performance objectives were not considered probable. A
summary of activity of options that vest contingent upon achievement of certain performance criteria under the 2003 Plan as of December 31, 2007 and changes during the year then ended is presented below. These shares were also included in the
summary of activity of stock option plans for the year ended December 31, 2007 above.



|                                 |  |          |   |  |                              |      |                                          |      |                         |   |        
|-------------------------------- |  | -------- | - |  | ---------------------------- | ---- | ---------------------------------------- | ---- | ----------------------- | - | -------
|Performance Based Shares         |  | Shares   |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractual Term |      | AggregateIntrinsicValue
|Outstanding at January 1, 2006   |  | 170,000  |   |  | $                            | 3.37 |                                          |      |                         |   |        
|Granted                          |  | 50,000   |   |  | $                            | 2.20 |                                          |      |                         |   |        
|Cancelled                        |  | (70,000  | ) |  | $                            | 4.30 |                                          |      |                         |   |        
|                                 |  |          |   |  |                              |      |                                          |      |                         |   |        
|Outstanding at December 31, 2006 |  | 150,000  |   |  | $                            | 2.55 |                                          | 9.11 |                         | $ | 140,000
|                                 |  |          |   | 
|Granted                          |  | 130,000  |   |  | $                            | 5.30 |                                          |      |                         |   |        
|Exercised                        |  |         |   |  |                              |     |                                          |      |                         |   |        
|Forfeited or expired             |  | (136,750 | ) |  | $                            | 4.82 |                                          |      |                         |   |        
|                                 |  |          |   |  |                              |      |                                          |      |                         |   |        
|Outstanding at December 31, 2007 |  | 143,250  |   |  | $                            | 3.97 |                                          | 8.84 |                         | $ | 160,950
|                                 |  |          |   |  |                              |      |                                          |      |                         |   |        
|Exercisable at December 31, 2007 |  | 68,250   |   |  | $                            | 2.76 |                                          | 8.60 |                         | $ | 145,950
|                                 |  |          |   |  |                              |      |                                          |      |                         |   |        

A summary of the non-vested shares that vest, some being contingent upon
achievement of certain performance criteria, under the 2003 Plan as of December 31, 2007 and changes during the year then ended is presented below. These shares were also reflected in the summary above.



|                                    |  |          |   |  |                                      |     
|----------------------------------- |  | -------- | - |  | ------------------------------------ | ----
|Performance Based Non-vested Shares |  | Shares   |   |  | Weighted-AverageGrant-DateFair
Value
|Non-vested at January 1, 2007       |  | 100,000  |   |  | $                                    | 3.59
|Granted                             |  | 130,000  |   |  | $                                    | 2.70
|Vested                              |  | (18,250  | ) |  | $                                    | 3.59
|Forfeited                           |  | (136,750 | ) |  | $                                    | 3.04
|                                    |  |          |   |  |                                      |     
|Non-vested at December 31, 2007     |  | 75,000   |   |  | $                                    | 3.04
|                                    |  |          |   |  |                                      |     



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##### Table of Contents

NEXXUS LIGHTING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007



|10. | EXPORT SALES:
|--- | -------------

Sales to foreign
markets as a percentage of the Companys total revenues were as follows:



|                                   |  |      |           |            |    |   |      |   |            |  |    |  
|---------------------------------- |  | ---- | --------- | ---------- | -- | - | ---- | - | ---------- |  | -- | -
|                                   |  | 2007 |           | % of Sales |    |   | 2006 |   | % of Sales | 
|Foreign markets:                   |  |      |           |            |    |   |      |   |            |  |    |  
|Americas (excluding USA)           |  | $    | 1,237,745 |            | 12 | % |      | $ | 1,839,089  |  | 17 | %
|Europe, the Middle East and Africa |  |      | 1,124,156 |            | 11 | % |      |   | 1,144,085  |  | 10 | %
|Asia Pacific                       |  |      | 505,498   |            | 5  | % |      |   | 700,286    |  | 6  | %
|Japan                              |  |      | 165,980   |            | 2  | % |      |   | 126,802    |  | 1  | %



|11. | BENEFIT PLANS:
|--- | --------------

The Company has
established a profit sharing plan that permits participants to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. The Company made matching contributions equal to 50% of the
participants contributions, to a maximum of 3% of the participants salary. Total matching contributions paid by the Company were approximately $46,000 and $40,000 for the years ended December 31, 2007 and 2006, respectively.



|12. | CONTINGENCIES:
|--- | --------------

The Company is not
currently a party to any pending legal proceedings. In the ordinary course of business the Company may become a party to various legal proceedings generally involving contractual matters, infringement actions, product liability claims and other
matters.



|13. | REVOLVING LINE OF CREDIT:
|--- | -------------------------

In
February 2006, the Company entered into a $1,200,000 revolving line of credit agreement. In June 2006, the agreement was amended to increase the borrowing capacity under the line of credit to $1,600,000. The maturity date of the loan was
subsequently extended to June 2008. The agreement is secured by substantially all of the assets of the Company and includes certain financial covenants and a requirement for a minimum investment balance of $500,000 in accounts held at the lender. As
of December 31, 2007, the line of credit had an outstanding balance of $1,443,000 and there was an available balance of $157,000. The line is secured by substantially all of the assets of the Company. Interest is at LIBOR plus 1.85% per
annum (7.075% at December 31, 2007) and is payable monthly. For the year ending December 31, 2007 the Company was not in compliance with certain financial covenants as required by the agreement. The lender has waived these covenant
violations for 2007.



---

##### Table of Contents

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |                       |  |                          
|-------------------- |  | --------------------- |  | -------------------------
|                     |  | NEXXUS LIGHTING, INC.
|                     |  |                      
|Date: March 28, 2008 |  | By:                   |  | /s/ Michael Bauer        
|                     |  |                       |  | Michael Bauer, President,
|                     |  |                       |  | Chief Executive Officer  

In accordance with the Exchange Act, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.



|                                                        |  |  |  |               
|------------------------------------------------------- |  |  |  | --------------
|/s/ Michael Bauer                                       |  |  |  |               
|Michael Bauer  President                               |  |  |  | March 28, 2008
|Chief Executive Officer / Director                      |  |  |  |               
|(Principal Executive Officer)                           |  |  |  |               
|                                                        |  | 
|/s/ John Oakley                                         |  |  |  | March 28, 2008
|John Oakley  Chief Financial Officer                   |  |  |  |               
|(Principal Financial and Accounting Officer)            |  |  |  |               
|                                                        |  | 
|/s/ Brett M. Kingstone                                  |  |  |  |               
|Brett M. Kingstone  Chairman of the Board of Directors |  |  |  | March 28, 2008
|                                                        |  | 
|/s/ Brian McCann                                        |  |  |  | March 28, 2008
|Brian McCann  Director                                 |  |  |  |               
|                                                        |  | 
|/s/ Anthony Nicolosi                                    |  |  |  | March 28, 2008
|Anthony Nicolosi  Director                             |  |  |  |               
|                                                        |  | 
|/s/ Edgar Protiva                                       |  |  |  | March 28, 2008
|Edgar Protiva  Director                                |  |  |  |               
|                                                        |  | 
|/s/ Fritz Zeck                                          |  |  |  | March 28, 2008
|Fritz Zeck  Director                                   |  |  |  |               
|                                                        |  | 
|/s/ Anthony Castor                                      |  |  |  | March 28, 2008
|Anthony Castor  Director                               |  |  |  |               



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##### Table of Contents

|Item 13. | Exhibits
|-------- | --------



|        |  |                                                                                                                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|3.1     |  | Certificate of Incorporation of the Company(1)                                                                                                                                                                                                   
|        | 
|3.2     |  | Amendment to Certificate of Incorporation(1)                                                                                                                                                                                                     
|        | 
|3.3     |  | Amendment to Certificate of Incorporation(3)                                                                                                                                                                                                     
|        | 
|3.4     |  | Amendment to Certificate of Incorporation(2)                                                                                                                                                                                                     
|        | 
|3.5     |  | Bylaws(1)                                                                                                                                                                                                                                        
|        | 
|4.1     |  | Form of Common Stock Certificate*                                                                                                                                                                                                                
|        | 
|4.2     |  | Form of Common Stock Purchase Warrant issued to certain accredited investors and the placement agent to purchase shares of the Companys Common Stock at an exercise price of $2.23 per share(11)                                                
|        | 
|4.3     |  | Form of Common Stock Purchase Warrant issued to certain accredited investors to purchase shares of the Companys Common Stock at an exercise price of $3.00 per share(12)                                                                        
|        | 
|10.1   |  | Form of Indemnification Agreement(1)                                                                                                                                                                                                             
|        | 
|10.2   |  | 1994 Stock Option Plan, as amended and restated(2)                                                                                                                                                                                               
|        | 
|10.3   |  | 2003 Stock Incentive Plan(7)                                                                                                                                                                                                                     
|        | 
|10.4   |  | Warrant Agreement dated as of December 21, 2005 between the Company and the Kingstone Family Ltd Partnership II(8)                                                                                                                               
|        | 
|10.5   |  | Employment Agreement between the Company and Michael A. Bauer dated February 11, 2008(22)                                                                                                                                                        
|        | 
|10.6   |  | Transition Agreement between the Company and Brett M. Kingstone dated September 9, 2005(20)                                                                                                                                                      
|        | 
|10.7   |  | Contingent Proceeds Participation Agreement between Brett M. Kingstone and the Company dated September 19, 2003(5)                                                                                                                               
|        | 
|10.8    |  | Business Loan Agreement between the Company and RBC Centura Bank dated February 10, 2006(21)                                                                                                                                                     
|        | 
|10.9    |  | Lease for Southridge Park Court facility(14)                                                                                                                                                                                                     
|        | 
|10.10.1 |  | Lease for Floyd Smith Office Park facility(23)                                                                                                                                                                                                   
|        | 
|10.10.2 |  | Lease for Floyd Smith Office Park facility*                                                                                                                                                                                                      
|        | 
|10.11   |  | Form of Common Stock and Warrant Purchase Agreement by and between the Company and each purchaser in the private placement dated as of December 7, 2006(15)                                                                                      
|        | 
|10.12   |  | Form of Registration Rights Agreement by and between the Company and each purchaser in the private placement, dated as of December 7, 2006(16)                                                                                                   
|        | 
|10.13   |  | Registration Rights Agreement between the Company and Cooper Lighting, Inc., dated as of November 23, 1998, included as Exhibit C to the Stock Purchase Agreement between the Company and Cooper
Lighting, Inc. dated as of November 23, 1998(17)
|        | 
|10.14   |  | Escrow Agreement between the Company and RBC Centura Bank, dated as of November 30, 2006(18)                                                                                                                                                     
|        | 
|10.15   |  | Exchange Agreement between the Company and Brett M. Kingstone dated March 26, 2007(19)                                                                                                                                                           
|        | 
|10.16#  |  | Settlement and License Agreement between the Company and Color Kinetics Incorporated dated December 4, 2006(23)                                                                                                                                  
|        | 
|14.1    |  | Code of Business Conduct and Ethics(6)                                                                                                                                                                                                           
|        | 
|23.1*   |  | Consent of Cross, Fernandez & Riley LLP, Independent Registered Public Accounting Firm                                                                                                                                                           
|        | 
|31.1*   |  | Certifications by chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                              
|        | 
|31.2*   |  | Certifications by chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                              
|        | 
|32.1*   |  | Certifications by chief executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                              



---

##### Table of Contents



|* | Filed herewith
|- | --------------

|# | Confidential treatment has been granted for portions of this agreement.
|- | -----------------------------------------------------------------------

| | Management contract or compensatory plan or agreement
|- | -----------------------------------------------------

|(1) | Incorporated by Reference to the Companys Registration
Statement on Form SB-2 (File No. 33-74742)
|--- | --------------------------------------------------------------------------------------------------

|(2) | Incorporated by Reference to the Companys Definitive Proxy
Statement filed April 29, 1997
|--- | ------------------------------------------------------------------------------------------

|(3) | Incorporated by Reference to the Companys Definitive Proxy
Statement filed April 22, 1998
|--- | ------------------------------------------------------------------------------------------

|(4) | Incorporated by Reference to the Companys Registration
Statement on Form SB-2 (File No. 333-73804)
|--- | ---------------------------------------------------------------------------------------------------

|(5) | Incorporated by Reference to the Companys Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2003
|--- | -------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by Reference to the Companys Annual Report on Form 10-KSB for the year ended December 31, 2003
|--- | ------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by Reference to the Companys Definitive Proxy
Statement filed April 16, 2004
|--- | ------------------------------------------------------------------------------------------

|(8) | Incorporated by Reference to the Companys Definitive Proxy
Statement filed November 3, 2005
|--- | --------------------------------------------------------------------------------------------

|(9) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed September 14, 2005
|--- | ----------------------------------------------------------------------------------------------

|(10) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed October 18, 2005
|---- | --------------------------------------------------------------------------------------------

|(11) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed on December 8, 2006
|---- | -----------------------------------------------------------------------------------------------

|(12) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed on December 8, 2006
|---- | -----------------------------------------------------------------------------------------------

|(13) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed on January 19, 2007
|---- | -----------------------------------------------------------------------------------------------

|(14) | Incorporated by Reference to the Companys Current Report on Form 8-K filed on December 5, 2006
|---- | -----------------------------------------------------------------------------------------------

|(15) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed on December 8, 2006
|---- | -----------------------------------------------------------------------------------------------

|(16) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed on December 8, 2006
|---- | -----------------------------------------------------------------------------------------------

|(17) | Incorporated by Reference to the Companys Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1998
|---- | -------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by Reference to the Companys Registration
Statement on Form S-3 (File No. 333-140286)
|---- | ---------------------------------------------------------------------------------------------------

|(19) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed on March 29, 2007
|---- | ---------------------------------------------------------------------------------------------

|(20) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed on September 14, 2005
|---- | -------------------------------------------------------------------------------------------------

|(21) | Incorporated by Reference to the Companys Annual Report on
Form 10-KSB for the year ended December 31, 2005
|---- | ------------------------------------------------------------------------------------------------------------

|(22) | Incorporated by Reference to the Companys Current Report
on Form 8-K filed February 14, 2008.
|---- | ----------------------------------------------------------------------------------------------

|(23) | Incorporated by Reference to the Companys Annual Report on
Form 10-KSB for the year ended December 31, 2006.
|---- | -------------------------------------------------------------------------------------------------------------