U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

FOR THE TRANSITION PERIOD FROM                      TO                     

COMMISSION FILE NO. 0-23590

SUPER VISION INTERNATIONAL, INC.

(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

9400-200 SOUTHRIDGE PARK COURT, ORLANDO, FLORIDA 32819

(Address of Principal Executive Offices) (Zip Code)

(407) 857-9900

(Issuer’s Telephone Number, Including Area Code)

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

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: $11,001,011.

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 28, 2007 was $9,386,644.

As of March 28, 2007, there were issued and outstanding: 6,701,556 shares of Class A 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, 2006.

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:

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

GENERAL

On March 1, 2007, Super Vision International, Inc. announced that it was changing its name to Nexxus Lighting, Inc. effective in April 2007. 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 will focus 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.

The Company derives its revenues primarily from sales of Savi^® brand LED lighting systems and controls including its Digital Lighting System^™ (DLS), FlexLED^™ and BorderLight^™ lighting products, power supplies and control systems. The Company also derives a significant percentage of its revenues from sales of SIDE-GLOW^® and END-GLOW^® fiber optic lighting cables, and fiber optic lighting sources, accessories, endpoint signs and displays. The Company also designs, manufactures, markets and sells LED and fiber optically lit waterfalls and water features under the Oasis™ water features brand. The Company 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 April 1, 2007, the Company’s executive offices were relocated to its new manufacturing facility at 9400-200 Southridge Park

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Court, Orlando, FL 32819. The Company’s telephone number is (407) 857-9900. References in this report to “Super Vision,” “Nexxus Lighting,” the “Company,” “we,” “us,” and “our” refer to Super Vision International, Inc., a Delaware corporation.

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 were 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 1000-2000 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 addition to its sign lighting products, in 2002, Super Vision 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. In the 4^th quarter of 2006, we introduced a new and improved version of the system called DLS-2 and we continue to explore expanded applications for the product platform.

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 2^nd 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. Sales of our new Savi^® products generated approximately $1,158,000 of revenue in 2006 compared to approximately $593,000 in 2005. In March 2006, we began production on the new Savi™ SHO (Super High Output) light at our facility in Orlando, Florida. The Savi^® SHO is a new 90-watt super high output RGB LED flood light that is based on state-of-the-art high density array LED technology. We believe the Savi^® SHO is optically superior to other competitive LED products in the market. In the summer of 2006, we added new Savi^® Pool and Spa lighting products that also feature this new high-density array technology, and in the 1^st Quarter of 2007 we introduced the Savi^® Note to provide a new patented “niche-less” LED lighting solution for the pool and spa lighting market.

In addition to our expanded line of LED lighting fixtures, in January 2007 we introduced a new comprehensive line of LED light bulbs to replace conventional incandescent and halogen light bulbs in commercial “white light” applications. The new Savi^® LED line of light bulbs feature, MR16, R16, R20, R25 and R30 designs in addition to several globe and accent light bulbs that last up to 50,000 hours and consume 75% less energy than incandescent bulbs. Unlike compact fluorescent lamps, the Savi^® LED line of bulbs contain no mercury and create no disposal hazard.

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In 2006, we also invested in the design, development and tooling of several additional LED products that we expect to introduce in 2007. 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. 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 or has been issued three U.S. Patents related to its LED technology and has six (6) patent applications pending, with additional applications planned for 2007.

Revenue from sales of LED lighting systems and control products accounted for approximately 50% of our sales in 2006 as compared to approximately 49% in 2005. Sales of fiber optic lighting systems accounted for approximately 45% of the Company’s revenue in 2006 as compared to approximately 47% in 2005. The balance of our revenue came from sales of our Oasis^™ waterfall and water feature line of products. We believe that our LED product lines are still in their growth mode and offer significant revenue potential for both the commercial/architectural and pool and spa lighting markets.

SIDE-GLOW^® AND END GLOW^® CABLES

Our SIDE-GLOW^® 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. We market SIDE-GLOW^® cable as an alternative to neon lighting for indoor and outdoor architectural accents and large signs and displays. The SIDE-GLOW^® fiber optic lighting cable is flexible and easy to install and is not prone to the breakage associated with glass neon tubes. The SIDE-GLOW^® fiber optic lighting cable is energy efficient, providing significant savings in electrical costs. 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, 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 SIDE-GLOW^® 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.

END GLOW^® 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 END GLOW^® 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. END GLOW^® 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 END GLOW^® cables to user specifications, delivering the required amount of light to the object at the most affordable cost.

LIGHT SOURCES

Super Vision manufactures a variety of light sources used in conjunction with its SIDE-GLOW^® and END GLOW^® 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-GLOW^® 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.

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SIDE-GLOW^® and END GLOW^® cable products and their required light sources represented approximately 45% of our total revenue in 2006 compared to 47% in the prior year. We expect that revenue from our fiber optic and light source product lines will continue to decrease as a percentage of sales as revenue from our new LED product lines continues to increase at a faster pace. 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.

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 2006 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 2005.

SALES AND MARKETING

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

COMMERCIAL (Architectural and Sign Lighting):

We currently market and distribute our LED and fiber optic lighting products and systems through a network of approximately 80 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 Super Vision. 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

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 2006, we focused our efforts on expanding the breadth of products offered to the pool and spa market and developed new marketing tools to drive sales in 2007. With the introduction of the Savi^® pool and spa lighting products and our new Savi^® Note product line, we believe that this market segment represents a unique and significant growth opportunity and is an excellent fit with our technology and intellectual property platform.

INTERNATIONAL

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.

MANUFACTURING AND SUPPLIERS

All fiber optic strands used in our endpoint signs and displays, as well as in the production of our SIDE-GLOW^® and END GLOW^® cables, are purchased from a key Japanese supplier. Purchases from this Japanese supplier represented approximately 9% and 15% of total inventory purchases for the years ended December 31, 2006 and 2005, respectively. While we believe there are alternative sources for the fiber optic strands used in the

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production of our endpoint signs and displays, we believe our SIDE-GLOW^® and END GLOW^® cables require 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 US. Approximately 86% of all purchases related to LED lighting products and systems were purchased from six suppliers in the year ended December 31, 2006 compared to approximately 80% of all purchases related to LED lighting products and systems purchased from three suppliers in the year ended December 31, 2005. 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 SIDE-GLOW^® and END GLOW^® 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 and endpoint signs and displays in our 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. All endpoint signs and displays are manufactured by the Company based on the clients’ specifications, or designed jointly by our design personnel and our client. We believe our ability to offer a full range of products, and 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 50% and 37% of total inventory purchases for the years ended December 31, 2006 and 2005, 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 at 9400 Southridge Park Court, Suite 200, Orlando, FL 32819. 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.

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 marketing partners to maintain our competitive advantage and defend our market

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position. In addition, the Company plans to explore potential acquisitions that could expand our product and technology platform as it relates to advanced lighting systems. We currently have no commitments or agreements to make any acquisitions.

During 2006, we spent approximately $538,000 on engineering and product development activities, as compared to approximately $552,000 in 2005. 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 to improve and enhance 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.

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 other large conventional lighting companies 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. This feature is superior to other lighting systems, such as neon, which require maintenance throughout the lighting system. Additionally, the SIDE-GLOW^® and END GLOW^® cables are virtually maintenance free and are unbreakable, as opposed to neon and other comparable lighting products which experience high breakage rates both in the field and in shipment. This reduced breakage also results in an additional advantage in the area of safety. 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 the 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

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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 a new competitor will not develop processes or technology which will allow them to decrease their costs and related selling price, and consequently, erode our market share.

PATENTS AND PROPRIETARY RIGHTS

Super Vision 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 our 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.

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 received Patent Cooperation Treaty 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 patents related to our fiber optic and LED lighting intellectual property. In addition, we have ten 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 will likely continue to 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

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settle some or all of our pending 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^™ 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 31, 2007, Super Vision had 50 full-time employees, including 3 in research and development, 14 in sales, marketing and customer service, 10 in finance and administration and 23 in production and quality control. 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.

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. The lease is triple net with scheduled annual rent increases. 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 facility, on November 29, 2006, the Company entered into a lease termination agreement with Max King Realty, Inc. (“Max King Realty”), a company controlled Brett M. Kingstone, the Company’s chairman of the board, to terminate the capital lease with Max King Realty for the Company’s existing facility. The lease had a fifteen-year term extending through June 15, 2012. Max King Realty was willing to accommodate the Company’s desire to terminate its obligations under the lease for its 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 amount of the prepayment penalty by delivery of an unsecured promissory note in the amount of $332,846. The promissory note 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 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 will lease approximately 2,100 square feet of class A

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office space at a gross rental rate of $3,399.50 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 $3,399.50.

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.

A settlement of all disputes between Ocean Bank and Great Eastern Bank of Florida (Ocean Bank) and the Company was reached in October 2006 to the mutual satisfaction of all parties. After costs and expenses, including attorneys’ fees and a payment to Brett M. Kingstone, the Company’s chairman of the board, pursuant to the Participation Agreement between Super Vision and Mr. Kingstone, as amended, Super Vision received a net amount of approximately $237,000 from the proceeds of the settlement in November 2006. Pursuant to the Participation Agreement, Mr. Kingstone received approximately $252,000 from the proceeds of the settlement.

On December 6, 2006, the Company announced that it has entered into a Settlement and License Agreement (the “Agreement”) with Color Kinetics Incorporated (“Color Kinetics”) dated as of December 4, 2006 ending all pending litigation between the two companies. Under the terms of the Agreement:

On May 10, 2006, B&S Plastics, Inc. doing business as Waterway Plastics (“B&S Plastics”) filed a law suit against the Company in the Federal District Court of the Central District of California (case number: CV06-2826-GHK (JTLx)) for patent infringement and unfair competition alleging that one of the Company’s new waterfall products infringes its patent for a pool/spa waterfall apparatus with an interchangeable outlet cap. Although the Company denied any patent infringement, on February 1, 2007 the Company and B&S Plastics

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entered into a settlement agreement whereby the Company agreed to modify the design and installation/instruction sheets of its waterfall product and B&S Plastics agreed to allow the Company to sell off up to 10,000 of the current product design held in inventory.

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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PART II

(a) The Company’s Class A Common Stock, par value of $.001 per share, trades on the NASDAQ Capital Market under the symbol SUPVA. The following table sets forth the high and low closing prices of the Class A Common Stock for the fiscal years ended December 31, 2006 and 2005 as reported by NASDAQ.

(b) The number of holders of record of the Company’s Class A Common Stock on March 30, 2007 was 66. This number does not include beneficial owners of our Class A 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 (either Class A or Class B) 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) On December 7, 2006, we closed the private offering to a limited number of accredited investors of approximately 40,360 units at a price of $223.00 per unit, resulting in gross cash subscriptions of approximately $9 million, and net proceeds to the Company of approximately $8,350,000. Each unit consisted of 100 shares of Class A common stock, a warrant to purchase 60 shares of Class A common stock exercisable at $2.23 per share, expiring five years from the date of issuance, and a second warrant to purchase 15 shares of Class A common stock exercisable at $3.00 per share, expiring five years from the date of issuance. The securities were sold solely to accredited investors in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) under Section 4(2) of the Securities Act and Rule 506 promulgated by the United States Securities and Exchange Commission under the Securities Act.

(e) 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 one share of Class B Common Stock exchanged. The transaction was effected pursuant to an Exchange Agreement between the Company and the Kingstone Family Limited Partnership II (“KFLP”), an entity controlled by Brett M. Kingstone, the Company’s chairman of the board, dated March 26, 2007. Pursuant to the Exchange Agreement, KFLP exchanged 483,264 shares of the Company’s Class B Common Stock, constituting all of the issued and outstanding shares of the Company’s Class B Common Stock, for 604,080 shares of the Company’s Class A Common Stock (the “Exchange”). The Exchange eliminated the disparity in voting rights between the Class B Common Stock, which is entitled to five votes per share and the Class A Common Stock, which is entitled to one vote per share. The Exchange was effected in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) under Section 4(2) of the Securities Act.

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

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

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Financial Statements appearing elsewhere in this Annual Report on Form 10-KSB. Except for the historical information contained here, 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

On March 1, 2007, Super Vision International, Inc. announced that it was changing its name to Nexxus Lighting, Inc. effective in April 2007. 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 will focus 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.

The Company derives its revenues primarily from sales of Savi^® brand LED lighting systems and controls including its Digital Lighting System^™ (DLS), FlexLED^™ and BorderLight^™ lighting products, power supplies and control systems. The Company also derives a significant percentage of its revenues from sales of SIDE-GLOW^® and END-GLOW^® fiber optic lighting cables, and fiber optic lighting sources, accessories, endpoint signs and displays. The Company also designs, manufactures, markets and sells LED and fiber optically lit waterfalls and water features under the Oasis^™ water features brand. The Company markets and distributes its products globally primarily through multiple networks of independent sales representatives and distributors.

The twelve months ended December 31, 2006 was a transformational year for the Company. Commencing in January 2006, new management began a process of change that ultimately brought about the restructuring and right-sizing of the Company, the termination of the Company’s long-term capital lease obligation and move to a more cost effective facility, the resolution of all outstanding legal proceedings and, finally in December 2006, the closing of a $9 million private placement of equity to strengthen the Company’s balance sheet and enable management to execute the Company’s new Nexxus Lighting strategy. Management believes that these long-term strategic actions have positioned the Company well for the future. However, although positive, the number and timing of these one-time events had a significant adverse financial impact on the Company in the 4^th quarter of 2006, and had a material negative impact on the year over year variances between 2006 and 2005.

Revenue from LED lighting systems and control products accounted for approximately 50% of our sales in 2006 as compared to approximately 49% in 2005. Sales of fiber optic lighting systems accounted for approximately 45% of the Company’s revenue in 2006 as compared to approximately 47% in 2005. The balance of our sales came from our Oasis^™ waterfall and water feature line of products. We believe that our LED product lines are still in their growth mode and offer significant revenue potential for both the commercial/architectural and pool and spa lighting markets.

Revenue from our commercial lighting division led the Company in 2006 with sales of LED products increasing 24% and overall sales increasing 2% over 2005. The LED sales increase was partially offset by a 9% decline in the sale of fiber optic products in our commercial lighting division. Sales of our new Savi^® products generated approximately $1,158,000 of revenue in 2006 compared to $593,000 in 2005.

Despite the positive trend in commercial lighting and exciting new product introductions, the impact of ongoing litigation prior to settlement, the decrease in international sales resulting from changes in distribution, and the impact of reduced purchases by pool distributors and builders as a result of the slow-down in the residential housing market resulted in a 8% decrease in sales from $12 million in 2005 to $11.0 million in 2006.

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While we remain optimistic that the fiber optic market will continue to be a major part of our business, we believe that the LED lighting market will drive our growth in the future. Fiber optic lighting sales decreased 11% in 2006, driven by an 18% decline in fiber optic sales in our international market. However, we are planning on introducing new LED light sources that drive light into fiber in 2007, which are expected to serve as a platform for new products and applications for fiber as an advanced lighting system. In 2006, we succeeded in improving our overall direct gross margins on LED products from 47% in 2005 to 50%, which was a critical factor in improving our direct gross margin (revenue less the cost of direct material only) for the year. Historically, our direct gross margins from fiber optic products have been higher than gross margins from LED lighting systems. However, we anticipate an increase in gross margins from LED products as we gain traction in the higher gross margin commercial market with our Savi^™ line.

During 2006, we also invested in new product tooling on a number of our new Savi^™ products and we introduced six major new products. We believe these new product investments are essential to repositioning the Company to capitalize on the growth potential of the high brightness “white light” LED lighting systems market, and enabling the Company to emerge as one of the leaders in this market going forward.

With the resolution of all pending legal proceedings in 2006, the major product launches of the new Savi^® Pool & Spa Light and Savi^® Note, the introduction of the new pool and spa catalog in November 2006, and the launch of our new Savi^® LED light bulb line in January 2007, management is optimistic that the Company can begin to grow under the new Nexxus Lighting strategy.

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

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.

Significant Events – Fourth Quarter 2006

Resolution of Certain Legal Proceedings

A settlement of all disputes between Ocean Bank and Great Eastern Bank of Florida (Ocean Bank) and the Company was reached in October 2006 to the mutual satisfaction of all parties. After costs and expenses, including attorneys’ fees and a payment to Brett M. Kingstone, the Company’s chairman of the board, pursuant to the Participation Agreement between Super Vision and Mr. Kingstone, as amended, Super Vision received a net amount of approximately $237,000 from the proceeds of the settlement in November 2006. Pursuant to the Participation Agreement, Mr. Kingstone received approximately $252,000 from the proceeds of the settlement. The settlement was recorded as a reduction of legal expenses in the fourth quarter of 2006.

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On December 6, 2006, the Company announced that it has entered into a Settlement and License Agreement with Color Kinetics Incorporated dated as of December 4, 2006 ending all pending litigation between the two companies. Under the terms of the Settlement Agreement, Super Vision agreed to pay Color Kinetics $825,000 as settlement for all claims that the parties may have against each other to include all patent infringement damages and legal costs and fees that arose prior to the execution of the Settlement Agreement and the amount awarded to Color Kinetics in the Final Judgment issued by the U.S. District Court for the District of Massachusetts. The Company delivered to Color Kinetics a promissory note in the amount of $825,000 payable to Color Kinetics. The promissory note is due and payable in full by December 25, 2007, and is payable in equal twelve month installments of $68,750 beginning January 25, 2007.

The Company incurred costs and additional legal fees in a wrongful termination suit after the appellate court reversed the lower court’s decision. The Company was required to pay $18,000 to the plaintiff in the final judgment, which was paid as of December 31, 2006. In addition, under a stipulation on motion for attorney’s fees, the Company agreed to pay an additional $80,000 under a payment plan with the last payment due July 2007.

Super Vision was paid $30,000 as of December 31, 2006 in exchange for a satisfaction of judgment for amounts personally and directly owed by a defendant in an unrelated legal proceeding. This settlement was recorded as a reduction of legal expenses in the fourth quarter of 2006.

Capital Lease Termination and Impairment of Fixed Assets / Early Termination Penalty to Max King Realty

On November 29, 2006, the Company entered into a lease termination agreement with Max King Realty, Inc. (“Max King Realty”), a company controlled by Brett M. Kingstone, the Company’s chairman of the board, to terminate the capital lease with Max King Realty for the Company’s existing facility. The lease had a fifteen-year term extending through June 15, 2012. Max King Realty was willing to accommodate the Company’s desire to terminate its obligations under the lease for its 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 amount of the prepayment penalty by delivery of an unsecured promissory note in the amount of $332,846. The promissory note was paid in full in January 2007.

Assets recorded under this capital lease included in property and equipment were as follows:

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 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.

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Private Placement

On December 7, 2006, we closed the private offering to a limited number of accredited investors of approximately 40,360 units at a price of $223.00 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 Class A common stock, a warrant to purchase 60 shares of Class A common stock exercisable at $2.23 per share, expiring five years from the date of issuance, and a second warrant to purchase 15 shares of Class A common stock exercisable at $3.00 per share, expiring five years from the date of issuance. The securities were sold solely to accredited investors in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended.

In connection with the Private Placement, the Company entered into a Registration Rights Agreement with the purchasers of the securities pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (“SEC”) within 60 days of the closing and use commercially reasonable efforts to obtain effectiveness of the registration statement within 120 days of the closing. A registration statement covering the resale of shares of Class A common stock sold in the Private Placement and the shares of Class A common stock underlying the warrants sold in the Private Placement was filed with the SEC within 60 days of the closing. The Company’s failure to abide by the effectiveness covenant will result in the Company’s obligation to pay liquidated damages in the form of cash or shares of Class A common stock at the rate of one percent of the subscription amount of each purchaser for each failure continuing more than 30 days (and for each 30-day period thereafter up to 18 months).

Revenues & Gross Margin

Revenues for 2006 decreased 8% to approximately $11,001,000 as compared to approximately $11,983,000 during the preceding year. Commercial lighting sales increased 2%, or $71,000, driven by a 24%, or $309,000, increase in LED lighting systems sales offset in part by a 9%, or $235,000, decrease in fiber optic sales and a $4,000 decrease in sales of waterfall products. The Company continued to show improvement as sales were more evenly distributed across all of its manufacturer’s representatives in the commercial lighting market, reducing its dependence on some historically large one-time projects. Pool and spa sales decreased by 7%, or $377,500 in 2006 as compared to 2005, with both LED and fiber optic sales declining equally on a percentage basis due to slower than expected 4^th quarter early buy purchases than historically received as a result of the slow down in residential pool construction. International sales decreased 22%, or $675,000, in 2006 as compared to 2005, with LED and fiber optic sales down 25% and 18%, respectively. The decline in international sales was primarily driven by lower sales in the UK, Middle East, Russia and Asia as a result of distribution changes and intense pricing pressure for LED sign lighting in the international market. These decreases were partially offset by increased sales in Mexico, New Zealand and South America.

Gross margins in 2006 decreased to 36% from 41% in 2005. The $936,000 reduction in gross margin was mainly attributable to lower revenue in the current year combined with increased variable cost of sales of approximately $42,000. Although revenue decreased 8%, cost of sales remained almost flat at approximately $7,064,000 in 2006 as compared to approximately $7,111,000 in 2005. The loss of revenue was attributable in part to pricing pressures in the international markets combined with pricing discounts in the commercial market in order to maintain a competitive advantage, which were not accompanied by reduced costs from suppliers. Increased fuel costs contributed to the higher cost of sales resulting in increased freight in costs and increased

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product costs for petroleum based products. Approximately 50% of the Company’s annual inventory purchases were from three major suppliers located in Asia. These goods are typically transported to the Company’s manufacturing and operating facilities via air freight or sea freight. In addition, the Company saw increased costs in metal products due to pricing increases in the US market.

Operating Loss and Expenses

The increased operating loss for the year ended December 31, 2006 was due primarily to increased selling, general and administrative expenses. General and administrative (G&A) expenses increased $1,273,000 or 55% and selling expense increased $76,000 or 3% over selling, general and administrative expenses in the prior year. Increases in legal expenses of $715,000, consulting fees and professional fees of $331,000 and stock-based compensation expense of $222,300 contributed to the increase in G&A expenses. The increase in legal fees was primarily due to the negotiated settlement or final resolution of pending litigation. Consulting fees relating to litigation increased as a result of fees payable to Brett M. Kingstone, the Company’s chairman of the board, pursuant to the Participation Agreement between the Company and Mr. Kingstone. Mr. Kingstone was paid approximately $263,000 in fees for his work related to the settlement of the Ocean Bank lawsuit. The consulting fee paid to Mr. Kingstone for the Ocean Bank settlement was a one-time expense in 2006. Professional fees increased relating to expenses for audit fees associated with our 2005 audit and 2006 quarterly reviews of the Company’s financial statements. The legal expenses related to the settlement or resolution of pending litigation referenced above were all one time events. Stock-based compensation expense increased due to adoption of Financial Accounting Standard FAS 123R, Share-Based Payments, on January 1, 2006.

Sales and marketing expenses increased $75,600 to approximately $2,466,000 in 2006 as compared to $2,390,000 for the same period in 2005 as a result of new marketing and sales materials created to support the introduction of the new Savi Pool and Spa Light, the new DLS-2 System and the new Pool Catalog in 2006.

On November 29, 2006, the Company entered into a lease termination agreement with Max King Realty, Inc. (“Max King Realty”), a company controlled by Brett M. Kingstone, the Company’s chairman of the board, to terminate the capital lease with Max King Realty for the Company’s existing facility. The lease had a fifteen- year term extending through June 15, 2012. Max King Realty was willing to accommodate the Company’s desire to terminate its obligations under the lease for its current facility by terminating the lease, repaying the third party indebtedness secured by the premises and selling the premises to an unrelated third party. Upon executing the lease termination agreement, the balance of the capital lease obligation of $2,312,900, less the promissory note payable to Max King Realty of $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 which is reflected in the accompanying statement of operations as gain on termination of capital lease, net of impairment. .

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Research and development expenses decreased in 2006 compared to 2005 by approximately $14,000 or 3% mainly due to a slight reduction in new product engineering and prototype expenses along with wage and benefit related costs. We invested a significant amount of time and resources in new product development projects 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 2^nd quarter of 2007.

Interest

The Company had interest income for the years ended December 31, 2006 and 2005 of approximately $38,000 and $56,000, respectively. The Company’s interest expense was approximately $356,000 for the year ended December 31, 2006 as compared to approximately $368,000 for 2005 relating to the capital lease for the Company’s facility in Orlando, Florida, which was terminated in November 2006.

Other Income

Other income for 2006 was approximately $222,000 compared to approximately $189,000 for 2005. Other income in 2006 consisted primarily of $78,100 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, proceeds of $121,000 from sub-leasing part of the Company’s facility through September 2006 and approximately $23,000 from the write-off of old customer credit balances. The increase in other income in 2006 compared to 2005 was primarily due to the $57,000 increase in subleasing income and the $13,000 increase in write-offs relating to old customer credit balances. These increases were offset by a $38,000 decrease in income from licensing and royalty fees related to the HES patent the Company acquired in 2004.

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 2006 or 2005.

Net Loss

The net loss for the year ended December 31, 2006 was approximately $2,235,000, or $0.80 per basic and diluted common share, as compared to a net loss of approximately $488,500, or $0.19 per basic and diluted common share, for the year ended December 31, 2005. The increase in net loss was primarily due to lower revenues and gross margins and higher legal expenses related to the settlement or resolution of all outstanding litigation and stock based compensation expenses as a result of the adoption of FAS 123(R) offset in part by the gain on termination of capital lease, net of impairment.

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.

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For the year ended December 31, 2006, EBITDA was approximately ($1,307,000) compared to approximately $467,500 in 2005. The decrease was primarily due to an increase in net operating loss in 2006. The increase in net operating loss was primarily attributable to the $936,000 decrease in gross margin as a result of lower revenues and the increase in selling, general and administrative costs of approximately $1,349,000 over prior year expenses primarily as a result of increased legal expenses, professional fees and stock-based compensation expense relating to the adoption of FAS 123(R). Despite the lower EBITDA in 2006 compared to 2005, management anticipates that positive trends in gross margins and continued focus on revenue growth and cost management will yield positive contributions to our EBITDA in 2007.

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

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2006, the Company had working capital of approximately $10,012,500, an increase of approximately 105% from working capital of approximately $4,316,000 at December 31, 2005. During 2006 and 2005, the Company financed its operations primarily from working capital, including cash on hand and through its $1.6 million Line of Credit with its bank. In addition, in the fourth quarter of 2006 the Company received net proceeds of approximately $8,350,000 from the sale of its common stock and warrants in a private placement of equity completed in December 2006.

Cash Flows from Operating Activities

Net cash used in operations totaled approximately $1,470,000 for the year ended December 31, 2006 compared to approximately $112,000 for the year ended December 31, 2005. The net loss of approximately $2,235,000 was partially offset by the non-cash expenses for depreciation and amortization ($572,000), decrease in inventory reserve ($274,000), loss on legal settlement ($825,000) and stock based compensation expense ($222,000). These non-cash expenses were offset in part by the non-cash gain on termination of capital lease, net impairment of approximately $506,000. The most significant use of cash in operations during 2006 was for the purchase of inventory of approximately $458,000, the decrease in accounts payable of approximately $309,000 and the decrease in accrued compensation of approximately $150,000. Inventory purchases were primarily due to new LED products for the pool, portable spa, OEM and commercial markets. Despite our focus on maintaining low inventory during the year, and implementing better use of inventory planning tools to avoid costly shipping charges, management saw a critical need to build-up our LED based inventory to cater to market demands. We

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continue to focus on our need to maintain proper inventory levels to ensure competitive lead times while recognizing the risk of inventory obsolescence due to changing technology and customer requirements. We also continue to make further strides in managing inventory levels through better forecasting and use of historical usage data. The reduction in accounts payable was mainly due to the timing of payments to suppliers. Cash used for compensation and benefits was mainly related to the payment of performance-based bonuses. These uses of cash were offset primarily by a decrease in accounts receivable of $286,000. The decrease in accounts receivable was due to the Company’s collection efforts and lower revenue levels.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2006 was approximately $6,393,000 compared to approximately $480,000 for the year ended December 31, 2005. Capital expenditures for 2006 were approximately $313,000 compared to approximately $395,000 for 2005. The majority of the capital expenditures in 2006 were related to investments in new product tooling and upgrading computer systems. Additional expenditures were made for the acquisition of tooling and design equipment, computer hardware and software aimed at enhancing Company-wide operational efficiencies, purchases of furniture and fixtures, and building improvements used for normal business operations. There were also expenditures of approximately $58,000 related to several patent and trademark applications for our LED product line which we filed in 2006. We believe that all of these investments are essential to enabling the Company to capitalize on the growth potential of the high brightness LED lighting systems market, as we position ourselves at the forefront of LED technology and applications moving forward.

Net purchases of investments were $6,024,000 during the period. The Company is currently investing a portion of the approximately $8,350,400 of net proceeds received in the private placement of equity completed in December 2006 in short-term commercial paper, mainly corporate bonds, which are classified as held-to-maturity securities. A portion of the net proceeds received from the private placement was used to reduce accounts payable, reduce the Company’s line of credit balance and to pay legal expenses. Management expects that the remainder of the net proceeds will be used for working capital and general corporate purposes, including new product development efforts. The Company may also use a portion of the net proceeds to fund part of the cost of selected acquisitions in the lighting industry that may be considered in the future. The Company does not have any commitments or agreements to make any acquisitions.

Cash Flows from Financing Activities

Net cash provided by financing activities for the year ended December 31, 2006 was approximately $8,145,000 compared to net cash used in financing activities of approximately $177,000 for the year ended December 31, 2005. 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. The net proceeds from the private placement were partially offset by payments on the capital lease obligation of $205,800.

On December 7, 2006, we 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. Each unit consisted of 100 shares of Class A common stock, a warrant to purchase 60 shares of Class A common stock exercisable at $2.23 per share, expiring five years from the date of issuance, and a second warrant to purchase 15 shares of Class A common stock exercisable at $3.00 per share, expiring five years from the date of issuance. The securities were sold solely to accredited investors in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended.

On February 10, 2006 the Company obtained a $1,200,000 revolving line of credit from a financial institution to manage our working capital needs in conjunction with our cash and investments. On June 30, 2006, the revolving line of credit was increased to $1,600,000 with the requirement that we maintain a minimum

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investment balance of $500,000 in accounts held with the lender. The line of credit expired on February 10, 2007 and was extended to May 10, 2007, at which time we expect that a new agreement will be entered into with the financial institution. As of December 31, 2006, there were no amounts outstanding under this line of credit and there was an available balance of $1.6 million. The line is secured by substantially all of the assets of the Company. Interest is at LIBOR plus 1.85% per annum (7.19% at December 31, 2006) and is payable monthly. The agreement includes financial covenants related to maintenance of tangible net worth and operating losses and achievement of a debt service coverage ratio. The Company was not in compliance with the debt service coverage ratio for the year ended December 31, 2006. However the financial institution waived this covenant violation for the year ended December 31, 2006.

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

Upon executing the lease termination agreement, the balance of the capital lease obligation of $2,312,900, less the promissory note payable to Max King Realty of $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 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.

The Company believes that available cash, together with funds expected to be generated from operations and available borrowings under its line of credit, will be sufficient to finance the Company’s currently anticipated working capital requirements, as well as planned growth, for 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 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, 2006 and 2005.

Effective January 1, 2006, we account for stock-based compensation expense in accordance with SFAS No. 123(R), Share-Based Payment (SFAS No. 123R). SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). Under SFAS No. 123R, stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. We estimate the fair value of each stock-based award on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates assumptions as to stock price volatility, the expected life of options, a risk-free interest rate and dividend yield. Many of these assumptions are highly subjective and require the exercise of management judgment. Our management must also apply judgment in developing an

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estimate of awards that may be forfeited. If our actual experience differs significantly from our estimates and we choose to employ different assumptions in the future, the stock-based compensation expense that we record in future periods may differ materially from that recorded in the current period.

In transitioning from APB No. 25 to SFAS No. 123R, we have applied the modified prospective method. Accordingly, periods prior to adoption have not been restated and are not directly comparable to periods after adoption. Under the modified prospective method, compensation cost recognized in periods after adoption includes (a) compensation cost for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, less estimated forfeitures, and (b) compensation cost for all share-based awards granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R, less estimated forfeitures

CONTRACTUAL OBLIGATIONS

Operating Lease Obligations

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 is triple net with 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 will lease approximately 2,100 square feet of class A office space for a gross rental rate of $3,399.50 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.

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 9^th Judicial 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, 2006, the total amount due including estimated accrued interest was approximately $48 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

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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, 2006, 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 9^th, 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 $562,000 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, 2006 we had no outstanding letter of credit.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of this standard on its financial statements.

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.

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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 here 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 ($2,235,003), ($488,458), ($401,432) and ($414,287) for each of the years ended December 31, 2006, 2005, 2004 and 2003, respectively. Although management believes that in 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 Class A common stock to decline.

We Expect to Acquire other Businesses, Which may Adversely Affect our Operating Results, Financial Condition and Existing Business. To date, we have not made any acquisitions, and we currently have no commitments or agreements to make any acquisitions. However, we plan to use a portion of the net proceeds from the December 2006 private placement to acquire other businesses in the lighting industry. The success of our acquisition program will depend on, among other things:

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Financing for the acquisitions may come from several sources, including our existing cash on hand, the proceeds of the December 2006 private placement, proceeds from the exercise of the 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:

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 many areas, sales of new and existing homes have slowed in recent months. A 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 are successful in acquiring other companies in the lighting business, 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:

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 acquisition and may cause material adverse short- and long-term effects on our operating results and financial condition.

We are Relocating our Principal Executive Offices, which Could Disrupt our Operations and Harm our Business. Our executive team including corporate finance, human resources, marketing and sales will be relocating to Charlotte, North Carolina beginning in June 2007. As the Company grows, we plan to centralize research and development in Charlotte as well. There are a number of risks associated with the relocation of our principal executive offices, including the risk that our business may be disrupted, possible inconsistencies in standards, controls, procedures and policies in multiple facilities and the need to implement company-wide financial, accounting, information and other systems, 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 in managing multiple facilities and the need to add management resources to do so, and the risk that we may experience attrition

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among our employees who may prefer not to relocate to the new location. Any of these factors could adversely affect our business and results of operations.

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:

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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 seriously 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 Class A 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-

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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 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 strategic partners.

The Company Has Significant International Sales And Is Subject To Risks Associated With Operating In International Markets. International product sales represented approximately 26% and 40% of the Company’s total revenues for the years ended December 31, 2006 and 2005, 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:

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

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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 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 or strategic partners 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 numerous alternative sources of supply are readily available for most

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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.

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.

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 deem immaterial may also adversely affect the Company’s business operations.

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:

None

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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 principal financial officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognized 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.

As required by Rule 13a-15(b) and 15d-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, or persons performing similar functions, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon the evaluation of our disclosure controls and procedures as of December 31, 2006, they have concluded that, as of such date, our disclosure controls and procedures were effective in reaching a level of reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and principal financial officer, or persons performing similar functions, to allow timely decisions regarding required disclosure except as set forth below. The Company’s management nevertheless has concluded that the financial statements included in this Annual Report on Form 10-KSB present fairly, in all material respects, the Company’s financial position, and results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

Cross, Fernandez and Riley LLP, the Company’s independent registered public accounting firm, advised the Audit Committee and management that they identified certain deficiencies in our physical inventory controls and procedures that they considered to be significant deficiencies as that term is defined under standards established by the Public Company Accounting Oversight Board. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is a more than remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control.

Cross, Fernandez and Riley LLP identified improper control of inventory count tags, lack of controls over inventory transfers and lack of cycle counts as significant deficiencies. The Company is implementing enhanced procedures and controls to ensure the accuracy and completeness of its physical inventory controls and procedures. The Company is committed to addressing its control environment and reporting procedures.

The Company’s management, including its chief executive officer and its principal financial officer, or persons performing similar functions, does not expect that disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. There can be no assurance that any design will succeed in achieving its stated goals under all potential conditions. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

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There has been no significant changes in our internal control over financial reporting during the quarter ended December 31, 2006, identified in connection with the evaluation referred to above, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

None

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PART III

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 2007 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 2007 annual meeting of stockholders and is incorporated herein by reference.

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 2007 annual meeting of stockholders and is incorporated herein by reference.

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 2007 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, 2006, concerning shares of our Class A 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.

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

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 2007 annual meeting of stockholders and is incorporated herein by reference.

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* Filed herewith

# Application has been made to the Securities and Exchange Commission for confidential treatment of certain provisions. Omitted provisions for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.

† Management contract or compensatory plan or agreement

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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 2006 annual meeting of stockholders and is incorporated herein by reference.

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SUPER VISION INTERNATIONAL, INC.

INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Super Vision International, Inc.

Orlando, Florida

We have audited the accompanying balance sheets of Super Vision International, Inc. (“the Company”) as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 financial statements referred to above present fairly, in all material respects, the financial position of Super Vision International, Inc. as of December 31, 2006 and 2005, 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.

As discussed in Note 1 to the financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123(R), Share-Based Payment.

/s/ Cross, Fernandez & Riley LLP

Orlando, Florida

April 1, 2007

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SUPER VISION INTERNATIONAL, INC.

BALANCE SHEETS

See accompanying notes to financial statements.

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SUPER VISION INTERNATIONAL, INC.

STATEMENTS OF OPERATIONS

See accompanying notes to financial statements.

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SUPER VISION INTERNATIONAL, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2006 and 2005

See accompanying notes to financial statements.

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SUPER VISION INTERNATIONAL, INC.

STATEMENTS OF CASH FLOWS