SB-2

As filed with the Securities and Exchange Commission on July 12, 2005   Registration No.  333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Lighting Science Group Corporation

(Name of small business issuer in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 3646 (Primary Standard Industry Classification Code Number) 23-2596710 (I.R.S. Employer Identification No.)

2100 McKinney Avenue, Suite 1555

Dallas, Texas 75201

(214) 382-3630

(Address and telephone number of principal executive offices)

2100 McKinney Avenue, Suite 1555

Dallas, Texas 75201

(Address of principal place of business or intended

principal place of business)

Ronald E. Lusk, Chief Executive Officer

Lighting Science Group Corporation

2100 McKinney Avenue, Suite 1555

Dallas, Texas 75201

(214) 382-3630

(Name, address, and telephone number of agent for service)

Copies to:

Mario V. Mirabelli, Esq.

Patton Boggs LLP

2550 M Street, NW

Washington, DC 20037

(202) 457-6000

Approximate date of proposed sale to the public: From time to time as soon as practicable after the effectiveness of this registration statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

i

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Dollar Amount to Be Registered	Proposed Max. Offering Price Per Unit (1)	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, $.001 par value per share (2)(5)	$ 13,119,957	$ 0.92	$ 13,119,957	$ 1,544.22
Common Stock, $.001 par value per share, underlying warrants (3)(5)	$ 6,828,914	$ 0.92	$ 6,828,914	$ 803.76
Common Stock, $.001 par value per share, issuable upon conversion of preferred stock (4)(5)	$ 8,320,355	$ 0.92	$ 8,320,355	$ 979.31

(1) Estimated solely for the purposes of calculating the registration fee under Rule 457(c) under the Securities Act of 1933, as amended. Based on the average of the high and low prices for the registrant’s common stock as quoted on the Pink Sheets on July 6, 2005 of $0.92.

(2)Includes 14,260,823 shares issued to selling stockholders who are party to a lock-up agreement.

(3)Includes 7,422,733 shares of common stock underlying warrants to purchase common stock.

(4)Includes 9,043,864 shares that will be issued to selling stockholders upon the conversion of 6% convertible preferred stock.

(5)Pursuant to Rule 416 under the Securities Act, this registration statement also covers additional shares of Lighting Science Group common stock that may be issued pursuant to certain anti-dilution provisions applicable to the 6% convertible preferred stock and the warrants.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

ii

The information in this Prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Prospectus

Lighting Science Group Corporation

Up to 30,727,420 shares of common stock

This Prospectus relates to the sale of up to 30,727,420 shares of Lighting Science Group Corporation, or Lighting Science Group, common stock, par value $.001 by the selling stockholders named on page 38 (or their pledgees, donees, permitted transferees or other successors-in-interest) from time to time. The selling stockholders will sell the shares from time to time on the Pink Sheets and, if and when eligible, the Over-the-Counter Bulletin Board at prevailing market prices or privately negotiated prices. These prices will fluctuate based on the demand for the shares of common stock. On July 6, 2005, the closing sales price of Lighting Science Group’s common stock was $0.92 per share. Our common stock is quoted on the Pink Sheets under the symbol “LSGP.”

Of the common stock offered hereby, (i) 9,043,864 shares of the common stock are issuable upon conversion of $7,235,086 aggregate principal amount of our 6% convertible preferred stock, (ii) 7,422,733 shares of common stock are issuable upon exercise of warrants issued in connection with the sale of the preferred stock, and (iii) 14,260,823 shares of common stock acquired prior to May 12, 2005 by certain selling stockholders who agreed to the terms of a lock-up agreement dated as of May 12, 2005 and which may not be sold by the selling stockholders except pursuant to the lock-up agreement. We are not offering or selling any of our common stock pursuant to this Prospectus. We will not receive any proceeds from any sales made by the selling stockholders but will pay the expenses of this offering. We will, however, receive the proceeds from the exercise of the warrants issued to the selling stockholders if and when they are exercised. We will not be paying any underwriting discounts or commissions in this offering. The selling stockholders identified in this Prospectus, or their pledgees, donees, permitted transferees or other successors-in-interest, may offer the shares from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices.

We do not know when or in what amount a selling stockholder may offer shares for sale, including whether a selling stockholder will sell any or all of the shares offered by this Prospectus.

Investing in our common stock involves certain risks.  Before buying any shares you should carefully consider the risk factors descrived in the “Risk Factors” section beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus is July 12, 2005

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TABLE OF CONTENTS

PAGE 3          SUMMARY

PAGE 8          RISK FACTORS

PAGE 19        CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS

PAGE 21        USE OF PROCEEDS

PAGE 22        DESCRIPTION OF BUSINESS

PAGE 25        PLAN OF OPERATION

PAGE 28        DESCRIPTION OF PROPERTY

PAGE 28        DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS

PAGE 31        EXECUTIVE COMPENSATION

PAGE 32        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PAGE 36        MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PAGE 37        STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PAGE 38        SELLING STOCKHOLDERS

PAGE 41        DESCRIPTION OF SECURITIES

PAGE 42        PLAN OF DISTRIBUTION

PAGE 44        LEGAL PROCEEDINGS

PAGE 45        LEGAL MATTERS

PAGE 45        EXPERTS

PAGE 45        WHERE YOU CAN FIND MORE INFORMATION

PAGE 45        DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

PAGE 47        OUR ACCOUNTANTS
PAGE F-1      FINANCIAL STATEMENTS

PAGE 60        SIGNATURES

PAGE 60        POWER OF ATTORNEY

2

SUMMARY

This summary highlights information contained elsewhere in this Prospectus. We urge you to read this entire Prospectus carefully, including the “Risk Factors” section, before making an investment decision.

Lighting Science Group Corporation

Lighting Science Group Corporation is a Delaware corporation organized in June 1988. On June 1, 2004 Lighting Science Group acquired 100% of the outstanding common stock of Lighting Science, Inc., a corporation that developed and owned certain intellectual property related to the design and development of lighting products utilizing light emitting diodes, or LEDs, as a source of light. With our acquisition of Lighting Science, Inc., we entered the field of solid-state lighting. We began conducting operations under the name Lighting Science Group Corporation on January 1, 2005.

As of the date of this Prospectus, Lighting Science Group continues with its plans to develop and sell products based upon the intellectual property acquired in the acquisition of Lighting Science, Inc. related to the design and development of lighting products utilizing light emitting diodes as a source of light.

Our principal executive offices are located at 2100 McKinney Avenue, Suite 1555, Dallas, Texas 75201. Our telephone number is (214) 382-3630.

Market Overview

The global lighting market has annual sales exceeding $40 billion, with the U.S. market alone contributing $12 billion to $15 billion annually. More importantly, the lighting market consumes over 20% of the world’s energy on an annual basis. This is the target market that management believes will evolve to solid-state lighting. Industry studies have predicted that LED-based lighting will replace over 40% of incandescent lighting applications by 2025. It is estimated that by the same year solid-state lighting could reduce the global amount of electricity used for lighting by 50%. We believe that no other use of electricity can offer such a large energy-savings potential.

Competitive Advantages

Through the development of its Optimized Digital Lighting™, or ODL™, technology, Lighting Science Group believes that it has begun to close the gap between the theoretical performance capability of today’s LEDs and the current level of LED performance in the existing generation of general illumination products. With our enabling technologies, we believe that we have positioned ourselves at the forefront of the emerging solid state lighting industry and will be able to compete in the marketplace.

Products/Distribution

Lighting Science Group is positioned to introduce its ODL products through traditional commercial and retail distribution channels and on a direct basis through its sales force, as well as through shared savings plans with larger commercial and municipal customers. Our near-term product portfolio includes flashlights and floodlights for the consumer market, cabinet lighting for the furniture manufacturing and hospitality markets, and outdoor lighting products for parking garage and street lighting for the commercial and municipal markets.

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The Private Placement

On May 12, 2005, we entered into a definitive Securities Purchase Agreement with Western Reserve Hedged Equity, LP, AG Domestic Convertibles, L.P., A.G. Offshore Convertibles, Ltd., the Gryphon Master Fund, L.P., the GSSF Master Fund, L.P., Xerion Partners I LLC, Xerion Partners II Master Fund Limited, Telemark Asset Management, LLC and certain other accredited investors including certain officers and directors of Lighting Science Group, collectively referred to as the Purchasers, for the private placement of 6% convertible preferred stock of Lighting Science Group, $.001 par value, pursuant to which the Purchasers bought 2,260,966 shares of the preferred stock at $3.20 per share for an aggregate purchase price of $7,235,086. Additionally, warrants, a registration rights agreement and lock-up agreements with affiliates and certain stockholders, respectively, of Lighting Science Group were also entered into and executed. A certificate of designation that sets forth the rights, preferences, terms and conditions of the preferred stock was filed with the Secretary of State of the State of Delaware on May 10, 2005.

The preferred stock may be converted into shares of common stock. The preferred stock will have an initial conversion price of $0.80 per share of common stock subject to full ratchet anti-dilution provisions. The Purchasers also received warrants to purchase an additional 6,782,889 shares of common stock at an exercise price of $0.96 per share (subject to adjustment pursuant to anti-dilution provisions). The warrants have a term of five years from the closing date. Merriman Curhan Ford & Co. acted as placement agent for this transaction. MRM Capital LP acted as our financial advisor. Warrants to purchase a total of 639,844 shares of common stock at an exercise price of $1.50 per share (subject to adjustment pursuant to anti-dilution provisions) were issued to Merriman and MRM in conjunction with this transaction.

The lock-up agreements provide that all affiliated stockholders of Lighting Science Group will not offer to, sell, contract to sell, pledge or otherwise dispose of common stock or securities convertible into, or exchangeable or exercisable for, common stock, subject to certain exceptions for a period of 180 days following the date that a registration statement is declared effective with regard to such common stock. Shares of common stock that affiliates held prior to the private placement will not be included in this registration statement.

Lock-up agreements have also been entered into with certain unaffiliated stockholders covering a total of 14,260,823 shares of our common stock. Such lock up agreements provide that such unaffiliated stockholders will not offer to, sell, contract to sell, pledge or otherwise dispose of common stock or securities convertible into, or exchangeable or exercisable for, our common stock, subject to certain exceptions, for 180 days following the effective date of a registration statement regarding the common stock. Shares of common stock held by unaffiliated stockholders who have executed a lock-up agreement will be included in this registration statement.

Neither the preferred stock nor the warrants have been registered under the Securities Act of 1933, as amended, and may not be subsequently offered or sold by investors in the United States absent registration or an applicable exemption from the registration requirement. Pursuant to the registration rights agreement, we have agreed with the purchasers of these securities to register the common stock underlying these securities for public resale. This Prospectus has been prepared, and the registration statement of which this Prospectus is a part has been filed with the SEC, in order to satisfy our obligations to the purchasers of these securities.

Accordingly, this Prospectus covers:

·   the resale by the selling stockholders of shares of our common stock issued upon conversion of the selling stockholders’ preferred stock.

·   the resale by the selling stockholders of shares of our common stock issuable upon exercise of the warrants.

·   the resale by certain unaffiliated, selling stockholders of our common stock purchased prior to the date of the Securities Purchase Agreement and who have executed a lock-up agreement.

·   any additional shares of our common stock which may be issued pursuant to anti-dilution provisions to the preferred stock and the warrants.

Investing in our securities involves risks. You should carefully consider the information under “Risk Factors” beginning on page 8 of this Prospectus and the other information included or incorporated by reference in this Prospectus before investing in our securities.

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The Offering

Common stock currently outstanding(1)	54,966,664 shares
Common stock offered by the selling stockholders(2)	30,727,420 shares
Common stock to be outstanding after the offering(3)	71,433,261 shares
Use of proceeds	The exercise of warrants for common shares being registered under this registration statement will result in proceeds of approximately $7,471,339 to Lighting Science Group. These proceeds will be used for working capital purposes.
Trading Symbol	LSGP

________________________

(1) Includes approximately 22,042,707 shares beneficially owned by affiliates.

(2) Includes the approximately 16,466,597 shares underlying the 6% convertible preferred stock and warrants.

(3) Assumes the conversion of 2,260,966 shares of preferred stock into 9,043,864 shares of common stock and the exercise of approximately 7,422,733 warrants held by the selling stockholders.

5

Summary Consolidated Financial Information

Set forth below are summary consolidated statement of operations for the three months ended March 31, 2005 and 2004, the cumulative period from September 26, 2003 to March 31, 2005, the year ended December 31, 2004, and the periods from September 26, 2003 to December 31, 2003 and January 1, 2003 to September 25, 2003. Also please find set forth the consolidated balance sheets as of March 31, 2005, both per the books and on a pro-forma basis, as of December 31, 2004 and as of September 26, 2003. We included the pro forma balance sheet to account for the private placement of preferred stock that was completed on May 12, 2005 and for certain other transactions which were deemed to be significant subsequent events. This information should be read in conjunction with our audited annual consolidated financial statements as of and for the years ended December 31, 2004 and December 31, 2003 and the notes thereto and our unaudited quarterly consolidated financial statements as of and for the three months ended March 31, 2004 and 2003 and the notes thereto and the “Plan of Operation”, which appear elsewhere in this Prospectus.

Income Statement Data:	For the Three Months Ended March 31, 2005			For the Three Months Ended March 31, 2004			Cumulative from September 26, 2003 through March 31, 2005			For the Year Ended  December 31, 2004			September 26, 2003 through December 31, 2003			January 1, 2003 through September 25, 2003
Revenue	$	685		$	-		$	4,089		$	3,404		$	-		$	3,524,732
Cost of goods sold		-			-			(2,076	)		(2,076	)		-
Cost of services		-			-			-			-			-			(3,048,070	)
Gross margin		685			-			2,013			1,328			-			476,662
Operating expenses:
Selling, general and administrative		526,278			62,664			2,088,993			1,483,264			79,451			925,306
Compensation and related expenses		364,644			200,836			1,721,131			1,148,426			208,061			-
Consulting fees		155,514			3,250			780,448			624,934			-			-
Directors fees		187,500			87,500			663,575			388,575			87,500			-
Total operating expenses		1,233,936			354,250			5,254,147			3,645,199			375,012			925,306
Operating (loss)		(1,233,251	)		(354,250	)		(5,252,134	)		(3,643,871	)		(375,012	)		(448,644	)
Interest and other income and interest expense, net		(23,791	)		(32,424	)		(185,101	)		(127,150	)		(34,160	)		(842,613	)
Net loss	$	(1,257,042	)	$	(386,674	)	$	(5,437,235	)	$	(3,771,021	)	$	(409,172	)	$	(1,291,257	)
Basic net loss per weighted average common share	$	(0.02	)	$	(0.02	)	$	(0.19	)	$	(0.12	)	$	(0.02	)	$	(0.15	)
Weighted average number of common shares outstanding		51,359,904			16,685,446			28,592,511			31,688,957			16,685,446			8,335,961

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Balance Sheet Data:		March 31, 2005
		Per Books			Pro forma (1)			December 31, 2004			September 26, 2003
Cash and cash equivalents	$	114,400		$	6,378,577		$	987,023		$	278
Other current assets		356,246			356,246			178,450			-
Total current assets		470,646			6,734,823			1,165,473			278
Property and equipment, net		317,873			317,873			310,475			-
Reorganized value in excess of amounts allocable to identifiable assets		2,793,224			2,793,224			2,793,224			2,793,224
Intellectual property, net		1,153,833			1,153,833			1,168,883			-
Property rights agreement, net		767,722			767,722			856,306			-
Other non-current assets		162,080			162,080			181,312			-
TOTAL ASSETS	$	5,665,378		$	11,929,555		$	6,475,673		$	2,793,502
Accounts payable	$	24,065		$	24,065		$	40,636		$	-
Accrued payroll taxes		17,627			17,627			17,899			-
Note payable and accrued interest from related parties		2,412,525			-			2,166,853			2,526,002
Current portion of note payable to related party		25,000			25,000			25,000			-
Total current liabilities		2,479,217			66,692			2,250,388			2,526,002
Note payable - related party		150,000			150,000			150,000			-
TOTAL LIABILITIES		2,629,217			216,692			2,400,388			2,526,002
6% Convertible preferred stock		-			5,901,157			-			-
Series A preferred stock		533			-			533			533
Common stock		51,415			54,669			51,297			16,685
Additional paid-in-capital		8,421,448			12,665,007			8,229,648			250,282
Accumulated deficit during the development stage		(5,437,235	)		(6,907,970	)		(4,180,193	)		-
Stock subscriptions		-			-			(26,000	)		-
TOTAL STOCKHOLDERS’ EQUITY		3,036,161			5,811,706			4,075,285			267,500
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,665,378		$	11,929,555		$	6,475,673		$	2,793,502

(1)   The consolidated pro-forma balance sheet as of March 31, 2005 has been prepared to give effect to the following subsequent events:

(a) The conversion of Series A Preferred Stock (Match, Inc.) and the accrued dividends thereon to common stock during April 2005. See Note 12 to March 31, 2005 Financial Statements.

(b) The forgiveness of $250,000 of accrued interest payable on the Match, Inc. note payable. See Note 12 to March 31, 2005 Financial Statements.

(c) The conversion of the note payable to Match, Inc. and the remaining accrued interest to common stock during April 2005. See Note 12 to March 31, 2005 Financial Statements.

(d) The additional loans from officers and directors during April 2005. See Note 8 to March 31, 2005 Financial Statements.

(e) The sale of 6% Convertible Preferred Stock during May 2005. See Note 12 to March 31, 2005 Financial Statements.

(f) The assignment of value to the beneficial conversion feature on the 6% Preferred Stock at the date of issuance during May 2005. See Note 12 to March 31, 2005 Financial Statements.

(g) The recording of issuance costs on the 6% Preferred Stock issued during May 2005. See Note 12 to March 31, 2005 Financial Statements.

(h) The conversion of loans by certain officers and directors to 6% Convertible Preferred Stock. See Note 8 to March 31, 2005 Financial Statements.

(i) The repayment of loans to officers and directors electing not to convert to 6% Convertible Preferred Stock. See Note 8 to March 31, 2005 Financial Statements.

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RISK FACTORS

An investment in our common stock is risky. You should carefully consider the following risks, as well as the other information contained in this Prospectus. If any of the following risks occur, our business could be harmed. In that case, the trading price of our common stock could decline and you might lose all or part of your investment.

Risks Related to Lighting Science’s Business

Because We Have A Lack Of Revenues And A History Of Losses, We May Be Unable To Continue Operations Unless We Can Generate Operating Income By Completing Development Of Our Products, Obtaining Approval of Intellectual Property Rights And Marketing The Products.

Since we emerged from bankruptcy on September 26, 2003, we have sustained operating losses. For the year ended December 31, 2004, we had limited revenues from operations of $3,404 and as of March 31, 2005 and December 31, 2004, we had an accumulated deficit of $5,437,235 and $4,180,193, respectively. We do not expect to have significant revenue from operations in fiscal 2005. We anticipate operating losses over the next year as we continue our research and development efforts and seek to market our products. Therefore, our ability to continue operations depends on our ability to generate operating income by completing development of our products, obtaining strategic partners and ultimately marketing our products.

It Is Difficult To Evaluate The Likelihood That We Will Achieve Or Maintain Profitability In The Future.

We are emerging from being a development stage company to one that is focusing on sales and growth in the lighting industry marketplace. Accordingly, since acquiring Lighting Science, Inc. and refocusing on the sale and development of the Optimized Digital Lighting products, we have not yet achieved profitability on an annual basis. As we begin this next stage concentrating on sales and growth, our limited operating history makes an evaluation of our future prospects difficult. If we do not achieve sufficient growth in our reserves or achieve and sustain profitability in the future, we may be unable to continue operations.

If We Are Unable To Obtain Outside Capital When Needed, In The Amount Needed, Our Business And Future Prospects Would Be Adversely Affected And We Could Be Forced To Suspend Or Discontinue Operations.

Although no assurance can be given, we believe that our current cash and investment balances will be sufficient to meet our operating needs through the end of 2005. The actual amount of funds that we will need will be determined by many factors, some of which are beyond our control. These factors include the success of our research and development efforts (including any unanticipated delays), the costs and timing of obtaining new patent rights, regulatory changes, competition and technological developments in the market.

Potential sources of outside capital include entering strategic business relationships, public or private sales of shares of our capital stock or debt or other similar arrangements. We do not have any committed sources of outside capital at this time. It is uncertain whether we will be able to obtain outside capital when we need it or on terms that would be acceptable. If we raise funds by selling additional shares of our common stock or securities convertible into our common stock, the ownership interest of our existing stockholders will be diluted. If we are unable to obtain outside capital when needed, in the amount needed, our business and future prospects would be adversely affectedand we could be forced to suspend or discontinue operations.

8

Because We Rely Upon Ronald Lusk And Other Key Personnel, A Loss Of Any Key Personnel Could Prevent Or Significantly Delay The Achievement Of Our Goals.

Our success will depend to a large extent on the abilities and continued service of Ronald Lusk and other key personnel. The loss of Mr. Lusk, the CEO, or other key personnel could prevent or significantly delay the achievement of our goals. We have employment agreements with Ronald Lusk, Fredric Maxik, Philip Lacerte, Stan Waldrop and J. Michael Poss. We maintain key man life insurance policy with respect to Fredric Maxik. If any of these persons were to leave Lighting Science Group, it could delay implementation of our business plan and marketing efforts. Should any of them leave, we would seek to replace them as soon as possible. As we grow, we will need to add additional management and other personnel. Competition for qualified personnel in our industry is intense, and our success will depend on our ability to attract and retain highly skilled personnel. We cannot assure you that our efforts to obtain or retain such personnel will be successful, yet we have not had any difficulties in attracting and retaining any personnel to date. There are no plans for any key employees or advisors to leave Lighting Science.

Customer Acceptance Of Our Products Is Dependent On Our Ability To Meet Changing Requirements.

Customer acceptance of our products is significantly dependent on our ability to offer products that meet the changing requirements of our customers. Any decrease in the level of customer acceptance of our products could have a material adverse effect on us.

Our Future Performance Is Dependent Upon Attracting And Retaining Customers.

We are moving from a research and development stage company to one which is focused on sales and growth. If we are unsuccessful in our attempts to commercialize our products and attract and retain a solid customer base, then we will be unable to continue as a going concern.

The Markets For Many Of Our Products Are Characterized By Changing Technology.

The markets for many of our products are characterized by changing technology, new product introductions, product enhancements and evolving industry standards. The introduction or enhancement of products embodying new technology or the emergence of new industry standards could render existing products obsolete or result in short product life cycles. Accordingly, our ability to compete is in part dependent on our ability to continually offer enhanced and improved products.

We are Dependent on Key Outside Contract Manufacturers or Processes to Deliver a Custom Product with the Highest Performance and Shortest Time to Market.

We depend on key outside contract manufacturers’ equipment and assembly processes. We believe that these key manufacturing and assembly processes give us the flexibility and responsiveness to meet our customer delivery schedule and performance specification with a custom product. This value proposition is an important component of our offering to our customers. A loss of these capabilities or access to key outside contract manufacturers could have an adverse effect on our existing operations and new business growth.

Our Industry Is Sensitive To Changing Economic Conditions.

We believe that many factors affect our industry, including consumer confidence in the economy, interest rates and credit availability. The overall economic climate or Gross National Product growth has a direct impact on our customers and the demand for our products. We cannot assure you that our business will not be adversely affected as a result of an industry or general economic downturn.

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If Our Optimized Digital Lighting Technology Does Not Achieve Greater Market Acceptance, Prospects For Our Growth And Profitability May Be Limited.

Our future success depends on increased market acceptance of our Optimized Digital Lighting technology. Potential customers may be reluctant to adopt solid-state lighting as an alternative to traditional lighting technology because of its higher initial cost or perceived risks relating to its novelty, reliability, usefulness and cost-effectiveness when compared to other lighting sources available in the market. If acceptance of solid-state lighting in general, and of our ODL lighting systems in particular, does not continue to grow within the high performance lighting markets that we may serve directly, and in the markets that we serve indirectly through future customers, then opportunities to increase our revenues and operate profitably may be limited.

If Critical Components That We Currently Purchase From Our Suppliers Become Unavailable, We May Incur Delays In Shipment, Which Could Damage Our Business.

We depend on our suppliers for certain components critical to the manufacture of our solid-state lighting systems. For certain types of LEDs used in our lighting systems, we currently have a limited number of suppliers. We depend on our vendors to supply critical components in adequate quantities and consistent quality and at reasonable costs. To qualify an alternate supply of required components and obtain them in needed quantities may be a time-consuming process and there can be no assurance that an adequate alternative source of supply could be found at acceptable cost.

We could experience shortages of standard electronic components as well as custom components specific to our products, for which we had a sole source of supply. If our suppliers are unable to meet our demand for critical components at reasonable costs, and if we are unable to obtain an alternative source or the price for an alternative source is prohibitive, our ability to maintain timely and cost-effective production of our products would be harmed. Because we generally rely on purchase orders rather than long-term contracts with our suppliers, we cannot predict with certainty our ability to obtain components in adequate quantities and at acceptable prices in the longer term. If we are unable to obtain components in adequate quantities we may incur delays in shipment or be unable to meet demand for our products, which could harm our revenues and damage our reputation and our relationships with customers and prospective customers.

The principal raw materials used in the manufacture of our LED components and sensor assemblies are silicon wafers, gold wire, lead frames, and a variety of packages and substrates, including metal, printed circuit board, flex circuits, ceramic and plastic packages. All of these raw materials can be obtained from several suppliers. From time to time, particularly during periods of increased industry-wide demand, silicon wafers and other materials have been in short supply. Any significant interruption in the supply of these raw materials could have a material adverse effect on us.

If The Companies To Which We Outsource The Manufacture Of Our Products Fail To Meet Our Requirements For Quality, Quantity And Timeliness, Our Revenues And Reputation In The Marketplace Could Be Harmed.

We outsource the manufacture of our products, and do not own or operate a manufacturing facility. We currently depend on a small number of contract manufacturers to manufacture our products at plants in various locations throughout the world. These manufacturers supply all necessary raw materials (other than certain critical components such as LEDs, which we procure directly), provide all necessary facilities and labor to manufacture our products, and stock and arrange for transport of our finished goods, generally by ship, to our distributors and customers. If these companies were to terminate their arrangements with us or fail to provide the required capacity and quality on a timely basis, we would be unable to manufacture and ship our products until replacement manufacturing services could be obtained. To qualify a new contract manufacturer, familiarize it with our products, quality standards and other requirements, and commence volume production may be a costly and time-consuming process. We cannot assure you that we would be able to establish alternative manufacturing relationships on acceptable terms.

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Our reliance on contract manufacturers involves certain risks, including the following:

·   lack of direct control over production capacity and delivery schedules;

·   lack of direct control over quality assurance, manufacturing yields and production costs;

·   risk of loss of inventory while in transit; and

·   risks associated with international commerce, including unexpected changes in legal and regulatory requirements, changes in tariffs and trade policies, risks associated with outbreaks of disease, risks associated with the protection of intellectual property and political and economic instability.

Any interruption in our ability to manufacture and distribute products could result in delays in shipment, lost sales, limited revenue growth and damage to our reputation in the market, all of which would adversely affect our business.

If We Are Unable To Increase Production Capacity For Our Products In A Timely Manner, We May Incur Delays In Shipment And Our Revenues And Reputation In The Marketplace Could Be Harmed.

An important part of our business strategy is the expansion of production capacity for our products. We plan to increase production capacity both by adding new contract manufacturers and by expanding capacity with our existing contract manufacturers. Our ability to successfully increase production capacity will depend on a number of factors, including the following:

·   identification and availability of appropriate and affordable contract manufacturers;

·   ability of our current contract manufacturers to allocate more existing capacity to us or their ability to add new capacity quickly;

·   availability of critical components used in the manufacture of our products;

·   establishment of adequate management information systems, financial controls and supply chain management and quality control procedures; and

·   ability of our future contract manufacturers to implement our manufacturing processes.

If we are unable to increase production capacity for our products in a timely manner while maintaining adequate quality, we may incur delays in shipment or be unable to meet increased demand for our products, which could harm our revenues and damage our reputation and our relationships with customers and prospective customers.

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If Demand For Our Optimized Digital Lighting And Other Light Products In The General Lighting Market Fails To Emerge, We May Not Be Able To Carry Out Long-Term Business Strategies.

Our long-term business strategy includes penetration of the general lighting market with our ODL and other lighting products. Failure to obtain and incorporate into our products on a timely basis, LEDs having satisfactory performance, quality and cost characteristics could delay our planned introduction of our products, or reduce the attractiveness to potential customers of our products which incorporate LEDs.

In addition, the characteristics of our Optimized Digital Lighting technology that we believe are desired by customers in the high performance color lighting markets that we currently serve may not provide us with competitive advantages in the general lighting market. For example, end-users in the general lighting market may not require the complex, dynamic lighting effects or sophisticated digital control that our systems provide. Similarly, if LED manufacturers are able to develop single LEDs that produce light of acceptable consistency and color, our color temperature control technologies may be of less importance in the general lighting market than in the high performance color lighting market.

We have devoted, and intend to continue to devote, substantial resources to the development of our products and technologies suitable for use in the general lighting market. If demand for these products and technologies in the general lighting market does not develop and we do not receive revenue to offset these expenditures, our profitability would be harmed and our ability to carry out our long-term business strategy would be adversely affected.

If We Are Not Able To Compete Effectively, Our Prospects For Future Success Will Be Jeopardized.

In the high performance lighting markets in which we plan to sell our Optimized Digital Lighting and other LED lighting systems, and in the licensing markets in which we participate, our systems compete with lighting products utilizing traditional lighting technology provided by many vendors. In addition, we face competition from a smaller number of manufacturers, including manufacturers of traditional lighting equipment that have developed one or more solid-state lighting products. Some of our competitors, particularly those that offer traditional lighting products, are larger companies with greater resources to devote to research and development, manufacturing and marketing than we have.

We expect to encounter competition from some of the competitors described above. Additionally, to the extent that we seek to introduce Optimized Digital Lighting products for use in general lighting applications, such as retrofit bulbs and lamps for standard fixtures, we expect to encounter competition from large, established companies in the general lighting industry such as General Electric, Matsushita, Osram Sylvania and Philips Lighting, each of which has, we believe, undertaken initiatives to develop LED technology. These companies have global marketing capabilities and substantially greater resources to devote to research and development and other aspects of the development, manufacture and marketing of solid-state lighting systems than we have. We will also be competing with domestic and international manufacturers of lighting components of various sizes and resources. We cannot assure you that we will be able to compete successfully in such markets against these or future competitors.

In each of our markets, we anticipate the possibility that LED manufacturers, including those that currently supply us with LEDs, may seek to compete with us by introducing more complete systems that do not infringe upon our patents.

Our competitors’ lighting technologies and products may be more readily accepted by customers than our products. Additionally, to the extent that competition in our markets intensifies, we may be required to reduce our prices in order to remain competitive. If we do not compete effectively, or if we reduce our prices without making commensurate reductions in our costs, our revenues and profitability, and our future prospects for success, may be harmed.

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If We Are Unable To Manage Our Growth Effectively, Our Future Growth, Profitability And Liquidity Could Be Adversely Affected.

We anticipate significant growth in our business. Our anticipated growth is expected to place significant strain on our limited research and development, sales and marketing, operational and administrative resources. To manage any future growth, we must continue to improve our operational and financial systems and expand, train and manage our employee base. For example, we must implement new modules of our management information system, hire and train new sales representatives and expand our supply chain management and quality control operations. We recently hired a new chief financial officer and we will need to make other additions to our operations and administrative management teams. If we are unable to manage our growth effectively, our future growth may be limited, we may be unable to operate profitability and we may not be able to effectively pursue our business plan.

We Have Limited Experience Conducting Operations Internationally, Which May Make Expansion More Difficult And Costly Than We Expect And Adversely Affect Our Revenue Growth And Profitability.

We currently outsource the manufacture of our products to international facilities. To the extent that we continue to outsource to international locations, we are exposed to differing laws, regulations and business cultures than what we experience domestically and that may adversely impact our business. We may also be exposed to economic and political instability and international unrest. Although we hope to enter into agreements with manufacturers, shippers and distributors that attempt to minimize these risks, there is no assurance that such agreements will be honored or that we will be able to adequately protect our interests.

We intend to continue outsourcing the manufacturing of our products internationally for the foreseeable future. There are many barriers and risks to operating successfully in the international marketplace, including the following:

·   foreign currency risks;

·   dependence on foreign manufacturers, shippers and distributors;

·   compliance with multiple, conflicting and changing governmental laws and regulations; and

·   import and export restrictions and tariffs.

If we are not able to successfully deliver our products and services to our anticipated markets, our revenue growth and profitability may be adversely affected.

Our Products Could Contain Defects, Which Could Reduce Sales Of Those Products Or Result In Claims Against Us.

Despite testing by us and our customers, errors could be found and may be found in the future in our existing or future products. This could result in, among other things, a delay in the recognition or loss of revenues, loss of market share or failure to achieve market acceptance. These defects may cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts and harm our relationship with our customers. The occurrence of these problems could result in the delay or loss of market acceptance of our products and would likely harm our business. Defects, integration issues or other performance problems in our products could result in personal injury or financial or other damages to our customers or could damage market acceptance of our products. Our customers could also seek damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.

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Risks Related To Intellectual Property

If We Are Unable To Respond Effectively As New Lighting Technologies And Market Trends Emerge, Our Competitive Position And Our Ability To Generate Revenues And Profits May Be Harmed.

The emergence of solid-state lighting is transforming the lighting industry. To be successful, we will need to keep pace with rapid changes in lighting technology, changing customer requirements, new product introductions by competitors and evolving industry standards, any of which could render our existing products obsolete if we fail to respond in a timely manner. For example, if new solid-state lighting devices are introduced that can be controlled by methods not covered by our proprietary technology, or if effective new sources of light other than solid-state devices are discovered, our current products and technology could become less competitive or obsolete. If others develop innovative proprietary lighting technology that is superior to ours, or if we fail to accurately anticipate technology and market trends and respond on a timely basis with our own innovations, our competitive position may be harmed and we may not achieve sufficient growth in our revenues to attain, or sustain, profitability.

If We Are Unable to Obtain and Protect Our Intellectual Property Rights, Our Ability to Commercialize Our Products Could Be Substantially Limited.

We have filed nine applications with the United States Patent and Trademark Office. From these applications, two patents have been allowed and seven are pending approval.

We cannot assure you that any patent applications filed by us, or by others under which we have rights, will result in patents being issued in the United States or foreign countries. In addition, we cannot guarantee that patents that have been or will be issued will afford meaningful protection for our products. Competitors may develop products similar to our products that do not conflict with our patents. Others may challenge our patents and, as a result, our patents could be narrowed or invalidated. We cannot assure that we will be able to afford the legal costs associated with defending or enforcing any of our patents. We have not received any communications, allegations, complaints or threats of litigation relating to patent infringement to date.

If We Are Unable To Protect Our Intellectual Property Rights Adequately, The Value Of Our Products Could Be Diminished.

We utilize proprietary design rules and processing steps in the development and fabrication of our LED products. In addition, we have filed 9 patent applications for the protection of the intellectual property used in our products and 2 patents have been allowed. There can be no assurance that any of the patent applications will be approved or any patents, if issued, will provide us with significant competitive advantages, or that challenges will not be instituted against the validity or enforceability of any patent owned by us, or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity and to prevent the infringement of a patent could be substantial and could have a material adverse effect on our operating results. Furthermore, there can be no assurance that our ODL technology will not inadvertently infringe on patents or rights owned by others or licenses which might not be available to us. Based on limited patent searches, contacts with others knowledgeable in the field of LED technology, and a review of the published materials, we believe that our competitors hold no patents, licenses or other rights to the ODL technology which would preclude us from pursuing our intended operations.

In some cases, we may rely on trade secrets to protect our innovations. There can be no assurance that trade secrets will be established, that secrecy obligations will be honored or that others will not independently develop similar or superior technology. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to our projects, disputes might arise as to the proprietary rights to such information that may not be resolved in our favor.

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We May Incur Substantial Costs Or Lose Important Rights As A Result Of Litigation Or Other Proceedings Relating To Patent And Other Intellectual Property Rights.

In recent years, there has been significant litigation involving patents and other intellectual property rights. Since it is possible for patent applications to be retained in secrecy by the U.S. Patent Office until and unless a patent issues, it is not possible for us to know whether U.S. patent applications are pending that would be infringed by the use of our technology or a part thereof, thus substantially interfering with the future conduct of our business. In addition, there may be issued patents in the U.S. or other countries that are pertinent to our business of which we are not aware. We could be sued by other parties for patent infringement in the future. Such lawsuits could subject us to liability for damages and invalidate our proprietary rights. In addition, intellectual property lawsuits may be brought by third parties against LED and licensing customers that incorporate our ODL technology in their products.

In addition to being subject to claims by third parties that we infringe their proprietary rights, we may in the future assert our intellectual property rights by instituting legal proceedings against others. We cannot assure you that we will be successful in enforcing our patents in any lawsuits that we may commence. Defendants in any litigation we commence to enforce our patents may attempt to establish that our patents are invalid or are unenforceable. Thus, any patent litigation we commence could result in a determination that one or more of our patents are invalid or unenforceable.

Whether we are defending the assertion of intellectual property rights against us or asserting our own intellectual property rights against others, such litigation can be complex, costly, protracted and highly disruptive to our business operations by diverting the attention and energies of our management and key technical personnel. As a result, the pendency or adverse outcome of any intellectual property litigation to which we are subject could disrupt our business operations, require the incurrence of substantial costs and subject us to significant liabilities, each of which could severely harm our business. Plaintiffs in intellectual property cases often seek injunctive relief. Any intellectual property litigation commenced against us could force us to take actions that could be harmful to our business, including the following:

·   stop selling our products or using technology that contains the allegedly infringing intellectual property;

·   attempt to obtain a license to the relevant intellectual property, which may not be available on reasonable terms or at all; and

·   attempt to redesign products that embody the allegedly infringing intellectual property.

If we are forced to take any of the foregoing actions, we may be unable to manufacture and sell our Optimized Digital Lighting, LED and/or solid-state lighting systems, which could seriously harm our business. We may not be able to develop, license or acquire non-infringing technology under reasonable terms, if at all. These developments would result in an inability to compete for customers and would adversely affect our ability to increase our revenues. The measure of damages in intellectual property litigation can be complex, and is often subjective or uncertain. If we were to be found liable for infringement of proprietary rights of a third party, the amount of damages we might have to pay could be substantial and is difficult to predict.

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If We Are Unable To Obtain And Maintain Patent Protection For Our Technology And Otherwise Protect Our Intellectual Property, The Value Of Our Technology And Products Will Be Adversely Affected.

We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent they are covered by valid and enforceable patents or are effectively maintained as trade secrets. To date, we have applied for 9 patents in 9 patent applications. 2 patents have been allowed to date. Because the patent position of technology companies involves complex legal, scientific, and factual questions, the issuance, scope, validity and enforceability of our patents cannot be predicted with certainty. Our applied for or issued patents may be rejected or invalidated or their enforceability challenged, they may be designed around, and they may not provide us with competitive advantages against others with similar products and technology. Furthermore, others may independently develop similar products or technology or duplicate or design around any technology that we have developed.

We also attempt to protect our proprietary information with contractual arrangements and the use of trade secret laws. Our employees and consultants generally enter into agreements containing provisions with respect to confidentiality and the assignment of rights to inventions made by them while in our employ. The protection offered by patents or trade secret laws or by these agreements may not be sufficient to protect our intellectual property and existing or future patents could be challenged, invalidated or circumvented. Moreover, the laws of many foreign countries, including The People’s Republic of China, where our contract manufacturers are located, do not protect our intellectual property rights to the same extent as do the laws of the United States.

Risks Related to This Offering

Risks Relating To Our Common Stock.

Our share price has been volatile in the past and may decline in the future.

Our common stock has experienced significant market price and volume fluctuations in the past and may experience significant market price and volume fluctuations in the future in response to factors such as the following, some of which are beyond our control:

·   quarterly variations in our operating results;

·   operating results that vary from the expectations of securities analysts and investors;

·   changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

·   announcements of technological innovations or new products by us or our competitors;

·   announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

·   changes in the status of our intellectual property rights;

·   announcements by third parties of significant claims or proceedings against us;

·   additions or departures of key personnel;

·   future sales of our common shares; and

·   stock market price and volume fluctuations.

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Stock markets often experience extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate or currency rate fluctuations or political events or hostilities in or surrounding the United States, could adversely affect the market price of our common stock.

Future sales of our common stock in the public market could lower our stock price, and conversion of our warrants and any additional capital raised by us may dilute your ownership in us.

We may sell additional shares of common stock in subsequent offerings. In addition, holders of warrants to purchase our common stock will, most likely, exercise their warrants to purchase shares of our common stock after this registration statement is declared effective. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock, including shares issued in connection with the exercise of the warrants, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.

Shares eligible for public sale in the future could decrease the price of our common stock and reduce our future ability to raise capital.

Sales of substantial amounts of our common stock in the public market could decrease the prevailing market price of our common stock, which would have an adverse affect on our ability to raise equity capital in the future.

Because Lighting Science’s Stock Price Is Volatile, It Can Be Difficult For Stockholders To Predict The Value Of Their Share At Any Given Time.

The price of our stock can be volatile, which makes it difficult for stockholders to predict the value of their shares or buy or sell shares at any given time. In the last two fiscal years, the price of our common stock has ranged from $0.24 to $2.55. A variety of factors may affect the market price of our common stock including, but not limited to, results of research and development; corporate partnerships; technological innovations by Lighting Science Group or competitors; changes in laws and government regulations; developments concerning proprietary rights, including patents and litigation matters; public perception relating to the commercial value or safety of any of our products; and general stock market conditions.

Our common stock is currently traded on the Pink Sheets. Trading in our common stock is sporadic, and days may from time to time pass without any reported trades. If limited trading in our common stock continues, it may remain difficult for stockholders to sell their shares in the public market. This limited trading also could decrease or eliminate our ability to raise additional funds through issuances of its securities.

There Is No Assurance Of An Established Public Trading Market For Our Securities.

Although our common stock is quoted in the Pink Sheets, a regular trading market for the securities may not be sustained in the future. Quotes for stocks listed in the Pink Sheets are not listed in the financial sections of newspapers and newspapers generally have very little coverage of stocks quoted solely in the Pink Sheets. Accordingly, prices for and coverage of securities quoted solely in the Pink Sheets may be difficult to obtain. In addition, stock quoted solely in the Pink Sheets tend to have a limited number of market makers and a larger spread between the bid and ask prices than those listed on the NYSE, AMEX or NASQAQ exchanges. All of these factors may cause holders of our common stock to be unable to resell their securities at or near their original offering price or at any price. Market prices for our common stock will be influenced by a number of factors, including:

· changes in interest rates;

· competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

· variations in quarterly operating results;

· changes in financial estimates by securities analysts;

· the depth and liquidity of the market for our common stock;

· general economic and other national conditions.

Our Common Stock May Be Considered A “Penny Stock” And May Be Difficult to Sell.

The SEC regulations generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore, it may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.

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Because Lighting Science Group Has Never Paid Dividends On Its Common Stock And Has No Plans To Do, So, The Only Return On Your Investment Will Come From Any Increase In The Value Of The Common Stock.

Since beginning our current business, we have not paid cash dividends on the common stock and do not intend to pay cash dividends in the foreseeable future due to our limited funds for operations. We currently intend to retain future earnings, if any, to finance operations and expand our business and, therefore, do not expect to pay any dividends in the foreseeable future. Therefore, any return on your investment would come only from an increase in the value of the stock.

Our Directors And Management Will Collectively Control Approximately 41% Of Our Outstanding Common Stock.

Immediately after this offering, our directors and executive officers and their affiliates will collectively control approximately 41% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. You and other stockholders may have a limited influence over these actions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might adversely affect the market price of our common stock.

Because There Is A Potential For Future Dilution To Existing Stockholders, Their Percentage Ownership And Control Over Company Matters Could Be Reduced.

Currently, we are authorized to issue up to 495,000,000 shares of our common stock. As of July 6, 2005, there were issued and outstanding 54,966,664 shares of our common stock and we may be obligated to issue up to 19,342,597, shares to the holders of our outstanding preferred stock and warrants. The authorized but unissued shares may be issued by us in such transactions and at such times as our board of directors considers appropriate, whether in public or private offerings, as stock splits or dividends or in connection with mergers and acquisitions or otherwise. Any such issuance that is not made solely to then-existing stockholders proportionate to their interests (as in a stock dividend or stock split) will result in dilution to each stockholder by reducing his or her percentage ownership of the total outstanding shares.

We Could Be The Subject Of Securities Class Action Litigation Due To Future Stock Price Volatility.

The stock market in general, and market prices for the securities of technology companies like ours in particular, recently have experienced extreme volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. Recently, when the market price of a stock has been volatile, holders of that stock have often instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, our defense of the lawsuit could be costly and divert the time and attention of our management.

Substantial Sales Of Our Common Stock Could Cause Our Stock Price To Decline.

Sales of a substantial number of shares of common stock after this offering, or the perception that sales could occur, could adversely affect the market price of our common stock. On completion of this offering, we will have up to 71,433,261 shares of common stock outstanding and 2,876,000 shares subject to outstanding warrants. In general, the 30,727,420 shares sold in this offering will be freely tradable without restriction or further registration under the federal securities laws. The remaining 40,705,841 shares of common stock outstanding on completion of the offering will be “restricted securities” as that term is defined in Rule 144 under the Securities Act. Our directors, executive officers and most other stockholders have executed lock-up agreements that limit their ability to sell common stock. These stockholders have agreed not to sell or otherwise dispose of any shares of common stock for a period of 180 days after the effective date of this Prospectus pursuant to the terms of the lock-up agreements. When the lock-up agreements expire or are terminated, approximately 35,705,906 shares of our common stock will be held by non-affiliates and freely tradable under Rule 144(k) and an additional 13,292,281 shares held by the remaining non-affiliates will be eligible for sale under Rule 144, subject to the time, volume and manner of sale limitations of Rule 144.

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Anti-Takeover Provisions In Our Charter Documents And Delaware Law Could Prevent Or Delay A Change In Control Of Our Company.

Provisions of our certificate of incorporation and by-laws may discourage, delay or prevent a merger, acquisition or change of control that a stockholder may consider favorable. These provisions include the ability to issue “blank check” preferred stock. The existence of this provision could limit the price that investors might be willing to pay in the future for shares of our common stock.

Provisions of Delaware law may also discourage, delay or prevent someone from acquiring or merging with our company or obtaining control of our company.

CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements regarding management’s plans and objectives for future operations including plans and objectives relating to our planned marketing efforts and future economic performance. The forward-looking statements and associated risks set forth in this Prospectus include or relate to, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our ability to obtain and retain sufficient capital for future operations, and (e) our anticipated needs for working capital. These statements may be found under “Plan of Operation” and “Description of Business,” as well as in this Prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact occur.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that we will be able to make strategic acquisitions on a timely basis, that we will retain the acquiree’s customers, that there will be no material adverse competitive or technological change in conditions in our business, that demand for our products will significantly increase, that our management will remain employed as such, that our forecasts accurately anticipate market demand, and that there will be no material adverse change in our operations or business or in governmental regulations affecting us or our manufacturers and/or suppliers. The foregoing assumptions are based on judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Accordingly, although we believe that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated in forward-looking statements will be realized. In addition, as disclosed elsewhere in the “Risk Factors” section of this Prospectus, there are a number of other risks inherent in our business and operations which could cause our operating results to vary markedly and adversely from prior results or the results contemplated by the forward-looking statements. Growth in absolute and relative amounts of cost of goods sold and selling, general and administrative expenses or the occurrence of extraordinary events could cause actual results to vary materially from the results contemplated by the forward-looking statements. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause us to alter marketing, capital investment and other expenditures, which may also materially adversely affect our results of operations. In light of significant uncertainties inherent in the forward-looking information included in this Prospectus, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

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Some of the information in this Prospectus contains forward-looking statements that involve substantial risks and uncertainties. Any statement in this Prospectus and in the documents incorporated by reference into this Prospectus that is not a statement of an historical fact constitutes a “forward-looking statement.” Further, when we use the words “may,”“expect,”“anticipate,”“plan,”“believe,”“seek,”“estimate,”“internal,” and similar words, we intend to identify statements and expressions that may be forward-looking statements. We believe it is important to communicate certain of our expectations to our investors. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that could cause our future results to differ materially from those expressed in any forward-looking statements. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such forward-looking statements. Important factors that may cause our actual results to differ from such forward-looking statements include, but are not limited to, the risk factors discussed above. Before you invest in our common stock, you should be aware that the occurrence of any of the events described under “Risk Factors” in this Prospectus could have a material adverse effect on our business, financial condition and results of operation. In such a case, the trading price of our common stock could decline and you could lose all or part of your investment.

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USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares offered pursuant to this Prospectus. All of the proceeds will be payable solely to the selling stockholders. We will, however, receive the proceeds from the exercise of the warrants issued to the selling stockholders if and when they are exercised. We anticipate that the net proceeds from the exercise of the warrants would be used for working capital and general corporate purposes. The actual allocation of proceeds realized from the exercise of these warrants will depend upon the amount and timing of such exercises, our operating revenues/losses and cash position at such time and our working capital requirements. There can be no assurances that any of the outstanding warrants will be exercised.

The selling stockholders will pay any expenses customarily borne by selling stockholders (including underwriting discounts, commissions and fees and expenses of counsel to the extent not required to be paid by us). We will bear all other costs, fees and expenses incurred in effecting the registration of the shares covered by this Prospectus, including, but not limited to, all registration and filing fees, listing fees and expenses of our counsel and our accountants.

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DESCRIPTION OF BUSINESS

Lighting Science Group is a Delaware corporation organized in June 1988. On December 23, 2004, The Phoenix Group Corporation, our predecessor entity, announced its decision to change its name to Lighting Science Group Corporation by means of a parent/subsidiary merger with its wholly owned subsidiary, Lighting Science, Inc. Pursuant to a resolution approved by the board of directors, The Phoenix Group Corporation filed a certificate of merger with the office of the Secretary of State of Delaware on December 23, 2004 to complete the merger of Lighting Science, Inc. with and into The Phoenix Group Corporation and to change the name. Lighting Science Group began conducting its operations under the name Lighting Science Group Corporation on January 1, 2005.

On or about August 20, 2002, we filed a voluntary petition seeking debtor-in-possession status for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The case was subsequently transferred to the U.S. Bankruptcy Court for the Northern District of Texas - Ft. Worth Division bankruptcy court. The bankruptcy court granted the requested status. During the summer of 2003, we filed a Disclosure Statement and Plan of Reorganization that was confirmed by the bankruptcy court on September 16, 2003 with an effective date of September 26, 2003. Under the terms of the plan of reorganization, the creditors of Lighting Science Group received an aggregate of approximately 51% of the common stock of the restructured entity in exchange for notes, accounts payable, and other forms of debt held at the time of the filing of the petition. This feature of the plan of reorganization - the exchange of debt for greater than 50% of the equity in the restructured entity - qualified us to utilize the reporting guidelines of the “Fresh Start” accounting rules contained in Statement of Position 90-7.

On June 1, 2004, we acquired 100% of the outstanding common stock of Lighting Science, Inc., a corporation that developed and owned certain intellectual property related to the design, development and power management of lighting products utilizing light emitting diodes as a source of light. As of the date of this Prospectus, we continue with our plans to develop and sell products based upon the intellectual property acquired in the acquisition of Lighting Science, Inc. related to the design and development of lighting products utilizing light emitting diodes as a source of light.

Market Overview

The global lighting market has annual sales exceeding $40 billion, with the U.S. market alone contributing $12 billion to $15 billion annually.¹ More importantly, the lighting market consumes over 20% of the world’s energy on an annual basis.² This is the target market that management believes will evolve to solid state lighting.

With our acquisition of Lighting Science, Inc., we entered the field of solid state lighting. Light emitting diode technology has been in use since 1962, but until recently was used only in small electronic devices. Unlike incandescent bulbs, which produce the full spectrum of light in a spherical pattern, LEDs emit a monochromatic focused beam that is highly directional. For many applications, such as indicators or switch illuminators, this is not a problem. But it took development of multi-chip arrays, high-flux LED chips, and specialized phosphors to achieve the effect of an incandescent bulb.

As a result of these recent innovations, many designers have begun to focus their attention on LEDs as a new source of product for traditional lighting needs. LED-based lighting is now available in a variety of light bases and sizes, most of which are suitable only for specialty lighting. LED-based lighting is rugged, durable, and visible in daylight. Its life span, which far exceeds that of incandescent bulbs, is an advantage for high volume users of light bulbs who are faced with high-energy consumption and recurring maintenance obligations. These maintenance obligations can have legal ramifications as well as aesthetic implications.

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Industry studies have predicted that LED-based lighting will replace over 40% of incandescent lighting applications by 2025. It is estimated that by the same year solid state lighting could reduce the global amount of electricity used for lighting by 50%.⁴ Lighting Science Group believes that no other use of electricity can offer such a large energy-savings potential.

Increased investment by the manufacturers of LEDs over the past decade has resulted in performance enhancements and cost reductions that have exceeded expectations. Since their introduction, LED prices have fallen while performance has grown. This pattern caused retired Agilent scientist Roland Haitz to measure the change and to develop “Haitz’s Law” (similar to Moore’s Law in the computer chip industry) which holds that each decade since the first LED appeared in 1962, prices have fallen by a factor of 10 while performance has grown by a factor of 20.⁵

While manufacturers of LEDs have made great strides, the enabling technologies such as power conversion and thermal management have not kept pace. These technologies in the LED industry can be equated to software applications in the computer chip industry. But while software development takes advantage of each hardware enhancement, the technologies necessary to derive the greatest performance from LEDs have lagged. Consequently, the existing gap between the advancements in LED technology and their incorporation into general illumination systems has widened over the past five years.

^1.  Projected estimates in 2002 by United States Department of Energy

^2.  Estimate from article published by Sandia National Labs

^3.  “LED Lighting Technologies and Potential for Near Term Market Applications” by Ecos Consulting 2003

^4.  “The Promise of Solid State Lighting for General Illumination” 2002 Optoelectronics Industry Development Association, Co-sponsored by Department of Energy

^5.  “LEDs are seeing the light more and more,” January 5, 2005, MENAFN.com

Competitive Advantages

Through the development of its Optimized Digital Lighting technology, we believe that we have begun to close the gap between the theoretical performance capability of today’s LEDs and the level of their performance in the current generation of general illumination products. With our enabling technologies, we believe that we have positioned ourselves at the forefront of the emerging solid state lighting industry and will be able to compete in the marketplace, for the following reasons:

Digital lighting expertise is our core competency. We have and will continue to generate important intellectual properties:

·   Patent pending digital lighting engineering design

·   Patent pending bulb design appearance

·   Patent pending manufacturing process

Compared with 65-watt incandescent bulbs, Optimized Digital Lighting bulbs currently reduce energy use by up to 85%, with a useful life up to 50 times longer (approximately 50,000 hours).

Several factors contribute to the benefits produced by our ODL technology:

·   Our patented and patent pending technology allows retail pricing that is both affordable and provides a fast payback through reduced energy consumption in most applications.

·   Optimized Digital Lighting products have added functionality - they are dimmable and reach their full operating level instantly unlike most fluorescent bulbs.

·   Development of additional Optimized Digital Lighting products is ongoing. The product development team is bolstered by a scientific advisory board with expertise in many disciplines of the lighting industry.

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Products/Distribution

Lighting Science Group is positioned to introduce its Optimized Digital Lighting products through traditional commercial and retail distribution channels and on a direct basis through its sales force, as well as through shared savings plans with larger commercial and municipal customers. Our near-term product portfolio consists of the following:

·   Flashlights - We have developed a flashlight which provides a high candlepower output across a broader beam angle than is typical of existing LED based flashlights and can be made available at a lower price point due to the manufacturing efficiencies created by Lighting Science Group’s proprietary design.

·   Cabinet Lighting - We have a developed a small lamp, called the Puck Light, which replaces existing halogen incandescent lamps. Aside from energy savings and much longer life, the Puck Light is safer for usage inside furniture because it operates at a much lower temperature.

·   Floodlights - We have developed a second generation floodlight prototype that equals or exceeds existing BR30 65-watt floodlights sold by incumbent lighting manufacturers in terms of the amount of illumination (foot candles) measured at the surface to be illuminated across a beam angle of 50º. Lighting Science Group plans initial shipments of the floodlight in “Daylight White” in the second half of 2005.

·   Parking Garage Lighting -We have developed a shoebox form factor light that we believe is competitive with conventional lights used in parking garages.

·   Outdoor Lighting - We are currently prototyping a cobra head form factor street light which we believe will be competitive with 150 watt - 250 watt conventional street lights on poles 30 feet or less in height. Other forms, in higher wattage equivalents (e.g. 400 watts) are planned.

Operations

Following the acquisition of Lighting Science, Inc., we have continued with our plans to develop and sell products based upon the acquired intellectual property. Staff has been added to support the development process. Additionally, we have begun to work with a major international design, engineering and manufacturing company to support the development of our products and the transition of such products into the manufacturing process.

In order to minimize our investment in plant and equipment and enable us to focus on research and development, our manufacturing strategy is to outsource the manufacture of our Optimized Digital Lighting lighting products, and therefore, we do not own or operate a manufacturing facility. We currently partner with small number of contract manufacturers to manufacture our products at plants in various locations in throughout the world. These manufacturers supply all necessary raw materials (other than certain critical components such as LEDs, which we procure directly), provide all necessary facilities and labor to manufacture our products, and stock and arrange for transport of our finished goods, generally by ship, to our distributors and customers.

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We currently have four sources of supply for LEDs used in the assembly of if its lighting products. We buy LEDs from two domestic manufacturers and two foreign manufacturers. All suppliers currently have adequate capacity to provide sufficient quantities of LEDs to meet our forecasted needs. Our lighting products incorporate a proprietary power supply chip. These chips are fabricated by two domestic manufacturers, each of which has adequate capacity to produce estimated quantities of chips to meet our forecasted needs. One domestic supplier and one foreign supplier provide microelectronic components for the various lighting products. Lighting Science Group has no sole source supply for any of the components required for the manufacture of its lighting products.

Employees

As of June 20, 2005, we have 15 full-time employees. We believe that our relationship with our employees is good. None of our employees is represented by an employee union.

PLAN OF OPERATION

As of the date of this report, we continue to operate as a development stage company, not having had appreciable revenue during its last fiscal year or the first calendar quarter of 2005. Accordingly, our plan of operation for the next twelve months is set forth below.

Business Overview

With its acquisition of certain intellectual property rights on June 1, 2004, Lighting Science Group entered the field of solid-state lighting. Light emitting diode technology has been in use since 1962, but until recently was used only in small electronic devices. Unlike incandescent bulbs, which produce the full spectrum of light in a spherical pattern, LEDs emit a monochromatic focused beam that is highly directional. For many applications, such as indicators or switch illuminators, this is not a problem. But it took development of multi-chip arrays, high-flux LED chips, and specialized phosphors to achieve the effect of an incandescent bulb.

Through the development of its Optimized Digital Lighting technology, Lighting Science Group believes that it has begun to close the gap between the theoretical performance capability of today’s LEDs and the level of their performance in the current generation of general illumination products. With its enabling technologies, Lighting Science Group believes that it has positioned itself at the forefront of the emerging solid state lighting industry and will be able to compete in the marketplace.

Strategy

We are positioned to introduce our Optimized Digital Lighting products through traditional commercial and retail distribution channels and on a direct basis through our sales force, as well as through shared savings plans with larger commercial and municipal customers.

We have developed the Shared Savings Program^SM which allows customers to partner with us to deploy our ODL products without any upfront capital expenditures while benefiting from the significant energy savings provided by our LED products. Our lighting products pay for themselves in energy savings, which are shared between us and the customer. The Shared Savings Program is focused on municipalities and companies with significant outdoor lighting requirements. The program requires an investment by us in product and labor to install the lights in a city or a municipality. We believe that it will be able to secure the financing for such installations through traditional commercial lending institutions.

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We will also focus on the wholesale and retail distribution of our ODL technology and its general illumination products. These products include existing and planned product lines of floodlights, spotlights, and additional general illumination products that are under development. We are exploring opportunities to sell our ODL products through traditional mass market retailers as well as domestic and international lighting distributors.

Our distribution strategy with respect to its near term products are as follows:

·   Flashlights - The flashlight is currently under evaluation by a big-box retailer.

·   Cabinet Lighting - We also intend to aggressively market this product to furniture manufacturers and to potential users in the hotel and recreation industries.

·   Floodlights - We intend to market this light through big-box retailers, lighting distributors, under shared savings programs and on a direct basis in certain industries. We intend to prototype a “Warm White” version of the floodlight in the third quarter of 2005, and plan to sell it via the same channels as the Daylight White version of the bulb in addition to marketing it directly to the hospitality industry. 

·   Parking Garage Lighting -We have established direct contact with major parking garage operators across the country and these parking garage lights will be made available for outright sales as well as under the Shared Savings Program.

·   Outdoor Lighting - We expect to make streetlights available under its Shared Savings Program either directly or via Energy Service Company (ESCO) partners.

Strategic Alliances

Agreement with Giuliani Capital Advisors

On February 15, 2005, we entered into a letter agreement with Giuliani Capital Advisors LLC , or GCA, to engage GCA to provide financial advisory services to us and a yet to be formed entity. On May 4, 2005, we entered into an agreement with GCA to form the joint venture. The intent of the joint venture is to own parking garage lights and streetlights and related lighting infrastructure targeting municipalities, public utility corporations, universities, large mall owners, parking lot owners, and other organizations as partners/customers. The services GCA has agreed to provide include the following:

·   Assist us on an exclusive basis to raise capital for the joint venture;

·   Evaluate financial and organization structures on a non-exclusive basis relating to different market opportunities which may be presented to Lighting Science Group;

·   Advise us on sources of debt and equity capital available to fund the joint venture;

·   Assist management in coordination between advisors and debt/equity underwriters;

·   Assist us in arranging meetings with various governmental entities and utilities, both domestic and international to acquire light poles and related infrastructure; and

·   If requested, assist Lighting Science Group to raise equity or debt financing for other Company projects.

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As consideration for the services to be provided by Giuliani Capital Advisors, we agreed to pay the following:

·   A non-refundable deposit of $150,000 (paid on March 31, 2005);

·   A market rate fee for all debt and/or equity capital raised for the joint venture; and

·   Reasonable expenses of Giuliani Capital Advisors incurred in performing its services.

In addition, Giuliani Capital Advisors received the following:

·   A financial advisory role in the joint venture on capital raising transactions on a case by case basis; and

·   A 20% ownership interest in the joint venture.

We also issued a warrant to Giuliani Capital Advisors that is exercisable by them to purchase up to 1,650,000 shares of our common stock, subject to adjustment in certain circumstances as provided in the warrant. The 1,650,000 shares represented 3.1% of outstanding shares of common stock at February 15, 2005. The warrant has a five-year term, and Giuliani Capital Advisors may exercise the warrant in whole or in part at any time during the five-year term. The exercise price for each share of common stock is $.60 per share or $990,000 if GCA were to exercise all 1,650,000 shares under the warrant.

Consulting Contract with Equity Group, Inc.

On February 10, 2005, We entered into a consulting contract with Equity Group, Inc. to provide financial public relations and investor relations on behalf of Lighting Science Group. In connection therewith, we agreed to issue Equity Group, inc. two warrants to purchase an aggregate of $600,000 worth of shares of our common stock with each warrant having an exercise price of $0.80 per share. Each warrant will provide for the purchase of $300,000 worth of our common stock. One of the warrants became fully vested upon the signing of the contract. The other warrant will become exercisable upon the first anniversary date of the consulting contact unless terminated earlier. Equity will receive $5,000 per month during the term of the contract.

Liquidity and Capital Resources

On May 12, 2005, Lighting Science Group entered into the Securities Purchase Agreement with investors for the private placement of the preferred stock pursuant to which the investors purchased 2,260,966 shares of the preferred stock at $3.20 per share for an aggregate purchase price of approximately $7.2 million. The net proceeds to Lighting Science Group were approximately $6.5 million, including officer and director loans converted to preferred stock. These funds are being used for working capital purposes.

We have embarked upon an aggressive design and development program to bring product to market during the second quarter of 2005. If, as management believes, Lighting Science group is successful in developing viable products, additional capital may be needed to fund the manufacturing process to generate finished goods. In the event orders are received from established retailers and distributors of lighting products, management believes that traditional lending sources will be available to provide a portion of the capital needed to cover the manufacturing and receivables cycles. However, we may still be required to raise additional capital to meet our obligations.

Our strategy includes the outsourcing of manufacturing operations. Accordingly, there are no significant investments in plant or equipment expected in the next 12 months. Additionally, the startup of product deliveries will require us to make additions to our operations and administrative management teams. However, such personnel additions are not expected to result in substantial increases in employee headcount.

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DESCRIPTION OF PROPERTY

Our corporate headquarters are located in Dallas, Texas. We occupy excess office space that is leased by an institutional shareholder of Lighting Science Group. The shareholder also serves as a financial advisor to Lighting Science Group. The shareholder permits us to occupy the office space during the term of the financial services agreement on a rent free basis. We also have leased office space in Ft. Lauderdale, Florida for our research and development activities for a period of one year commencing February 1, 2005 at a rate of approximately $4,200 per month. We also lease space in Hong Kong on a month-to-month basis at a rate of approximately $250 per month.

DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS

Lighting Science Group’s Board of Directors consists of 9 directors. Lighting Science Group’s bylaws allow for the number of Directors to be set by the Board of Directors. Directors are elected annually to serve one-year terms.

Set forth below is information concerning our directors and executive officers:

Name	Age	Position
Ronald E. Lusk	48	CEO and Chairman
Stan T. Waldrop	54	President
Philip R. Lacerte	59	Executive Vice President
J. Michael Poss	53	Director and Executive Vice President - Legal
Michael N. Lavey	47	Chief Financial Officer
Fredric S. Maxik	45	Director and Chief Technology Officer
K. Shane Hartman	50	Chief Information Officer
Robert E. Bachman	63	Director
John A. Collingwood	66	Director
Donald R. Harkleroad	61	Director
Robert McMonigle	60	Director
Daryl N. Snadon	59	Director
Robert L. Woodson, III	56	Director

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Ronald E. Lusk, 48, has served as the Chairman of the board of directors and CEO of Lighting Science Group since November 1998. Mr. Lusk is also the president of Match, Inc., a private investment and holding company. Mr. Lusk has over 22 years of diverse business and management expertise contributing to his direct ownership and control of various companies, predominately in the healthcare industry. Mr. Lusk currently serves as a director on the boards of several private companies.

Stan T. Waldrop, 54, has served as President of Lighting Science Group since October 2004. Mr. Waldrop was the founder, chairman of the board, and CEO of Telcom Global Solutions, a joint venture with Bear Stearns Merchant Banking Group. The firm was an international radio frequency engineering company that specialized in designing mobile phone networks. In 2001, the firm was sold to Flextronics International, the leading global provider of electronic manufacturing services. Prior to founding Telcom Global Solutions, Mr. Waldrop was the cofounder of TrinTel Communications, Inc. in partnership with Austin Ventures. The firm is a leading developer, owner, and operator of wireless communications towers, and it is one of the largest privately held companies in this sector in the United States. Before launching TrinTel, Mr. Waldrop was one of six founders of JPI, a fully integrated real estate firm that specializes in the acquisition, development, construction, and management of residential communities, which operates in markets throughout the United States. It is one of the country’s top developers of residential real estate.

Philip R. Lacerte, 59, has served as Executive Vice President of Lighting Science Group since October 2004. Mr. Lacerte was a cofounder of Lacerte Software Corporation, a Dallas-based developer of professional tax preparation software used by tax preparers. The company was acquired by Intuit, Inc. in 1998 at which time Mr. Lacerte retired from the day-to-day management of the company.

J. Michael Poss, 53, has served as Executive Vice President - Legal of Lighting Science Group since May 2005. Mr. Poss served as chief financial officer of Lighting Science Group from May 2002 to May 2005. Prior to his association with Lighting Science Group, Mr. Poss served as executive vice president of Zix Corporation from April 2000 through February 2002 where he was involved in sales, marketing, investor relations, and the negotiation of strategic alliance agreements with industry-leading partners. Prior to moving to Zix Corporation, Mr. Poss held the position of chief financial officer of The Perot Group, the family office operation of Ross Perot. Before joining Mr. Perot in 1979, Mr. Poss worked for Arthur Young & Company. He was awarded his Certified Public Accountant designation in 1978, and he received a Bachelor of Business Administration degree from the University of Texas at Austin in 1973. Mr. Poss is also a licensed attorney, having graduated from the University of Texas Law School in 1976. Mr. Poss has served as a director of Lighting Science Group since September 2003.

Michael N. Lavey, 47, joined us as Chief Financial Officer in May 2005. Prior to joining our company, Mr. Lavey consulted at Alliance Data Systems Corporation on Sarbanes-Oxley Act matters from October 2004 through May 2005. Previously, Mr. Lavey served at MetroPCS, Inc. as Vice President and Controller from January 2004 to October 2004 and also served as Interim Chief Financial Officer from March 2004 until May 2004. Mr. Lavey served from May 2002 to November 2003 as Vice President - Controller for VarTec Telecom, a nationwide provider of long distance and local telephone service. Mr. Lavey served as Vice President - Corporate Controller for Excel Communications from January 2000 until its acquisition by VarTec in April 2002.

Fredric S. Maxik, 45, has served as Chief Technology Officer of Lighting Science Group since June 2004. After graduating from Bard College with a bachelor’s degree in physics and philosophy, Mr. Maxik began his career with Sansui Electronics in 1983 in Tokyo, Japan where he became vice president of product development. In 1990, he was recruited to the position of vice president of product development for Onkyo Electronics in Osaka, Japan. In 1993, Mr. Maxik formed a product development consulting firm. In 2002, Mr. Maxik formed an environmental products company, which developed the intellectual property that eventually became the principal asset of Lighting Science, Inc. that was acquired by Lighting Science Group in June 2004. Mr. Maxik received his honorary PhD in physics from the University of Hong Kong in 1993. Mr. Maxik has served as a director of Lighting Science Group since August 2004.

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K. Shane Hartman, 50, was named Chief Information Officer and executive vice president of Lighting Science Group effective November 15, 2000. Prior to joining us, Mr. Hartman accumulated 20 years of business experience in the information technology industry, having served with Perot Systems where he held several senior management positions, most recently as Chief Technologist. Previously, Mr. Hartman served as Chief Architect for Programmability at Lotus Development Corporation. He is an alumnus of the Massachusetts Institute of Technology.

Robert E. Bachman, 63, has served as a director of Lighting Science Group since September 2003. He is the president and a director of USGT Investors Management Company, Inc., a Dallas-based investment/merchant bank that is the general partner of USGT Investors, LP., a private venture capital/equity fund. Mr. Bachman serves as the chairman of the audit committee of the board of directors of Lighting Science Group.

John A. Collingwood, 66, has served as a director of Lighting Science Group since August 2004. He is a private investor and serves as an officer and/or director of several privately held companies and was previously a major shareholder of Lighting Science, Inc. prior to its acquisitions on June 1, 2004. Mr. Collingwood is an alumnus of the University of Kansas, and he graduated from the University of the Americas in Chouloa, Mexico with a degree in International Business Administration.

Donald R. Harkleroad, 61, has served as a director of Lighting Science Group since September 2003. He is president of The Bristol Company, an Atlanta-based holding company with interests in the food, technology, and merchant banking industries. Mr. Harkleroad serves as the chairman of the compensation committee of the board of directors of Lighting Science Group.

Robert McMonigle, 60, has served as a director of Lighting Science Group since August 2004. He is a sales and marketing consultant to Aristocrat Technologies, Inc., the second largest manufacturer of slot machines in the world. Mr. McMonigle served as executive vice president of International Gaming Technologies, Inc. (IGT) where he was responsible for worldwide sales. During his eighteen-year tenure with that company, Mr. McMonigle also directed IGT’s gaming development in the United States, Canada, South America, Europe and South Africa. Mr. McMonigle retired from IGT in October 2001. Shortly thereafter, he joined American Gaming & Electronics, Inc. where he served as president until July 2003 at which time he began his present relationship with Aristocrat.

Daryl N. Snadon, 59, has served as a director of Lighting Science Group since September 2003. He is the owner of Beltway Development Company, a Dallas-based real estate development company with a 30-year operating history. Mr. Snadon is the principal owner of 25 separate commercial properties in Texas and other states. He serves as an officer and director of numerous privately held corporations, as managing partner of numerous joint ventures, and as a member or partner of numerous limited liability companies and partnerships.

Robert L. Woodson, III, 56, has been a director of Lighting Science Group since 1998 and previously served as president and chief operating officer of Lighting Science Group from January 1999 to November 2000. Mr. Woodson was president and chief executive officer from November 1998 to January 1999. Prior to joining Lighting Science Group, Mr. Woodson was president of HFI Home Care Management LP, a company that acquires and manages home health agencies, from 1994 through 1997, and executive vice president and secretary of HealthFirst, Inc., a company that manages home health agencies, from 1992 through 1994. In March 2000, Mr. Woodson resigned as an executive officer of Lighting Science Group and continues to serve as a director.

Each outside director receives compensation of $50,000 per year for service on the board of directors. To date, this compensation has been paid in the form of common stock of Lighting Science Group. We will continue paying compensation to directors in the form of Common Stock of Lighting Science Group for the foreseeable future.

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EXECUTIVE COMPENSATION

The following table summarizes for the years indicated the compensation paid by Lighting Science Group to its chief executive officer during fiscal year 2004 and all executive officers of Lighting Science Group that earned a salary and bonus for 2004 in excess of $100,000.

		Annual Compensation
Name and Principal Position	Year	Salary ($)	Bonus ($) (1)
Ronald E. Lusk (3)	2004	212,147	88,880
Chief Executive Officer	2003	131,942	-
	2002	43,727	-
J. Michael Poss (4)	2004	154,452	108,443
Chief Financial Officer	2003	218,024	-
	2002	28,421	-
K. Shane Hartman (5)	2004	154,049	64,046
Chief Information Officer	2003	197,922	-
	2002	50,452	-
Kathryn D. Fuller (2)(6)	2004	80,250	99,117
Corporate Secretary	2003	95,961	-
	2002	17,156	-
Fredric S. Maxik (7)	2004	158,650	37,500
Chief Technology Officer

(1)	Paid in the form of unregistered common stock of Lighting Science Group.
(2)	Ms. Fuller resigned in May of 2005.
(3)	Includes 431,715 common shares issued at $0.22 and 555,502 common shares issued at $0.16 related to 2004 salary and bonus, respectively. Includes 157,333 common shares issued at $0.42 related to 2003 salary.
(4)	Includes 434,464 common shares issued at $0.22 and 677,769 common shares issued at $0.16 related to 2004 salary and bonus, respectively. Includes 154,627 common shares issued at $0.42 related to 2003 salary.
(5)	Includes 349,226 common shares issued at $0.22 and 400,289 common shares issued at $0.16 related to 2004 salary and bonus, respectively. Includes 126,307 common shares issued at $0.41 related to 2003 salary.
(6)	Includes 169,955 common shares issued at $0.22 and 619,479 common shares issued at $0.16 related to 2004 salary and bonus, respectively. Includes 61,528 common shares issued at $0.41 related to 2003 salary.
(7)	Includes 67,628 common shares issued at $0.49 and 156,250 common shares issued at $0.24 related to 2004 salary and bonus, respectively.

Pursuant to the terms of each individual’s employment agreements, such individual had (or has, in the case of Mr. Maxik) the ability to elect to receive salary and other forms of cash compensation in the form of equity securities of Lighting Science Group.

As of the date of this prospectus, Lighting Science Group has no option plans for its employees. On July 6, 2005, the board of directors of Lighting Science Group adopted the Lighting Science Group Corporation 2005 Equity Based Incentive Compensation Planand a proposal to implement such a plan is to be voted upon at the annual shareholders’ meeting in August 2005.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Director Loans to Lighting Science Group; Issuance of Warrants to Directors

At a meeting of the Board of Directors of Lighting Science Group held on March 30, 2005, certain individual members of our board of directors and members of senior management agreed to loan Lighting Science Group an aggregate of $340,000 on a short-term basis pursuant to the terms of promissory notes from Lighting Science Group and in favor of each of the individual lenders. The members of the board who agreed to loan Lighting Science Group funds and the amounts loaned by each individual are as follows: John Collingwood - $100,000, Ronald Lusk - $30,000, Stan Waldrop - $30,000, Phil Lacerte - $30,000, Robert E. Bachman - $30,000, Donald R. Harkleroad - $30,000, Robert L. Woodson, III - $30,000, Daryl Snadon - $30,000, and the Phibian S Trust - $30,000. Ronald Lusk loaned Lighting Science Group an additional $15,000 on April 29, 2005 and $5,000 on May 2, 2005, respectively. Daryl Snadon loaned us an additional $100,000 on May 3, 2005 and Don Harkleroad loaned us an additional $16,000 on May 6, 2005. The board members and officers who loaned Lighting Science Group funds in this transaction are collectively referred to as the Lenders. Proceeds from each of the loans were used to fund our continuing operating expenses, including salaries, legal and accounting fees, and for working capital purposes and other contingencies. Pursuant to the terms of the notes issued by us to each Lender, we have: (i) paid interest to each Lender at a rate of 9.50% per annum; (ii) paid a 10% commitment fee to each Lender and (iii) issued a warrant to each Lender for the purchase of 30,000 shares of our common stock (or 100,000 shares in the case of Mr. Collingwood, 130,000 shares in the case of Mr. Snadon, 46,000 shares in the case of Mr. Harkleroad and 50,000 shares in the case of Mr. Lusk) for a total of 476,000 shares. The principal and interest due on the notes were due on May 30, 2005. A total of $300,086 of such loans, including accrued interest and commitment fees of $24,086, were converted to Preferred Stock in the private placement described on page 4 of this Prospectus and the remaining $200,000 of such loans were repaid from proceeds of the private placement.

The warrants issued to the Lenders for the purchase of 460,000 shares of our common stock are exercisable at $1.50 per share. Eight warrants vested for 30,000 shares of common stock on the date of issuance, April 20, 2005. One warrant vested for 100,000 shares of common stock on the date of issuance, April 20, 2005. On April 29, 2005 and May 2, 2005, we issued warrants for 15,000 and 5,000 shares of common stock, respectively, to Mr. Lusk. On May 3, 2005, we issued a warrant for 100,000 shares of common stock to Mr. Snadon and on May 6, 2005, we issued a warrant for 16,000 shares to Mr. Harkleroad. All such warrants vested on the date of issuance. The warrants have anti-dilution and exercise price adjustment provisions for dividends and stock splits. Each warrant expires five years from the date of issuance.

Reverse Stock Split

On August 20, 2004, our shareholders approved a proposal by management to undertake a reverse split of the shares of our common stock in the ratio of one share of new common stock for every 16 shares of old common stock. All per-share amounts in the accompanying consolidated financial statements have been retroactively adjusted for the reverse split of Lighting Science Group’s shares. All other references to shares of our common stock in this Prospectus and in the accompanying consolidated financial statements have been retroactively adjusted to a post reverse-split basis unless otherwise noted.

Acquisition of Lighting Science, Inc.

On June 1, 2004, we acquired Lighting Science, Inc. by purchasing all of that corporation’s outstanding stock in exchange for 4,796,276 shares of common stock and Lighting Science Group’s obligation to issue up to an additional 4,499,965 shares of common stock upon the satisfaction of certain conditions under the stock purchase agreement. Two of the persons nominated for election to our board of directors, Fredric Maxik and John Collingwood, had significant relationships with Lighting Science, Inc. Mr. Maxik was the chief executive officer of Lighting Science, Inc. and the co-trustee of a trust that was a major stockholder of Lighting Science, Inc. Mr. Collingwood was also a major stockholder of Lighting Science, Inc. As part of the acquisition of Lighting Science, Inc., Lighting Science Group agreed to use its best efforts to cause the election of Mr. Maxik and Mr. Collingwood to Lighting Science Group’s board of directors. The acquisition of Lighting Science, Inc. was previously disclosed on Lighting Science Group’s Form 8-K filed with the Securities and Exchange Commission on June 15, 2004. As part of the acquisition Mr. Maxik entered into an employment agreement with Lighting Science Group. Also, as a part of the acquisition Lighting Science, Inc., Lighting Science Group executed a promissory note in favor of Phibian S. Trust, a trust controlled at the time by Mr. Maxik, its then co-trustee. The note is in the principal amount of $200,000, does not bear interest and is payable in 36 equal monthly installments beginning in the month following the month that the Lighting Science Group generates revenue of $10,000 or more.

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Note to Phibian S Trust

After the acquisition of Lighting Science, Inc. by our predecessor entity, The Phoenix Group, we owed a balance of $175,000 to Phibian S Trust, a revocable trust for the benefit of the children of Fredric Maxik. At such time, the trust was controlled by Mr. Maxik who was co-trustee of the trust. On July 2, 2004, Maxik resigned his position as co-trustee. Currently, Maxik exercises no control over the trust, and has informed us that he disclaims all beneficial ownership in the trust. The note was issued by Lighting Science, Inc. to the trust in exchange for the assignment of certain provisional patents and intellectual property that formed the basis for the acquisition of Lighting Science, Inc. by Lighting Science Group. Lighting Science Group is obligated to pay the principal by making 36 equal monthly installments beginning on the fifteenth day of the month following the first full month that we begin generating revenue in the amount of $10,000 or more, as determined in accordance with generally accepted accounting principles.

We made an advance payment to the trust on this note in the amount of $25,000 in October 2004. $25,000 of the note has been classified as a current liability. This note provides for no interest. However, under generally accepted accounting principles, an imputed amount of interest should be allocated. Such amount is not material.

Note Payable to Trust of Stockholder and Chairman Ronald E. Lusk/ Conversion of Note and Exercise of Conversion Option of Series A Preferred Stock

We were obligated under the terms of a line of credit agreement to Match, Inc. outstanding in the amount of $1,851,299 principal balance and $315,554 in accrued interest at December 31, 2004. Ronald E. Lusk, Chairman of Lighting Science Group, controls Match, Inc. as Trustee of the Ronald E. Lusk Revocable Trust. The line of credit agreement with Match, Inc. is available up to a limit of $2 million; bears interest at prime plus 1 % on the note balance and prime plus 2% on any unpaid interest amounts; is due on demand and is unsecured.

Match, Inc. was the sole holder of all of the issued and outstanding Series A Senior Convertible Preferred Stock.

We entered into an agreement with Ronald E. Lusk, on April 12, 2005, to convert the debt owned by Match, Inc. into shares of common stock. Additionally, Match, Inc. gave notice to Lighting Science Group that pursuant to conversion rights contained in the Certificate of Rights, Preferences and Powers of Series A Senior Convertible Preferred Stock and Series B Preferred Stock, that Match, Inc. elected to convert all the issued and outstanding shares of Series A Preferred Stock owned by it and controlled by Mr. Lusk into shares of common stock. The board of directors had previously concluded that the nature of our outstanding debt and Series A preferred stock was inconsistent with its best interests. Our financial advisor and its investment-banking representative had both advised that the outstanding debt and preferred stock should be eliminated through conversion into common stock. As a result of that advice, a special committee of independent directors consisting of Directors Robert E. Bachman, Donald R. Harkleroad, and Robert L. Woodson, III was formed on March 14, 2005 to evaluate the proposal submitted by Mr. Lusk to convert the preferred stock and the debt to shares of common stock.

On July 25, 1994, Lighting Science Group sold 533,333 shares of 8% cumulative Series A Senior Convertible Preferred Stock with cumulative dividends of $0.30 per annum for each share and conversion rights to common stock at a price of $3.75 per share, or a total of $2 million. At the date of the preferred stock Conversion Notice submitted by Match, Inc., these shares were owned by Match, Inc., a company owned by the Ronald E. Lusk Revocable Trust. Mr. Lusk serves as the trustee of the trust. No dividends had been paid with respect to this class of stock. At the date of the agreement, the cumulative unpaid dividend with respect to the preferred stock was $1,670,685. Thus, the total liquidation preference of the preferred stock was $3,670,685 as of March 30, 2005.

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An anti-dilution provision contained in the certificate of designation provided for an adjustment to the stated conversion price of $3.75 per share based upon subsequent issuances of common stock. The special committee determined that the adjusted conversion price of the preferred stock was $0.199 per share. The special committee then took note of the fact that for the month of March 2005, the closing prices for the common stock had ranged between $1.48 and $1.90 per share. The proposal submitted by Mr. Lusk offered to set the conversion price at $1.725 per share, which represented the five-day average closing price as of March 15, 2005. Thus, the number of shares into which the preferred stock and the cumulative dividend would be convertible was equal to 2,127,933 ($3,670,685 / $1.725) under the proposal presented by Mr. Lusk. The committee also noted that the trading range for the stock at the end of the month of March was closer to the lower end of the range ($1.48) at the time that the analysis was being completed. The special committee reported the results of its analysis to the board.

We were also obligated under the terms of a credit agreement by and between Match, Inc. and Iatros Health Network, Inc., a predecessor entity to Lighting Science Group, to repay the amount of $2,192,524 as of the date of the debt conversion agreement. Pursuant to the ownership structure described above, Mr. Lusk also controlled this note. The credit agreement with Match, Inc. provided for interest at the prime rate plus 1% on the note balance and prime plus 2% on any unpaid interest amounts and that the note was due on demand and was secured by all the assets of Lighting Science Group. In this situation, Mr. Lusk proposed to reduce the amount of the accrued interest by $250,000. Using the same conversion price of $1.725, the total of $1,942,524 ($2,192,524 - $250,000) due on the line of credit would be convertible into 1,126,101 shares of common stock of Lighting Science Group. The special committee reported the results of its analysis of the credit agreement to the board of directors.

The board of directors (with Mr. Lusk abstaining and one director absent) reviewed the analysis prepared by the special committee. Based upon the conversion price of $1.725 per share offered by Mr. Lusk with respect to both the conversion of the preferred stock and the conversion of the debt, as well as the proposal by Mr. Lusk to reduce the accrued interest on the line of credit by $250,000, the board concluded that the offer was fair to Lighting Science Group and voted to approve the transactions contained in the proposal from Mr. Lusk. The shares of common stock issued in settlement of this preferred stock and credit agreement totaled 3,254,034 and were issued on May 5, 2005.

Loan from Stockholder and Chairman Ronald E. Lusk

On November 25, 2003 Ronald Lusk, the chairman of Lighting Science Group, advanced $50,000 to Lighting Science Group for purposes of meeting general and administrative expenses. The loan bears interest at a rate of prime plus 1%. Mr. Lusk elected to forego any interest that was otherwise due with respect to the loan. No interest on the loan had previously been recorded by Lighting Science Group. Any such interest would not have been material. During 2004, Mr. Lusk advanced Lighting Science Group an additional $29,541 for general corporate purposes. During the third quarter of 2004, Lighting Science Group repaid the outstanding balances on these advances.

Office Lease with Stockholder and Director Daryl N. Snadon

We previously leased our executive offices from a partnership consisting of Daryl N. Snadon, a member of our board of directors, and two other individuals. Our former, long-term lease with this partnership was terminated in connection with our bankruptcy. When we emerged from bankruptcy, we entered into an oral lease agreement with Mr. Snadon’s partnership to lease our executive offices on a month-to-month basis. Under the agreement, the landlord agreed to accept shares of our common stock in lieu of cash payments for rent. To date, all amounts owed by us under our lease have been paid by issuing shares of common stock to the members of the partnership, including 682,684 shares to Mr. Snadon. No further commitment remains under this agreement, and no additional stock is required to be issued.

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Service Agreement with Shareholder

On November 13, 2004, we moved our executive offices from Richardson, Texas to Dallas, Texas where we occupy excess office space that is leased by an institutional shareholder of Lighting Science Group who also serves as a financial adviser. The shareholder allows us to occupy the space on a rent-free basis during the terms of the financial services agreement. Such free rent was not material. For services rendered as financial advisor, we issued a warrant to purchase 63,984 shares of our common stock in conjunction with our private placement of preferred shares on May 12, 2005.

Employment Agreements

We entered into three-year employment agreements with each of Messrs. Lusk, Poss and Hartman, and Ms. Fuller during fiscal years 1999, 2000, 2002 and 2002, respectively. Ms. Fuller resigned from the Company in May 2005 and is no longer an employee. On June 1, 2004, we entered into a similar agreement with Mr. Maxik upon the acquisition of Lighting Science, Inc. Upon completion of the initial three-year terms, each agreement has automatically renewed for successive one-year periods. We may terminate an agreement as of any renewal date of such agreement upon 90 days advance written notice to the subject employee. In addition, we may terminate an agreement upon the death or disability of the employee or upon just cause. In the event an agreement is terminated by us without cause or by the employee upon a change in control of Lighting Science Group, we are obligated to pay the compensation that the employee would otherwise be entitled to receive had the agreement not been terminated. Under their agreements, Mr. Lusk, Mr. Maxik and Mr. Poss were entitled to receive a base annual salary of $250,000. In addition, upon execution of the agreements, Mr. Lusk was issued 31,250 shares of common stock in March 2000, Mr. Poss was issued 312,500 shares of common stock in May 2004 and we issued Mr. Maxik 156,250 shares of common stock in August 2004. Under Mr. Hartman’s agreement, he was initially entitled to receive a base annual salary of $200,000. Upon execution of his agreement, Mr. Hartman was issued 31,250 shares of common stock in December 2000. Under Ms. Fuller’s agreement, she was entitled to receive a base annual salary of $100,000. Upon execution of her agreement, Ms. Fuller was issued 37,500 shares of common stock in March 2002. Previously, under all of the employment agreements, certain of the compensation owed to the employees was payable by us through the issuance of shares of Lighting Science Group’s common stock. This compensation was not paid. We did pay stay bonuses in recognition of the work performed to allow us to emerge from bankruptcy, pursuant to which Mr. Lusk was issued 555,502 shares of common stock, Mr. Poss was issued 365,269 shares of common stock, Mr. Hartman was issued 400,289 shares of common stock, and Ms. Fuller was issued 619,479 shares of common stock. The employment agreements of Messrs. Lusk, Poss and Hartman were amended effective May 7, 2004, to remove the provision regarding the payment of compensation through the issuance of shares of our common stock. Effective May 29, 2004, the base salaries of these officers as set forth in their employment agreements were amended, as follows: Mr. Poss, $90,000, and Mr. Hartman, $150,000. Pursuant to the terms of his employment agreement, Mr. Maxik is also entitled to elect to receive his compensation in shares of our common stock.

On October 12, 2004, we entered into 3 year employment and change in control agreements with Mr. Waldrop and Mr. Lacerte. The terms of the employment agreements provide for annual compensation of $225,000. However, Mr. Waldrop and Mr. Lacerte elected to defer the first year of salary so that additional funds could be committed to product development. The terms of the change in control agreements provide that in the event of a change in control, as defined, a single sum cash payment equal to two and one-half (2-1/2) times the executive's average annual compensation (including base salary and bonuses) paid to him in cash during the thirty-six (36) month period immediately preceding the date on which the change in control occurred shall be paid to each of Mr. Waldrop and Mr. Lacerte. The executives are also granted the right to sell to the Company all or any portion of the shares of Company stock granted to him under his employment agreement or obtained through the exercise of Company-granted stock options which he owned (or to which he was entitled under an outstanding stock option or other agreement) as of the date of the change in control at a price equal to 105% of the per share price (or the equivalent thereof) paid in the transaction causing the change in control. A similar change in control agreement was executed with Mr. Lusk on the same date.

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is currently quoted on the Pink Sheets. The Pink Sheets is a centralized quotation service that collects and publishes market maker quotes for over the counter securities in real time. Our trading symbol on the Pink Sheets service is “LSGP.” We have applied for our common stock to be listed on the Over-the-Counter Bulletin Board, or the OTC Bulletin Board, which is a quotation service administered by the National Association of Securities Dealers (NASD). We do not know when, if ever, our application to list the shares of our common stock on the OTC Bulletin Board will be accepted.

The Pink Sheets is a limited and sporadic trading market. The following table sets forth the range of high and low bid information of the common shares as reported on the Pink Sheets for the last two fiscal years and the subsequent period ended March 31, 2005. The price information available reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Common Stock
	HIGH	LOW
2005
First Quarter	2.08	1.45
2004
Fourth Quarter	2.25	0.56
Third Quarter	0.72	0.24
Second Quarter	0.64	0.21
First Quarter	0.40	0.16
2003
Fourth Quarter	0.56	0.16
Third Quarter	1.44	0.40
Second Quarter	0.96	0.40
First Quarter	0.40	0.05

As of June 30, there were 644 holders of record of our common stock, holding a total of 54,966,664 shares, and 576 beneficial holders.

To date, Lighting Science Group has not paid cash dividends on its common stock and does not intend to pay cash dividends in the foreseeable future due to Lighting Science Group’s limited funds for operations. We currently intend to retain future earnings, if any, to finance operations and expand our business and, therefore, do not expect to pay any dividends in the foreseeable future. Therefore, any return on your investment would come only from an increase in the value of the stock.

As of the date of this prospectus, we have no option plans for our employees. On July 6, 2005, our board of directors adopted the Lighting Science Group Corporation 2005 Equity Based Incentive Compensation Plan and a proposal to implement such a plan will be voted upon at the annual shareholders’ meeting in August 2005.

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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to beneficial ownership of our common stock as of July 6, 2005, by:

·   each person who is known by us to beneficially own more than five percent of our common stock;

·   each of our directors at that date and nominees and named executive officers; and

·   all directors and officers as a group.

	Shares Beneficially Owned (1)
Name and Address of Beneficial Owner (2)	Number		Percent
Directors and Officers
Robert E. Bachman (3)		472,708		*
John A. Collingwood (4)		3,697,595		6.7	%
Donald R. Harkleroad (5)		810,711		1.5	%
K. Shane Hartman (15)		1,239,941		2.3	%
Philip R. Lacerte		3,717,202		6.8	%
Michael N. Lavey		-		*
Ronald E. Lusk (7)(15)		6,298,683		11.4	%
Fredric S. Maxik (8)(15)		192,250		*
Robert M. McMonigle		138,796		*
J. Michael Poss (15)		1,549,016		2.8	%
Daryl N. Snadon (9)		1,427,674		2.6	%
Stan D. Waldrop (11)		2,855,834		5.2	%
Robert L. Woodson, III		510,665		*
Kathryn D. Fuller (14)(15)
All Directors and Officers as a Group		22,911,074		41.0	%
Certain Stockholders
AG Offshore Convertibles Ltd. (12)		4,593,750		7.7	%
Edward I. Lanier (13)		3,494,298		6.4	%
* Indicates ownership of less than 1% of our common stock

______________________

(1) Beneficial ownership as reported in the above table has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. The persons and entities named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them, except as noted below.

(2)  Unless otherwise indicated, the address of each person in the above table is Lighting Science Group Corporation 2100 McKinney Avenue Suite 1555, Dallas, TX 75201.

(3)  Includes 41,652 shares of common stock issuable upon conversion of 10,413 shares of 6% Preferred Stock and 61,239 shares of common stock issuable upon exercise of warrants. Includes 472,708 shares of common stock held by USGT Investors L.P. Mr. Bachman is controlling shareholder in the sole corporate general partner of USGT Investors, L.P. and may be deemed to have voting and/or investment power with respect to the shares owned by USGT Investors, L.P.

(4) Includes 18,752 shares of common stock issuable upon conversion of 4,688 shares of 6% Preferred Stock and 14,063 shares of common stock issuable upon exercise of warrants.

(5) Includes 62,500 shares of common stock issuable upon conversion of 15,625 shares of 6% Preferred Stock and 92,876 shares of common stock issuable upon exercise of warrants. Includes 655,335 shares of common stock held by the Bristol Company. Mr. Harkleroad is sole shareholder of the Bristol Company and may be deemed to have sole voting and/or investment power with respect to the shares owned by the Bristol Company.

(6) Includes 41,496 shares of common stock issuable upon conversion of 10,374 shares of 6% Preferred Stock and 61,122 shares of common stock issuable upon exercise of warrants.

(7) Includes 50,000 shares of common stock issuable upon exercise of warrants. Includes 5,586,375 shares of common stock held by the Ronald E. Lusk Revocable Trust. Mr. Lusk is the trustee of the Ronald E. Lusk Revocable Trust and may be deemed to have voting and/or investment power with respect to the shares owned by the Ronald E. Lusk Revocable Trust.

(8) Includes 30,000 shares of common stock issuable upon exercise of warrants.

(9) Includes 116,952 shares of common stock issuable upon conversion of 29,238 shares of 6% Preferred Stock and 217,715 shares of common stock issuable upon exercise of warrants.

(10) Includes 30,000 shares of common stock issuable upon exercise of warrants.

(11) Includes 30,000 shares of common stock issuable upon exercise of warrants. Includes 1,504,167 shares of common stock held by Greenfield Capital V L.P. Mr. Waldrop is the sole partner in Greenfield Capital V L.P. and may be deemed to have voting and/or investment power with respect to the shares owned by Greenfield Capital V L.P. Also includes 196,667 shares of common stock held by SDW Investments Ltd. Mr. Waldrop is trustee of SDW Investments Ltd. and may be deemed to have sole voting and/or investment power with respect to the shares owned by SDW Investments Ltd.

(12) Includes 2,625,000 shares of common stock issuable upon conversion of 656,250 shares of 6% Preferred Stock and 1,968,750 shares of common stock issuable upon exercise of warrants.

(13) Includes 31,252 shares of common stock issuable upon conversion of 7,813 shares of 6% Preferred Stock and 23,437 shares of common stock issuable upon exercise of warrants.

(14) Ms. Fuller resigned in May of 2005.

(15) Pursuant to the terms of their employment agreement, individual has (or had, in the case of Ms. Fuller) the ability to elect to receive salary and other forms of cash compensation in the form of equity securities of Lighting Science Group.

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SELLING STOCKHOLDERS

The shares of common stock being offered by the selling stockholders are either (i) shares of common stock currently owned by the selling stockholder or (ii) issuable upon conversion of the 6% convertible preferred stock, par value $.001 held by purchasers of the preferred stock issued pursuant to a securities purchase agreement dated as of May 12, 2005 and (iii) upon exercise of the warrants issued to those purchasers. For additional information regarding the preferred stock and the warrants, see “Prospectus Summary -- The Private Placement” above. We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale from time to time. Certain selling stockholders, as indicated next to their names, are members of our board of directors and senior management.

The term “selling stockholders” includes the stockholders listed below and their respective transferees, assignees, pledgees, donees or other successors. The table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling stockholders. The second column lists the number of shares of common stock beneficially owned by each selling stockholder, based on its ownership of the preferred stock, warrants and other shares of common stock, as of May 12, 2005, assuming conversion of all preferred stock and exercise of the warrants held by the selling stockholders on that date, without regard to any limitations on conversions or exercise.

The third column lists the shares of common stock being offered by this Prospectus by the selling stockholders.

In accordance with the terms of registration rights agreements with the selling stockholders, this Prospectus generally covers the resale of the sum of the (i) the number of shares of our common stock issuable upon conversion of the preferred stock as of the trading day immediately preceding the date the registration statement is initially filed with the SEC, (ii) the number of shares of common stock issuable upon exercise of the related warrants as of the trading day immediately preceding the date the registration statement is initially filed with the SEC, (iii) the shares of common stock issued and issuable in payment of dividends on the preferred stock, and upon any stock split, stock dividend, recapitalization or similar event with respect to such shares of common stock and any other securities issued in exchange of or replacement of such shares of common stock and (iv) the shares of common stock held by non-affiliated stockholders who have executed a lock-up agreement with Lighting Science Group and (v) shares of our common stock to be issued upon exercise of warrants held by Merriman Curhan Ford & Co., who acted as placement agent and MRM Capital LP, who acted as financial advisor. Because the conversion price of the preferred stock and the exercise price of the warrants may be adjusted, the number of shares that will actually be issued may be more or less than the number of shares being offered by this Prospectus. The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this Prospectus.|

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The selling stockholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

Name of Selling Stockholder	Number of Shares Beneficially Owned Prior to the Offering	Maximum # of Shares to be Sold Pursuant to this Prospectus	Number of Shares to be Beneficially Owned After the Offering	% of Shares to be Beneficially Owned After the Offering
Parties to Lock-up Agreements
Robert Shelton	4,167	4,167	-	*
Trust for Daniel Barson	10,417	10,417	-	*
Trust for Sophia Barson	10,417	10,417	-	*
Bernie Selmenson	20,000	20,000	-	*
Clay Christensen	35,046	25,000	10,046	*
David Reed	25,000	25,000	-	*
Elise Ayers	31,250	31,250	-	*
Holly Davis	62,500	31,250	31,250	*
Josh Phillips	41,666	41,666	-	*
Unimark Insurance Company	41,667	41,667	-	*
Chris M. Gigl	41,667	41,667	-	*
Allen B. Smith	83,334	60,000	23,334	*
Halden Conner	62,500	62,500	-	*
Reagan Vidal	62,500	62,500	-	*
Mary Beougher	62,500	62,500	-	*
William Arnold	83,333	83,333	-	*
Mark Sommer	100,759	100,759	-	*
Jim Durbin	100,759	100,759	-	*
Alan Barson	104,167	104,167	-	*
George Parker Young	441,667	104,167	337,500	*
Amy Lacerte	125,000	125,000	-	*
Stuart Dickinson	262,500	131,250	131,250	*
Charles Terrell	135,418	135,418	-	*
Craig Hudson	175,000	140,000	35,000	*
Steve Dulin	208,333	208,333	-	*
Eric Norris	208,333	208,333	-	*
Craig Martin	208,333	208,333	-	*
Kate Blackmon	241,667	229,167	12,500	*
JPB GS (5x5)	345,000	345,000	-	*
BLF Investments, LP	416,667	416,667	-	*
Joe Williams	812,500	812,500	-	*
Robert Schlegel	1,000,000	1,000,000	-	*
Total Capital	1,100,000	1,000,000	100,000	*
2 Boys AB Revocable Trust	1,681,707	1,681,707	-	*
Phibian S. Trust	2,511,010	2,511,010	-	*
Edward I. Lanier	3,494,298	3,194,298	300,000	*
* Indicates ownership of less than 1% of our common stock

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Name of Selling Stockholder	Number of Shares Beneficially Owned Prior to the Offering	Maximum # of Shares to be Sold Pursuant to this Prospectus	Number of Shares to be Beneficially Owned After the Offering	% of Shares to be Beneficially Owned After the Offering
Preferred Stockholders
Western Reserve Hedged Equity, LP	1,246,875	1,246,875	-	*
Western Reserve Hedged Equity Offshore, Ltd.	1,378,125	1,378,125	-	*
Gryphon Master Fund L.P.	2,843,750	2,843,750	-	*
GSSF Master Fund, L.P.	1,531,250	1,531,250	-	*
AG Domestic Convertibles, L.P.	1,968,750	1,968,750	-	*
AG Offshore Convertibles Ltd.	4,593,750	4,593,750	-	*
Xerion Partners I, LLC	546,875	546,875	-	*
Xerion Partners II Master Fund Limited	546,875	546,875	-	*
Telemark Asset Management	273,440	273,440	-	*
Jerome Hill Amy Hill JTWRS	131,250	131,250	-	*
George L. Lowe	117,189	54,689	62,500	*
Donald R. Harkleroad	810,711	109,376	701,335	1.3	%
Daryl N. Snadon	1,427,674	204,667	1,223,007	2.2	%
Trust for Cole Snadon	54,689	54,689	-	*
Trust for Kendall Snadon	54,689	54,689	-	*
Robert E. Bachman	472,708	72,891	399,817	*
John A. Collingwood	3,697,595	32,815	3,664,780	6.7	%
Philip R. Lacerte	3,717,202	72,618	3,644,584	6.6	%
Warrant Holders
Merriman Curhan & Ford	575,860	575,860	-	*
MRM Capital, LP	1,251,484	1,063,984	187,500	*
Total	41,591,823	30,727,420	10,864,403
* Indicates ownership of less than 1% of our common stock

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DESCRIPTION OF SECURITIES

Our certificate of incorporation authorizes the issuance of 495,000,000 shares of common stock, $0.001 par value per share. As of July 6, 2005, 54,966,664 shares of common stock were issued and outstanding. The following description is a summary of our capital stock and contains the material terms of the capital stock. Additional information can be found in our Certificate of Incorporation and Bylaws.

Each holder of common stock is entitled to one vote per share of common stock standing in such holder’s name on the records on each matter submitted to a vote of Lighting Science Group stockholders, except as otherwise required by law. Holders of the common stock do not have cumulative voting rights. Holders of the common stock are entitled to equal dividends and distributions, per share, when, as and if declared by the board of directors from funds legally available. Holders of the common stock do not have preemptive rights to subscribe for any of our securities nor are any shares of the common stock redeemable or convertible into any of its other securities. If we liquidate, dissolve or wind up our business or affairs, our assets will be divided up pro-rata on a share-for-share basis among the holders of our common stock after creditors and preferred stockholders, if any, are paid.

Our certificate of incorporation authorizes the issuance of 5,000,000 shares of preferred stock, $0.001 par value per share, the designation and rights of which are to be determined by our board of directors. As of July 6, 2005, 2,260,966 shares of preferred stock were issued and outstanding.

The preferred stock may be issued from time to time in one or more series by resolution or resolutions of our board of directors. The resolution or resolutions of our board of directors may, to the full extent now or hereafter permitted by law and subject to the provisions of our certificate of incorporation, fix the voting powers, designations, preferences and relative, participating, option or other special rights, and qualifications, limitations or restrictions thereof, of the shares of such series. The authority of our board of directors with respect to each such series may include, but not be limited to, determinations of the following:

(a)   the distinctive designation of such series, the number of shares that shall constitute such series, including any limitation on the authority to increase or decrease such number, and the stated value thereof, if any, if different from the par value thereof;

(b) the dividends, if any, payable either in cash, property or securities of Lighting Science Group, on such series, and the restrictions, limitations and conditions, if any, upon the payment of such dividends, whether any such dividends shall be cumulative or non-cumulative, the date or dates from which dividends, if declared, shall be payable, and the preference, if any, or relation that such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of this class;

(c) whether the shares of such series shall have voting power, in addition to any voting power provided by law and, if so, the terms of such voting power, which may be general or limited;

(d) the right, if any, of Lighting Science Group to redeem any or all shares of such series and, if so, the terms and conditions of such redemption;

(e) whether the shares of such series shall be subject to the operation of a retirement or sinking fund or funds and, if so, whether such retirement or sinking fund shall be cumulative or non-cumulative, the extent and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;

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(f) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of this class or any other securities or assets and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange;

(g) the amount, if any, that the holders of the shares of such series shall be entitled to receive in case of a liquidation, dissolution or winding up of the corporation and the preference, if any, or relation which such amounts shall bear to the amounts payable on any shares of stock of any other class or any other series of this class;

(h) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by Lighting Science Group of, the common stock or shares of stock of any other class or any other series of this class;

(i) the conditions or restriction, if any, upon the creation of indebtedness of Lighting Science Group or upon the issue of any additional stock, including additional shares of such series or of any other series of this class or of any other class; and

(j) any other voting powers, designations, preferences, and relative, participating optional or other special rights, or qualifications, limitations or restrictions thereof, of the shares of such series.

The designations, voting powers, preferences and relative, participating, option or other special rights of each series of preferred stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.

As of July 6, 2005, Lighting Science Group had 10,298,733 warrants outstanding.

The transfer agent for the common stock is American Stock Transfer and Trust Company of Brooklyn, New York and its telephone number is (718) 921-8208.

PLAN OF DISTRIBUTION

We are registering the shares of common stock issuable upon conversion of the preferred stock (including common stock issuable upon exercise of the of the warrants) to permit the resale of these shares of common stock by the holders of the preferred stock, and warrants from time to time after the date of this Prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock. We will, however, receive the proceeds from the exercise of the warrants issued to the selling stockholders if and when they are exercised. We will bear all fees and expenses incident to our obligation to register the shares of common stock. We will not be paying any underwriting discounts or commissions in this offering.

The selling stockholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be affected in transactions, which may involve crosses or block transactions, such as:

42

·   sales on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

·   sales in the over-the-counter market;

·   transactions otherwise than on these exchanges or systems or in the over-the-counter market;

·   the writing of options, whether such options are listed on an options exchange or otherwise;

·   ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·   block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

·   purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·   an exchange distribution in accordance with the rules of the applicable exchange;

·   privately negotiated transactions;

·   short sales;

·   sales pursuant to Rule 144;

·   sales through broker-dealers who may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

·   a combination of any such methods of sale; and

·   any other method permitted pursuant to applicable law.

If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock short and deliver shares of common stock covered by this Prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.

43

The selling stockholders may pledge or grant a security interest in some or all of the preferred stock, the warrants, or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this Prospectus or any amendment to this Prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this Prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this Prospectus.

The selling stockholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. At the time a particular offering of the shares of common stock is made, a Prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.

Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this Prospectus forms a part.

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other person participating in this offering. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.

We will pay all expenses of the registration of the shares of our common stock pursuant to the registration rights agreement, estimated to be $163,327.29 in total, including, without limitation, SEC filing fees and expenses of compliance with state securities or “blue sky” laws. However, the selling stockholders will pay all underwriting discounts and selling commissions, if any. We have agreed to indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act of 1933, in accordance with the registration rights agreements, or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished to us by the selling stockholder specifically for use in this Prospectus, in accordance with the related registration rights agreements or we may be entitled to contribution.

Once sold under the registration statement, of which this Prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

LEGAL PROCEEDINGS

Lighting Science Group is not currently involved in any material legal proceedings.

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LEGAL MATTERS

The validity of the common stock offered hereby has been passed upon by Patton Boggs LLP, Washington, D.C., for Lighting Science Group and is included as Exhibit 5.1. As of the date of this prospectus, Patton Boggs LLP beneficially owns 54,270 shares of our common stock, which we issued to Patton Boggs LLP to discharge our debt to Patton Boggs LLP for prior legal services rendered, pursuant to the plan of reorganization described in the "Description of Business" section of this prospectus, and which are not registered for resale. In addition, Mario V. Mirabelli, a partner of Patton Boggs LLP, beneficially owns, as of the date of this prospectus, 72,18825,559 shares of our common stock.

EXPERTS

The financial statements as of and for the years ended December 31, 2004 and 2003 included in this Prospectus have been audited by Turner Stone & Company, L.L.P., an independent registered public accounting firm, and have been included in reliance upon the report of such firm included herein.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act with respect to the securities offered by this Prospectus. This Prospectus, which forms a part of the registration statement, does not contain all the information set forth in the registration statement, as permitted by the rules and regulations of the Commission. For further information with respect to Lighting Science Group and the securities offered by this Prospectus, reference is made to the registration statement. Statements contained in this Prospectus as to the contents of any contract or other document that Lighting Science Group has filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statement of their terms and conditions. Lighting Science Group also files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information, as well as the registration statement and the exhibits thereto, may be read and copied at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, such as Lighting Service Group, that file electronically with the Commission. More information about Lighting Service Group can be found at its website at www.lsgc.com.

DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Section 145 of the Delaware General Corporation Law (the ‘DGCL”) generally provides that a corporation may indemnify directors, officers, employees or agents against liabilities they may incur in such capacities provided certain standards are met, including good faith and the reasonable belief that the particular action was in, or not opposed to, the best interests of the corporation.

Subsection (a) of Section 145 of the DGCL (“Section 145”) empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful.

45

Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under standards similar to those set forth above, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper.

Section 145 further provides that, among other things, to the extent that a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in Subsections (a) and (b) of Section 145, or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that a corporation is empowered to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify against such liability under Section 145.

Indemnification as described above shall be granted in a specific case only upon a determination that indemnification is proper under the circumstances using the applicable standard of conduct which is made by (a) a majority of directors who were not parties to such proceeding, (b) a committee of such directors designated by majority vote of such directors, (c) independent legal counsel in a written opinion if there are no such disinterested directors or if such disinterested directors so direct, or (d) the stockholders.

In accordance with the Section 145 of the DGCL, Section 10 of Lighting Science Group’s Amended and Restated Certificate of Incorporation provides “To the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have the power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.”

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons of Lighting Science Group, pursuant to the foregoing provisions, or otherwise, Lighting Science Group has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

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OUR ACCOUNTANTS

Appointment and Ratification of Turner, Stone & Company, LLP

Our audit committee appointed the firm of Turner, Stone & Company, LLP as our independent registered public accounting firm on March 31, 2004 for the purpose of expressing an opinion on the financial statements of Lighting Science Group dated December 31, 2003. Although stockholder ratification of the appointment is not required by our bylaws or by any other applicable law, our board of directors and our audit committee submitted the appointment of Turner, Stone & Company, LLP to the stockholders for ratification as a matter of good corporate practice at the last annual stockholder meeting on August 20, 2004. Such appointment was ratified.

47

FINANCIAL STATEMENTS

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Stockholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to the Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Lighting Science Group Corporation

We have audited the accompanying consolidated balance sheets of Lighting Science Group Corporation and subsidiaries (a development stage company) (formerly The Phoenix Group Corporation) (the Company) as of December 31, 2004 and September 26, 2003 (pre-confirmation period), and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2004, the period from September 26, 2003 through December 31, 2003, the period from September 26, 2003 through December 31, 2004 and the period from January 1, 2003 through September 25, 2003 (pre-confirmation period). These consolidated 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lighting Science Group Corporation and subsidiaries as of December 31, 2004 and September 26, 2003, and the consolidated results of their operations and cash flows for the periods indicated above, in conformity with United States generally accepted accounting principles.

As discussed in the “Explanatory Note to Amended Consolidated Financial Statements,” the Company emerged from bankruptcy on September 16, 2003 (effective September 26, 2003), hereafter referred to as the “post-confirmation” period, and the Company accounted for the reorganization using fresh-start accounting and reporting in accordance with Statement of Position (SOP) 90-7, “Financial Reporting Entities in Reorganization Under the Bankruptcy Code.” Accordingly, the post-confirmation financial statements are not comparable to the pre-confirmation financial statements.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Turner Stone & Company, L.L.P.

Certified Public Accountants

Dallas, Texas

February 9, 2005 (except for the pre-confirmation period and Note 12, which is dated as of April 15, 2005)

F-2

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS

	December 31, 2004			September 26, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	987,023		$	278
Accounts receivable		1,141			-
Inventory		13,770			-
Prepaid expenses		163,539			-
Total current assets		1,165,473			278
PROPERTY AND EQUIPMENT, net (Note 6)		310,475			-
OTHER ASSETS
Reorganized value in excess of amounts allocable to identifiable assets (Note 3)		2,793,224			2,793,224
Intellectual property, net (Notes 2 and 6)		1,168,883			-
Property rights agreement, net (Notes 2 and 6)		856,306			-
Goodwill (Note 2)		154,097			-
Security deposits		27,215			-
Total other assets		4,999,725			2,793,224
TOTAL ASSETS	$	6,475,673		$	2,793,502
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	40,636		$	-
Accrued compensation		17,899			-
Accrued interest payable to related party (Note 12)		315,554			674,703
Note payable - related party (Note 12)		1,851,299			1,851,299
Current portion of note payable - related party		25,000			-
Total current liabilities		2,250,388			2,526,002
LONG-TERM DEBT
Note payable - related party		150,000			-
TOTAL LIABILITIES		2,400,388			2,526,002
STOCKHOLDERS’ EQUITY
Series A Preferred Stock, $.001 par value, 5,000,000 shares authorized; 533,333 shares issued and outstanding (Note 9)		533			533
Common Stock, $.001 par value, 495,000,000 shares authorized, 51,297,256 shares and 16,685,446 shares issued and outstanding at December 31, 2004 and September 26, 2003, respectively		51,297			16,685
Stock subscriptions receivable		(26,000	)		-
Additional paid-in-capital		8,229,648			250,282
Accumulated deficit during the development stage		(4,180,193	)		-
TOTAL STOCKHOLDERS’ EQUITY		4,075,285			267,500
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,475,673		$	2,793,502

The accompanying notes are an integral part of the consolidated financial statements.

F-3

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31, 2004			September 26, 2003  through December 31, 2003			Cumulative from  September 26, 2003 through December 31, 2004			January 1, 2003 through September 25, 2003
Revenue	$	3,404		$	-		$	3,404		$	3,524,732
Cost of goods sold		(2,076	)		-			(2,076	)
Cost of services											(3,048,070	)
Gross margin		1,328			-			1,328			476,662
Operating expenses:
Selling, general and administrative		1,483,264			79,451			1,562,715			925,306
Compensation and related expenses		1,148,426			208,061			1,356,487			-
Consulting fees		624,934			-			624,934			-
Directors fees		388,575			87,500			476,075			-
Total operating expenses		3,645,199			375,012			4,020,211			925,306
Operating income (loss)		(3,643,871	)		(375,012	)		(4,018,883	)		(448,644	)
Interest income, other income and interest expense, net		(127,150	)		(34,160	)		(161,310	)		(842,613	)
Net loss	$	(3,771,021	)	$	(409,172	)	$	(4,180,193	)	$	(1,291,257	)
Basic net loss per weighted average common share	$	(0.12	)	$	(0.02	)	$	(0.15	)	$	(0.15	)
Weighted average number of common shares outstanding		31,668,957			16,685,446			28,529,863			8,335,961

The accompanying notes are an integral part of the consolidated financial statements.

F-4

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE PERIOD BEGINNING JANUARY 1, 2003 AND ENDED DECEMBER 31, 2004

	Preferred Stock			Common Stock				Stock Subscriptions			Additional Paid			Accumulated
	Shares		Amount	Shares		Amount		Receivable			in Capital			Deficit			Total
Balance at January 1, 2003	533,333	$	533	8,301,217	$	8,301	$	-		$	51,670,187		$	(78,495,394	)	$	(26,816,373	)
Net loss	-		-	-		-		-			-			(1,291,257	)		(1,291,257	)
Adjustments to conform to provisions of "Fresh Start" accounting (Note 3)	-		-	-		-		-			(51,670,187	)		79,786,651			28,116,464
Issuance of common stock to creditors pursuant to plan of reorganization (Notes 3 and 12)	-		-	8,384,251		8,384		-			250,282			-			258,666
Balance at September 26, 2003	533,333		533	16,685,468		16,685		-			250,282			-			267,500
Net loss	-		-	-		-		-			-			(409,172	)		(409,172	)
Balance at December 31, 2003	533,333		533	16,685,468		16,685		-			250,282			(409,172	)		(141,672	)
Issuance of common stock in private placement (Note 10)	-		-	18,341,922		18,342		(26,000	)		3,846,548			-			3,838,890
Issuance of common stock to acquire subsidiary (Note 2)	-		-	9,296,241		9,296		-			2,221,801			-			2,231,097
Issuance of common stock in payment of operating expenses	-		-	6,973,625		6,974		-			1,911,017			-			1,917,991
Net loss	-		-	-		-		-			-			(3,771,021	)		(3,771,021	)
Balance at December 31, 2004	533,333	$	533	51,297,256	$	51,297	$	(26,000	)	$	8,229,648		$	(4,180,193	)	$	4,075,285

The accompanying notes are an integral part of the consolidated financial statements.

F-5

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended December 31, 2004			September 26, 2003  through December 31, 2003			Cumulative from  September 26, 2003 through December 31, 2004			January 1, 2003 through September 25, 2003
OPERATING ACTIVITIES
Net loss	$	(3,771,021	)	$	(409,172	)	$	(4,180,193	)	$	(1,291,257	)
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:
Expenses paid by issuance of common stock		1,551,700			-			1,551,700			-
Depreciation and amortization		259,251			-			259,251			8,335
Changes in:
Accounts receivable		(1,141	)		-			(1,141	)		454,912
Prepaids		(157,956	)		-			(157,956	)		(3,393	)
Inventory		(13,770	)		-			(13,770	)		6,693
Accounts payable		40,636			-			40,636			132,578
Accrued expenses and other liabilities		124,590			394,868			519,458			1,015,810
Security deposits		(27,215	)		-			(27,215	)		(3,159	)
Net cash provided by (used by) operating activities		(1,994,926	)		(14,304	)		(2,009,230	)		320,519
INVESTING ACTIVITIES
Cash on hand in subsidiaries at foreclosure		-			-			-			(130,171	)
Cash in bank of subsidiary at date of acquisition		10,000			-			10,000			-
Purchase of property and equipment		(327,915	)		-			(327,915	)		(19,433	)
Net cash used by investing activities		(317,915	)		-			(317,915	)		(149,604	)
FINANCING ACTIVITIES
Loan from stockholder		29,541			50,000			79,541			-
Repayment of loan to stockholder		(78,041	)		(1,500	)		(79,541	)		-
Notes payable		(25,000	)		-			(25,000	)		(122,338	)
Proceeds of private placement		3,338,890			-			3,338,890			-
Net cash provided by financing activities		3,265,390			48,500			3,313,890			(122,338	)
Net increase in cash		952,549			34,196			986,745			48,577
Cash at beginning of period		34,474			278			278			(48,299	)
Cash at end of period	$	987,023		$	34,474		$	987,023		$	278
Interest paid	$	30,152		$	-		$	30,152		$	-
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Reduction of accrued interest on note to related party	$	500,000		$	-		$	500,000		$	-
Stock issued to pay accrued liabilities	$	360,707		$	-		$	360,707		$	-

The accompanying notes are an integral part of the consolidated financial statements.

F-6

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Explanatory Note to Amended Consolidated Financial Statements

EXPLANATORY NOTE

On February 9, 2005, Lighting Science Group Corporation (the “Company”) filed Form 10-KSB for the year ended December 31, 2004 with the Securities and Exchange Commission. Included in the comparative financial statements for prior periods were the financial statements of the Company for the period beginning September 26, 2003 through December 31, 2003. The beginning date for this period (September 26, 2003) coincided with the effective date of the confirmation of the plan of reorganization approved by the creditors of the Company and confirmed by the U.S. Bankruptcy Court for the Northern District of Texas on September 16, 2003.

It was the opinion of the Company at the time the 2004 financial statements were prepared and filed with Form 10-KSB that the inclusion of the activity from January 1 through September 25, 2003 (the “Pre-Confirmation period”) in the comparative financial statements would not enhance the overall disclosure in the filing. In fact, it was the opinion of the Company that to include the financial information for the Pre-Confirmation period might be confusing and possibly misleading. In omitting the information for the period January 1, 2003 through September 25, 2003, the Company relied upon Statement of Position (SOP) 90-7, Financial Reporting Entities in Reorganization Under the Bankruptcy Code published by the American Institute of Certified Public Accountants. The last sentence of footnote 2 of paragraph 40 thereof states, “Attempts to disclose and explain exceptions that affect comparability would likely result in reporting that is so unwieldy it would not be useful.”

Despite the language contained in SOP 90-7, certain policies of the Securities and Exchange Commission require the presentation of the full year of financial information for the preceding year. Therefore, the Company is amending its financial statements to include the period from January 1, 2003 through September 25, 2003. The financial statements for this period have been audited by the independent registered public accounting firm of Turner, Stone & Company, LLP.

In an effort to mitigate any confusion that may be caused by the inclusion of the information for the Pre-Confirmation period, the Company will employ the following conventions, visual indicators, and procedures for presenting the consolidated financial statements and the notes to the consolidated financial statements. For three of the four financial statements (Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Cash Flows), the information for the Pre-Confirmation period has been added to the original financial statement in the right-hand column and separated from the financial statement as originally filed by a bold, vertical line. For the fourth financial statement (Statements of Stockholders’ Equity), the information for the Pre-Confirmation period has been included at the top of the schedule in its proper chronological order.

With respect to the Notes to the Financial Statements, a bifurcated approach has been employed. The Notes to the Financial Statements for the period ended December 31, 2004 are presented without change (unless otherwise noted) in their original, numbered format at the beginning of each note. A label above each note identifies it as “Post-Confirmation” (meaning that the note relates to a time period commencing after September 25, 2003). The Notes to the Financial Statements for the period beginning January 1, 2003 and ended September 25, 2003, are presented below the Post-Confirmation note to which each Pre-Confirmation note most closely relates. The notes for the time period beginning January 1, 2003 and ended September 25, 2003 are labeled “Pre-Confirmation.” For those footnotes that provide essentially the same disclosure in both the Post-Confirmation and Pre-Confirmation periods, these labels are not used, and the disclosures are presented only once.

To further differentiate the discussion in the Notes to the Financial Statements, the following distinction has been adopted. In the notes for the Post-Confirmation period, the registrant is referred to as “Lighting Science Group Corporation” or the “Company.” In the notes for the Pre-Confirmation period, the registrant is referred to as “The

F-7

Phoenix Group Corporation,” the “Corporation,” or “Phoenix.” The reason for employing this distinction is that until December 23, 2004, the name of the corporation was The Phoenix Group Corporation. On that date the Company published a press release announcing its decision to change its name to Lighting Science Group Corporation by means of a parent/subsidiary merger with its wholly owned subsidiary, Lighting Science, Inc. The Company began conducting its operations under the name Lighting Science Group Corporation on January 1, 2005. Consequently, Form 10-KSB for the year 2004 was filed with the name of the registrant shown as Lighting Science Group Corporation. The Form 10-KSB for the preceding year (the period from September 26, 2003 through December 31, 2003) was filed in the name of The Phoenix Group Corporation. Therefore, there is consistency in referring to the Company as The Phoenix Group Corporation in the notes to the financial statements for the period beginning January 1, 2003 and ended September 25, 2003.

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Post-Confirmation

Nature of Business

On December 23, 2004, The Phoenix Group Corporation announced its decision to change its name to Lighting Science Group Corporation (the “Company” or “Lighting Science”) by means of a parent/subsidiary merger with its wholly owned subsidiary, Lighting Science, Inc. Pursuant to a resolution approved by the board of directors, The Phoenix Group Corporation filed a certificate of merger with the office of the Secretary of State of Delaware on December 23, 2004 to complete the merger of Lighting Science with and into The Phoenix Group Corporation and to change the name. The Company began conducting its operations under the name Lighting Science Group Corporation on January 1, 2005.

Lighting Science is a Delaware corporation organized in June 1988. The Company’s wholly owned subsidiaries during the period or for portions of the period were Lighting Science, Inc. and Americare Management, Inc. Americare Management, Inc. had no significant operations during the periods covered by these financial statements. All intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements.

On or about August 20, 2002, the Company filed a voluntary petition seeking debtor-in-possession status for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The case was subsequently transferred to the U.S. Bankruptcy Court for the Northern District of Texas - Ft. Worth Division (the “Court”). The Court granted the requested status.

During the summer of 2003, the Company filed a Disclosure Statement and Plan of Reorganization (collectively the “Plan”) that was confirmed by the Court on September 16, 2003 with an effective date of September 26, 2003. Under the terms of the Plan, the creditors of the Company received an aggregate of approximately 51% of the common stock of the restructured entity in exchange for notes, accounts payable, and other forms of debt held at the time of the filing of the petition. This feature of the Plan - the exchange of debt for greater than 50% of the equity in the restructured entity - qualified the Company to utilize the reporting guidelines of the “Fresh Start” accounting rules contained in Statement of Position (“SOP”) 90-7.

On June 1, 2004 the Company acquired 100% of the outstanding common stock of Lighting Science, Inc., a Las Vegas, Nevada-based corporation that owned certain intellectual property related to the design and development of a light bulb utilizing light emitting diodes as a source of light. Following the date of acquisition, the Company raised capital through a private placement and provided Lighting Science, Inc. with resources to develop and manufacture prototype light bulbs. Staff has been added to support the development process.

As of the date of this report, the Company continues with its plans to develop and sell products based upon the technology acquired in the acquisition of Lighting Science.

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Reverse Stock Split

On August 20, 2004, the shareholders of the Company approved a proposal by management to undertake a reverse split of the shares of the Company’s common stock in the ratio of one share of new common stock for every 16 shares of old common stock. All per-share amounts in the accompanying consolidated financial statements have been retroactively adjusted for the reverse split of the Company’s shares. All other references to shares of the Company’s stock in the accompanying consolidated financial statements have been retroactively adjusted to a post reverse-split basis unless otherwise noted.

Summary of Significant Accounting Policies

Since the Chapter 11 bankruptcy filing, the Company has applied the provisions in SOP 90-7 “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.” SOP 90-7 does not change the application of generally accepted accounting principles in the preparation of financial statements. However, it does require that the financial statements for periods including and subsequent to filing the Chapter 11 petition distinguish between transactions and events that are directly associated with the reorganization from the ongoing operations of the business.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

Cash and cash equivalents

All highly liquid investments with original maturities of three months or less at date of purchase are carried at cost, which approximates fair value, and are considered to be cash equivalents.

The Company maintains cash accounts, which could exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits. Management believes that the Company does not have significant credit risk related to its cash accounts.

Inventories

Inventories, which consist of light bulbs designed by the Company and assembled by a third-party manufacturer, are stated at the lower of cost or market with cost being determined on a first-in, first-out basis.

Prepaid expenses

Prepaid expenses consist primarily of consulting fees of $150,000 paid to a financial consulting firm (Note 4) during the fourth quarter of 2004. Prepaid expenses will be amortized over the twelve-month period the services are estimated to be provided commencing January 1, 2005.

Property and equipment

Property and equipment are carried at depreciated cost. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which range from two to five years.

Depreciation expense was $17,440, $-0-, and $17,440 for the year ended December 31, 2004, the period beginning September 26, 2003 and ended December 31, 2003, and cumulatively for the period beginning September 26, 2003 and ended December 31, 2004, respectively.

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Other assets

Other assets consist of acquisition-related intangible assets and an intangible asset arising upon the Company’s emergence from bankruptcy.

Acquisition-related intangible assets

The acquisition of the stock of Lighting Science, Inc. on June 1, 2004 necessitated an allocation of the purchase price among the assets of the acquired company. An independent valuation firm was engaged by the Company to perform this allocation. At the date of acquisition, Lighting Science owned no tangible assets. As a result, the net purchase price of $2,231,097 was allocated to current assets, three classes of intangible assets, and liabilities as follows: Cash - $10,000; Intellectual Property - $1,204,000; Proprietary Rights Agreement - $1,063,000; Goodwill - $154,097, and Notes Payable - $200,000. The acquisition of Lighting Science is described in greater detail in Note 2.

Intellectual property, which includes but is not limited to provisional patents, copyrights, intellectual assets and proprietary know-how, was recorded effective June 1, 2004 as a part of the allocation of the purchase price of Lighting Science, Inc. The intellectual property is being amortized over twenty years beginning June 1, 2004.

Amortization expense was $35,117, $-0-, and $35,117 for the year ended December 31, 2004, the period beginning September 26, 2003 and ended December 31, 2003, and cumulatively for the period beginning September 26, 2003 and ended December 31, 2004, respectively.

The proprietary rights agreement between the Company and Fredric Maxik (the Company’s chief technology officer and the developer of the technology acquired by the Company), ensures that all Intellectual Property created and/or developed by Maxik during his employment and for some period thereafter shall be assigned to the Company as well as precluding Maxik from competing with or providing services for entities in competition with Lighting Science or that have technology similar to Lighting Science for a period of time following his employment termination with Lighting Science. This Agreement was recorded effective June 1, 2004, as part of the purchase price of Lighting Science. This asset is being amortized over three years, which is the period covered by the agreement.

Amortization expense was $206,694, $-0-, and $206,694 for the year ended December 31, 2004, the period beginning September 26, 2003 and ended December 31, 2003, and cumulatively for the period beginning September 26, 2003 and ended December 31, 2004, respectively.

Reorganization Value

As a result of the terms of the Plan, $2,793,224 is reflected as reorganization value in excess of amounts allocable to identifiable assets on the consolidated balance sheet. The circumstances giving rise to this presentation were created by a provision in the Plan that preserved the secured claim of Match, Inc. (see Note 8). Match, Inc. (“Match”), an entity controlled by Ronald E. Lusk, the Company’s chairman, agreed to the reaffirmation of its debt. As a result of this reaffirmation, which is part of the confirmation of the Plan, an offsetting entry to the reorganization value was recorded. In accordance with the provisions of Financial Accounting Standard No. 142, the reorganization value is treated the same as goodwill and is not amortized.

Impairment

The Company evaluates the carrying value of its long-lived assets and identifiable intangibles when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The review includes an assessment of industry factors, contract retentions, cash flow projections and other factors the Company believes are relevant.

Based upon a review by an independent valuation firm as of December 1, 2004, the Company has determined that no impairment to the Company’s intangible assets has occurred since the date of the previous evaluation.

F-10

Revenue

Sales of product commenced during the fourth quarter of 2004 through the Company’s web site. Product sales are recorded when the products are shipped and title passes to customers. Sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon delivery to the carrier. As of December 31, 2004, no allowance for returns had been estimated. Outbound shipping charges to customers are included in “Revenue” and amounted to $374.

Income taxes

The Company employs the asset and liability method in accounting for income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109 “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities and net operating loss carryforwards, and are measured using enacted tax rates and laws that are expected to be in effect when the differences are reversed.

Earnings per share

Basic earnings per share are computed based upon the weighted average number of common shares outstanding during the periods. Diluted earnings per share is based upon the weighted average number of common shares outstanding during the periods plus the number of incremental shares of common stock contingently issuable upon the conversion of the Series A Preferred Stock.

No effect has been given to the assumed conversion of the preferred stock (Note 9) because the effect would be antidilutive.

Pre-Confirmation

Nature of Business

The Phoenix Group Corporation (“Phoenix” or the “Corporation”) is a Delaware corporation organized in June 1988. The Corporation’s wholly owned subsidiaries during the period or for portions of the period were Lifeline Management Group, Inc., Lifeline Home Health Services, Inc. (“LHHS”), Lifeline Managed Home Care, Inc. (“LMHC”), and Americare Management, Inc. All intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements.

Except for a period spanning the years 2000 and 2001, Phoenix had been predominately engaged in providing healthcare management and ancillary services to the long-term care industry. On or about August 20, 2002, the Corporation filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The case was subsequently transferred to the U.S. Bankruptcy Court for the Northern District of Texas - Ft. Worth Division (the “Court”). The filing was made necessary by the actions of a creditor of the Corporation seeking to foreclose on a judgment obtained several years earlier. The Corporation lacked sufficient liquidity to satisfy the judgment and sought protection as a debtor-in-possession. The Court granted the requested status.

On or about October 15, 2002, three creditors of LHHS filed with the Court an involuntary petition under Chapter 7 of the United States Bankruptcy Code. LHHS requested the Court to convert the case to a Chapter 11 debtor-in-possession proceeding. The Court granted this request on December 2, 2002.

On or about March 7, 2003, LMHC filed for protection from creditors under Chapter 11 of the United States Bankruptcy Code. This action was necessitated by the actions of a creditor of LHHS that was claiming a security interest in the assets of LMHC. After hearing arguments by the creditor and LMHC, the Court ruled that the assets of LMHC were not subject to the security interest that the creditor held with respect to the LHHS assets.

F-11

During the summer of 2003, the Corporation filed a Disclosure Statement and Plan of Reorganization (collectively the “Plan”) that was confirmed by the Court on September 16, 2003 with an effective date of September 26, 2003. Under the terms of the Plan, the creditors of the Corporation received or eventually received (see Note 12 “Subsequent Events”) an aggregate of approximately 51% of the common stock of the restructured entity in exchange for notes, accounts payable, and other forms of debt held at the time of the filing of the petition. This feature of the Plan - the exchange of debt for greater than 50% of the ownership in the restructured entity - qualifies the Corporation to utilize the reporting guidelines of the “Fresh Start” accounting rules contained in Statement of Position (“SOP”) 90-7 as discussed in Note 3.

As the result of actions by certain competitors, LHHS suffered considerable attrition in its professional nursing staff and its administrative staff during the latter part of the summer of 2003. On September 15, 2003, LHHS made the decision that it was in the best interest of its patients to cease operations and to discharge its patients to other home healthcare agencies. LHHS subsequently requested that the Chapter 11 bankruptcy case be converted to a proceeding under Chapter 7. The remaining assets of LHHS were liquidated by a United States Trustee under the supervision of the Court.

Concurrent with the closing of the operations of LHHS, LHMC was also forced to cease its operations because the two companies shared office space, employees, and other resources. On or about September 15, 2003, LMHC withdrew its Chapter 11 petition. The primary creditor of Lifeline Management Group, Inc. (the parent of LHHS and LMHC) was Match, Inc. (“Match”), which is a related party to the chairman of Phoenix, Ron Lusk. Match foreclosed upon the stock of Lifeline Management Group, Inc. on or about September 15, 2003.

Thus, as of the effective date of the plan of reorganization for The Phoenix Group Corporation (September 26, 2003), the Corporation had one subsidiary, Americare Management, Inc., which had no assets and no operations. As a result of having no operations at the subsidiary level or within the parent (Phoenix) itself, as of September 25, 2003, the Corporation essentially reentered the development stage.

Summary of Significant Accounting Policies

Use of Estimates

The most critical estimate in the Pre-Confirmation period relates to revenue recognition.

Revenue Recognition

Under fee-for-service agreements with patients and commercial and certain government payors, net revenues are recorded based on net realizable amounts to be received in the period in which the services and products are provided or delivered. Fee-for-service contracts with commercial payors are traditionally one year in term and renewable automatically on an annual basis, unless terminated by either party.

Under the Prospective Payment System (“PPS”) for Medicare reimbursement, net revenues are recorded based on a reimbursement rate which varies based on the severity of the patient's condition, service needs and certain other factors; revenue is recognized ratably over the period in which services are provided. Revenue is subject to adjustment during this period if there are significant changes in the patient's condition during the treatment period or if the patient is discharged but readmitted to another agency within the same 60-day episodic period. Medicare billings under PPS are initially recognized as deferred revenue and are subsequently amortized into revenue over an average patient treatment period on a daily basis. The process for recognizing revenue under the Medicare program is based on certain assumptions and judgments, including the average length of time of each treatment as compared to a standard 60-day episode, the appropriateness of the clinical assessment of each patient at the time of certification, and the level of adjustments to the fixed reimbursement rate relating to patients who receive a limited number of visits, have significant changes in condition or are subject to certain other factors during the episode. Revenue adjustments result from differences between estimated and actual reimbursement amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Revenue adjustments are deducted from gross accounts receivable. These revenue adjustments are based on significant assumptions and judgments, which are determined by Corporation management based on historical trends. Third party settlements resulting in recoveries are recognized as net revenues in the period in which the funds are received.

F-12

Status of Accounting Policies

As a result of: (1) the conversion of the Chapter 11 bankruptcy case of LHHS to a proceeding under Chapter 7 and the subsequent liquidation of the assets of LHHS; and (2) the foreclosure upon the stock of Lifeline Management Group, Inc. (the parent of LMHC), the Corporation effectively ceased its operations in the home healthcare business on or about September 15, 2003. Therefore, the accounting policies described above were no longer applicable as of September 26, 2003.

Reclassifications

Certain immaterial share and dollar amounts within the Consolidated Statements of Stockholders’ Equity have been reclassified from those previously reported as of December 31, 2004.

NOTE 2: ACQUISITION OF LIGHTING SCIENCE, INC.

Post-Confirmation

On June 1, 2004, the Company acquired 100% of the outstanding common stock of Lighting Science, Inc., a Las Vegas, Nevada-based corporation, which owns certain intellectual property related to the design and development of an ODL^TM (Optimized Digital Lighting^TM) light bulb. Subsequent to its acquisition by the Company, Lighting Science, Inc. relocated its headquarters to Ft. Lauderdale, Florida. The Company’s consolidated financial statements include the results of operations of Lighting Science, Inc. since June 1, 2004.

The Company acquired all of the issued and outstanding capital stock of Lighting Science, Inc. from Phibian S Trust, Edward I. Lanier, and John Collingwood in exchange for 4,796,276 shares of the Company’s common stock and the Company’s obligation to issue up to an additional 4,499,965 shares of the Company’s common stock upon the satisfaction of certain conditions under the stock purchase agreement. Those conditions were satisfied during the third quarter of 2004, and the additional shares of common stock were issued on or about September 3, 2004.

The Company accounted for the acquisition as a purchase using the accounting standards established in Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets.

The estimated fair values, as determined by an independent valuation firm, of assets acquired and liabilities assumed at June 1, 2004 are set out in the schedule below:

Cash	$	10,000
Intellectual property		1,204,000
Property rights agreement		1,063,000
Goodwill		154,097
Total assets acquired			$	2,431,097
Note payable assumed				(200,000	)
Net assets acquired			$	2,231,097

Lighting Science, Inc. was formed on or about May 31, 2004 for the purpose of acquiring intellectual property from Phibian S Trust. There were no predecessor operations with respect to this entity, therefore, no pro forma results of operations are presented.

Intellectual Property

As of the date of acquisition, four provisional patents on the ODL technology had been submitted to the United States Patent and Trademark Office and were acquired by Lighting Science, Inc. Provisional patents are equivalent to a filing date placeholder in the United States Patent Office (“USPTO”). They provide a one-year period following submittal in which to finalize the utility patent application with respect to the particular idea, process, concept or method contained in a provisional patent.

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Subsequent to its acquisition by the Company, Lighting Science, Inc. has filed four utility patent applications (thereby complying with the one-year time period mentioned above) based on the initial four provisional patents. In addition, a fifth utility patent application has also been filed to provide further protection to the ODL technology, and therefore there are currently five utility patents pending with respect to the ODL technology before the USPTO. It is anticipated that it will be about 18 months to two years from the date of filing of the utility applications before the USPTO will issue a response to the filing.  Two design patents have been filed on the appearance of the light bulb, thereby bringing the total to seven utility and design patents pending before the USPTO. Additionally, with respect to proprietary branding of Lighting Science products and services, Lighting Science has filed for federal trademark/service registrations on four marks and anticipates filing additional registrations on other marks and logos, and, as appropriate, Lighting Science has also established common law trademark protection on several marks and logos. Further, other appropriate intellectual property protection, such as copyright and trade secret, is being applied to the ODL technology and the light bulb that embodies it. It is also the policy of Lighting Science to develop an intellectual property portfolio that protects and enhances the ODL technology ideas, concepts, methods and processes. Lighting Science has also adopted intellectual property policies, procedures and practices into its business operations to facilitate its proprietary positioning with respect to its product development and commercialization.

Pre-Confirmation

Not applicable. The acquisition of Lighting Science, Inc. did not occur until June 1, 2004, which was subsequent to the end of the Pre-Confirmation period.

NOTE 3: FRESH-START ACCOUNTING

The Court confirmed the Company’s Plan (Note 1) on September 16, 2003, and the Plan became effective as of September 26, 2003. It was determined that the Company’s reorganization value, computed immediately before the effective date, was $2,793,502, which consisted of the following:

Cash	$	278
Reorganized value in excess of amounts allocable to identifiable assets		2,793,224
Deferred tax assets comprised of $57,000,000 of net operating loss carry-forwards		19,400,000
Valuation allowance against above deferred tax assets		(19,400,000	)
Reorganization value	$	2,793,502

The Company adopted fresh-start reporting because holders of existing voting shares immediately before filing and confirmation of the Plan retained less than 50% of the voting shares of the emerging entity, and its reorganization value was less than its post-petition liabilities and allowed claims.

NOTE 4: GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the consolidated financial statements, the Company has experienced substantial net losses for the year ended December 31, 2004 and the period beginning September 26, 2003 and ended December 31, 2003 of $3.8 million and $400 thousand, respectively, as well as negative cash flows from operations during those periods. In addition, the Company has a negative working capital deficit of $1.085 million. However, 96% (approximately $2.2 million) of the Company’s current liabilities are comprised of a note and the accumulated interest thereon payable to Match, Inc., an entity controlled by Ronald E. Lusk, the Company’s chairman (see Note 8). Mr. Lusk has expressed his intention to forebear with respect to the collection of these obligations. Thus,

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management of the Company effectively views the working capital position of the Company to be a surplus of approximately $1.082 million at December 31, 2004.

The Company has embarked upon an aggressive design and development program to bring product to market during the second quarter of 2005. If, as management believes, the Company is successful in developing viable products, additional capital will be needed to fund the manufacturing process to generate finished goods. In the event orders are received from established retailers and distributors of lighting products, management believes that traditional lending sources will be available to provide a portion of the capital needed to cover the manufacturing and receivables cycles. However, the Company will still be required to raise additional capital to meet its obligations.

The Company has retained the services of a financial consulting firm (Note 1) to assist with strategic review and to formulate proposed plans and actions for consideration by the board of directors of the Company. Based upon its current cash on hand generated from a private placement, its anticipated product releases, and its discussions with investment bankers, management believes that it will be able to obtain the capital necessary to deliver finished products to market during the second quarter of 2005. Preliminary discussions have been held with potential investment banking firms that have expressed interest in the Company’s business model. Despite these activities, there can be no assurance that management’s efforts to sufficiently capitalize the Company will be successful.

NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments.

Cash and cash equivalents, notes and accounts payable, accrued expenses and other current liabilities are carried at amounts that approximate their fair values because of the short-term maturity of these instruments.

NOTE 6: PROPERTY, EQUIPMENT AND OTHER ASSETS

Post-Confirmation

Property and equipment consists of the following:

Furniture	$	58,208
Computer equipment		70,158
Telephone equipment		33,861
Test equipment		22,959
Molds		142,729
Total property and equipment		327,915
Accumulated depreciation		(17,440	)
	$	310,475

Intellectual property consists of the following:

Intellectual property	$	1,204,000
Accumulated amortization		(35,117	)
	$	1,168,883

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Property rights agreement consists of the following:

Property rights agreement	$	1,063,000
Accumulated amortization		(206,694	)
	$	856,306

The estimated amortization expense for the next five years for the intangible assets listed above is as follows:

	Amortization Expense
Year Ended		Intellectual Property		Property Rights Agreement
2005	$	60,200	$	354,333
2006	$	60,200	$	354,333
2007	$	60,200	$	147,640
2008	$	60,200		—
2009	$	60,200		—

Pre-Confirmation

Not applicable. As of September 25, 2003, the last day of the Pre-Confirmation period, the Corporation owned no property, equipment or other assets of a tangible and depreciable nature.

NOTE 7: INCOME TAXES

The Corporation accounts for corporate income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, future tax benefits, such as those from net operating loss carry forwards, are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as set forth below in the period that includes the enactment date.

Other than the deferred tax asset relating to the Company’s net operating losses, which totaled approximately $20,900,000 at December 31, 2004 and $19,400,000 at September 26, 2003 and which has been fully offset by a valuation reserve, the Company does not have any other significant deferred tax assets or liabilities. The net operating loss carryforwards are available to offset future taxable income of the Company. These net operating losses expire from 2008 through 2018.

Any benefits realized in future periods from pre-confirmation net operating loss carryforwards will first reduce reorganization value in excess of amounts allocable to identifiable assets until exhausted and thereafter be credited to additional paid-in capital.

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NOTE 8: NOTES PAYABLE - RELATED PARTIES

Post-Confirmation

Match Loan

The $1,851,299 note payable at December 31, 2004 is due to Match, Inc., a company owned by a revocable trust controlled by the Company’s chairman and chief executive officer. The note consists of a line-of-credit up to a maximum of $2,000,000, bears interest at prime rate plus 1% (5.25% at December 31, 2004) is due on demand and is secured by all of the assets of the Company. The accrued interest of $315,554 reflected on the accompanying consolidated balance sheet is owed to Match. See Note 12.

On October 20, 2004, the Company made a payment of $30,000 to Match in partial payment of the outstanding balance of accrued but unpaid interest on the note. On November 17, 2004, the Company reduced by $500,000 the amount that it owed to Match with respect to accrued but unpaid interest on the note. In lieu of disbursing cash in payment of the interest expense, the Company issued stock to the Ronald E. Lusk Revocable Trust (the “Trust”) the owner of Match, Inc. Mr. Lusk is the chairman of the Company and the grantor of the Trust. The Trust had contemporaneously subscribed to purchase $500,000 of stock under the terms of the private placement transaction discussed in Note 10.

Note to Phibian S Trust

The remaining balance of $175,000 in Notes Payable - Related Party is due to Phibian S Trust (the “Trust”), a revocable trust for the benefit of the children of Fredric Maxik, the chief technology officer of the Company. At the date (June 1, 2004) the Company acquired Lighting Science, Inc., Maxik was a co-trustee of the Trust. Subsequent to the acquisition, Maxik resigned his position as co-trustee. Maxik exercises no control over the Trust, nor is he a beneficiary of the Trust. The note was issued by Lighting Science, Inc. to the trust in exchange for the assignment of certain provisional patents and intellectual property that formed the basis for the acquisition of Lighting Science by the Company. Lighting Science is obligated to pay the principal by making 36 equal monthly installments beginning on the fifteenth day of the month following the first full month that the Company begins generating revenue in the amount of $10,000 or more, as determined in accordance with generally accepted accounting principles.

As an accommodation to the Trust and in anticipation of near-term sales in excess of $10,000 per month, the Company made an advance payment to the Trust on this note in the amount of $25,000 in October 2004. Based upon anticipated note payments beginning May 15, 2005, $25,000 of the note has been classified as a current liability. This note provides for no interest. However, under generally accepted accounting principles, an imputed amount of interest should be allocated. Such amount is not material.

Stockholder Loans

On November 25, 2003 Ronald E. Lusk, the chairman of the Company, advanced $50,000 to the Company for purposes of meeting general and administrative expenses. The loan bears interest at a rate of prime plus 1%. Mr. Lusk elected to forego any interest that was otherwise due with respect to the loan. No interest on the loan had previously been recorded by the Company. Any such interest would not have been material. During 2004, Mr. Lusk advanced the Company an additional $29,541 for general corporate purposes. During the third quarter of 2004, the Company repaid the outstanding balances on these advances.

Pre-Confirmation

The note payable in the amount of $1,851,299 at September 25, 2003 is due to Match, Inc., a related party. Match, Inc. is owned by a revocable trust controlled by the Corporation’s chairman and chief executive officer. The note consists of a line-of-credit up to a maximum of $2,000,000, bears interest at prime rate plus 1% (5% at September 25, 2003) on the note balance and prime plus 2% on any unpaid interest amounts, is due on demand and is unsecured. No interest payments were made on the note since its inception on November 17, 1998 through September 26, 2003. The accrued interest of $674,703 reflected on the accompanying consolidated balance sheet is owed to Match, Inc. During the period beginning January 1, 2003 and ended September 25, 2003, a total of $93,100

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of interest expense was accrued on the note. This amount is included in the accrued interest balance at September 26, 2003. See Note 12.

NOTE 9: PREFERRED STOCK

Post-Confirmation

On July 25, 1994, the Company sold 533,333 shares of 8% cumulative Series A Senior Convertible Preferred Stock including voting rights, cumulative dividends at $.30 per annum for each share and conversion rights to common stock at the conversion price of $3.75 per share before reduction by an anti-dilution provision for certain shares of common stock issued by the Company. At December 31, 2004, the 533,333 shares of Series A Senior Convertible Preferred Stock were convertible into 614,233 shares of common stock. At December 31, 2004, dividends in arrears but not declared by the Company on the 8% Cumulative Series A Senior Convertible Preferred Stock totaled $1,640,000. The liquidation preference of each Senior Preferred Convertible share is $3.75 per share plus the undeclared dividends, which totals to $3,640,000 at December 31, 2004. See Note 12.

At the date of acquisition of Lighting Science, Inc. by the Company (June 1, 2004), Lighting Science, Inc. had 100,000 shares of preferred stock authorized with no shares issued or outstanding. As of December 31, 2004, this issue of preferred stock was still authorized, however no shares had been issued. Effective January 1, 2005, this stock was cancelled under the merger agreement between Lighting Science, Inc. and its parent company, Lighting Science Group Corporation.

Pre-Confirmation

At September 26, 2003, the 533,333 shares of Series A Senior Convertible Preferred Stock were convertible into 121,723 shares of common stock. At September 26, 2003, dividends in arrears but not declared by the Corporation on the 8% Cumulative Series A Senior Convertible Preferred Stock totaled $1,438,000. The liquidation preference of each Senior Preferred Convertible share is $3.75 per share plus the undeclared dividends, which totals to $3,438,000 at September 26, 2003. See Note 12.

NOTE 10: COMMON STOCK - PRIVATE PLACEMENT

Post-Confirmation

In connection with the acquisition of Lighting Science, Inc., the Company undertook a private placement (“Lighting Science Private Placement”) of the Company’s common stock under the exemption of Section 505 of Regulation D of the Securities Act of 1933. This exemption allows the Company to raise no more than $5,000,000 during a twelve-month period. As of the date of this report, a total of $3,864,890 had been raised through the sale of 18,341,906 shares of the Company’s common stock. The Company does not plan to issue any additional common stock under the terms of the Lighting Science Private Placement. See Note 12.

Pre-Confirmation

Not applicable. The Corporation commenced the private placement described in the preceding section subsequent to the end of the Pre-Confirmation period.

NOTE 11: COMMITMENTS AND CONTINGENCIES

Leased office space

During the periods covered by this report, the Company leased office space in Richardson, Texas for its headquarters operation. For the year ended December 31, 2004, the Company accrued rental expense on the

F-18

premises in Richardson, Texas under an agreement with the owner of the building who is also a member of the Company’s board of directors. Under the agreement, the landlord agreed to accept common stock of the Company in lieu of cash payments for rent. As of December 31, 2004, the Company had issued the required amount of stock for the period of time it occupied the premises during the year 2004. No further commitment remains under this agreement, and no additional stock is required to be issued.

On November 13, 2004 the Company moved its offices from Richardson, Texas to Dallas, Texas where it occupies excess office space that is leased by an institutional shareholder of the Company. The shareholder allows the Company to occupy the space on a rent-free basis. Such free rent was not material. The shareholder also serves as a financial advisor to the Company as discussed in the following paragraph. The Company has leased office space in Ft. Lauderdale, Florida for its research and development activities for a period of one year commencing February 1, 2005 at a rate of approximately $4,200 per month. The Company also leases space in Hong Kong on a month-to-month basis at a rate of approximately $250 per month.

Rent expense was $181,287, $56,748, and $238,035 for the year ended December 31, 2004, the period beginning September 26, 2003 and ended December 31, 2003, and cumulatively for the period beginning September 26, 2003 and ended December 31, 2004, respectively.

Financial advisory services

The Company has entered into an agreement with a financial consulting firm located in Dallas, Texas to provide financial advisory services in connection with the Company’s capital structure. Under the terms of the agreement, the Company paid the advisor a retainer of $150,000 during the fourth quarter of 2004 for services anticipated to be rendered during calendar year 2005. The agreement also provides for monthly payments of $10,000 during the one-year term of the agreement.

Executive Compensation

As of December 31, 2004, the Company was obligated under the terms of employment contracts for seven of its executive officers. The terms of the contracts generally range between one and three years, and provide for annual salaries ranging between $80,000 and $250,000 per year.

On October 12, 2004, the Company announced the appointments of Mr. Stan Waldrop as president and Mr. Philip Lacerte as executive vice president of sales and marketing. The three-year employment contracts for both individuals provide for annual salaries of one dollar in the first year and $225,000 in the second and third years of the contracts. The contracts provide that Mr. Waldrop and Mr. Lacerte will receive as additional compensation an amount equal to two percent of the gross sales revenue of all street lighting contracts over the entire life of each contract. The contracts also provide that if the employment contracts are terminated by either the Company or the officers as a result of the disability of either officer, the Company will pay that officer’s compensation under the terms of the contract for twelve consecutive months after the effective date of the termination.

During the fourth quarter of 2004, the compensation committee of the board of directors and the board of directors approved amendments to the employment agreements of Ron Lusk, chairman and chief executive officer of the Company, and Fred Maxik, chief technology officer of the Company, providing additional compensation in an amount equal to two percent of the gross sales revenue of all street lighting contracts over the entire life of each contract.

The stated annual compensation for the Company’s executive officers is approximately $1,270,000 per year. However, the elections of Mr. Waldrop and Mr. Lacerte to forego their salaries for the first year of their contracts will reduce the amount from $1,270,000 to $933,000 for calendar year 2005. No deferred compensation was owed to any of the officers as of December 31, 2004.

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NOTE 12: SUBSEQUENT EVENTS

Conversion of Preferred Stock and Debt held by Match

On April 12, 2005 the Company announced that Match had converted the 533,333 shares of Series A preferred stock and debt (See Notes 8 and 9) into common stock of the Company at a conversion price of $1.725 per share that was approximately 15% in excess of the market price of the stock at the date the conversion was proposed, resulting in fewer shares being issued to Match than would have been issued had the then current market price of the stock been used.

The preferred stock, owned by Match at the date of the conversion, carried cumulative dividends of $0.30 per annum for each share and conversion rights to common stock. The cumulative unpaid dividend with respect to the preferred stock was $1,670,685, producing a total liquidation preference of $3,670,685. Thus, the preferred stock owned by Match was converted into 2,127,933 shares of common stock.

The debt to Match of $1,851,299 plus $341,226 of accrued interest was also converted to common stock. Match offered to reduce the accrued interest by $250,000 and to convert the debt at the same conversion price of $1.725. As a result, the total of $1,942,525 due on the line of credit was converted into 1,126,101 shares of common stock of the Company.

Agreement with Giuliani Capital Advisors

On February 15, 2005, the Company entered into a letter agreement with Giuliani Capital Advisors LLC (“GCA”) to engage GCA to provide financial advisory services to the Company and a to-be-formed entity (the “Joint Venture”).

As consideration for the services to be provided by GCA, the Company agreed to pay GCA the following:

·   A non-refundable deposit of $150,000 (paid on March 31, 2005); and

·   A market rate fee for all debt and/or equity capital raised for the Joint Venture; and

·   Reasonable expenses of GCA incurred in performing its services.

In addition, GCA will receive the following:

·   A financial advisory role in the Joint Venture on capital raising transactions on a case by case basis; and

·   A 20% ownership interest in the Joint Venture.

The Company also issued a warrant to GCA that is exercisable by GCA to purchase up to 1,650,000 shares of the Company’s common stock, subject to adjustment in certain circumstances as provided in the warrant. The 1,650,000 shares represented 3.2% of outstanding shares of common stock at February 15, 2005. The warrant has a five-year term and GCA may exercise the warrant in whole or in part at any time during the five-year term. The exercise price for each share of common stock is $.60 per share or $990,000 if GCA were to exercise all 1,650,000 shares under the warrant.

Consulting Contract with Equity Group, Inc.

On February 10, 2005, the Company entered into a consulting contract with Equity Group, Inc. (“Equity”) to provide financial public relations and investor relations on behalf of the Company. In connection therewith, the Company agreed to issue Equity two warrants to purchase an aggregate of $600,000 worth of shares of the Company’s common stock with each warrant having an exercise price to be determined in the future. Each warrant will provide for the purchase of $300,000 worth of common stock of the Company. One of the warrants became fully vested upon the signing of the contract. The other warrant will become exercisable upon the first anniversary date of the consulting contact unless terminated earlier. Equity will receive $5,000 per month during the term of the contract.

Loans from Certain Directors and Members of Senior Management

Certain members of the board of directors and senior management (“Lender”) of the Company agreed to loan the Company an aggregate of $340,000 on a short-term basis. Proceeds from each of the loans will fund the Company’s

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continuing operating expenses, ongoing expenses for salaries, legal and accounting fees, as well as for working capital and other contingencies. Under the terms of the notes issued by the Company to each Lender, the Company will: (i) pay interest to each Lender at a rate of 9.50% per annum; (ii) pay a 10% commitment fee to each Lender and (iii) issue warrants to the lenders for a total of 340,000 shares of common stock to be purchased at an exercise price of $1.50 per share. The principal and interest on the Notes are due on May 30, 2005. The notes will be repaid from proceeds of any subsequent financing arrangement to which the Company becomes a party.

Private Placement

On March 4, 2005 the Company amended its filing of Form D (Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption) to elect the exemption under Rule 506 rather than Rule 505 for the sale of the Company’s common stock. Under Rule 506, the Company can raise an unlimited amount of money from any number of “accredited” investors and up to 35 “non-accredited” investors.

Gross Sales Revenue from Street Lighting Contracts

The Company’s board of directors approved additional compensation to the outside directors, as a group, in an amount equal to three percent of the gross sales revenue of all street lighting contracts over the entire life of each contract.

F-21

LIGHTING SCIENCE GROUP CORPORATIONAND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Page
Consolidated Balance Sheet	F-23, 24
Consolidated Statements of Operations	F-25
Consolidated Statements of Cash Flows	F-26
Notes to the Consolidated Financial Statements	F-27

F-22

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

					March 31, 2005
					Pro-forma Adjustments (Note 12)
		Per Books			Debit			Credit		Pro-forma
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	114,400	(4)	$	6,935,000	(4b)	$	700,859	$	6,378,577
			(3)		256,000	(6)		225,964
Accounts receivable		2,735			-			-		2,735
Inventory		49,020			-			-		49,020
Prepaid expenses		304,491			-			-		304,491
Total current assets		470,646			7,191,000			225,964		6,734,823
PROPERTY AND EQUIPMENT, net (Note 6)		317,873			-			-		317,873
OTHER ASSETS
Reorganized value in excess of amounts allocable to identifiable assets (Note 3)		2,793,224			-			-		2,793,224
Intellectual property, net (Notes 2 and 6)		1,153,833			-			-		1,153,833
Property rights agreement, net (Notes 2 and 6)		767,722			-			-		767,722
Goodwill (Note 2)		154,097			-			-		154,097
Security deposits		7,983			-			-		7,983
Total other assets		4,876,859			-			-		4,876,859
TOTAL ASSETS	$	5,665,378		$	7,191,000		$	225,964	$	11,929,555
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	24,065		$	-		$	-	$	24,065
Accrued payroll taxes		17,627			-			-		17,627
Accrued interest to affiliate		341,226	(2)		91,226			-		-
			(2a)		250,000
Note payable - related party		1,851,299	(2)		1,851,299			-		-
Current portion of note payable - related party		25,000			-			-		25,000
Notes payable - directors and officers		220,000	(5)		276,000	(3)		256,000		-
			(6)		200,000
Total current liabilities		2,479,217			2,668,525			256,000		66,692
LONG-TERM DEBT
Note payable - related party		150,000			-			-		150,000
TOTAL LIABILITIES		2,629,217			2,668,525			256,000		216,692
COMMITMENTS AND CONTINGENCIES

6% CONVERTIBLE PREFERRED STOCK, $.001 par value, 2,260,966 shares issued and outstanding, liquidation value of $7,235,086 (Notes 9 and 12)	-	(4a)	633,070	(4)	6,935,000	5,901,157
		(4b)	700,859	(5)	300,086

STOCKHOLDERS’ EQUITY
Series A Preferred Stock, $.001 par value, 5,000,000 shares authorized; 533,333 shares issued and outstanding  (Notes 9 and 12)		533		(1)		533			-		-
Common Stock, $.001 par value, 495,000,000 shares authorized, 51,414,903 shares issued and outstanding		51,415				-	(1)		2,128		54,669
							(2)		1,126
Additional paid-in-capital		8,421,448					(1)		1,669,090		12,665,007
							(2)		1,941,399
							(4a)		633,070
Accumulated deficit during the development stage		(5,437,235	)	(1)		1,670,685	(2a)		250,000		(6,907,970	)
				(5)		24,086
				(6)		25,964
TOTAL STOCKHOLDERS’ EQUITY		3,036,161				1,671,218			4,496,813		5,811,706
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,665,378			$	5,673,672		$	11,987,899	$	11,929,555

The accompanying notes are an integral part of the consolidated financial statements.

F-23

Pro Forma Balance Sheet Adjustments

(1) To give effect to conversion of Series A Preferred Stock (Match, Inc.) to common stock during April 2005. See Note 12.

(2) To give effect to conversion of note payable (Match, Inc.) to common stock during April 2005. See Note 12.

(2a) This amount represents the accrued interest forgiven by Match, Inc. on the conversion of note payable in (2) above. Such amount is reflected for purposes of the Pro Forma Balance Sheet in Accumulated deficit during the development stage since it will be taken to income in April 2005. See Note 12.

(3) To give effect to additional loans from officers and directors during April 2005. See Note 8.

(4) To give effect to sale of 6% Convertible Preferred Stock during May 2005. See Note 12.

(4a) To give effect to value assigned to the beneficial conversion feature on the 6% Preferred Stock at date of issuance during May 2005.  See Note 12.

(4b) To give effect to issuance costs on the 6% Preferred Stock issued during May 2005.  See Note 12.

(5) To give effect to conversion of loans by certain officers and directors to 6% Convertible Preferred Stock. See Note 8.

(6) To give effect to repayment of loans to officers and directors electing not to convert to 6% Convertible Preferred Stock. See Note 8.

F-24

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

		Three Months Ended March 31, 2005			Three Months Ended March 31, 2004			Cumulative from September 26, 2003 through March 31, 2005
Revenue	$	685		$	-		$	4,089
Cost of goods sold		-			-			(2,076	)
Gross margin		685			-			2,013
Operating expenses:
Selling, general and administrative		526,278			62,664			2,088,993
Compensation and related expenses		364,644			200,836			1,721,131
Consulting fees		155,514			3,250			780,448
Directors fees		187,500			87,500			663,575
Total operating expenses		1,233,936			354,250			5,254,147
Operating income (loss)		(1,233,251	)		(354,250	)		(5,252,134	)
Interest income, other income and interest expense, net		(23,791	)		(32,424	)		(185,101	)
Net loss	$	(1,257,042	)	$	(386,674	)	$	(5,437,235	)
Basic net loss per weighted average common share	$	(0.02	)	$	(0.02	)	$	(0.19	)
Weighted average number of common shares outstanding		51,359,904			16,685,446			28,592,511

The accompanying notes are an integral part of the consolidated financial statements.

F-25

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Three Months Ended March 31, 2005			Three Months Ended March 31, 2004			Cumulative from September 26, 2003 through March 31, 2005
OPERATING ACTIVITIES
Net loss	$	(1,257,042	)	$	(386,674	)	$	(5,437,235	)
Adjustments to reconcile net loss to net cash used by operating activities:
Expenses paid by issuance of common stock		187,500			-			1,739,200
Depreciation and amortization		120,491			-			379,742
Changes in:
Accounts receivable		(2,076	)		-			(3,217	)
Prepaid expenses		(146,535	)		-			(304,491	)
Inventory		(11,750	)		-			(25,520	)
Accounts payable		(16,571	)		-			24,065
Accrued expenses and other liabilities		210			365,214			519,668
Security deposits		(4,267	)		-			(31,482	)
Net cash used by operating activities		(1,130,040	)		(21,460	)		(3,139,270	)
INVESTING ACTIVITIES
Cash in bank of subsidiary at date of acquisition		-			-			10,000
Purchase of property and equipment		(24,255	)		-			(352,170	)
Net cash used by investing activities		(24,255	)		-			(342,170	)
FINANCING ACTIVITIES
Loans from directors		220,000			-			220,000
Loan from stockholder		-			-			79,541
Repayment of loan to stockholder		-			(4,440	)		(79,541	)
Notes payable - related party		25,672			-			672
Proceeds from private placement		36,000			-			3,374,890
Net cash provided by (used by) financing activities		281,672			(4,440	)		3,595,562
Net increase (decrease) in cash		(872,623	)		(25,900	)		114,122
Cash at beginning of period		987,023			34,474			278
Cash at end of period	$	114,400		$	8,574		$	114,400
Interest paid	$	-		$	-		$	30,152
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Stock issued to pay interest to related party	$	-		$	-		$	500,000
Stock issued to pay accrued liabilities	$	-		$	-		$	360,707

The accompanying notes are an integral part of the consolidated financial statements.

F-26

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Lighting Science Group Corporation (the “Company”) is a Delaware corporation organized in June 1988. The Company’s wholly owned subsidiary during the period was Americare Management, Inc. Americare Management, Inc. had no significant operations during the periods covered by these financial statements. All intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements.

As of March 31, 2005, the Company continues its operation as a development stage company, not having had appreciable revenue during its last fiscal year or the first calendar quarter of 2005.With its acquisition of certain intellectual property rights on June 1, 2004 (see Note 2), the Company entered the field of solid state lighting. Light emitting diode (“LED”) technology has been in use since 1962, but until recently was used only in small electronic devices. Manufacturers of LEDs have made substantial progress in the past few years, but the enabling technologies such as power conversion and thermal management have not kept pace. Consequently, the existing gap between the advancements in LED technology and their incorporation into general illumination systems has widened over the past five years.

Through the development of its Optimized Digital Lighting™ (“ODL™”) technology, the Company believes that it has begun to close the gap between the theoretical performance capability of today’s LEDs and the level of their performance in the current generation of general illumination products. The Company has developed several enabling technologies that form the basis of the intellectual property for which it has filed for patent protection.

The Company is currently designing several products for the consumer lighting market as well as commercial products for the streetlight and parking lot lighting sector. The Company has formed a strategic alliance with a major financial advisory services firm to target municipalities, public utility corporations, universities, large mall owners, parking lot owners, and other organizations as customers and partners for the Company’s products.

On or about August 20, 2002, the Company filed a voluntary petition seeking debtor-in-possession status for relief under Chapter 11 of the United States Bankruptcy Code. During the summer of 2003, the Company filed a Disclosure Statement and Plan of Reorganization (collectively the “Plan”) that was confirmed by the U.S. Bankruptcy Court for the Northern District of Texas - Ft. Worth Division (the “Court”) on September 16, 2003 with an effective date of September 26, 2003. Under the terms of the Plan, the creditors of the Company received an aggregate of approximately 51% of the common stock of the restructured entity in exchange for notes, accounts payable, and other forms of debt held at the time of the filing of the petition. This feature of the Plan - the exchange of debt for greater than 50% of the equity in the restructured entity - qualified the Company to utilize the reporting guidelines of the “Fresh Start” accounting rules contained in Statement of Position (“SOP”) 90-7.

Summary of Significant Accounting Policies

Since the Chapter 11 bankruptcy filing, the Company has applied the provisions in SOP 90-7 “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.” SOP 90-7 does not change the application of generally accepted accounting principles in the preparation of financial statements. However, it does require that the financial statements for periods including and subsequent to filing the Chapter 11 petition distinguish between transactions and events that are directly associated with the reorganization from the ongoing operations of the business.

F-27

In management's opinion, the accompanying consolidated interim financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the interim periods.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

Cash and cash equivalents

All highly liquid investments with original maturities of three months or less at date of purchase are carried at cost, which approximates fair value, and are considered to be cash equivalents.

The Company maintains cash accounts, which could exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits. Management believes that the Company does not have significant credit risk related to its cash accounts.

Inventories

Inventories, which consist of components and light bulbs designed by the Company and assembled by a third-party manufacturer, are stated at the lower of cost or market with cost being determined on a first-in, first-out basis.

Prepaid expenses

Prepaid expenses consist primarily of consulting fees paid to financial consulting firms. Prepaid expenses for the consulting fees are being amortized over the twelve-month periods the services are estimated to be provided.

Property and equipment

Property and equipment are carried at depreciated cost. Depreciation is provided using the straight-line method over the estimated economic lives of the assets, which range from two to five years.

Depreciation expense was $16,858, $ - 0 -, and $34,538 for the three month period ended March 31, 2005, the three month period ended March 31, 2004, and cumulatively for the period beginning September 26, 2003 and ended March 31, 2005, respectively.

Other assets

Other assets consist of acquisition-related intangible assets and an intangible asset arising upon the Company’s emergence from bankruptcy.

Acquisition-related intangible assets

The acquisition of the stock of Lighting Science, Inc. on June 1, 2004 necessitated an allocation of the purchase price among the assets of the acquired company. An independent valuation firm was engaged by the Company to perform this allocation. At the date of acquisition, Lighting Science, Inc. owned no tangible assets. As a result, the net purchase price of $2,231,097 was allocated to current assets, three classes of intangible assets, and liabilities as follows: Cash - $10,000; Intellectual Property - $1,204,000; Proprietary Rights Agreement - $1,063,000; Goodwill - $154,097, and Notes Payable - $200,000. The acquisition of Lighting Science, Inc. is described in greater detail in Note 2.

F-28

Intellectual property, which includes, but is not limited to, provisional patents, copyrights, intellectual assets and proprietary know-how, was recorded effective June 1, 2004 as a part of the allocation of the purchase price of Lighting Science, Inc. The intellectual property is being amortized over twenty years beginning June 1, 2004.

Amortization expense was $15,050, $ - 0 -, and $50,167 for the three month period ended March 31, 2005, the three month period ended March 31, 2004, and cumulatively for the period beginning September 26, 2003 and ended March 31, 2005, respectively.

The proprietary rights agreement between the Company and Fredric Maxik (the Company’s chief technology officer and the developer of the technology acquired by the Company), ensures that all intellectual property created and/or developed by Maxik during his employment and for some period thereafter shall be assigned to the Company as well as precluding Maxik from competing with or providing services for entities in competition with the Company or that have technology similar to the Company for a period of time following his employment termination with the Company. This Agreement was recorded effective June 1, 2004, as part of the purchase price of Lighting Science, Inc. This asset is being amortized over three years, which is the period covered by the agreement.

Amortization expense was $88,583, $ - 0 -, and $295,277 for the three month period ended March 31, 2005, the three month period ended March 31, 2004, and cumulatively for the period beginning September 26, 2003 and ended March 31, 2005, respectively.

Reorganization Value

As a result of the terms of the Plan, $2,793,224 is reflected as reorganization value in excess of amounts allocable to identifiable assets on the consolidated balance sheet. The circumstances giving rise to this presentation were created by a provision in the Plan that preserved the secured claim of Match, Inc. (see Note 8). Match, Inc. (“Match”), an entity controlled by Ronald E. Lusk, the Company’s chairman, agreed to the reaffirmation of its debt. As a result of this reaffirmation, which is part of the confirmation of the Plan, an offsetting entry to the reorganization value was recorded. In accordance with the provisions of Financial Accounting Standard No. 142, the reorganization value is treated the same as goodwill and is not amortized.

Impairment

The Company evaluates the carrying value of its long-lived assets and identifiable intangibles when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The review includes an assessment of industry factors, contract retentions, cash flow projections and other factors the Company believes are relevant.

Based upon a review by an independent valuation firm as of December 1, 2004, the Company has determined that no impairment to the Company’s intangible assets has occurred since the date of the previous evaluation.

Revenue

Sales of product commenced during the fourth quarter of 2004 through the Company’s web site. Product sales are recorded when the products are shipped and title passes to customers. Sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon delivery to the carrier. During the first quarter of 2005, the Company discontinued the sales of its initial products through its web site in order to focus its attention on the development of an improved product line.

As of the date of this report, the Company has no reason to believe that an allowance for product returns is necessary.

Income taxes

The Company employs the asset and liability method in accounting for income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109 “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of

F-29

assets and liabilities and net operating loss carryforwards, and are measured using enacted tax rates and laws that are expected to be in effect when the differences are reversed.

Earnings per share

Basic earnings per share are computed based upon the weighted average number of common shares outstanding during the periods. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the periods plus the number of incremental shares of common stock contingently issuable upon the conversion of the Series A Preferred Stock. No effect has been given to the assumed conversion of the Series A preferred stock because the effect would be anti-dilutive.

See Notes 11 and 12.

NOTE 2: ACQUISITION OF LIGHTING SCIENCE, INC.

On June 1, 2004, the Company acquired 100% of the outstanding common stock of Lighting Science, Inc., a Delaware corporation based in Las Vegas, Nevada, which owned certain intellectual property related to the design and development of an ODL light bulb. The Company acquired all of the issued and outstanding capital stock of Lighting Science, Inc. from Phibian S Trust, Edward I. Lanier, and John Collingwood in exchange for 4,796,276 shares of the Company’s common stock and the Company’s obligation to issue up to an additional 4,499,965 shares of the Company’s common stock upon the satisfaction of certain conditions under the stock purchase agreement. Those conditions were satisfied during the third quarter of 2004, and the additional shares of common stock were issued on or about September 3, 2004.

The Company accounted for the acquisition as a purchase using the accounting standards established in Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets.

The estimated fair values, as determined by an independent valuation firm, of assets acquired and liabilities assumed at June 1, 2004 are set out in the schedule below:

Cash	$	10,000
Intellectual property		1,204,000
Property rights agreement		1,063,000
Goodwill		154,097
Total assets acquired			$	2,431,097
Note payable assumed				(200,000	)
Net assets acquired			$	2,231,097

Lighting Science, Inc. was formed on or about May 31, 2004 for the purpose of acquiring intellectual property from Phibian S Trust. There were no predecessor operations with respect to this entity, therefore, no pro forma results of operations are presented.

Intellectual Property

As of the date of acquisition, four provisional patents on the ODL technology had been submitted to the United States Patent and Trademark Office and were acquired by Lighting Science, Inc. Provisional patents are equivalent to a filing date placeholder in the United States Patent Office (“USPTO”). They provide a one-year period following submittal in which to finalize the utility patent application with respect to the particular idea, process, concept or method contained in a provisional patent.

Subsequent to the acquisition of Lighting Science, Inc., the Company filed four utility patent applications (thereby complying with the one-year time period mentioned above) based on the initial four provisional patents. In addition, a fifth utility patent application has also been filed to provide further protection to the ODL technology, and therefore there are currently five utility patents pending with respect to the ODL technology before the USPTO. It is

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anticipated that it will be about 18 months to two years from the date of filing of the utility applications before the USPTO will issue a response to the filing.  Two design patents have been filed on the appearance of the light bulb, thereby bringing the total to seven utility and design patents pending before the USPTO. Additionally, with respect to proprietary branding of its products and services, the Company has filed for federal trademark/service registrations on four marks and anticipates filing additional registrations on other marks and logos, and, as appropriate, the Company has also established common law trademark protection on several marks and logos. Further, other appropriate intellectual property protection, such as copyright and trade secret, is being applied to the ODL technology and the light bulb that embodies it. It is also the policy of the Company to develop an intellectual property portfolio that protects and enhances the ODL technology ideas, concepts, methods and processes. The Company has also adopted intellectual property policies, procedures and practices into its business operations to facilitate its proprietary positioning with respect to its product development and commercialization.

NOTE 3: FRESH-START ACCOUNTING

The Court confirmed the Company’s Plan (Note 1) on September 16, 2003, and the Plan became effective as of September 26, 2003. It was determined that the Company’s reorganization value, computed immediately before the effective date, was $2,793,502, which consisted of the following:

Cash	$	278
Reorganized value in excess of amounts allocable to identifiable assets		2,793,224
Deferred tax assets comprised of $57,000,000 of net operating loss carry-forwards		19,400,000
Valuation allowance against above deferred tax assets		(19,400,000	)
Reorganization value	$	2,793,502

The Company adopted fresh-start reporting because holders of existing voting shares immediately before filing and confirmation of the Plan retained less than 50% of the voting shares of the emerging entity, and its reorganization value was less than its post-petition liabilities and allowed claims.

NOTE 4: GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the consolidated financial statements, the Company has experienced substantial net losses as well as negative cash flows from operations since September 26, 2003. In addition, the Company has a working capital deficit of $2.0 million. However, as of March 31, 2005, 88% (approximately $2.2 million) of the Company’s current liabilities were comprised of a note and the accumulated interest thereon payable to Match (see Note 8). On April 11, 2005, the board of directors of the Company voted to accept a proposal from Mr. Lusk to convert the note and accumulated interest thereon to common stock of the Company (see Note 12).

The Company has embarked upon an aggressive design and development program to bring product to market during the current year. To provide the Company with adequate working capital for the design and the initial manufacture of these products, the Company recently announced that a group of institutional and accredited investors has purchased $7.2 million of the Company’s 6% convertible preferred stock in a private placement transaction (Note 12).

Based upon its receipt of proceeds from the private placement of the Company’s preferred stock and revenue from its anticipated product releases, management believes that it will have sufficient capital necessary to enable it to deliver finished products to market during 2005. Despite these activities, there can be no assurance that management’s efforts to sufficiently capitalize the Company beyond the initial rollout of the Company’s product line will be successful.

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NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments.

Cash and cash equivalents, notes and accounts payable, accrued expenses and other current liabilities are carried at amounts that approximate their fair values because of the short-term maturity of these instruments.

NOTE 6: PROPERTY, EQUIPMENT AND OTHER ASSETS

Property and equipment consists of the following:

Furniture	$	62,693
Computer equipment		78,853
Telephone equipment		43,697
Test equipment		24,198
Molds		142,729
Total property and equipment		352,170
Accumulated depreciation		(34,297	)
	$	317,873

Intellectual property consists of the following:

Intellectual property	$	1,204,000
Accumulated amortization		(50,167	)
	$	1,153,833

Property rights agreement consists of the following:

Property rights agreement	$	1,063,000
Accumulated amortization		(295,278	)
	$	767,722

The estimated amortization expense for the next five years for the intangible assets listed above is as follows:

	Amortization Expense
Year ended		Intellectual Property		Property Rights Agreement
2005	$	60,200	$	354,333
2006	$	60,200	$	354,333
2007	$	60,200	$	147,640
2008	$	60,200		—
2009	$	60,200		—

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NOTE 7: INCOME TAXES

The Company accounts for corporate income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, future tax benefits, such as those from net operating loss carry forwards, are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as set forth below in the period that includes the enactment date.

Other than the deferred tax asset relating to the Company’s net operating losses, which totaled approximately $21,300,000 at March 31, 2005, and which has been fully offset by a valuation reserve, the Company does not have any other significant deferred tax assets or liabilities. The net operating loss carryforwards are available to offset future taxable income of the Company. These net operating losses expire from 2008 through 2019.

Any benefits realized in future periods from pre-confirmation net operating loss carryforwards will first reduce reorganization value in excess of amounts allocable to identifiable assets until exhausted and thereafter be credited to additional paid-in capital.

NOTE 8: NOTES PAYABLE - RELATED PARTIES

Match Loan

The $1,851,299 note payable at March 31, 2005 is due to Match. The note consists of a line-of-credit up to a maximum of $2,000,000, bears interest at prime rate plus 1% (5.75% at March 31, 2005) is due on demand and is secured by all of the assets of the Company. The accrued interest of $341,226 reflected on the accompanying consolidated balance sheet is owed to Match. See Note 12.

Note to Phibian S Trust

The remaining balance of $175,000 in Notes Payable - Related Party is due to Phibian S Trust, a revocable trust for the benefit of the children of Fredric Maxik, the chief technology officer of the Company. The note was issued by Lighting Science, Inc. to the trust in exchange for the assignment of certain provisional patents and intellectual property that formed the basis for the acquisition of Lighting Science, Inc. by the Company. The Company is obligated to pay the principal by making 36 equal monthly installments beginning on the fifteenth day of the month following the first full month that the Company begins generating revenue in the amount of $10,000 or more, as determined in accordance with generally accepted accounting principles.

As an accommodation to Maxik and in anticipation of near-term sales in excess of $10,000 per month, the Company made an advance payment to Maxik on this note in the amount of $25,000 in October 2004. Based upon anticipated note payments beginning August 15, 2005, $25,000 of the note has been classified as a current liability. This note provides for no interest. However, under generally accepted accounting principles, an imputed amount of interest should be allocated. Such amount is not material.

Loans from Certain Directors and Members of Senior Management

During the first quarter of 2005, certain officers of the Company and members of the board of directors (“Lender” or “Lenders”) of the Company agreed to loan the Company an aggregate of $476,000 on a short-term basis, of which $220,000 was received as of March 31, 2005. Proceeds from each of the loans will fund the Company’s continuing operating expenses, ongoing expenses for salaries, legal and accounting fees, as well as for working capital and other contingencies. Under the terms of the notes issued by the Company to each Lender, the Company will: (i) pay interest to each Lender at a rate of 9.50% per annum; (ii) pay a 10% commitment fee to each Lender and (iii) issue warrants to the Lenders for a total of 476,000 shares of common stock to be purchased at an exercise price of $1.50 per share. The principal and interest on the notes are due on May 30, 2005. The notes will be repaid from proceeds of any subsequent financing arrangement to which the Company becomes a party. In the alternative, the Lenders

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have the option of converting the proceeds of the note to an investment in the Company’s preferred stock issued in connection with a private placement (see Note 12).

NOTE 9: PREFERRED STOCK

On July 25, 1994, the Company sold 533,333 shares of 8% cumulative Series A Senior Convertible Preferred Stock including voting rights, cumulative dividends at $.30 per annum for each share and conversion rights to common stock at the conversion price of $3.75 per share before reduction by an anti-dilution provision for certain shares of common stock issued by the Company. At March 31, 2005, the 533,333 shares of Series A Senior Convertible Preferred Stock were convertible into 628,915 shares of common stock. At March 31, 2005, dividends in arrears but not declared by the Company on the 8% Cumulative Series A Senior Convertible Preferred Stock totaled $1,680,000. The liquidation preference of each Senior Preferred Convertible share is $3.75 per share plus the undeclared dividends, which totals to $3,680,000 at March 31, 2005. See Note 12.

At the date of acquisition of Lighting Science, Inc. by the Company (June 1, 2004), Lighting Science, Inc. had 100,000 shares of preferred stock authorized with no shares issued or outstanding. As of December 31, 2004, this issue of preferred stock was still authorized, however no shares had been issued. Effective January 1, 2005, this stock was cancelled under the merger agreement between Lighting Science, Inc. and its parent company, Lighting Science Group Corporation.

See Note 12.

NOTE 10: STOCKHOLDERS’ EQUITY

Lighting Science Private Placement

In connection with the acquisition of Lighting Science, Inc., the Company undertook a private placement (“Lighting Science Private Placement”) of the Company’s common stock under the exemption of Section 505 of Regulation D of the Securities Act of 1933. On March 4, 2005 the Company amended its filing of Form D (Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption) to elect the exemption under Rule 506 rather than Rule 505 for the sale of the Company’s common stock. Under Rule 506, the Company can raise an unlimited amount of money from any number of “accredited” investors and up to 35 “non-accredited” investors. As of March 31, 2005, a total of $3,874,890 had been raised through the sale of 18,383,573 shares of the Company’s common stock. The total of $3,874,890 includes $500,000 of accrued but unpaid interest on a note payable to Match. In lieu of disbursing cash in payment of the interest expense, the Company issued stock to the Ronald E. Lusk Revocable Trust (the “Trust”) the owner of Match. The Trust had contemporaneously subscribed to purchase $500,000 of stock under the terms of the Lighting Science Private Placement.

Issuance of Common Stock during Quarter

During the quarter ended March 31, 2005, the Company issued a total of 117,647 shares of common stock. Of this amount, 41,667 shares were issued in connection with the Lighting Science Public Placement (discussed above) under Rule 506 of Regulation D of the Securities Act of 1933. An additional 41,666 shares were issued during the quarter to complete an issuance under a subscription agreement dated August 30, 2004 with respect to the Lighting Science Private Placement. The Company issued a total of 34,314 shares of common stock to the six outside directors of the Company on March 31, 2005 as compensation for services rendered as board members during the quarter.

NOTE 11: COMMITMENTS AND CONTINGENCIES

Leased office space

The Company occupies excess office space that is leased by an institutional shareholder of the Company. The shareholder allows the Company to occupy the space on a rent-free basis. Such free rent was not material. The

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shareholder also serves as a financial advisor to the Company as discussed in the following paragraph. The Company has leased office space in Ft. Lauderdale, Florida for its research and development activities for a period of one year commencing February 1, 2005 at a rate of approximately $4,200 per month. The Company also leases space in Hong Kong on a month-to-month basis at a rate of approximately $250 per month.

Rent expense was $19,343, $44,454, and $257,378 for the three month period ended March 31, 2005, the three month period ended March 31, 2004, and cumulatively for the period beginning September 26, 2003 and ended March 31, 2005, respectively.

Financial advisory services

The Company has entered into an agreement with a financial consulting firm located in Dallas, Texas to provide financial advisory services in connection with the Company’s capital structure. Under the terms of the agreement, the Company paid the advisor a retainer of $150,000 during the fourth quarter of 2004 for services anticipated to be rendered during calendar year 2005. The agreement also provides for monthly payments of $10,000 during the one-year term of the agreement.

Agreement with Giuliani Capital Advisors

On February 15, 2005, the Company entered into a letter agreement with Giuliani Capital Advisors LLC (“GCA”) to engage GCA to provide financial advisory services to the Company and a to-be-formed entity (the “Joint Venture”). The joint venture agreement was subsequently executed on May 4, 2005.

As consideration for the services to be provided by GCA, the Company agreed to pay GCA the following:

·   A non-refundable deposit of $150,000 (paid on March 31, 2005);

·   A market rate fee for all debt and/or equity capital raised for the Joint Venture; and

·   Reasonable expenses of GCA incurred in performing its services.

In addition, GCA will receive the following:

·   A financial advisory role in the Joint Venture on capital raising transactions on a case by case basis; and

·   A 20% ownership interest in the Joint Venture.

The Company also issued a warrant to GCA that is exercisable by GCA to purchase up to 1,650,000 shares of the Company’s common stock, subject to adjustment in certain circumstances as provided in the warrant. The 1,650,000 shares represented 3.2% of outstanding shares of common stock at February 15, 2005. The warrant has a five-year term and GCA may exercise the warrant in whole or in part at any time during the five-year term. The exercise price for each share of common stock is $.60 per share or $990,000 if GCA were to exercise all 1,650,000 shares under the warrant.

For purposes of computing earnings per share, the additional shares that would be outstanding had the warrants been exercised are not taken into consideration because the Company is reporting a loss position for each period covered by the accompanying financial statements set forth herein and, therefore, the additional shares would have had an anti-dilutive effect.

Consulting Contract with Equity Group, Inc.

On February 10, 2005, the Company entered into a consulting contract with Equity Group, Inc. (“Equity”) to provide financial public relations and investor relations on behalf of the Company. In connection therewith, the Company agreed to issue Equity two warrants to purchase an aggregate of $600,000 worth of shares of the Company’s common stock with each warrant having an exercise price of $0.80 per share. Each warrant will provide for the purchase of $300,000 worth of common stock of the Company. One of the warrants became fully vested upon the signing of the contract. The other warrant will become exercisable upon the first anniversary date of the consulting contact unless terminated earlier. Equity will receive $5,000 per month during the term of the contract.

For purposes of computing earnings per share, the additional shares that would be outstanding had the warrants been exercised are not taken into consideration because the Company is reporting a loss position for each period covered

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by the accompanying financial statements set forth herein and, therefore, the additional shares would have had an anti-dilutive effect.

Executive Compensation

As of March 31, 2005, the Company was obligated under the terms of employment contracts for seven of its executive officers. The terms of the contracts generally range between one and three years, and provide for annual salaries ranging between $80,000 and $250,000 per year.

The annual compensation for the Company’s executive officers is expected to be approximately $933,000 for calendar year 2005. No deferred compensation was owed to any of the officers as of March 31, 2005.

Commission Agreements with Directors

Pursuant to a resolution passed by the Board of Directors on February 7, 2005, the Company is obligated to pay outside directors a commission of 3% of the contract proceeds for any Shared Savings Program for which a director is responsible for closing. During the quarter, the Company entered into a sales commission agreement with J. Michael Poss, the chief financial officer of the Company at the time and a member of the board of directors, to pay Mr. Poss a commission of 6% of the contract proceeds for any Shared Savings Program for which he is responsible for closing.

NOTE 12: SUBSEQUENT EVENTS

Conversion of Preferred Stock and Debt held by Match

On April 12, 2005 the Company announced that Match had converted the 533,333 shares of Series A preferred stock and debt (See Notes 8 and 9) into common stock of the Company at a conversion price of $1.725 per share that was approximately 15% in excess of the market price of the stock at the date the conversion was proposed, resulting in fewer shares being issued to Match than would have been issued had the then current market price of the stock been used.

The preferred stock, owned by Match at the date of the conversion, carried cumulative dividends of $0.30 per annum for each share and conversion rights to common stock. The cumulative unpaid dividend with respect to the preferred stock was $1,680,000 as of March 31, 2005, resulting in a total liquidation preference of $3,680,000 as of that date. However, for purposes of the conversion calculation, the amount of $1,670,685 was used as the amount of the dividend to reflect the unpaid dividend on the date the conversion price of $1.725 was determined. This adjustment produced the slightly smaller liquidation value of $3,670,685. Thus, the preferred stock owned by Match and the accumulated dividend thereon was converted into 2,127,933 shares of common stock.

The debt to Match of $1,851,299 plus $341,226 of accrued interest was also converted to common stock. Match offered to reduce the accrued interest by $250,000 and to convert the debt at the same conversion price of $1.725. As a result, the total of $1,942,525 due on the line of credit was converted into 1,126,101 shares of common stock of the Company.

Private Placement with Institutional and Accredited Investors

On May 12, 2005, the Company closed on a private placement with a group of institutional and accredited investors, including certain officers and directors of the Company, for the sale of 2,260,966 shares of the Company’s 6% Convertible Preferred Stock (the “Convertible Preferred Stock”) along with warrants to purchase additional shares of the Company’s common stock. The Convertible Preferred Stock was priced at $3.20 per share, and the Company received approximately $7.235 million of which approximately $276,000 represented conversion of officer and board member loans and $24,086 represented accrued interest and commitment fees thereon. Each share of Convertible Preferred Stock is convertible at any time at the election of the holder at $0.80 per share into four shares of common stock, subject to full ratchet anti-dilution adjustments. Thus, if all of the shares of the Convertible Preferred Stock were converted to common stock, an additional 9,043,864 shares of common stock would be issued.

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The Convertible Preferred Stock ranks ahead of the common stock of the Company upon liquidation of the Company. The Convertible Preferred Stock also ranks ahead of the common stock with respect to the payment of dividends. The dividend rate on Convertible Preferred Stock is $0.192 per share per annum (6% effective yield) and such dividends are fully cumulative, accruing, without interest, from the date of original issuance of the Convertible Preferred Stock through the date of redemption or conversion thereof. The Corporation must redeem any outstanding Preferred Shares on May 10, 2010. In connection with the transaction, the Company filed a certificate of designation for the Convertible Preferred Stock with the Delaware Secretary of State on May 10, 2005. This filing constituted an amendment to the Company's certificate of incorporation, designating the terms, rights and preferences of a new series of preferred stock of the Company.

The warrants are exercisable into a total of 6,782,889 shares of common stock at an initial exercise price of $0.96 per share (also subject to adjustment pursuant to anti-dilution provisions). The warrants expire five years from the date of issuance.

The Company paid expenses totaling $700,829 related to this financing and issued warrants to purchase a total of 639,844 shares of the Company’s common stock at an initial exercise price of $1.50 per share (also subject to adjustment pursuant to anti-dilution provisions) to the firms which acted as the placement agent and as financial advisor for this transaction.

Pursuant to EITF Abstracts No. 98-5 and 00-27, the intrinsic value of the beneficial conversion feature related to the Convertible Preferred Stock was determined based on the fair value of the Company’s common stock of $0.87 less the Convertible Preferred Stock conversion price of $0.80 per share. Such beneficial conversion feature totals $633,070 and has been allocated to additional paid in capital with the corresponding amount recorded as a discount to the Convertible Preferred Stock. Such amount will be accreted from the date of issuance to the redemption date of the Convertible Preferred Stock. There was no such value attributed to the warrants due to the exercise price exceeding the fair value of the Company’s common stock as of the date of issuance.

The Convertible Preferred Stock is Mandatorily Redeemable Preferred Stock as defined by SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and would also qualify as “Preferred Stocks Subject to Mandatory Redemption Requirements or Whose Redemption is Outside the Control of the Issuer (“Redeemable Preferred Stock”)” as defined by ASR 268. The conversion feature associated with the Convertible Preferred Stock is not a nonsubstantive or minimal feature and therefore the provisions of ASR 268 have been applied in classifying the Convertible Preferred Stock separate from permanent capital.

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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the ‘DGCL”) generally provides that a corporation may indemnify directors, officers, employees or agents against liabilities they may incur in such capacities provided certain standards are met, including good faith and the reasonable belief that the particular action was in, or not opposed to, the best interests of the corporation.

Subsection (a) of Section 145 of the DGCL (“Section 145”) empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful.

Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under standards similar to those set forth above, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper.

Section 145 further provides that, among other things, to the extent that a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in Subsections (a) and (b) of Section 145, or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that a corporation is empowered to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify against such liability under Section 145.

Indemnification as described above shall be granted in a specific case only upon a determination that indemnification is proper under the circumstances using the applicable standard of conduct which is made by (a) a majority of directors who were not parties to such proceeding, (b) a committee of such directors designated by majority vote of such directors, (c) independent legal counsel in a written opinion if there are no such disinterested directors or if such disinterested directors so direct, or (d) the stockholders.

In accordance with the Section 145 of the DGCL, Section 10 of Lighting Science Group’s Amended and Restated Certificate of Incorporation provides “To the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have the power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.”

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ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Other Expenses of Issuance and Distribution.

The following table sets forth estimated expenses expected to be incurred in connection with the issuance and distribution of the securities being registered

SEC Registration fee	$	3,327.29
Blue Sky fees		-
Legal fees and expenses		150,000.00
Accounting fees and expenses		5,000.00
Miscellaneous*		5,000.00
TOTAL	$	163,327.29

*Estimated.

The selling stockholders will pay any expenses customarily borne by selling stockholders (including underwriting discounts, commissions and fees and expenses of counsel to the extent not required to be paid by us). We will bear all other costs, fees and expenses incurred in effecting the registration of the shares covered by this Prospectus, including, but not limited to, all registration and filing fees, listing fees and expenses of our counsel and our accountants.

49

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

During 2003, 2004, and the first five months of 2005, we sold and issued the unregistered securities described below (figures adjusted to give effect to the 1:16 reverse split effective August 20, 2004):

1)   On September 25, 2003 and as of December 31, 2003, pursuant to a plan of reorganization, LSGC sold and issued common shares in settlement of creditor accounts as follows:

Date	Issuee	No. of Shares		Price per Share		Total
09/22/2003	Durbin, Jim	30,911	$	0.031	$	954
09/22/2003	Daryl N. Snadon	247,287		0.031		7,629
09/22/2003	Sommer, Mark	30,911		0.031		954
09/25/2003	Adorno & Yoss	8,346		0.031		257
09/25/2003	ADP Investor Communications	143		0.031		4
09/25/2003	ADP Proxy Services	5,652		0.031		174
09/25/2003	Akin, Gump, Strauss, Hauer & Feld	79,077		0.031		2,440
09/25/2003	American Bank Note Company	324		0.031		10
09/25/2003	Artis & Associates	277		0.031		9
09/25/2003	Barrier Corporation	103		0.031		3
09/25/2003	Ceneur Services	312,606		0.031		9,644
09/25/2003	Christensen, Clay	9,759		0.031		301
09/25/2003	Consolidated Ordering Services	3,685		0.031		114
09/25/2003	Denitech	246		0.031		8
09/25/2003	Fourth Street Partners	44,816		0.031		1,383
09/25/2003	G & L Realty	808,909		0.031		24,956
09/25/2003	Glankler, Brown PLC	2,143		0.031		66
09/25/2003	Godwin Gruber	61,033		0.031		1,883
09/25/2003	Goulston Storrs	1,212		0.031		37
09/25/2003	K. Shane Hartman	27,412		0.031		846
09/25/2003	Hero, Barbara Jean	896		0.031		28
09/25/2003	Hodges, Doughty & Carson, PLC	1,039		0.031		32
09/25/2003	Howard & Howard	1,287		0.031		40
09/25/2003	Humberson, Gary	456,864		0.031		14,095
09/25/2003	Intercity Investments	32,102		0.031		990
09/25/2003	Jeffers, Mangel, Butler	17,261		0.031		533
09/25/2003	Jones, Mark	514,262		0.031		15,866
09/25/2003	Lamberth Bonapfel Cifelli	181		0.031		6
09/25/2003	Lentz Cantor & Massey Ltd	322		0.031		10
09/25/2003	Level 3 Management	242,210		0.031		7,473
09/25/2003	Ronald E. Lusk	9,240		0.031		285
09/25/2003	Matthews Leasing Company	8,407		0.031		259
09/25/2003	McBee, Andy	514,262		0.031		15,866
09/25/2003	McCarron, Joe	5,848		0.031		180
09/25/2003	Nixon Peabody	79,430		0.031		2,451
09/25/2003	Patton Boggs	52,715		0.031		1,626
09/25/2003	Perkins, Smith & Cohen	282		0.031		9
09/25/2003	Piedmont Ivy Association LLC	8,201		0.031		253
09/25/2003	J. Michael Poss	116,569		0.031		3,596
09/25/2003	Raindance Communications	81		0.031		2
09/25/2003	Robertson, George	6,250		0.031		193
09/25/2003	Schlinger Foundation	388,335		0.031		11,981
09/25/2003	Shares issued to trustee for distribution to creditors at 12/31/03	1,765,228		0.031		54,460
09/25/2003	Shotwell, Brown & Sperry LLP	844		0.031		26
09/25/2003	Springfield Foodservice Corp	108,252		0.031		3,340
09/25/2003	Stephen A. Sherman & Assoc.	11,362		0.031		351
09/25/2003	Total Capital	979,798		0.031		30,228
09/25/2003	Turley, James	1,096,474		0.031		33,828
09/25/2003	Wanat, Julianne	3,161		0.031		98
09/25/2003	Wayne Miller PC	2,705		0.031		83
09/25/2003	Weir & Partners, LLP	91		0.031		3
09/25/2003	Westlake Management Company	3,270		0.031		101
09/25/2003	Winstead Sechrest & Minick	75,657		0.031		2,334
09/25/2003	Robert L. Woodson, III	3,978		0.031		123
12/31/2003	Adorno & Yoss P.A.	247		0.031		8
12/31/2003	ADP Investor Communication Svc	5		0.031		0
12/31/2003	ADP Proxy Services	167		0.031		5
12/31/2003	Advantage Movers	538		0.031		17
12/31/2003	Akin Gump	2,333		0.031		72
12/31/2003	American Bank Note Company	10		0.031		0
12/31/2003	Artis & Associates	9		0.031		0
12/31/2003	Barbara Jean Hero	27		0.031		1
12/31/2003	Barrier Corporation	3		0.031		0
12/31/2003	Castleberry, Gary	113,322		0.031		3,496
12/31/2003	Ceneur Services c/o Donald R. Harkleroad	9,220		0.031		284
12/31/2003	Clay Christensen	288		0.031		9
12/31/2003	Consolidated Ordering Services	109		0.031		3
12/31/2003	Denitech	8		0.031		0
12/31/2003	Fine Incentives	375		0.031		12
12/31/2003	Fourth Street Partners LLC c/o Bart Houston	1,322		0.031		41
12/31/2003	G&L Realty	23,857		0.031		736
12/31/2003	Glankler Brown PLC	64		0.031		2
12/31/2003	Godwin Gruber	1,800		0.031		56
12/31/2003	Goulston & Storrs c/o Alan Goldberg	36		0.031		1
12/31/2003	Hodges, Doughty & Carson, PLC	31		0.031		1
12/31/2003	Howard & Howard	38		0.031		1
12/31/2003	J. Michael Poss	3,438		0.031		106
12/31/2003	Jeffer Mangels Butler & Marmaro	510		0.031		16
12/31/2003	Joe McCaron	173		0.031		5
12/31/2003	LCP Original Touch	426		0.031		13
12/31/2003	Lentz Cantor & Massey Ltd	10		0.031		0
12/31/2003	Level 3 Management, LLC	7,144		0.031		220
12/31/2003	Matthews Leasing Company	248		0.031		8
12/31/2003	Nixon Peabody	2,343		0.031		72
12/31/2003	Patton Boggs	1,555		0.031		48
12/31/2003	Perkins Smith & Cohen	9		0.031		0
12/31/2003	Robert L. Woodson, III	118		0.031		4
12/31/2003	Ronald E. Lusk	273		0.031		8
12/31/2003	K. Shane Hartman	809		0.031		25
12/31/2003	Shotwell Brown & Sperry LLP	25		0.031		1
12/31/2003	Stephen A. Sherman & Assoc.	336		0.031		10
12/31/2003	Total Capital	28,897		0.031		892
12/31/2003	Wayne Miller PC	80		0.031		2
12/31/2003	Weir & Partners LLP	3		0.031		0
12/31/2003	Westlake Management Company	97		0.031		3
12/31/2003	Winstead Sechrest & Minick c/o Brian Morris	2,232		0.031		69
		8,384,251			$	258,667

50

2)   During 2004, Lighting Science Group issued common stock to members of the board of directors in settlement of fees payable to such directors. The number of shares issued and the price per share for such shares issued during 2004 are as follows:

Date	Issuee	No. of Shares		Price per Share		Total
04/01/2004	Ronald E. Lusk Revocable Trust	69,445	$	0.300	$	20,833
04/01/2004	Daryl N. Snadon	69,445		0.300		20,833
04/01/2004	USGT Investors, LP (Robert E. Bachman)	69,445		0.300		20,833
04/01/2004	Robert L. Woodson, III	69,445		0.300		20,833
04/01/2004	Frank "Duke" Yetter	69,445		0.300		20,833
04/12/2004	The Bristol Company (Donald R. Harkleroad)	69,445		0.300		20,833
05/10/2004	J. Michael Poss	69,445		0.300		20,833
08/04/2004	Daryl N. Snadon	66,346		0.314		20,833
08/04/2004	Frank "Duke" Yetter	66,346		0.314		20,833
08/04/2004	J. Michael Poss	66,346		0.314		20,833
08/04/2004	Robert L. Woodson, III	66,346		0.314		20,833
08/04/2004	Ronald E. Lusk Revocable Trust	66,346		0.314		20,833
08/04/2004	The Bristol Company (Donald R. Harkleroad)	66,346		0.314		20,833
08/04/2004	USGT Investors, LP (Robert E. Bachman	66,346		0.314		20,833
10/12/2004	The Bristol Company (Donald R. Harkleroad)	17,103		0.487		8,333
10/12/2004	Dallas Snadon (Daryl N. Snadon)	17,103		0.487		8,333
10/12/2004	J. Michael Poss	17,103		0.487		8,333
10/12/2004	John A. Collingwood	17,103		0.487		8,333
10/12/2004	Phibian S Trust (Fredric S. Maxik)	17,103		0.487		8,333
10/12/2004	Robert L. Woodson, III	17,103		0.487		8,333
10/12/2004	Robert M. McMonigle	9,894		0.530		5,242
10/12/2004	Ronald E. Lusk Revocable Trust	17,103		0.487		8,333
10/12/2004	USGT Investors, LP (Robert E. Bachman	17,103		0.487		8,333
11/23/2004	The Bristol Company (Donald R. Harkleroad)	9,256		1.417		13,120
11/23/2004	John A. Collingwood	9,256		1.417		13,120
11/23/2004	Robert M. McMonigle	9,256		1.417		13,120
11/23/2004	Phibian S Trust (Fredric S. Maxik	9,256		1.417		13,120
11/23/2004	J. Michael Poss	9,256		1.417		13,120
11/23/2004	Ronald E. Lusk Revocable Trust	9,256		1.417		13,120
11/23/2004	Dallas Snadon (Daryl N. Snadon)	9,256		1.417		13,120
11/23/2004	USGT Investors, LP (Robert E. Bachman)	9,256		1.417		13,120
11/23/2004	Robert L. Woodson, III	9,256		1.417		13,120
		1,180,559			$	481,658

During 2005, Lighting Science Group issued common stock to members of the board of directors in settlement of fees payable to such directors. The number of shares issued and the price per share for such shares issued during 2005 are as follows:

Date	Issuee		No. of Shares		Price per Share		Total
03/31/2005		The Bristol Company (Donald R. Harkleroad)		5,719	$	2.186	$	12,500
03/31/2005		John A. Collingwood		5,719		2.186		12,500
03/31/2005		Robert M. McMonigle		5,719		2.186		12,500
03/31/2005		Dallas Snadon (Daryl N. Snadon)		5,719		2.186		12,500
03/31/2005		USGT Investors, LP (Robert E. Bachman)		5,719		2.186		12,500
03/31/2005		Robert L. Woodson, III		5,719		2.186		12,500
06/30/2005		Daryl N. Snadon		9,760		1.281		12,500
06/30/2005		USGT Investors, LP (Robert E. Bachman)		9,760		1.281		12,500
06/30/2005		Robert L. Woodson, III		9,760		1.281		12,500
06/30/2005		Robert M. McMonigle		9,760		1.281		12,500
06/30/2005		The Bristol Company (Donald R. Harkleroad)		9,760		1.281		12,500
06/30/2005		John A. Collingwood		9,760		1.281		12,500
				92,874			$	150,000

51

3)   In 2004, Lighting Science Group paid certain compensation amounts due employees using Company common stock. The number of shares issued and the price per share for such shares issued during 2004 are as follows:

Individual	No. of Shares		Price per Share		Amount
Accrued as of December 31, 2003
Ronald E. Lusk	157,333	$	0.419	$	65,971.17
J. Michael Poss	154,627		0.415		64,238.17
K. Shane Hartman	126,307		0.415		52,363.17
Kathryn D. Fuller	61,528		0.414		25,488.16
Payment in Stock in Lieu of Cash - Q1-2004
Ronald E. Lusk	325,516		0.192		62,499.00
J. Michael Poss	325,525		0.192		62,499.00
K. Shane Hartman	264,331		0.192		50,835.00
Kathryn D. Fuller	130,213		0.192		25,003.00
Payment in Stock in Lieu of Cash - Q2-2004
Ronald E. Lusk	106,199		0.305		32,339.85
J. Michael Poss	108,939		0.304		33,106.97
K. Shane Hartman	84,894		0.305		25,905.92
Kathryn D. Fuller	39,742		0.306		12,169.62
Staying Bonus
Ronald E. Lusk	555,502		0.160		88,880.34
J. Michael Poss	365,269		0.160		58,443.00
K. Shane Hartman	400,289		0.160		64,046.20
Kathryn D. Fuller	619,479		0.160		99,116.70
Shanna Raymond	31,250		0.160		5,000.00
Employment Agreement Shares
J. Michael Poss	312,500		0.160		50,000.00
Sign-On Bonus
Fredric S. Maxik	156,250		0.240		37,500.00
Payment in Stock in Lieu of Cash - Q3-2004
Fredric S. Maxik	52,081		0.480		25,000.00
Fredric S. Maxik	15,547		0.536		8,333.33
	4,393,321			$	948,738.60

In 2005, Lighting Science Group paid starting bonuses in common stock to certain employees in conjunction with commencement of their employment by Lighting Science Group. The number of shares issued and the price per share for such shares issued during 2005 are as follows:

Date	Issuee	No. of Shares		Price per Share		Total
05/10/2005	Kate Blackmon	229,167	$	0.240	$	55,000
05/10/2005	Tracy Smith	10,000		0.240		2,400
		239,167			$	57,400

52

4)   On June 1, 2004, Lighting Science Group acquired 100% of the outstanding common stock of Lighting Science, Inc., a Las Vegas, Nevada-based corporation, which owns certain intellectual property related to the design and development of an ODL light bulb. We acquired all of the issued and outstanding capital stock of Lighting Science, Inc. from Phibian S Trust, Edward I. Lanier, and John Collingwood in exchange for 4,796,276 shares of Lighting Science Group’s common stock and Lighting Science Group’s obligation to issue up to an additional 4,499,965 shares of Lighting Science Group’s common stock upon the satisfaction of certain conditions under the stock purchase agreement. Those conditions were satisfied during the third quarter of 2004, and the additional shares of common stock were issued on or about September 3, 2004. The shares issued in conjunction with this acquisition were as follows:

Date	Issuee	No. of Shares		Price per Share		Total
06/02/2004	John A. Collingwood	1,774,622	$	0.240	$	425,909
06/02/2004	Lanier, Ed I.	1,774,622		0.240		425,909
06/02/2004	Phibian S Trust	1,247,032		0.240		299,288
09/03/2004	Edward I. Lanier	1,664,987		0.240		399,597
09/03/2004	John A. Collingwood	1,664,987		0.240		399,597
09/03/2004	Phibian S Trust	1,169,991		0.240		280,798
		9,296,241			$	2,231,097

53

5)   In connection with the acquisition of Lighting Science, Inc., Lighting Science Group undertook a private placement (“Private Placement”) of Lighting Science Group’s common stock under Regulation D of the Securities Act of 1933. A total of $3,874,890 was raised through the sale of 18,425,244 shares of Lighting Science Group’s common stock, as follows:

Date	Issuee	No. of Shares		Price per Share		Total
05/17/04	Philip R. Lacerte	1,041,667	$	0.240	$	250,000
05/27/04	Lieser, Charles D.	8,334		0.240		2,000
05/27/04	Quince Associates, LP	416,667		0.240		100,000
05/27/04	Schereck, William J.	41,667		0.240		10,000
05/27/04	Terrell, Charles T.	41,667		0.240		10,000
05/27/04	Tipton, Paul S.	62,500		0.240		15,000
05/27/04	Unimark Insurance Company	41,667		0.240		10,000
05/27/04	Young, George Parker	104,167		0.240		25,000
05/28/04	Barson, Alan	20,834		0.240		5,000
05/28/04	Barson, Alan	83,334		0.240		20,000
05/28/04	Barson, Trust for Daniel G	10,417		0.240		2,500
05/28/04	Barson, Trust for Sophia J.	10,417		0.240		2,500
05/28/04	Boudreaux, Reece	20,834		0.240		5,000
05/28/04	Christensen, Clay	25,000		0.240		6,000
05/28/04	Christensen, Wade	20,834		0.240		5,000
05/28/04	Mills, John A.	20,834		0.240		5,000
06/07/04	Conner, Halden	41,667		0.240		10,000
06/07/04	Norris, Eric	83,334		0.240		20,000
06/07/04	Taccetta Family LTD Partnership	62,500		0.240		15,000
07/15/04	Lieser, Charles D.	20,834		0.240		5,000
07/15/04	Pierce, Andy G.	104,167		0.240		25,000
08/09/04	Charles T. Terrell	41,667		0.240		10,000
08/09/04	David Sands	83,334		0.240		20,000
08/09/04	Elise C. Ayers	31,250		0.240		7,500
08/09/04	Granville Merritt	938		0.240		225
08/09/04	Jeffrey J. Ayers	938		0.240		225
08/12/04	John A. Collingwood	83,334		0.240		20,000
08/13/04	Edward I. Lanier	62,500		0.240		15,000
08/20/04	Antonio C. Alamo	104,167		0.240		25,000
08/20/04	Halden Conner	20,834		0.240		5,000
08/20/04	Robert H. Shelton	4,167		0.240		1,000
08/20/04	Robert M. McMonigle	104,167		0.240		25,000
08/23/04	G. Patrick Simpkins, Jr.	104,167		0.240		25,000
08/24/04	Charles T. Terrell	52,084		0.240		12,500
08/24/04	Chase G. Dickinson	417		0.240		100
08/24/04	East Park Research, Inc.	208,334		0.240		50,000
08/24/04	J. Michael McWilliams	62,500		0.240		15,000
08/24/04	Joan H. Gardner	20,834		0.240		5,000
08/24/04	Phillip W. Mirabelli	62,500		0.240		15,000
08/24/04	SGD Family Limited Partnership	62,500		0.240		15,000
08/25/04	Barbara Ann Churchman	417		0.240		100
08/25/04	Holly A. Davis	62,500		0.240		15,000
08/25/04	Mary D. Beougher	62,500		0.240		15,000
08/25/04	Max G. Garoutte & Sandra B. Garoutte	62,500		0.240		15,000
08/25/04	The Bristol Company	62,500		0.240		15,000
08/26/04	Eric Norris	125,000		0.240		30,000
08/26/04	Suzanne M. Farina	83,334		0.240		20,000
08/27/04	Allen B. Smith and Jo A. Smith	83,334		0.240		20,000
08/27/04	Brian H. Wald	104,167		0.240		25,000
08/30/04	Clyde Hargrove	41,667		0.240		10,000
08/30/04	Daniel H. Bradley	104,167		0.240		25,000
08/30/04	Fitzgerald Realty Group, Inc., PSP	150,000		0.240		36,000
08/30/04	Lara L. Poynor	41,667		0.240		10,000
08/30/04	Paul S. Tipton	125,000		0.240		30,000
08/30/04	Randy Phillips	41,667		0.240		10,000
08/30/04	USGT Investors, LP	31,250		0.240		7,500
08/31/04	Dennis Brett	62,500		0.240		15,000
08/31/04	Thomas Bradley	104,167		0.240		25,000
09/02/04	G. Patrick Kevlin	41,667		0.240		10,000
09/02/04	George Parker Young	312,500		0.240		75,000
09/02/04	Robert L. Woodson, III	41,838		0.239		10,000
09/03/04	BLF Investments, LP	416,667		0.240		100,000
09/03/04	D. Craig Martin	208,333		0.240		50,000
09/03/04	Reagan K. Vidal	62,500		0.240		15,000
09/03/04	Scott Murray	20,833		0.240		5,000
09/03/04	Steve Bronner	62,500		0.240		15,000
09/03/04	Stuart G. Dickinson	62,500		0.240		15,000
09/10/04	Craig R. Hudson	175,000		0.240		42,000
09/10/04	Daryl N. Snadon	104,167		0.240		25,000
09/10/04	Quince Associates, LP	416,667		0.240		100,000
09/16/04	Andrew N. Adler	208,333		0.240		50,000
09/16/04	Tanner Gill	41,667		0.240		10,000
09/22/04	Chris M. Gigl	41,667		0.240		10,000
09/22/04	Steve Dulin	208,333		0.240		50,000
09/22/04	William Arnold	83,333		0.240		20,000
10/01/04	USGT Investors, LP	129,688		0.154		20,000
10/04/04	Amy C. Lacerte	125,000		0.160		20,000
10/04/04	Stuart G. Dickinson	200,000		0.240		48,000
10/05/04	Bernie Selmanson	20,000		0.240		4,800
10/05/04	Wendy S. Berkeley	4,167		0.240		1,000
10/08/04	Mark L. Sutton	208,333		0.240		50,000
10/20/04	Dianne Norris	83,333		0.240		20,000
10/20/04	Kate Blackmon	12,500		0.240		3,000
10/21/04	Joan H. Gardner	10,417		0.240		2,500
10/22/04	Greenfield Capital V, L.P.	1,504,167		0.066		100,000
10/22/04	James E. Fitzgerald	187,500		0.240		45,000
10/22/04	Phillip C. McGraw	416,667		0.240		100,000
10/22/04	Robert J. Schlegel	1,000,000		0.240		240,000
11/08/04	Donald R. Harkleroad	55,000		0.240		13,200
11/08/04	Jill Greene	10,000		0.240		2,400
11/08/04	K.C. White	10,000		0.240		2,400
11/08/04	Jennifer Lim	10,000		0.240		2,400
11/08/04	Michael Anderson	5,000		0.240		1,200
11/08/04	Joseph McCord	5,000		0.240		1,200
11/08/04	Tim Myers	5,000		0.240		1,200
11/08/04	SDW Investments, Ltd.	196,667		0.239		47,000
11/08/04	Stan T. Waldrop	100,000		0.240		24,000
11/08/04	Stan T. Waldrop	150,000		0.240		36,000
11/08/04	Stan T. Waldrop	250,000		0.240		60,000
11/08/04	Trust for Patrick Barley	345,000		0.241		83,000
11/10/04	Philip R. Lacerte	1,666,667		0.150		250,000
11/17/04	Ronald E. Lusk Revocable Trust	2,083,333		0.240		500,000
11/19/04	MRM Capital, LP	1,000,000		0.125		125,000
11/24/04	Stan T. Waldrop	100,000		0.240		24,000
11/24/04	Stan T. Waldrop	100,000		0.240		24,000
11/24/04	Stan T. Waldrop	100,000		0.240		24,000
11/24/04	Stan T. Waldrop	325,000		0.240		78,000
12/08/04	Philip R. Lacerte	625,000		0.240		150,000
12/21/04	Marasco, Mark	41,667		0.240		10,000
12/31/04	Fredric S. Maxik - Family Trusts	6,000		0.240		1,440
01/18/05	Phillips, Josh	41,666		0.240		10,000
02/03/05	McBride, Curtis	41,667		0.240		10,000
		18,425,255			$	3,874,890

On March 4, 2005 Lighting Science Group amended its filing of Form D (Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption) to elect the exemption under Rule 506 rather than Rule 505 for the sale of Lighting Science Group’s common stock. Under Rule 506, Lighting Science Group can raise an unlimited amount of money from any number of “accredited” investors and up to 35 “non-accredited” investors.

54

6)   During 2004, Lighting Science Group paid certain vendors for rent and consulting services in common stock of Lighting Science Group. The number of shares issued and the price per share for such shares issued during 2005 are as follows:

Date	Issuee	No. of Shares		Price per Share		Total	Purpose
04/06/2004	Durbin, Jim	37,750	$	0.320	$	12,080	Rent
04/06/2004	Daryl N. Snadon	302,000		0.320		96,639	Rent
04/06/2004	Sommer, Mark	37,750		0.320		12,080	Rent
04/15/2004	Philip R. Lacerte	125,000		0.160		20,000	Consulting
05/11/2004	MRM Capital, LP	187,500		0.160		30,000	Consulting
05/20/2004	Phillip W. Offill, Jr. Trustee	20,800		0.016		333	Consulting
05/27/2004	International Management	125,000		0.160		20,000	Consulting
05/27/2004	Oliver, Debra	25,000		0.160		4,000	Consulting
05/27/2004	Young, George Parker	25,000		0.160		4,000	Consulting
06/22/2004	Barron, Charles & Karen	31,250		0.160		5,000	Consulting
07/15/2004	Lowe, George L.	62,500		0.320		20,000	Consulting
07/15/2004	T&T Jeary Family, Ltd.	93,750		0.320		30,000	Consulting
08/06/2004	Daryl N. Snadon	69,903		0.385		26,893	Rent
08/06/2004	Jim Durbin	8,738		0.385		3,362	Consulting
08/06/2004	Mark Sommer	8,738		0.385		3,362	Consulting
09/28/2004	T & T Jeary Family, Ltd.	100,000		0.540		54,000	Consulting
12/01/2004	Ed Hammer	34,483		1.450		50,000	Consulting
12/08/2004	David A. Reed	25,000		1.440		36,000	Consulting
12/27/2004	Durbin, Jim	7,937		0.754		5,985	Consulting
12/27/2004	Daryl N. Snadon	63,494		0.754		47,877	Rent
12/27/2004	Sommer, Mark	7,937		0.754		5,985	Consulting
		1,399,530			$	487,594

7)   As discussed in the Certain Relationships and Related Transactionssection of this prospectus, Lighting Science Group was obligated under the terms of a line of credit agreement to Match, Inc. outstanding in the amount of $1,851,299 principal balance and $315,554 in accrued interest at December 31, 2004. Ronald E. Lusk, Chairman of Lighting Science Group, controls Match, Inc. as Trustee of the Ronald E. Lusk Revocable Trust. Additionally, on July 25, 1994, Lighting Science Group sold 533,333 shares of 8% cumulative Series A Senior Convertible Preferred Stock with cumulative dividends of $0.30 per annum for each share and conversion rights to common stock at a price of $3.75 per share, or a total of $2 million. At the date of the preferred stock Conversion Notice submitted by Match, Inc., these shares were owned by Match, Inc. Mr. Lusk serves as the trustee of the trust. No dividends had been paid with respect to this class of stock. At the date of the agreement, the cumulative unpaid dividend with respect to the preferred stock was $1,670,685. Thus, the total liquidation preference of the preferred stock was $3,670,685 as of March 30, 2005. A special committee of independent directors consisting of Directors Robert E. Bachman, Donald R. Harkleroad, and Robert L. Woodson, III (the “Special Committee”) was formed on March 14, 2005 to evaluate a proposal submitted by Mr. Lusk to convert the preferred stock and the debt to shares of common stock of Lighting Science Group.

The board of directors (with Mr. Lusk abstaining and one director absent) reviewed the analysis prepared by the Special Committee. Based upon the conversion price of $1.725 per share offered by Mr. Lusk with respect to both the conversion of the preferred stock and the conversion of the debt, as well as the proposal by Mr. Lusk to reduce the accrued interest on the line of credit by $250,000, the board concluded that the offer was fair to Lighting Science Group and voted to approve the transactions contained in the proposal from Mr. Lusk. The common shares issued in settlement of this preferred stock and credit agreement totaled 3,254,034 and were issued on May 5, 2005, as follows:

Date	Issuee	No. of Shares		Price per Share		Total
05/05/2005	2 Boys AB Revocable Trust	1,627,017	$	1.725	$	2,806,604
05/05/2005	Ronald E. Lusk Revocable Trust	1,627,017		1.725		2,806,604
		3,254,034			$	5,613,209

55

8)   On February 10, 2005, Lighting Science Group entered into a consulting contract with Equity Group, Inc. (“Equity”) to provide financial public relations and investor relations on behalf of Lighting Science Group. In connection therewith, Lighting Science Group agreed to issue Equity two warrants to purchase an aggregate of $600,000 worth of shares of Lighting Science Group’s common stock with each warrant having an exercise price to be determined in the future. Such exercise prices has been determined to be $0.80 per share. Each warrant will provide for the purchase of $300,000 worth of common stock of Lighting Science Group. One of the warrants became fully vested upon the signing of the contract. The other warrant will become exercisable upon the first anniversary date of the consulting contact unless terminated earlier.

9)   On February 15, 2005, Lighting Science Group Corporation entered into a letter agreement with Giuliani Capital Advisors LLC (“GCA”) to engage GCA to provide financial advisory services to Lighting Science Group and a to-be-formed entity. The intent of the Joint Venture is to own streetlights and related lighting infrastructure targeting municipalities, public utility corporations, universities, large mall owners, parking lot owners, and other organizations as partners/customers. We issued a warrant to GCA that is exercisable by GCA to purchase up to 1,650,000 shares of Lighting Science Group’s common stock, subject to adjustment in certain circumstances as provided in the warrant. The 1,650,000 shares represented 3.1% of outstanding shares of common stock at February 15, 2005. The warrant has a five-year term and GCA may exercise the warrant in whole or in part at any time during the five-year term. The exercise price for each share of common stock is $.60 per share or $990,000 if GCA were to exercise all 1,650,000 shares under the warrant.

10)   At a meeting of the Board of Directors of Lighting Science Group held on March 30, 2005, certain individual members of our board of directors and members of senior management agreed to loan Lighting Science Group an aggregate of $340,000 on a short-term basis pursuant to the terms of promissory notes from Lighting Science Group and in favor of each of the individual lenders. The members of the board who agreed to loan Lighting Science Group funds and the amounts loaned by certain officers of senior management are as follows: John Collingwood - $100,000, Ronald Lusk - $30,000, Stan Waldrop - $30,000, Phil Lacerte - $30,000, Robert E. Bachman - $30,000, Donald R. Harkleroad - $30,000, Robert L. Woodson, III - $30,000, Daryl Snadon - $30,000, and the Phibian S Trust - $30,000. Ronald Lusk loaned Lighting Science Group an additional $15,000 on April 29, 2005 and $5,000 on May 2, 2005. Daryl Snadon loaned us an additional $100,000 on May 3, 2005 and Don Harkleroad loaned us an additional $16,000 on May 6, 2005. The board members and officers who loaned Lighting Science Group funds in this transaction are collectively referred to as the Lenders. Proceeds from each of the loans were used to fund our continuing operating expenses, including salaries, legal and accounting fees and for working capital purposes and other contingencies. Pursuant to the terms of the notes issued by us to each Lender, eight warrants vested for 30,000 shares of common stock on the date of issuance, April 20, 2005. One warrant vested for 100,000 shares of common stock on the date of issuance, April 20, 2005. On April 29, 2005 and May 2, 2005, respectively, we issued warrants for 15,000 and 5,000 shares of common stock to Mr. Lusk. On May 3, 2005 we issued a warrant for 100,000 shares of common stock to Mr. Snadon and on May 6, 2005, we issued a warrant for 16,000 shares of common stock to Mr. Harkleroad. All such warrants vested on the date of issuance. The warrants have anti-dilution and exercise price adjustment provisions for dividends and stock splits. Each warrant expires five years from the date of issuance.

56

11)   On May 12, 2005, Lighting Science Group entered into a definitive Securities Purchase Agreement (the “Securities Purchase Agreement”) with Western Reserve Hedged Equity, LP, AG Domestic Convertibles, L.P., A.G. Offshore Convertibles, Ltd., the Gryphon Master Fund, L.P., the GSSF Master Fund, L.P., Xerion Partners I LLC, Xerion Partners II Master Fund Limited, Telemark Asset Management, LLC and certain other accredited investors (collectively referred to as the “Purchasers”) for the private placement of 6% convertible preferred stock of Lighting Science Group, $.001 par value, pursuant to which the Purchasers have agreed to purchase 2,260,966 shares of the preferred stock at $3.20 per share for an aggregate purchase price of $7,235,086. The Securities Purchase Agreement was executed on May 12, 2005. Additionally, warrants, a registration rights agreement and lock-up agreements with affiliates and certain stockholders, respectively, of Lighting Science Group were also entered into and executed. A certificate of designation that sets forth the rights, preferences, terms and conditions of the preferred stock was filed with the Secretary of State of the State of Delaware on May 10, 2005.

The preferred stock may be converted into shares of common stock. The preferred stock will have an initial conversion price of $0.80 per share of common stock subject to full ratchet anti-dilution provisions. The Purchasers also received warrants to purchase an additional 6,782,889 shares of common stock at an exercise price of $0.96 per share (subject to adjustment pursuant to anti-dilution provisions). The warrants have a term of five years from the closing date. Merriman Curhan Ford & Co. and MRM Capital LP acted as placement agents for this transaction. Warrants to purchase a total of 639,844 shares of common stock at an exercise price of $1.50 per share (subject to adjustment pursuant to anti-dilution provisions) were issued to Merriman and MRM in conjunction with this transaction.

The preferred shares issued in conjunction with this Securities Purchase Agreement are as follows:

Date	Issuee	No. of Shares		Price per Share		Total
05/12/2005	Western Reserve Hedged Equity, LP	178,125	$	3.200	$	570,000
05/12/2005	Western Reserve Hedged Equity Offshore, Ltd.	196,875		3.200		630,000
5/12/2005	Gryphon Master Fund, L.P.	406,250		3.200		1,300,000
05/12/2005	GSSF Master Fund, LP	218,750		3.200		700,000
05/12/2005	AG Domestic Convertibles, L.P.	281,250		3.200		900,000
05/12/2005	AG Offshore Convertibles, Ltd.	656,250		3.200		2,100,000
05/12/2005	Xerion Partners I LLC	78,125		3.200		250,000
05/12/2005	Xerion Partners II Master Fund Limited	78,125		3.200		250,000
05/12/2005	Telemark Asset Management, LLC	39,063		3.200		125,000
05/12/2005	Jerome Hill Amy Hill JTWRS	18,750		3.200		60,000
05/12/2005	George L. Lowe	7,813		3.200		25,000
05/12/2005	2 Boys AB Revocable Trust	7,813		3.200		25,001
05/12/2005	Donald R. Harkleroad	15,625		3.200		50,000
5/12/2005	Daryl N. Snadon	29,238		3.200		93,565
05/12/2005	Trust for Cole Snadon	7,813		3.200		25,000
05/12/2005	Trust for Kendall Snadon	7,813		3.200		25,000
05/12/2005	Robert E. Bachman	10,413		3.200		33,322
05/12/2005	John A. Collingwood	4,688		3.200		15,001
05/12/2005	Philip R. Lacerte	10,374		3.200		33,197
05/12/2005	Ed Lanier	7,813		3.200		25,000
	Total Shares	2,260,966			$	7,235,086

The warrants issued in conjunction with this Securities Purchase Agreement are as follows:

Date	Issuee	No. of Shares		Price per Share		Total
5/12/2005	Western Reserve Hedged Equity, LP	534,375	$	0.960	$	513,000
5/12/2005	Western Reserve Hedged Equity Offshore, Ltd.	590,625		0.960		567,000
5/12/2005	Gryphon Master Fund, L.P.	1,218,750		0.960		1,170,000
5/12/2005	GSSF Master Fund, LP	656,250		0.960		630,000
5/12/2005	AG Domestic Convertibles, L.P.	843,750		0.960		810,000
5/12/2005	AG Offshore Convertibles, Ltd.	1,968,750		0.960		1,890,000
5/12/2005	Xerion Partners I LLC	234,375		0.960		225,000
5/12/2005	Xerion Partners II Master Fund Limited	234,375		0.960		225,000
5/12/2005	Telemark Asset Management, LLC	117,188		0.960		112,500
5/12/2005	Jerome Hill Amy Hill JTWRS	56,250		0.960		54,000
5/12/2005	George L. Lowe	23,437		0.960		22,500
5/12/2005	2 Boys AB Revocable Trust	23,438		0.960		22,500
5/12/2005	Merriman Curhan & Ford	575,860		1.500		863,790
5/12/2005	MRM Capital, LP (Aspen Advisors)	63,984		1.500		95,976
5/12/2005	Donald R. Harkleroad	46,876		0.960		45,001
5/12/2005	Daryl N. Snadon	87,715		0.960		84,206
5/12/2005	Trust for Cole Snadon	23,437		0.960		22,500
5/12/2005	Trust for Kendall Snadon	23,437		0.960		22,500
5/12/2005	Robert E. Bachman	31,239		0.960		29,989
5/12/2005	John A. Collingwood	14,063		0.960		13,500
5/12/2005	Philip R. Lacerte	31,122		0.960		29,877
5/12/2006	Ed Lanier	23,437		0.960		22,500
	Total Securities Purchase Agreement Warrants	7,422,733			$	7,471,339

57

ITEM 27. EXHIBITS

Number	Description
3.1	Amended and Restated Articles of Incorporation of Lighting Science Group Corporation
3.2	Amended and Restated By-laws of Lighting Science Group Corporation
4.1	Stock Purchase Agreement of Lighting Science Inc. (1)
4.2	Preferred Stock Securities Purchase Agreement (2)
4.3	Form of Warrant (2)
4.4	Registration Rights Agreement (2)
4.5	Form of Lock-Up Agreement (Affiliates) (2)
4.6	Form of Lock-Up Agreement (Non-Affiliates) (2)
4.7	Certificate of Designation (2)
4.8	Form of Subscription Agreement for 2004 Private Placement
4.9	Purchaser List for 2004 Private Placement
4.10	Warrants Issued to Giuliani Capital Advisors (3)
5.1	Opinion on legality from Patton Boggs LLP*
10.1	Letter Agreement with Giuliani Capital Advisors for services (3)
10.2	Consulting Agreement with Equity Group (4)
10.3	Employment Agreement with Ronald E. Lusk (5)
10.4	Employment Agreement with Philip R. Lacerte (6)
10.5	Employment Agreement with Fredric S. Maxik (1)
10.6	Employment Agreement with K. Shane Hartman (5)
10.7	Employment Agreement with Kathryn D. Fuller (5)
10.8	Employment Agreement with J. Michael Poss (5)
10.9	Employment Agreement with Stan T. Waldrop (6)
23.1	Consent of Turner, Stone & Company, LLP
23.2	Consent of Patton Boggs LLP*
24	Power of attorney (included on signature page of this registration statement)

* to be filed by amendment

 (1) Incorporated by reference to the Registrant's current report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2004.

 (2) Incorporated by reference to the Registrant's current report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2005.

 (3) Incorporated by reference to the Registrant's current report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2005.

 (4) Incorporated by reference to the Registrant's current report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2005.

 (5) Incorporated by reference to the Registrant's quarterly report on Form 10-QSB filed with the Securities and Exchange Commission on August 16, 2004.

 (6) Incorporated by reference to the Registrant's quarterly report on Form 10-QSB filed with the Securities and Exchange Commission on November 16, 2004.

58

ITEM 28. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales of our securities are being made, a post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;

(iii) Include any additional or changed material information on the plan of distribution;

(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the end of the offering.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

59

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Dallas, State of Texas, on July 12, 2005.

LIGHTING SCIENCE GROUP CORPORATION

By: /s/ Ronald E. Lusk

       Ronald E. Lusk

       Chairman of the Board and

            Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald E. Lusk and Michael N. Lavey, or either of them, as their true and lawful attorney-in-fact in any and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in and all amendments thereto, including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or either one of his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Ronald E. Lusk Ronald E. Lusk	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	July 11, 2005
/s/ Michael N. Lavey Michael N. Lavey	Chief Financial Officer (Principal Financial and Accounting Officer)	July 11, 2005
/s/ Robert E. Bachman Robert E. Bachman	Director	July 6, 2005
/s/ John A. Collingwood John A. Collingwood	Director	July 6, 2005
/s/ Donald R. Harkleroad Donald R. Harkleroad	Director	July 7, 2005
/s/ Fredric S. Maxik Fredric S. Maxik	Director	July 7, 2005
/s/ Robert M. McMonigle Robert M. McMonigle	Director	July 7, 2005
/s/ J. Michael Poss J. Michael Poss	Director	July 7, 2005
/s/ Daryl N. Snadon Daryl N. Snadon	Director	July 8, 2005
/s/ Robert L. Woodson, III Robert L. Woodson, III	Director	July 7, 2005

60

EX-3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

IATROS HEALTH NETWORK INC.

_____________

The Certificate of Incorporation of Iatros Health Network, Inc., originally filed with the Secretary of the State of Delaware on June 16, 1988, under the name Neo Corp. is hereby amended and restated as follows:

FIRST: The name of the corporation (hereinafter called the "Corporation") is

PHOENIX HEALTHCARE CORPORATION

SECOND: The address, including street, number, city, and county, of the registered office of the Corporation in the State of Delaware is 1013 Centre Road; City of Wilmington, County of New Castle and the name of the registered agent of the Corporation in the State of Delaware is The Prentice Hall Corporation System, Inc.

THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is Fifty Five Million (55,000,000), consisting of Fifty Million (50,000,000) shares of Common Stock, all of a par value of $.001 and Five Million (5,000,000) shares of Preferred Stock, all of a par value of $0.001.

The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares to Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding shares of common stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing any series of Preferred Stock.

FIFTH: The Corporation is to have perpetual existence.

SIXTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

SEVENTH: For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided:

1. The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the By-Laws. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the Corporation would have if there were no vacancies. No election of directors need be by written ballot.

2. After the original or other By-Laws of the Corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of Section 109 of the General Corporation Law of the State of Delaware, and, after the Corporation has received any payment for any of its stock, the power to adopt, amend, or repeal the By-Laws of the Corporation may be exercised by the Board of Directors of the Corporation; provided, however, that any provision for the classification of directors of the Corporation for staggered terms pursuant to the provisions of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial By-Law or in a By-Law adopted by the stockholders entitled to vote of the Corporation unless provisions for such classification shall be set forth in this certificate of incorporation.

3. Whenever the Corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the Corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the certificate of incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (2) of subsection (b) of section 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class.

NINTH: The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of section 102 of the General Corporation Law of the State of Delaware, as the same be amended and supplemented.

TENTH: The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

ELEVENTH: From time to time any of the provisions of this certificate of incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the Slate of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this certificate of incorporation are granted subject to the provisions of this Article ELEVENTH.

The amendments of the certificate of incorporation herein certified have been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.

I, THE UNDERSIGNED, acknowledge that the foregoing Amended and Restated Certificate of Incorporation is the act and deed of the Corporation, and do certify that the facts herein stated are true, and I have accordingly hereunto set my hand and seal this 29th day of April, 1999.

/s/ RONALD E. LUSK

Ronald E. Lusk

Chairman and Chief Executive Officer

AMENDMENT TO THE

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF PHOENIX HEALTHCARE CORPORATION

WHEREAS, the Board of Directors of Phoenix Healthcare Corporation (the “Corporation”) has authorized an increase in the number of shares of the Corporation’s common stock available for issuance under its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”).

ACCORDINGLY, the Corporation hereby amends the Certificate of Incorporation as follows:

The FOURTH article of the Certificate of Incorporation is hereby amended to read in its entirety as follows:

“The total number of shares of stock which the Corporation shall have authority to issue is Two Hundred and Fifty Five Million (255,000,000), consisting of Two Hundred and Fifty Million (250,000,000) shares of Common Stock, all of a par value of $0.001 and Five Million (5,000,000) shares of Preferred Stock, all of a par value of $0.001.”

________________________________________________________________________

IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer to execute this Amendment as of June 12, 2000.

PHOENIX HEALTHCARE CORPORATION

By: /s/ ROBERT J. STARZYK

Name: Robert J. Starzyk

Title: Chief Financial Officer and EVP

AMENDMENT TO THE

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF PHOENIX HEALTHCARE CORPORATION

WHEREAS, the Board of Directors of Phoenix Healthcare Corporation (the “Company”) has authorized a change of name of the Company to The Phoenix Group Corporation under its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”).

WHEREAS, a majority of stockholders of the Company’s common stock approved the change of name of the Company to The Phoenix Group Corporation as of August 12, 2000.

ACCORDINGLY, the Company hereby amends the Certificate of Incorporation as follows:

The FIRST article of the Amended and Restated Certificate of Incorporation is hereby amended to read in its entirety as follows:

“The name of the corporation (hereinafter called the “Corporation”) is The Phoenix Group Corporation.”

________________________________________________________________________

IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Amendment as of August 12, 2000.

PHOENIX HEALTHCARE CORPORATION

By: /s/ KATHRYN D. FULLER

Name: Kathryn D. Fuller

Title: Corporate Secretary

CERTIFICATE OF CORRECTION FILED TO CORRECT

THE AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

The Phoenix Group Corporation (the “Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware.

DOES HEREBY CERTIFY:

1. The name of the corporation is The Phoenix Group Corporation.

2. That an Amended and Restated Certificate of Incorporation of Iatros Health Network, Inc. was filed with the Secretary of State of Delaware on April 29, 1999 (changing the corporate name to Phoenix Healthcare Corporation) (the “Certificate”), and that the Certificate requires correction as permitted by Section 103(f) of the General Corporation Law of the State of Delaware.

3. The defect of the Certificate resulted from an unintentional deletion of the terms of the Corporation’s preferred stock and is to be corrected as follows:

4. Article Four of the Certificate reads “The total number of shares of stock which the Corporation shall have authority to issue is Fifty Five Million (55,000,000), consisting of Fifty Million (50,000,000) shares of Common Stock, all of a par value of $.001 and Five Million (5,000,000) shares of Preferred Stock, all of a par value of $0.001. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding shares of common stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing any series of Preferred Stock.”

5. Article Four of the Certificate should be corrected to read "The total number of shares of stock which the Corporation shall have authority to issue is Fifty Five Million (55,000,000), consisting of Fifty Million (50,000,000) shares of Common Stock, all of a par value of $.001 and Five Million (5,000,000) shares of Preferred Stock, all of a par value of $0.001. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the share of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding shares of common stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing any series of Preferred Stock.

Of the authorized Preferred Stock, 533,333 shares are designated as "Series A Senior Convertible Preferred Stock" and 300,000 shares are designated as "Series B Preferred Stock," the powers, preferences, relative participating, optional and other special rights, qualifications, limitations, and restrictions of which are set forth in Exhibit A attached hereto and incorporated by reference."

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IN WITNESS WHEREOF, The Phoenix Group Corporation has caused this Certificate of Correction Filed to Correct the Amended and Restated Certificate to be signed, on its behalf by Ronald E. Lusk, its Chairman and Chief Executive Officer, this 4^th day of December, 2000.

THE PHOENIX GROUP CORPORATION

By: /s/ KATHRYN D. FULLER

Kathryn D. Fuller

Corporate Secretary

EXHIBIT A

DESIGNATION OF RIGHTS, PREFERENCES AND POWERS

OF SERIES A SENIOR CONVERTIBLE PREFERRED STOCK AND

SERIES B PREFERRED STOCK

The designation, powers, preferences and relative, participating, optional and other special rights with respect to the Series A Senior Convertible Preferred Stock and the Series B Preferred Stock of The Phoenix Group Corporation, a Delaware corporation (hereinafter referred to as the "Corporation" or the "Company"), and the qualifications, limitations and restrictions thereof, are as set forth below (defined terms used herein and not otherwise defined shall have the meanings assigned to them in the Corporation's Amended and Restated Certificate of Incorporation, as amended):

1. Creation and Designation of Series A Convertible Preferred Stock; Number of Shares. The series of Preferred Stock designated and known as "Series A Senior Convertible Preferred Stock" shall consist of 533,333 shares. The series of Preferred Stock designated and known as "Series B Preferred Stock" shall consist of 300,000 shares.

2. Voting.

A. General. Each holder of Series A Senior Convertible Preferred Stock shall have the right to vote at, or to participate in, any meeting of stockholders of the Corporation, and to receive any notice of such meeting. Each holder of Series A Senior Convertible Preferred Stock shall be entitled to cast one vote for every share of Common Stock issuable upon conversion of the Series A Senior Convertible Preferred Stock on all matters that are submitted to stockholders of the Corporation for stockholder vote. Except as required by law, neither the shares of Common Stock nor the Series A Senior Convertible Preferred Stock shall vote as a separate class but shall be voted together as one class on all other matters. Except as may be otherwise provided herein or by law, the holders of the Series B Preferred Stock shall have no voting rights.

B. Board Size. So long as there are any shares of Preferred Stock outstanding, the number of directors of the Board of Directors of the Corporation shall be fixed at six (6); provided, however, that such number may be changed by the written consent or affirmative vote, given in writing or by vote at a meeting, of the holders of at least a majority of the then outstanding shares of the Series A Senior Convertible Preferred Stock and Common Stock voting together as one class. From and after such time as there shall no longer be any shares of Series A Senior Convertible Preferred Stock issued and outstanding, the number of directors of the Board of Directors shall be fixed and determined by the majority vote of the Board of Directors of the Corporation.

C. Board Size if Cumulative Dividends in Arrears. In the event that, at any time the Series A Senior Convertible Preferred Stock remains outstanding, the Cumulative Dividends (as herein defined) shall be in arrears in an amount equal to two (2) full quarterly dividend payments thereon, the number of directors shall be increased by one (1) additional director, and the holders of Series A Senior Convertible Preferred Stock, in addition to any other right to vote in elections of directors provided for in this paragraph 2 voting separately as a single class, shall be entitled to elect one (1) additional member of the Board of Directors of the Corporation at the next annual meeting of stockholders of the Corporation or at a special meeting called as hereinafter provided in this paragraph 2. Thereafter, for any period that the Cumulative Dividends are in arrears in an amount equal to two (2), additional full quarterly dividend payments thereon, the holders of the Series A Senior Convertible Preferred Stock shall have the right to elect one (1) additional director; provided, however, the total number of directors elected by the holders of the Series A Senior Convertible Preferred Stock shall not exceed seven (7) directors. Such voting rights of the holders of Series A Senior Convertible Preferred shall not exceed seven (7) directors. Such voting rights of the holders of Series A Senior Convertible Preferred Stock shall continue until all Cumulative Dividends thereon shall have been paid in full, whereupon the respective terms of the additional directors elected by the holders of the Series A Senior Convertible Preferred Stock shall, upon receipt by all holders of Series A Senior Convertible Preferred Stock in immediately available funds representing payment in full of all Cumulative Dividends, expire and the number of directors constituting the full Board of Directors be decreased to that number at which it was prior to the operations of this paragraph.

D. Special Meeting. At any time when the right of the holders of Series A Senior Convertible Preferred Stock to elect additional directors of the Corporation pursuant to paragraph 2C above shall have so vested, the Corporation, upon the written request of the holders of the Series A Senior Convertible Preferred Stock owning twenty percent (20%) of more of the then outstanding shares of the Series A Senior Convertible Preferred Stock, shall call a special meeting of the holders of the Series A Senior Convertible Preferred Stock for the purpose of designating the person or persons who shall serve in the position created by the default in the payments of the Cumulative Dividends. In the case of such written request, such special meeting shall be held within ten (10) days following the delivery of such request, at the time and place specified in the request. Any actions taken by the holders of the Series A Senior Convertible Preferred Stock may be taken by written consent of the holders of the majority of the shares of the Series A Senior Convertible Preferred Stock then outstanding.

E. Change in Board Size. Whenever the number of directors of the Corporation shall have been increased as provided in this paragraph 2, the number as so increased may thereafter be further increased or decreased in such manner as may be permitted by the By-laws of the Corporation and these Articles of Amendment. No such action shall impair the right of the holders of the Series A Senior Convertible Preferred Stock to elect and to be represented by up to that number of directors as provided in this paragraph 2.

3. Dividends.

A. Cumulative Dividends. Notwithstanding anything herein to the contrary, the holders of the Series A Senior Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, when and if declared by the Board of Directors, dividends at the rate per annum of $.30 on each outstanding share of Series A Senior Convertible Preferred Stock (the "Cumulative Dividends"). No dividends shall be paid by the Corporation on any shares of Common Stock or Preferred Stock, other than the Series A Senior Convertible Preferred Stock, unless all then accrued Cumulative Dividends are simultaneously paid on all shares of Series A Senior Convertible Preferred Stock. Any partial payment of then accrued Cumulative Dividends to holders of Preferred Stock shall be made ratably in proportion to the full amount of accrued Cumulative Dividends to which each such holder is then entitled. Cash distributions (other than distributions on dissolution) may be declared and paid upon shares of Common Stock in any calendar quarter of the Corporation only if cash dividends have been paid or declared and set apart upon all shares of Series A Senior Convertible Preferred Stock in an amount equal to all accrued and unpaid Cumulative Dividends. Cumulative Dividends shall be cumulative and accrue ratably from and after the date of issuance of the Series A Senior Convertible Preferred Stock, for each day that shares of Series A Senior Convertible Preferred Stock are outstanding and shall be payable in quarterly installments to holders of record of the Series A Senior Convertible Preferred Stock on September 30, 1994, and following thereafter to holders of record of the Series A Senior Convertible Preferred Stock on each of December 31, March 3l, June 30 and September 30 (each of such dates being hereinafter referred to as a "Dividend Record Date"), to the extent funds are legally available therefor, to holders of record of shares of Series A Senior Convertible Preferred Stock at the close of business on the last business day immediately preceding each Dividend Payment Date. Cumulative Dividends shall accrue from day to day, whether or not earned or declared, and shall be cumulative; provided, however, that except as provided in paragraph 4, the Corporation shall be under no obligation to pay such Cumulative Dividends unless so declared by the Board of Directors, and provided, further, that upon conversion of any shares of Series A Senior Convertible Preferred Stock in accordance with the provisions of paragraph 6 hereof, the holder of such shares of Series A Senior Convertible Preferred Stock shall not be entitled to receive the Cumulative Dividends which have accrued to the date of such conversion (unless otherwise entitled thereto pursuant to the provisions hereof), and shall cease to have any right to Cumulative Dividends hereunder.

B. Distribution Other than Cash. At any time prior to July 1, 1996 that Cumulative Dividends are paid to the holder of Series A Senior Convertible Preferred Stock, pursuant to the terms of this paragraph 3, the Corporation shall have the right to declare in that calendar quarter a Cumulative Dividend payable in cash (as provided in subparagraph 3A hereof) or payable in Common Stock. The value of any payment of such Cumulative Dividend in Common Stock shall be the market value of the Common Stock based upon the average of the closing bid prices of the Common Stock as reported by NASDAQ for the twenty (20) trading days prior to issuance, which, if the shares are restricted as to transfer shall be reduced for lack of marketability by an amount agreed upon by the Corporation and the majority of the holders of the Series A Senior Convertible Preferred Stock, or if no such market exists as reasonably determined by the Board of Directors of the Corporation as of the Dividend Record Date.

C. Other Dividends. The holders of the Series B Preferred Stock shall not be entitled to receive any dividends on the shares of the Series B Preferred Stock. Subject to the rights of the holders of the Series A Senior Convertible Preferred Stock, the holders of the Common Stock shall be entitled to dividends when, as and if declared by the Board of Directors of the Corporation.

4. Liquidation.

A. Senior Liquidation Payments. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (herein referred to as a "Liquidation"), the holders of the shares of the Series A Senior Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, whether from the Corporation's capital, surplus, or earnings, before any distribution or payment is made upon the Series B Preferred Stock (such series, together with any and all other Preferred Stock hereafter designated issued, being referred to collectively herein as "Non-Senior Preferred Stock") or upon the Common Stock, to a liquidation distribution in an amount equal to the greater of (i) $3.75 per share, plus, an amount equal to all Cumulative Dividends unpaid thereon (whether or not declared) and any other dividends declared but unpaid thereon, computed to the date payment thereof is made available, or (ii) such amount per share as would have been payable had each such share been converted to Common Stock pursuant to paragraph 6 immediately prior to such Liquidation (such amount payable with respect to one share of Series A Senior Convertible Preferred Stock being sometimes referred to as the "Senior Liquidation Payment" and with respect to all shares of Series A Senior Convertible Preferred Stock being sometimes referred to as the "Senior Liquidation Payments"). If upon such Liquidation the assets to be distributed among the holders of the Series A Senior Convertible Preferred Stock shall be insufficient to permit payment to the holders of the Series A Senior Convertible Preferred Stock of the full amounts of their Senior Liquidation Payments as aforesaid, then the entire assets of the Corporation to be so distributed shall be distributed among the holders of the Series A Senior Convertible Preferred Stock ratably among all holders in proportion to the full amount of their respective Senior Liquidation Payments.

B. Non-Senior Liquidation payments. Upon any Liquidation, after the holders of the Series A Senior Convertible Preferred Stock shall have been paid in full the Senior Liquidation Payments, and before the holders of Common Stock shall be paid any amounts, the holders of the shares of Non-Senior Convertible Preferred Stock shall be entitled to be paid an amount equal to $1.00 per share of Series B Preferred Stock then outstanding (the "Non-Senior Liquidation Payments").

C. Distribution of Remaining Assets. Upon any such Liquidation, after the holders of Preferred Stock shall have been paid in full the Senior Liquidation Payments and the Non-Senior Liquidation Payments to which they shall be entitled as aforesaid, the holders of Common Stock shall be entitled to be paid an amount equal to the remaining net assets of the Corporation, which shall be distributed ratably in proportion to the number of shares held among the holders of Common Stock.

D. Notice. Written notice of such Liquidation stating a payment date, the amount of Liquidation Payments, and the place where said Liquidation Payments shall be payable, shall be given by mail, postage prepaid, facsimile, or by telex not less than twenty (20) days prior to the payment date stated therein, to the holders of record of Preferred Stock such notice to be addressed to each such holder at its address as shown by the records of the Corporation. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of outstanding shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity, or affiliate thereof, and sale or transfer by the Corporation of all or substantially all its assets, shall be deemed to be a liquidation, within the meaning of the provisions of this paragraph 4.

5. Restrictions.

A. Series A Senior Convertible Preferred Stock. At any time when shares of Series A Senior Convertible Preferred Stock are outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by the Certificate of Incorporation, and in addition to any other vote required by law or the Certificate of Incorporation, without the approval of the holders of at least a majority of the then outstanding shares of Series A Senior Convertible Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a series, the Corporation will not.

(i) Create or authorize the creation of any additional class or series of shares of stock, unless the same ranks junior to the Series A Senior Convertible Preferred Stock as to the distribution of assets on Liquidation, or increase the authorized amount of the Preferred Stock or increase the authorized amount of any other class or series of shares of stock unless the same ranks junior to the Series A Senior Convertible Preferred Stock as to the distribution of assets on Liquidation, or create or authorize any obligation or security convertible into shares of Preferred Stock, or into shares of any other class or series of stock unless the same ranks junior to the Series A Senior Convertible Preferred Stock as to the distribution of assets on Liquidation, whether any such creation, authorization or increase shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise;

(ii) Except as set forth herein, purchase or set aside any sums for the purchase of, or pay any dividend or make any distribution on, any shares of stock other than the Series A Settler Convertible Preferred Stock. except for dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and except for the purchase of shares of Common Stock from the former employees of the Corporation who acquired such shares directly from the Corporation, if each such purchase is made pursuant to contractual rights held by the Corporation relating to the termination of employment of such former employee and the purchase price does not exceed the original issue price paid by any such former employee to the Corporation for such shares; or

(iii) Redeem or otherwise acquire any shares of Preferred Stock or any other class or series of shares except pursuant to a purchase offer made pro rata to all holders of the shares of the Series A Senior Convertible Preferred Stock on the basis of the aggregate number of outstanding shares of such Series A Senior Convertible Preferred Stock then held by each such holder.

6. Conversions. The holder of shares of Series A Senior Convertible Preferred Stock shall have the following conversion rights:

A. Right to Convert. Subject to the terms and conditions of this paragraph 6, the holder of any share or shares of Series A Senior Convertible Preferred Stock shall have the right, at its option at any time following the first anniversary of the date of issuance of the Series A Senior Convertible Preferred Stock, to convert all such shares of Series A Senior Convertible Preferred Stock (except that upon any Liquidation of the Corporation the right of conversion shall terminate at the close of business day fixed for payment of the Liquidation Payment distributable on the Series A Senior Convertible Preferred Stock) into such number of fully paid and nonassessable shares of Common Stock as is obtained with respect to shares of Series A Senior Convertible Preferred Stock by (A) multiplying the number of shares of Series A Senior Convertible Preferred Stock by $3.75 and (B) dividing the product thereof by the Conversion Price as hereinafter defined. As used in the foregoing sentence, the Conversion Price shall be the Conversion Pries as last adjusted in accordance with the terms of this paragraph 6 and in effect at the date any share or shares of Series A Senior Convertible Preferred Stock are surrendered for conversion (such price, or such price as last adjusted, being referred to as the "Conversion Price"). As of the date of the filing of this Amendment, the Conversion Price shall be $3.75, which Conversion Price shall be subject to adjustment in accordance with this paragraph 6. Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of his or her Series A Senior Convertible Preferred Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of Series A Senior Convertible Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with addresses) in which the certificate or certificates for shares of Common Stuck shall be issued.

B. Issuance of Certificates: Time Conversion Effected. Promptly after the receipt of the written notice referred to in subparagraph 6A and surrender of the certificate or certificates for the share or shares of Series A Senior Convertible Preferred Stock to be converted, the Corporation shall issue and deliver or cause to be issued and delivered to the holder, registered in such name or names as such holder may direct a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series A Senior Convertible Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation, and the certificate or certificate; for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Series A Senior Convertible Preferred Stock shall cease, and the person or persons in whose name or names any certificates or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.

C. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued upon conversion of Series A Senior Convertible Preferred Stock into Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion. At the time of each conversion, the Corporation shall pay in cash an amount equal to all dividends, excluding Cumulative Dividends, accrued and unpaid on the shares of Series A Senior Convertible Preferred Stock surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 6B. In case the number of shares of Series A Senior Convertible Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 6A exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of the appropriate series of Series A Senior Convertible Preferred Stock represented by the certificate or Certificates surrendered which are not to be converted. If any fractional share of Common Stock would, except for the provisions of the first sentence of this subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of delivering such fractional share, shall pay to the holder surrendering the Series A Senior Convertible Preferred Stock for conversion an amount in cash equal to the current market price of such fractional share as determined in good faith by the Board of Directors of the Corporation.

D. Adjustment of Price Upon Issuance of Common Stock. Except as provided in subparagraph 6E and 6P, if and whenever the Corporation shall issue or sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to have issued or sold, any shares of Common Stock for consideration per share (i) less than $3.75 (such amount being subject to equitable adjustment for reorganizations, stock splits, stock dividends and the like) and (ii) less than the Conversion Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, the Conversion Price shall be reduced to a price determined by dividing (x) an amount equal to the sum of (i) $2,000,000 plus (ii) the aggregate consideration, if any, received by the Corporation for all Common Stock issued on or after the date hereof (the "Purchase Date"); by (y) an amount equal to the sum of (i) 533,333 plus (ii) the number of shares of Common Stock issued since the Purchase Date.

For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to 6D(7) shall also be applicable:

(1) Issuance of Rights or Options. In case at any time the Corporation shall in any manner grant (whether directly or by assumption or otherwise) any warrants or other rights to subscribed for or to purchase, or any options for the purchase of Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercises of all such Options, plus, in the case of such Options which relate to Convertible Securities the minimum aggregate amount of additional considerations, if any, payable upon the issue or sale of such Convertible Securities, payable upon the issue or sale of such Convertible Securities and upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof , by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding; provided, however, that the terms of this paragraph shall not apply if the Corporation is the party to a merger, consolidation or share exchange. Except as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities.

(2) Issuance of Convertible Securities. In case the Corporation shall in any manner issue (whether directly or by assumption or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the Issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon any exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this subparagraph 6D, no further adjustment of the Conversion Price shall be made by reason of such issue or sale, provided, however, that the terms of this paragraph shall not apply if the Corporation is the Party to a merger, consolidation or share exchange.

(3) Change in Option Price of Conversion Rate. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph 6D(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the rate at which Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding providing for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduce; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities referred to in subparagraphs 6D(1), 6D(2) or 6D(3), the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued.

(4) Stock Dividends. In case the Corporation shall declare a dividend or make any other distribution upon any capital stock of the Corporation payable in Common Stock (except for dividends or distributions of Common Stock issued to the holder of the Corporation's issued and outstanding Common Stock), Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration.

(5) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received thereof shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as reasonably determined in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation.

(6) Record Date. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(7) Treasury Shares. The disposition of any shares of Common Stock owned or held by or for the account of the Corporation shall be considered an issue or sale of Common Stock for the purpose of this subparagraph 6D.

(8) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, merger, dissolution, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking all of such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Senior Convertible Preferred Stock against impairment.

(9) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price for any shares of Series A Senior Convertible Preferred Stock, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Senior Convertible Preferred Stock effected thereby a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Senior Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such holders shall of Series A Senior Convertible Preferred Stock.

E. Certain Issues of Common Stock Excepted. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Conversion Price in the case of the issuance of (i) up to 533,333 shares (appropriately adjusted to reflect the occurrence of any event describe in subparagraph 6F or 6G (a "Recapitalization"), of Common Stock issued upon conversion of any of the Series A Senior Convertible Preferred Stock, or (ii) up to 2,000,000 shares of Common Stock to be issued contemporaneously with the issuance of the Series A Senior Convertible Preferred Stock, or (iii) up to 500,000 shares (as adjusted for a Recapitalization of Common Stock) to employees of the Corporation pursuant to stock options or stock purchase plans approved by the Board of Directors of the Corporation or (iv) any shares issuable pursuant to options, warrants, or convertible securities which are outstanding as of the date of filing hereof or are described in the Private Placement Term Sheet of the Company date July 14, 1994.

F. Subdivision or Combination of Common Stock. In case the Corporation shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionally reduced, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.

G. Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Series A Senior Convertible Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such shares or shares of Series A Senior Convertible Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.

H. Notice Of Adjustment. Upon any adjustment of the Conversion Price of any shares of Series A Senior Convertible Preferred Stock, the Corporation shall give written notice thereof by first class mail, postage prepaid, facsimile or by telex, addressed to each holder of shares of such Series A Senior Convertible Preferred Stock at the address of such holder as shown on the books of the Corporation, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based.

I. Other Notices. In case at any time:

(1) the Corporation shall declare any dividend upon its Common Stock or Non-Senior Preferred Stock payable in cash or stock or make any other distribution to the holders of its Common Stock or Non-Senior Preferred Stock;

(2) the Corporation shall offer for subscription pro rata to the holders of its Common Stock or Non-Senior Preferred Stock any additional shares of stock of any class or the rights to acquire any shares of stock of any class;

(3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with or into, or a sale of all or substantially all its assets to, another entity or entities;

(4) there shall be voluntary or involuntary dissolution, liquidation or winding up of the Corporation; or

(5) the Corporation shall be in default under any of its material contracts, agreements, commitments or instruments;

then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, or by telex, addressed to each holder of any shares of Series A Senior Convertible Preferred Stock at the address of such holder as shown on the books of the Corporation, (a) at least 20 days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up as the case may be.

J. Stock to be Reserved. The Corporation will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Series A Senior Convertible Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series A Senior Convertible Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the Conversion Price in effect at the time. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of the applicable law or regulation or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment of the Common Stock if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Series A Senior Convertible Preferred Stock would exceed the total number of shares of Common Stock then authorized by the Certificate of Incorporation, but shall promptly use its best efforts to cause its Certificate of Incorporation to be so amended to permit such issuance.

K. No Reissuance of Series A Senior Convertible Preferred Stock. Shares of Series A Senior Convertible Preferred Stock which are converted into shares of Common Stock as provided herein shall be canceled at the time of such conversion and shall not thereafter be reissued by the Corporation.

L. Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of Series A Senior Convertible Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of Series A Senior Convertible Preferred Stock which is being converted.

M. Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Series A Senior Convertible Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Senior Convertible Preferred Stock in any manner which interferes with the timely conversion of such Series A Senior Convertible Preferred Stock, except as may otherwise be required to comply with applicable securities laws.

N. Definition of Common Stock. As used herein the term "Common Stock" shall, mean and include the Corporation's authorized Common Stock par value $.001 per share, as constituted on the date of filing of these terms of the Series A Senior Convertible Preferred Stock and Series B Preferred Stock, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall not be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock receivable upon conversion of shares of Series A Senior Convertible Preferred Stock shall include only shares designated as Common Stock of the Corporation on the date of filing of this instrument, or in case of the reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph 6G.

O. Mandatory Conversion. If at any time the Corporation shall effect a firm commitment underwritten public offering of shares Common Stock in which (i) the aggregate price paid for such shares by the public shall be at least $20,000,000 and (ii) the price paid by the public for such shares of Common Stock shall be at least $8.00 per share (adjusted for any Recapitalization), then effective upon the closing of the sale of such shares by the Corporation pursuant to such public offering, all outstanding shares of the Preferred Stock shall automatically convert to shares of common Stock.

P. Right of First Refusal and Mandatory Conversion to New Series of Preferred Stock.

(1) The Corporation shall, prior to the issuance by the Corporation of any of its securities (other than debt securities with no equity feature), offer to each holder of the Series A Senior Convertible Preferred Stock, by written notice the right, for a period of ten (10) days, to purchase all of such securities for cash at an amount equal to the price or other consideration for which such securities are to be issued; provided, however, that the first refusal rights of the holder of such Preferred Stock pursuant to this paragraph 6P shall not apply to securities issued (A) upon conversion of any of the Series A Senior Convertible Preferred Stock, (B) as a stock dividend or upon any subdivision of shares of Common Stock, provided that the securities issued pursuant to such stock dividend or subdivision are limited to additional shares of Common Stock, (C) pursuant to warrants, options and convertible securities which are outstanding as of the date of filing this Certificate of Designation or are otherwise described in subparagraph 6E (iv) above, (D) solely in consideration for the acquisition (whether by merger or otherwise) by the Corporation or any of its subsidiaries of all or substantially all of the stock or assets of any other entity, (E) pursuant to a firm commitment underwritten public offering, (F) pursuant to the exercise of options to purchase Common Stock granted to employees of the Corporation, not to exceed in the aggregate [1,500,000] shares (appropriately adjusted to reflect stock splits, stock dividends, combinations of shares and the like with respect to the Common Stock) less the number of shares (as so adjusted) issued pursuant to options outstanding as of the date of filing of this Certificate of Designation stating the terms of the Preferred Stock (the shares exempted by this clause (F) being hereinafter to as the "Reserved Employee Shares") and (G) upon the exercise of any right which was not itself in violation of the terms of this paragraph 6P. The Corporation's written notice to the holders of the Series A Senior Convertible Preferred Stock shall describe the securities proposed to be issued by the Corporation and specify the number, price and payment terms. Each holder of the Series A Senior Convertible Preferred Stock may accept the Corporation's offer as to the full number of securities offered to it or any lesser number, by written notice thereof given by it to the Corporation prior to the expiration of the aforesaid thirty (30) day period, in which event the Corporation shall promptly sell and such holder of such Series A Senior Convertible Preferred stock shall buy, upon the terms specified, the number of securities agreed to be purchased by such holder. Notwithstanding the foregoing, if the holders, of the Series A Senior Convertible Preferred Stock, agree, in the aggregate, to purchase more than the full number of securities offered by the Corporation, then each holder of such Series A Senior Convertible Preferred Stock accepting the Corporation's offer shall first be allocated the lesser of (i) the number of securities which such holder agreed to purchase and (ii) the number of securities as is equal to the full number of securities offered by the Corporation multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock held by such holder as of the date of the Corporation's notice of offer (treating such holder, for the purpose of such calculation, as the holder of the number of shares of Common Stock which would be issuable to such holder upon conversion, exercise or exchange of all securities (including but not limited to the Series A Senior Convertible Preferred Stock) held by such holder on the date such offer is made, that are convertible, exercisable or exchangeable into or for (whether directly or indirectly) shares of Common Stock and the denominator of which shall be the aggregate number of shares of outstanding Common Stock (calculated on an as-converted basis) (a "Pro Rata Share"), and the balance of the securities (if any) offered by the Corporation shall be allocated among the holders accepting the Corporation offer in proportion, to their relative equity ownership interests in the Corporation (calculated as aforesaid), provided that the holder shall be allocated more than the number of securities which such holder agreed to purchase and provided further that in cases covered by this sentence all holders shall be allocated among them the full number of securities offered by the Corporation. With respect to each future issuance of securities which is subject to the first refusal rights of this paragraph 6P and to which the provisions of paragraph 6D hereof would apply, each holder of the Series A Senior Convertible Preferred Stock that fails to purchase its Pro Rata Share of such Securities pursuant to this paragraph 6P (with respect to the particular issuance of securities then subject to the first refusal rights of this paragraph 6P) shall not be entitled to the anti-dilution adjustment provisions set forth in subparagraph 6D hereof with respect to such dilutive issuance, and all of such nonparticipating holder's shares shall automatically be converted into an equal number of shares of Series B Preferred Stock, concurrently with the issuance of the subject securities. The grant of the right to acquire shares of the Series A Senior Convertible Preferred Stock and the issuance of such shares, shall be treated as an issuance of securities which is subject to the first refusal rights of this paragraph 6P and to which the provision of paragraph 6D hereof would apply and shall be subject to the provision of the foregoing sentence.

(2) The Corporation shall be free at any time prior to ninety (90) days after the date of its notice of offer to the holders of the Series A Senior Convertible Preferred Stock, to offer and sell to any third party or parties the number of such securities not agreed by such holders to be purchased by them, at a price and on payment terms no less favorable to the Corporation than those specified in such notice of offer to such holders. However, if such third party sale or sales are not consummated within such ninety (90) day period, the Corporation shall not sell such securities as shall not have been purchased within such period without again complying with this paragraph 6P.

9. Preemptive Rights. Except as provided in paragraph 6 hereof, the holders of Series A Senior Convertible Preferred Stock shall not be entitled as of right to subscribe for any additional securities of the Corporation.

8. Redemption Provisions. Except as otherwise expressly provided or required by law, neither the Series A Senior Convertible Preferred Stock nor the Series B Preferred Stock may be redeemed.

10. Amendments. No provision of these terms of the Series A Senior Convertible Preferred Stock and Series B Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Series A Senior Convertible Preferred Stock, voting separately as a single series.

CERTIFICATE OF CORRECTION FILED TO CORRECT

THE AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION, AS AMENDED

The Phoenix Group Corporation (the “Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware.

DOES HEREBY CERTIFY:

1. The name of the corporation is The Phoenix Group Corporation.

2. That an Amended and Restated Certificate of Incorporation of Iatros Health Network, Inc. was filed with the Secretary of State of Delaware on April 29, 1999 (changing the corporate name to Phoenix Healthcare Corporation) (the “Certificate”), which Certificate was amended by the Amendment to the Amended and Restated Certificate of Incorporation of Phoenix Healthcare Corporation filed June 12, 2000 (increasing the number of shares authorized) and further amended by the Amendment to the Amended and Restated Certificate of Incorporation of Healthcare Corporation filed September 15, 2000 (changing the corporate name to The Phoenix Healthcare Corporation filed September 15, 2000 (changing the corporate name to The Phoenix Group Corporation) (as twice amended, the "Certificate, as Amended") and that such Certificate, as amended requires corrections as permitted by Section 103(f) of the General Corporation Law of the State of Delaware.

3. The defect of the Certificate resulted from an unintentional deletion of the terms of the Corporation’s preferred stock and is to be corrected as follows:

4. Article Four of the Certificate, as Amended, reads "The total number of shares of stock which the Corporation shall have authority to issue is Two Hundred and Fifty Five Million (255,000,000), consisting of Two Hundred and Fifty Million (250,000,000) shares of Common Stock, all of a par value of $0.001 and Five Million (5,000,000) shares of Preferred Stock, all of a par value of $0.001."

5. Article Four of the Certificate, as Amended, should be corrected to read "The total number of shares of stock which the Corporation shall have authority to issue is Two Hundred and Fifty Five Million (255,000,000), consisting of Two Hundred and Fifty Million (250,000,000) shares of Common Stock, all of a par value of $0.001 and Five Million (5,000,000) shares of Preferred Stock, all of a par value of $0.001

Of the authorized Preferred Stock, 533,333 shares are designated as "Series A Senior Convertible Preferred Stock" and 300,000 shares are designated as "Series B Preferred Stock," the powers, preferences, relative participating, optional and other special rights, qualifications, limitations, and restrictions of which are set forth in Exhibit A attached hereto and incorporated by reference."

________________________________________________________________________

IN WITNESS WHEREOF, The Phoenix Group Corporation has caused this Certificate of Correction Filed to Correct the Amended and Restated Certificate to be signed, on its behalf by Kathryn D. Fuller, its Corporate Secretary, this 4^th day of December, 2000.

THE PHOENIX GROUP CORPORATION

By: /s/ KATHRYN D. FULLER

Kathryn D. Fuller

Corporate Secretary

EXHIBIT A

DESIGNATION OF RIGHTS, PREFERENCES AND POWERS

OF SERIES A SENIOR CONVERTIBLE PREFERRED STOCK AND

SERIES B PREFERRED STOCK

The designation, powers, preferences and relative, participating, optional and other special rights with respect to the Series A Senior Convertible Preferred Stock and the Series B Preferred Stock of The Phoenix Group Corporation, a Delaware corporation (hereinafter referred to as the "Corporation" or the "Company"), and the qualifications, limitations and restrictions thereof, are as set forth below (defined terms used herein and not otherwise defined shall have the meanings assigned to them in the Corporation's Amended and Restated Certificate of Incorporation, as amended):

1. Creation and Designation of Series A Convertible Preferred Stock; Number of Shares. The series of Preferred Stock designated and known as "Series A Senior Convertible Preferred Stock" shall consist of 533,333 shares. The series of Preferred Stock designated and known as "Series B Preferred Stock" shall consist of 300,000 shares.

2. Voting.

A. General. Each holder of Series A Senior Convertible Preferred Stock shall have the right to vote at, or to participate in, any meeting of stockholders of the Corporation, and to receive any notice of such meeting. Each holder of Series A Senior Convertible Preferred Stock shall be entitled to cast one vote for every share of Common Stock issuable upon conversion of the Series A Senior Convertible Preferred Stock on all matters that are submitted to stockholders of the Corporation for stockholder vote. Except as required by law, neither the shares of Common Stock nor the Series A Senior Convertible Preferred Stock shall vote as a separate class but shall be voted together as one class on all other matters. Except as may be otherwise provided herein or by law, the holders of the Series B Preferred Stock shall have no voting rights.

B. Board Size. So long as there are any shares of Preferred Stock outstanding, the number of directors of the Board of Directors of the Corporation shall be fixed at six (6); provided, however, that such number may be changed by the written consent or affirmative vote, given in writing or by vote at a meeting, of the holders of at least a majority of the then outstanding shares of the Series A Senior Convertible Preferred Stock and Common Stock voting together as one class. From and after such time as there shall no longer be any shares of Series A Senior Convertible Preferred Stock issued and outstanding, the number of directors of the Board of Directors shall be fixed and determined by the majority vote of the Board of Directors of the Corporation.

C. Board Size if Cumulative Dividends in Arrears. In the event that at any time the Series A Senior Convertible Preferred Stock remains outstanding, the Cumulative Dividends (as hereinafter defined) shall be in arrears in an amount equal to two (2) full quarterly dividend payments thereon, the number of directors shall be increased by one (1) additional director, and the holders of Series A Senior Convertible Preferred Stock, in addition to any other right to vote in elections of directors provided for in this paragraph 2, voting separately as a single class, shall be entitled to elect one (1) additional member of the Board of Directors of the Corporation at the next annual meeting of stockholders of the Corporation or at a special meeting called as hereinafter provided in this paragraph 2. Thereafter, for any period that the Cumulative Dividends are in arrears in an amount equal to two (2), additional full quarterly dividend payments thereon, the holders of the Series A Senior Convertible Preferred Stock shall have the right to elect one (1) additional director; provided, however, the total number of directors elected by the holders of the Series A Senior Convertible Preferred Stock shall not exceed seven (7) directors. Such voting rights of the holders of Series A Senior Convertible Preferred Stock shall continue until continue until all Cumulative Dividends thereon shall have been paid in full, whereupon the respective terms of the additional directors elected by the holders of the Series A Senior Convertible Preferred Stock shall, upon receipt by all holders of Series A Senior Convertible Preferred Stock in immediately available funds representing payment in full of all Cumulative Dividends, expire and the number of directors constituting the full Board of Directors be decreased to that number at which it was prior to the operations of this paragraph.

D. Special Meeting. At any time when the right of the holders of Series A Senior Convertible Preferred Stock to elect additional directors of the Corporation pursuant to paragraph 2C above shall have so vested, the Corporation, upon the written request of the holders of the Series A Senior Convertible Preferred Stock owning twenty percent (20%) of more of the then outstanding shares of the Series A Senior Convertible Preferred Stock, shall call a special meeting of the holders of the Series A Senior Convertible Preferred Stock for the purpose of designating the person or persons who shall serve in the position created by the default in the payments of the Cumulative Dividends. In the case of such written request, such special meeting shall be held within ten (10) days following the delivery of such request, at the time and place specified in the request. Any actions taken by the holders of the Series A Senior Convertible Preferred Stock may be taken by written consent of the holders of the majority of the shares of the Series A Senior Convertible Preferred Stock then outstanding.

E. Change in Board Size. Whenever the number of directors of the Corporation shall have been increased as provided in this paragraph 2, the number as so increased may thereafter be further increased or decreased in such manner as may be permitted by the By-laws of the Corporation and these Articles of Amendment. No such action shall impair the right of the holders of the Series A Senior Convertible Preferred Stock to elect and to be represented by up to that number of directors as provided in this paragraph 2.

3. Dividends.

A. Cumulative Dividends. Notwithstanding anything herein to the contrary, the holders of the Series A Senior Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, when and if declared by the Board of Directors, dividends at the rate per annum of $.30 on each outstanding share of Series A Senior Convertible Preferred Stock (the "Cumulative Dividends"). No dividends shall be paid by the Corporation on any shares of Common Stock or Preferred Stock, other than the Series A Senior Convertible Preferred Stock, unless all then accrued Cumulative Dividends are simultaneously paid on all shares of Series A Senior Convertible Preferred Stock. Any partial payment of then accrued Cumulative Dividends to holders of Preferred Stock shall be made ratably in proportion to the full amount of accrued Cumulative Dividends to which each such holder is then entitled. Cash distributions (other than distributions on dissolution) may be declared and paid upon shares of Common Stock in any calendar quarter of the Corporation only if cash dividends have been paid or declared and set apart upon all shares of Series A Senior Convertible Preferred Stock in an amount equal to all accrued and unpaid Cumulative Dividends. Cumulative Dividends shall be cumulative and accrue ratably from and after the date of issuance of the Series A Senior Convertible Preferred Stock, for each day that shares of Series A Senior Convertible Preferred Stock are outstanding and shall be payable in quarterly installments to holders of record of the Series A Senior Convertible Preferred Stock on September 30, 1994, and following thereafter to holders of record of the Series A Senior Convertible Preferred Stock on each of December 31, March 3l, June 30 and September 30 (each of such dates being hereinafter referred to as a "Dividend Record Date"), to the extent funds are legally available therefor, to holders of record of shares of Series A Senior Convertible Preferred Stock at the close of business on the last business day immediately preceding each Dividend Payment Date. Cumulative Dividends shall accrue from day to day, whether or not earned or declared, and shall be cumulative; provided, however, that except as provided in paragraph 4, the Corporation shall be under no obligation to pay such Cumulative Dividends unless so declared by the Board of Directors, and provided, further, that upon conversion of any shares of Series A Senior Convertible Preferred Stock in accordance with the provisions of paragraph 6 hereof, the holder of such shares of Series A Senior Convertible Preferred Stock shall not be entitled to receive the Cumulative Dividends which have accrued to the date of such conversion (unless otherwise entitled thereto pursuant to the provisions hereof), and shall cease to have any right to Cumulative Dividends hereunder.

B. Distribution Other than Cash. At any time prior to July 1, 1996 that Cumulative Dividends are paid to the holder of Series A Senior Convertible Preferred Stock, pursuant to the terms of this paragraph 3, the Corporation shall have the right to declare in that calendar quarter a Cumulative Dividend payable in cash (as provided in subparagraph 3A hereof) or payable in Common Stock. The value of any payment of such Cumulative Dividend in Common Stock shall be the market value of the Common Stock based upon the average of the closing bid prices of the Common Stock as reported by NASDAQ for the twenty (20) trading days prior to issuance, which, if the shares are restricted as to transfer shall be reduced for lack of marketability by an amount agreed upon by the Corporation and the majority of the holders of the Series A Senior Convertible Preferred Stock, or if no such market exists as reasonably determined by the Board of Directors of the Corporation as of the Dividend Record Date.

C. Other Dividends. The holders of the Series B Preferred Stock shall not be entitled to receive any dividends on the shares of the Series B Preferred Stock. Subject to the rights of the holders of the Series A Senior Convertible Preferred Stock, the holders of the Common Stock shall be entitled to dividends when, as and if declared by the Board of Directors of the Corporation.

4. Liquidation.

A. Senior Liquidation Payments. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (herein referred to as a "Liquidation"), the holders of the shares of the Series A Senior Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, whether from the Corporation's capital, surplus, or earnings, before any distribution or payment is made upon the Series B Preferred Stock (such series, together with any and all other Preferred Stock hereafter designated issued, being referred to collectively herein as "Non-Senior Preferred Stock") or upon the Common Stock, to a liquidation distribution in an amount equal to the greater of (i) $3.75 per share, plus, an amount equal to all Cumulative Dividends unpaid thereon (whether or not declared) and any other dividends declared but unpaid thereon, computed to the date payment thereof is made available, or (ii) such amount per share as would have been payable had each such share been converted to Common Stock pursuant to paragraph 6 immediately prior to such Liquidation (such amount payable with respect to one share of Series A Senior Convertible Preferred Stock being sometimes referred to as the "Senior Liquidation Payment" and with respect to all shares of Series A Senior Convertible Preferred Stock being sometimes referred to as the "Senior Liquidation Payments"). If upon such Liquidation the assets to be distributed among the holders of the Series A Senior Convertible Preferred Stock shall be insufficient to permit payment to the holders of the Series A Senior Convertible Preferred Stock of the full amounts of their Senior Liquidation Payments as aforesaid, then the entire assets of the Corporation to be so distributed shall be distributed among the holders of the Series A Senior Convertible Preferred Stock ratably among all holders in proportion to the full amount of their respective Senior Liquidation Payments.

B. Non-Senior Liquidation payments. Upon any Liquidation, after the holders of the Series A Senior Convertible Preferred Stock shall have been paid in full the Senior Liquidation Payments, and before the holders of Common Stock shall be paid any amounts, the holders of the shares of Non-Senior Convertible Preferred Stock shall be entitled to be paid an amount equal to $1.00 per share of Series B Preferred Stock then outstanding (the "Non-Senior Liquidation Payments").

C. Distribution of Remaining Assets. Upon any such Liquidation, after the holders of Preferred Stock shall have been paid in full the Senior Liquidation Payments and the Non-Senior Liquidation Payments to which they shall be entitled as aforesaid, the holders of Common Stock shall be entitled to be paid an amount equal to the remaining net assets of the Corporation, which shall be distributed ratably in proportion to the number of shares held among the holders of Common Stock.

D. Notice. Written notice of such Liquidation stating a payment date, the amount of Liquidation Payments, and the place where said Liquidation Payments shall be payable, shall be given by mail, postage prepaid, facsimile, or by telex not less than twenty (20) days prior to the payment date stated therein, to the holders of record of Preferred Stock such notice to be addressed to each such holder at its address as shown by the records of the Corporation. The consolidation or merger of the Corporation into or with any other entity or entities which results in the exchange of outstanding shares of the Corporation for securities or other consideration issued or paid or caused to be issued or paid by any such entity, or affiliate thereof, and sale or transfer by the Corporation of all or substantially all its assets, shall be deemed to be a liquidation, within the meaning of the provisions of this paragraph 4.

5. Restrictions.

A. Series A Senior Convertible Preferred Stock. At any time when shares of Series A Senior Convertible Preferred Stock are outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by the Certificate of Incorporation, and in addition to any other vote required by law or the Certificate of Incorporation, without the approval of the holders of at least a majority of the then outstanding shares of Series A Senior Convertible Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a series, the Corporation will not.

(i) Create or authorize the creation of any additional class or series of shares of stock, unless the same ranks junior to the Series A Senior Convertible Preferred Stock as to the distribution of assets on Liquidation, or increase the authorized amount of the Preferred Stock or increase the authorized amount of any other 0ass or series of shares of stock unless the same ranks junior to the Series A Senior Convertible Preferred Stock as to the distribution of assets on Liquidation, or create or authorize any obligation or security convertible into shares of Preferred Stock, or into shares of any other class or series of stock unless the same ranks junior to the Series A Senior Convertible Preferred Stock as to the distribution of assets on Liquidation, whether any such creation, authorization or increase shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise;

(ii) Except as set forth herein, purchase or set aside any sums for the purchase of, or pay any dividend or make any distribution on, any shares of stock other than the Series A Senior Convertible Preferred Stock, except for dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and except for the purchase of shares of Common Stock from the former employees of the Corporation who acquired such shares directly from the Corporation, if each such purchase is made pursuant to contractual rights held by the Corporation relating to the termination of employment of such former employee and the purchase price does not exceed the original issue price paid by any such former employee to the Corporation for such shares; or

(iii) Redeem or otherwise acquire any sharer of Preferred Stock or any other class or series of shares except pursuant to a purchase offer made pro rata to all holders of the shares of the Series A Senior Convertible Preferred Stock on the basis of the aggregate number of outstanding shares of such Series A Senior Convertible Preferred Stock then held by each such holder.

6. Conversions. The holder of shares of Series A Senior Convertible Preferred Stock shall have the following conversion rights:

A. Right to Convert. Subject to the terms and conditions of this paragraph 6, the holder of any share or shares of Series A Senior Convertible Preferred Stock shall have the right, at its option at any time following the first anniversary of the date of issuance of the Series A Senior Convertible Preferred Stock, to convert all such shares of Series A Senior Convertible Preferred Stock (except that upon any Liquidation of the Corporation the right of conversion shall terminate at the close of business day fixed for payment of the Liquidation Payment distributable on the Series A Senior Convertible Preferred Stock) into such number of fully paid and nonassessable shares of Common Stock as is obtained with respect to shares of Series A Senior Convertible Preferred Stock by (A) multiplying the number of shares of Series A Senior Convertible Preferred Stock by $3.75 and (B) dividing the product thereof by the Conversion Price as hereinafter defined. As used in the foregoing sentence, the Conversion Price shall be the Conversion Pries as last adjusted in accordance with the terms of this paragraph 6 and in effect at the date any share or shares of Series A Senior Convertible Preferred Stock are surrendered for conversion (such price, or such price as last adjusted, being referred to as the "Conversion Price”). As of the date of the filing of this Amendment, the Conversion Price shall be $3.75, which Conversion Price shall be subject to adjustment in accordance with this paragraph 6. Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of his of her Series A Senior Convertible Preferred Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of Series A Senior Convertible Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with addresses) in which the certificate or certificates for shares of Common Stock shall be issued.

B. Issuance of Certificates: Time Conversion Effected. Promptly after the receipt of the written notice referred to in subparagraph 6A and surrender of the certificate or certificates for the shale or shares of Series A Senior Convertible Preferred Stock to be converted, the Corporation shall issue and deliver or cause to be issued and delivered to the holder, registered in such name or names as such holder may direct a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series A Senior Convertible Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation, and the certificate or certificates; for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Series A Senior Convertible Preferred Stock shall cease, and the person or persons in whose name or names any certificates or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.

C. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued upon conversion of Series A Senior Convertible Preferred Stock into Common Stock and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Stock issued upon such conversion. At the time of each conversion, the Corporation shall pay in cash an amount equal to all dividends, excluding Cumulative Dividends, accrued and unpaid on the shares of Series A Senior Convertible Preferred Stock surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 6B. In case the number of shares of Series A Senior Convertible Preferred Stock represented by the certificate or certificates surrendered pursuant to subparagraph 6A exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of the appropriate series of Series A Senior Convertible Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. If any fractional share of Common Stock would, except for the provisions of the first sentence of this subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of delivering such fractional share, shall pay to the holder surrendering the Series A Senior Convertible Preferred Stock for conversion an amount in cash equal to the current market price of such fractional share as determined in good faith by the Board of Directors of the Corporation.

D. Adjustment of Price Upon Issuance of Common Stock. Except as provided in subparagraph 6E and 6P, if and whenever the Corporation shall issue or sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to have issued or sold, any shares of Common Stock for consideration per share (i) less than $3.75 (such amount being subject to equitable adjustment for reorganizations, stock splits, stock dividends and the like) and (ii) less than the Conversion Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, the Conversion Price shall be reduced to a price determined by dividing (x) an amount equal to the sum of (i) $2,000,000 plus (ii) the aggregate consideration, if any, received by the Corporation for all Common Stock issued on or after the date hereof (the "Purchase Date"); by (y) an amount equal to the sum of (i) 533,333 plus (ii) the number of shares of Common Stock issued since the Purchase Date.

For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to 6D(7) shall also be applicable:

(1) Issuance of Rights or Options. In case at any time the Corporation shall in any manner grant (whether directly or by assumption or otherwise) any warrants or other rights to subscribed for or to purchase, or any options for the purchase of Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercises of all such Options, plus, in the case of such Options which relate to Convertible Securities the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding; provided, however, that the terms of this paragraph shall not apply if the Corporation is the party to a merger, consolidation or share exchange. Except as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities.

(2) Issuance of Convertible Securities. In case the Corporation shall in any manner issue (whether directly or by assumption or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the Issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon any exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this subparagraph 6D, no further adjustment of the Conversion Price shall be made by reason of such issue or sale, provided, however, that the terms of this paragraph shall not apply if the Corporation is the Party to a merger, consolidation or share exchange.

(3) Change in Option Price of Conversion Rate. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph 6D(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the rate at which Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding providing for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduce; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities referred to in subparagraphs 6D(1), 6D(2) or 6D(3), the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued.

(4) Stock Dividends. In case the Corporation shall declare a dividend or make any other distribution upon any capital stock of the Corporation payable in Common Stock (except for die/rends or distributions of Common Stock issued to the holder of the Corporation's issued and outstanding Common Stock), Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration.

(5) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received thereof shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as reasonably determined in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation.

(6) Record Date. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a divided or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(7) Treasury Shares. The disposition of any shares of Common Stock owned or held by or for the account of the Corporation shall be considered an issue or sale of Common Stock for the purpose of this subparagraph 6D.

(8) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, merger, dissolution, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the price of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Senior Convertible Preferred Stock against impairment.

(9) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price for any shares of Series A Senior Convertible Preferred Stock, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Senior Convertible Preferred Stock effected thereby a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Senior Convertible Preferred Stock, furnish or cause to be rum/shed to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such holders shall of Series A Senior Convertible Preferred Stock.

E. Certain Issues of Common Stock Excepted. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Conversion Price in the case of the issuance of (i) up to 533,333 shares (appropriately adjusted to reflect the occurrence of any event describe in subparagraph 6F or 6G (a "Recapitalization")) of Common Stock issued upon conversion of any of the Series A Senior Convertible Preferred Stock, or (ii) up to 2,000,000 shares of Common Stock to be issued contemporaneously with the issuance of the Series A Senior Convertible Preferred Stock, or (iii) up to 500,000 shares (as adjusted for a Recapitalization of Common Stock) to employees of the Corporation pursuant to stock options or stock purchase plans approved by the Board of Directors of the Corporation, or (iv) any shares issuable pursuant to options, warrants, or convertible securities which are outstanding as of the date of filing hereof or are described in the Private Placement Term Sheet of the Company date July 14, 1994.

F. Subdivision or Combination of Common Stock. In case the Corporation shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionally reduced, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.

G. Reorganization or Reclassification. If any capital reorganization or pricefication of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Series A Senior Convertible Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such shares or shares of Series A Senior Convertible Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.

H. Notice Of Adjustment. Upon any adjustment of the Conversion Price of any shares of Series A Senior Convertible Preferred Stock, the Corporation shall give written notice thereof by first class mail, postage prepaid, facsimile or by telex, addressed to each holder of shares of such Series A Senior Convertible Preferred Stock at the address of such holder as shown on the books of the Corporation, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based.

I. Other Notices. In case at any time:

(1) the Corporation shall declare any dividend upon its Common Stock or Non-Senior Preferred Stock payable in cash or stock or make any other distribution to the holders of its Common Stock or Non-Senior Preferred Stock;

(2) the Corporation shall offer for subscription pro rata to the holders of its Common Stock or Non-Senior Preferred Stock any additional shares of stock of any class or the rights to acquire any shares of stock of any class;

(3) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with or into or a sale of all or substantially all its assets to, another entity or entities;

(4) there shall be voluntary or involuntary dissolution, liquidation or winding up of the Corporation; or

(5) the Corporation shall be in default under any of its material contracts, agreements, commitments or instruments;

then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, or by telex, addressed to each holder of any shares of Series A Senior Convertible Preferred Stock at the address of such holder as shown on the books of the Corporation, (a) at least 20 days prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, re, classification, consolidation, merger, salt, dissolution, liquidation or winding up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up. as the case may be.

J. Stock to be Reserved. The Corporation will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Series A Senior Convertible Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series A Senior Convertible Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the Conversion Price in effect at the time. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of the applicable law or regulation or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment of the Common Stock ff the total number of shares of Common Stock issued and issuable after such action upon conversion of the Series A Senior Convertible Preferred Stock would exceed the total number of shares of Common Stock then authorized by the Certificate of Incorporation, but shall promptly use its best efforts to cause its Certificate of Incorporation to be so amended to permit such issuance.

K. No Reissuance of Series A Senior Convertible Preferred Stock. Shares of Series A Senior Convertible Preferred Stock which are converted into shares of Common Stock as provided herein shall be canceled at the time of such conversion and shall not thereafter be reissued by the Corporation.

L. Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of Series A Senior Convertible Preferred Stock shall be mad, without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of Series A Senior Convertible Preferred Stock which is being converted.

M. Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Series A Senior Convertible Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Senior Convertible Preferred Stock in any manner which interferes with the timely conversion of such Series A Senior Convertible Preferred Stock, except as may otherwise be required to comply with applicable securities laws.

N. Definition of Common Stock. As used herein the term "Common Stock" shall, mean and include the Corporation's authorized Common Stock par value $.001 per share, as constituted on the date of filing of these terms of the Series A Senior Convertible Preferred Stock and Series B Preferred Stock, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall not be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock receivable upon conversion of shares of Series A Senior Convertible Preferred Stock shall include only shares designated as Common Stock of the Corporation on the date of filing of this instrument, or in case of the reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in subparagraph 6G.

O. Mandatory Conversion. If at any time the Corporation shall effect a firm commitment underwritten public offering of shares Common Stock in which (i) the aggregate price paid for such shares by the public shall be at least $20,000,000 and (ii) the price paid by the public for such shares of Common Stock shall be at least $8.00 per share (adjusted for any Recapitalization), then effective upon the closing of the sale of such shares by the Corporation pursuant to such public offering, all outstanding shares of the Preferred Stock shall automatically convert to shares of common Stock.

(P) Right of First Refusal and Mandatory Conversion to New Series of Preferred Stock.

(1) The Corporation shall, prior to any issuance by the Corporation of any of its securities (other than debt securities with no equity feature), offer to each holder of the Series A Senior Convertible Preferred Stock, by written notice the right, for a period often (10) days, to purchase all of such securities for cash at an amount equal to the price or other consideration for which such securities are to be issued; provided, however, that the first refusal rights of the holder of such Preferred Stock pursuant to this paragraph 6P shall not apply to securities issued (A) upon conversion of any of the Series A Senior Convertible Preferred Stock, (B) as a stock dividend or upon any subdivision of shares of Common Stock, provided that the securities issued pursuant to such stock dividend or subdivision are limited to additional shares of Common Stock, (C) pursuant to warrants, options and convertible securities which are outstanding as of the date of filing this Certificate of Designation or are otherwise described in subparagraph 6E (iv) above, (D) solely in consideration for the acquisition (whether by merger or otherwise) by the Corporation or any of its subsidiaries of all or substantially all of the stock or assets of any other entity, (E) pursuant to a firm commitment underwritten public offering, (F) pursuant to the exercise of options to purchase Common Stock granted to employees of the Corporation, not to exceed in the aggregate [1,500,000] shares (appropriately adjusted to reflect stock splits, stock dividends, combinations of shares and the like with respect to the Common Stock) less the number of shares (as so adjusted) issued pursuant to options outstanding as of the date of filing of this Certificate of Designation stating the terms of the Preferred Stock (the chafes exempted by this clause (F) being hereinafter to as the "Reserved Employee Shares") and (G) upon the exercise of any right which was not itself in violation of the terms of this paragraph 6P. The Corporation's written notice to the holders of the Series A Senior Convertible Preferred Stock shall describe the securities proposed to be issued by the Corporation and specify the number, price and payment terms. Each holder of the Series A Senior Convertible Preferred Stock may accept the Corporation's offer as to the full number of securities offered to it or any lesser number, by written notice thereof given by it to the Corporation prior to the expiration of the aforesaid thirty (30) day period, in which event the Corporation shall promptly sell and such holder of such Series A Senior Convertible Preferred stock shall buy, upon the terms specified, the number of securities agreed to be purchased by such holder. Notwithstanding the foregoing, if the holders, of the Series A Senior Convertible Preferred Stock, agree, in the aggregate, to purchase mort: than the full number of securities offered by the Corporation, then cash holder of such Series A Senior Convertible Preferred Stock accepting the Corporation's offer shall first be allocated the lesser of (i) the number of securities which such holder agreed to purchase and (ii) the number of securities as is equal to the full number of securities offered by the Corporation multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock hold by such holder as of the date of the Corporation's notice of offer (treating such holder, for the purpose of such calculation, as the holder of the number of shares of Common Stock which would be issuable to such holder upon conversion, exercise or exchange of all securities (including but not limited to the Series A Senior Convertible Preferred Stock) held by such holder on the date such offer is made, that are convertible, exercisable or exchangeable into or for (whether directly or indirectly) shares of Common Stock and the denominator of which shall be the aggregate number of shares of outstanding Common Stock (calculated on an as-converted basis) (a "Pro Rata Share"), and the balance of the securities (if any) offered by the Corporation shall be allocated among the holders accepting the Corporation offer in proportion, to their relative equity ownership interests in the Corporation (calculated as aforesaid). provided that the holder shall be allocated more than the number of securities which such holder agreed to purchase and provided further that in cases covered by this sentence all holders shall be allocated among them the full number of securities offered by the Corporation. With respect to each future issuance of securities which is subject to the first refusal rights of this paragraph 6P and to which the provisions of paragraph 6D hereof would apply, each holder of the Series A Senior Convertible Preferred Stock that fails to purchase its Pro Rata Share of such Securities pursuant to this paragraph 6P (with respect to the particular issuance of securities then subject to the first refusal rights of this paragraph 6P) shall not be entitled to the anti-dilution adjustment provisions set forth in subparagraph 6D hereof with respect to such dilutive issuance, and all of such nonparticipating holder's shares shall automatically be converted into an equal number of shares of Series B Preferred Stock, concurrently with the issuance of the subject securities. The grant of the right to acquire shares of the Series A Senior Convertible Preferred Stock and the issuance of such shares, shall be treated as an issuance of securities which is subject to the first refusal rights of this paragraph 6P and to which the provision of paragraph 6D hereof would apply and shall be subject to the provision of the foregoing sentence.

(2) The Corporation shall be free at any time prior to ninety (90) days after the date of its notice of offer to the holders of the Series A Senior Convertible Preferred Stock, to offer and sell to any third party or parties the number of such securities not agreed by such holders to be purchased by them, at a price and on payment terms no less favorable to the Corporation than those specified in such notice of offer to such holders. However, if such third party sale or sales are not consummated within such ninety (90) day period, the Corporation shall not sell such securities as shall not have been purchased within such period without again complying with this paragraph 6P.

7. Preemptive Rights. Except as provided in paragraph 6 hereof, the holders of Series A Senior Convertible Preferred Stock shall not be entitled as of right to subscribe for any additional securities of the Corporation.

9. Redemption Provisions. Except as otherwise expressly provided or required by law, neither the Series A Senior Convertible Preferred Stock nor the Series B Preferred Stock may be redeemed.

10. Amendments. No provision of these terms of the Series A Senior Convertible Preferred Stock and Series B Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Series A Senior Convertible Preferred Stock, voting separately as a single series.

CERTIFICATE OF CHANGE OF REGISTERED AGENT

AND

REGISTERED OFFICE

The Board of Directors of The Phoenix Group Corporation, a Corporation of Delaware, on this eighteenth day of December, A.D. 2002, do hereby resolve and order that the location of the Registered Office of this Corporation within this State be, and the same hereby is 15 East North Street, in the City of Dover, County of Kent Zip Code 19901.

The name of the Registered Agent therein and in charge thereof upon whom process against this Corporation may be served, is Business Incorporators, Inc.

The Phoenix Group Corporation, a Corporation of Delaware, does hereby certify that the foregoing is a true copy of a resolution adopted by the Board of Directors at a meeting held as herein stated.

________________________________________________________________________

IN WITNESS WHEREOF, said Corporation has caused this certificate to be executed by its duly authorized officer this eighteenth day of December, A.D. 2002.

/s/ KATHY FULLER

Name: Kathy Fuller

Title: Secretary

AMENDMENT TO THE AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF THE PHOENIX GROUP CORPORATION

WHEREAS, the Board of Directors of The Phoenix Group Corporation (the “Corporation”) has authorized an increase in the number of shares of the Corporation’s common stock available for issuance under its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”); and

WHEREAS, this Amendment to the Amended and Restated Certificate of Incorporation of the Corporation has been duly adopted in accordance with Section 242 of the Delaware General Corporation Law

ACCORDINGLY, the Corporation hereby amends the Certificate of Incorporation as follows:

The FOURTH article of the Certificate of Incorporation is hereby amended and restated to read in its entirety as follows:

The total number of shares of stock which the Corporation shall have authority to issue is Five Hundred Million (500,000,000), consisting of Four Hundred Ninety-Five Million (495,000,000) shares of Common Stock, all of a par value of $0.001, and Five Million (5,000,000) shares of Preferred Stock, all of a par value of $0.001.

The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares to Preferred Stock may be increased or described (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding shares of common stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing any series of Preferred Stock.

________________________________________________________________________

IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer to execute this Amendment to the Amended and Restated Certificate of Incorporation of the Corporation as of June 20, 2004.

THE PHOENIX GROUP CORPORATION

By: /s/ KATHRYN D. FULLER

Name: Kathryn D. Fuller

Title: Corporate Secretary

CERTIFICATE OF AMENDMENT OF

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

THE PHOENIX GROUP CORPORATION

The Phoenix Group Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation") hereby certifies as follows:

FIRST: The name of the Corporation is The Phoenix Group Corporation.

SECOND: Pursuant to Section 242 of the Delaware General Corporation Law, this Certificate of Amendment amends the provisions of the Corporation's Amended and Restated Certificate of Incorporation.

THIRD: The terms and provisions of this Certificate of Amendment (i) have been duly approved by the Board of Directors; and (ii) have been duly approved by the required number of shares of outstanding stock of the Corporation, in each case pursuant to and in accordance with Section 242 of the Delaware General Corporation Law.

FOURTH: Article Fourth of the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended to add the following at the end thereof, as follows:

Upon the effectiveness (the "Effective Date") of the certificate of amendment to the amended and restated certificate of incorporation containing this sentence, each sixteen shares of the Common Stock issued and outstanding as of the date and time immediately preceding August 31, 2004, the effective date of a reverse stock split (the "Split Effective Date"), shall be automatically changed and reclassified, as of the Split Effective Date and without further action, into one (1) fully paid and nonassessable share of Common Stock. There shall be no fractional shares issued. A holder of record of Common Stock on the Split Effective Date who would otherwise be entitled to a fraction of a share shall, in lieu thereof, be entitled to receive an additional share of Common Stock in lieu of such fractional share.

FIFTH: This Certificate of Amendment to the Amended and Restated Certificate of Incorporation shall be effective as of 4:00 p.m. on August 31, 2004.

________________________________________________________________________

 IN WITNESS WHEREOF, this Certificate of Amendment of the Certificate of Incorporation of the Corporation has been signed by Ronald E. Lusk, its authorized officer this 20th day of August, 2004.

THE PHOENIX GROUP CORPORATION

By: /s/ RONALD E. LUSK

Ronald E. Lusk, President

CERTIFICATE OF AMENDMENT OF

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

THE PHOENIX GROUP CORPORATION

The Phoenix Group Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation") hereby certifies as follows:

FIRST: The name of the Corporation is The Phoenix Group Corporation.

SECOND: Pursuant to Section 242 of the Delaware General Corporation Law, this Certificate of Amendment amends the provisions of the Corporation's Amended and Restated Certificate of Incorporation.

THIRD: The terms and provisions of this Certificate of Amendment (i) have been duly approved by the Board of Directors; and (ii) have been duly approved by the required number of shares of outstanding stock of the Corporation, in each case pursuant to and in accordance with Section 242 of the Delaware General Corporation Law.

FOURTH: Exhibit A of the Amended and Restated Certificate of Incorporation of the Corporation, Designation of Rights, Preferences and Powers of Series A Senior Convertible Preferred Stock and Series B Preferred Stock, is hereby amended by deleting Sections 2.B and 2.C in their entirety and inserting in lieu thereof the following:

B. Board Size. So long as there are any shares of Preferred Stock outstanding, the number of directors of the Board of Directors of the Corporation shall be fixed at six (6); provided, however, that such number may be changed by the written consent or affirmative vote, given in writing or by vote at a meeting of the holders of at least a majority of the then outstanding shares of the Series A Senior Convertible Preferred Stock. From and after such time as there shall no longer be any shares of Series A Senior Convertible Preferred Stock issued and outstanding, the number of directors of the Board of Directors shall be fixed and determined by the majority vote of the Board of Directors of the Corporation.

C. Board Size if Cumulative Dividends in Arrears. In the event that, at any time the Series A Senior Convertible Preferred Stock remains outstanding, the Cumulative Dividends (as hereinafter defined) shall be in arrears in an amount equal to two (2) full quarterly dividend payments thereon, the number of directors shall be increased by one (1) additional director, and the holders of Series A Senior Convertible Preferred Stock, in addition to any other right to vote in elections of directors provided for in this paragraph 2, voting separately as a single class, shall be entitled to elect one (1) additional member of the Board of Directors of the Corporation at the next annual meeting of stockholders of the Corporation or at a special meeting called as hereinafter provided in this paragraph 2. Thereafter, for any period that the Cumulative Dividends are in arrears in an amount equal to two (2), additional full quarterly dividend payments thereon, the holders of the Series A Senior Convertible Preferred Stock shall have the right to elect one (1) additional director, provided, however, at such time as there shall have been seven (7) periods that the Cumulative Dividends are in arrears equal to two (2) quarters, holders of the Series A Senior Convertible Preferred Stock shall have the right to elect a majority of the directors constituting the Board of Directors. Such voting rights of the holders of Series A Senior Convertible Preferred Stock shall continue until all Cumulative Dividends thereon shall have been paid in full whereupon the respective of the additional directors elected by the holders of the Series A Senior Convertible Preferred Stock shall, upon receipt by all holders of Series A Senior Convertible Preferred Stock in immediately available funds representing payment in full of all Cumulative Dividends, expire and the number of directors constituting the full Board of Directors be decreased to that number at which it was prior to the operations of this paragraph.

FIFTH: This Certificate of Amendment to the Amended and Restated Certificate of Incorporation shall be effective immediately upon filing with the Secretary of State of the State of Delaware.

________________________________________________________________________

IN WITNESS WHEREOF, this Certificate of Amendment of the Certificate of Incorporation of the Corporation has been signed by Ronald E. Lusk, its authorized officer this 20th day of August, 2004.

THE PHOENIX GROUP CORPORATION

By: /s/ RONALD E. LUSK

Ronald E. Lusk, President

CERTIFICATE OF OWNERSHIP

MERGING

LIGHTING SCIENCE, INC.

INTO

THE PHOENIX GROUP CORPORATION

(Under Section 253 of the General Corporation Law of the State of Delaware)

The Phoenix Group Corporation, a corporation incorporated on the 16th day of June 1988, pursuant to the provisions of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:

FIRST: That the Corporation owns all of the capital stock of Lighting Science, Inc., a corporation incorporated on the 27th day of May 2004, pursuant to the provisions of the General Corporation Law of the State of Delaware (the "Subsidiary").

SECOND: That the Corporation, by the following resolutions of its Board of Directors, duly adopted by unanimous written consent of its members on December 6, 2004, filed with the minutes of the Board, determined to and did merge the Subsidiary into itself:

WHEREAS, the Corporation lawfully owns all of the capital stock of Lighting Science, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Subsidiary");

WHEREAS, the Corporation desires to merge into itself the Subsidiary, and to be possessed of all the estate, property, rights, privileges and franchises of the Subsidiary;

NOW THEREFORE BE IT RESOLVED, that the Corporation merge into itself the Subsidiary and assume all of the Subsidiary's obligations; and

FURTHER RESOLVED, that at the effective time of the merger, the Corporation relinquishes its corporate name and assumes in place thereof the corporate name of Lighting Science Group Corporation; and

FURTHER RESOLVED, that the Chief Executive Officer or his designee (the "authorized officers") be and hereby is directed to make and execute a certificate of ownership setting forth a copy of the resolutions to merge the Subsidiary and assume its obligations, and the date of adoption and to cause the same to be filed with the Delaware Secretary of State and to do all acts and things whatsoever, whether within or without the State of Delaware, which may be in any way necessary or proper to effect said merger; and

FURTHER RESOLVED, that the authorized officers be and they hereby are authorized, empowered and directed to take such actions as they shall deem necessary or appropriate, whether within or without the State of Delaware, in order to effect said merger.

* * *

________________________________________________________________________

IN WITNESS WHEREOF, the Corporation has cause, this Certificate of Ownership to be signed and attested to by its duly authorized officers this ____ day of December 2004.

THE PHOENIX GROUP CORPORATION

(Re-named "Lighting Science Group Corporation" following this merger)

/s/ RONALD E. LUSK

Name: Ronald E. Lusk

Title: Chairman and Chief Executive Officer

CERTIFICATE OF DESIGNATION

OF

PREFERRED STOCK

OF

LIGHTING SCIENCE GROUP CORPORATION

To Be Designated

6% Convertible Preferred Stock

Pursuant to Section 151(g) of the

General Corporation Law of the State of Delaware

The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of Lighting Science Group Corporation, a Delaware corporation (the “Corporation”), at a meeting duly convened and held, at which a quorum was present and acting throughout:

“RESOLVED, that pursuant to the authority conferred on the Board of Directors of the Corporation (the “Board of Directors”) by the Corporation’s Certificate of Incorporation, the issuance of a series of preferred stock, par value $0.001 per share, of the Corporation which shall consist of 2,656,250 shares of convertible preferred stock be, and the same hereby is, authorized; and the Chairman and Chief Executive Officer of the Corporation be, and he hereby is, authorized and directed to execute and file with the Secretary of State of the State of Delaware a Certificate of Designation of Preferred Stock of the Corporation fixing the designations, powers, preferences and rights of the shares of such series, and the qualifications, limitations or restrictions thereof (in addition to the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, set forth in the Certificate of Incorporation which may be applicable to the Corporation’s preferred stock), as follows:

1.Number of Shares; Designation. A total of 2,656,250 shares of preferred stock, par value $0.001 per share, of the Corporation are hereby designated as 6% Convertible Preferred Stock (the “Series”). Shares of the Series (“Preferred Shares”) will be issued pursuant to the terms of a Securities Purchase Agreement, dated as of May 10, 2005, by and among the Corporation and the Purchasers named therein (the “Purchase Agreement”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Purchase Agreement.

2.Rank. The Series shall, with respect to payment of dividends, redemption payments and rights upon liquidation, dissolution or winding-up of the affairs of the Corporation, rank:

(i) Senior and prior to theCommon Stock, par value $0.001 per share, of the Corporation (the “Common Stock”), and any additional series of preferred stock which may in the future be issued by the Corporation and are designated in the amendment to the Certificate of Incorporation or the certificate of designation establishing such additional preferred stock as ranking junior to the Preferred Shares. Any shares of the Corporation’s capital stock which are junior to the Preferred Shares with respect to the payment of dividends are hereinafter referred to as “Junior Dividend Shares” and any shares which are junior to the Preferred Shares with respect to redemption, payment and rights upon liquidation, dissolution or winding-up of the affairs of the Corporation are hereinafter referred to as “Junior Liquidation Shares”.

(ii) Pari passu with any additional series of preferred stock which may in the future be issued by the Corporation and are designated in the amendment to the Certificate of Incorporation or the certificate of designation establishing such additional preferred stock as ranking equal to the Preferred Shares or which do not state they are Junior Dividend Shares or Senior Dividend Shares (as defined below). Any shares of the Corporation’s capital stock which are equal to the Preferred Shares with respect to the payment of dividends are hereinafter referred to as “Parity Dividend Shares” and any shares which are equal to the Preferred Shares with respect to redemption, payment and rights upon liquidation, dissolution or winding-up of the affairs of the Corporation are hereinafter referred to as “Parity Liquidation Shares”.

(iii) Junior to any additional series of preferred stock which may in the future be issued by the Corporation and are designated in the amendment to the Certificate of Incorporation or the certificate of designation establishing such additional preferred stock as ranking senior to the Preferred Shares. Any shares of the Corporation’s capital stock which are senior to the Preferred Shares with respect to the payment of dividends are hereinafter referred to as “Senior Dividend Shares” and any shares which are senior to the Preferred Shares with respect to redemption, payment and rights upon liquidation, dissolution or winding-up of the affairs of the Corporation are hereinafter referred to as “Senior Liquidation Shares”.

The Corporation may not issue additional shares of preferred stock which are not (a) Junior Stock (as defined in paragraph 3(c) below) or (b) both Parity Liquidation Shares and Parity Dividend Shares without the consent of the holders of a majority of the Preferred Shares.

3.Dividends. (a) The dividend rate on Preferred Shares shall be $0.192 per share per annum. Dividends on Preferred Shares shall be fully cumulative, accruing, without interest, from the date of original issuance of the Series through the date of redemption or conversion thereof, and, to the extent so declared by the Board of Directors, shall be payable in arrears on August 10, November 10, February 10 and May 10 of each year, commencing August 10, 2005, except that if such date is not a Business Day then to the extent so declared by the Board of Directors the dividend shall be payable on the first immediately succeeding Business Day (as used herein, the term “Business Day” shall mean any day except a Saturday, Sunday or day on which banking institutions are legally authorized to close in Dallas, Texas) (each such date being hereinafter referred to as a “Dividend Payment Date”). Dividends on the Preferred Shares shall be paid in cash; provided, however, if all of the Stock Payment Conditions are met on the applicable Dividend Payment Date and on each of the ten consecutive Trading Days immediately preceding such date (the applicable “Stock Payment Period”), the Corporation may pay such dividends, at the Corporation’s option, (i) in fully paid and nonassessable shares of Common Stock (such dividends paid in such form being herein called “PIK Dividends”) or (ii) in cash. PIK Dividends shall be paid by delivering to each record holder of Preferred Shares a number of shares of Common Stock (“PIK Dividend Shares”) determined by dividing (x) the total aggregate dollar amount of dividends accrued and unpaid with respect to Preferred Shares owned by such record holder on the record date for the applicable Dividend Payment Date (rounded to the nearest whole cent) by (y) the applicable PIK Dividend Price. In order to deliver PIK Dividend Shares in lieu of cash on a Dividend Payment Date, the Corporation must deliver, on or before the fifteenth (15^th) calendar day immediately prior to such date, written notice to each Holder of Preferred Shares stating that the Corporation wishes to do so (a “PIK Stock Dividend Notice”); in the event that the Corporation does not deliver a PIK Stock Dividend Notice on or before such fifteenth (15^th) day, the Corporation will be deemed to have elected to pay the related dividend in cash. Each Holder shall promptly thereafter deliver to the Corporation instructions designating whether such Holder wishes to receive delivery of its PIK Dividend Shares in physical certificates (and, if so, at what address) or through the Depository Trust Company (“DTC”), as long as no legend is required by the terms of the Purchase Agreement to be imprinted on such Shares (and, if so, the account number to be credited). If the Corporation wishes to deliver PIK Dividend Shares in lieu of cash with respect to accrued dividends, it must do so with respect to all (but not less than all) of such dividends. A PIK Stock Dividend Notice, once delivered by the Corporation, shall be irrevocable unless the Corporation ceases to satisfy all of the Stock Payment Conditions at any time after delivering such PIK Stock Dividend Notice, in which case such notice shall be deemed revoked and the dividend to which such notice relates shall be payable in cash on the Dividend Payment Date. The Corporation shall not issue fractional shares of Common Stock to which Holders may become entitled pursuant to this subparagraph, but in lieu thereof, the Corporation shall round the number of shares to be issued up to the next whole number. Each dividend shall be paid to the Holders of record of Preferred Shares as they appear on the stock register of the Corporation on the record date, not less than 10 nor more than 60 days preceding the applicable Dividend Payment Date, as shall be fixed by the Board of Directors. Dividends payable on each Dividend Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months and rounded to the nearest cent. Dividends on account of arrearages for any past Dividend Payment Date may be declared and paid at any time, without reference to any scheduled Dividend Payment Date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board of Directors of the Corporation. Dividends shall accrue regardless of whether the Corporation has earnings, whether there are funds legally available therefor and/or whether declared. No interest shall be payable with respect to any dividend payment that may be in arrears. Holders of Preferred Shares called for redemption between the close of business on a dividend payment record date and the close of business on the corresponding Dividend Payment Date shall, in lieu of receiving such dividend on the Dividend Payment Date fixed therefor, receive such dividend payment on the date fixed for redemption together with all other accrued and unpaid dividends to the date fixed for redemption. The Holders shall not be entitled to any dividends other than the dividends provided for in this paragraph 3.

(b)No dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on any Parity Dividend Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and set aside for payment for all accrued dividends with respect to the Series through the most recent Dividend Payment Date ending on or prior to the date of payment. Unless dividends accrued and payable but unpaid on Preferred Shares and any Parity Dividend Shares at the time outstanding have been paid in full, all dividends declared by the Corporation upon Preferred Shares or Parity Dividend Shares shall be declared pro rata with respect to all such shares, so that the amounts of any dividends declared on Preferred Shares and the Parity Dividend Shares shall in all cases bear to each other the same ratio that, at the time of the declaration, all accrued but unpaid dividends on Preferred Shares and the other Parity Dividend Shares, respectively, bear to each other.

(c)If at any time the Corporation has failed to (x) pay or set apart for payment all accrued dividends on any Preferred Shares through the then most recent Dividend Payment Date and (y) set apart for payment an amount in cash equal to the scheduled dividend payments for each of the next two Dividend Payment Dates, the Corporation shall not, and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to:

(i) declare or pay or set aside for payment any dividend or other distribution on or with respect to any Junior Dividend Shares, whether in cash, securities, obligations or otherwise (other than dividends or distributions paid in shares of capital stock of the Corporation ranking junior to Preferred Shares both as to the payment of dividends and as to rights in liquidation, dissolution or winding-up of the affairs of the Corporation (“Junior Stock”), or options, warrants or rights to subscribe for or purchase shares of Junior Stock); or

(ii) redeem, purchase or otherwise acquire, or pay into, set apart money or make available for a sinking or other analogous fund for the redemption, purchase or other acquisition of, any Preferred Shares (unless all of the Preferred Shares are concurrently redeemed), Parity Dividend Shares, Parity Liquidation Shares or shares of Junior Stock for any consideration (except by conversion into or exchange for Junior Stock); provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost plus interest at a rate not to exceed nine percent (9%) per annum, or, if lower than cost, at fair market value, upon the occurrence of certain events, such as the termination of employment; and provided further, that the total amount applied to the repurchase of shares of Common Stock shall not exceed $100,000 during any twelve month period,

unless, in each such case, all dividends accrued on Preferred Shares through the most recent Dividend Payment Date and on any Parity Dividend Shares have been or contemporaneously are declared and paid in full.

(d)Any reference to “distribution” contained in this paragraph 3 shall not be deemed to include any distribution made in connection with any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary.

4.Liquidation. (a) The liquidation value per Preferred Share, in case of the voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation, shall be an amount equal to $3.20, subject to adjustment in the event of a stock split, stock dividend or similar event applicable to the Series (the “Purchase Price”), plus an amount equal to the cash value of dividends accrued and unpaid thereon, whether or not declared, to the payment date (the “Liquidation Value”).

(b)In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation (a “Liquidation Event”), the Holders (i) shall not be entitled to receive the Liquidation Value of the shares held by them until the liquidation value of all Senior Liquidation Shares shall have been paid in full, and (ii) shall be entitled to receive the Liquidation Value of such shares held by them in preference to and in priority over any distributions upon the Junior Liquidation Shares. Upon payment in full of the Liquidation Value to which the Holders are entitled, the Holders will not be entitled to any further participation in any distribution of assets by the Corporation. If the assets of the Corporation are not sufficient to pay in full the Liquidation Value payable to the Holders and the liquidation value payable to the holders of any Parity Liquidation Shares, the holders of all such shares shall share ratably in such distribution of assets in accordance with the amounts that would be payable on the distribution if the amounts to which the Holders and the holders of Parity Liquidation Shares are entitled were paid in full.

(c)For purposes of this paragraph 4, a Change of Control shall be treated as a Liquidation Event and shall entitle each Holder to receive, upon the consummation of such Change of Control, and at such Holder’s option, cash in an amount equal to the Liquidation Value of such Holder’s Preferred Shares.

(d)The Corporation shall, no later than the date on which a Liquidation Event occurs or is publicly announced, deliver in accordance with the notice provisions of the Purchase Agreement written notice of any Liquidation Event, stating the payment date or dates when and the place or places where the amounts distributable in such circumstances shall be payable, not less than 30 days prior to any payment date stated therein, to each Holder.

(e)Whenever the distribution provided for in this paragraph 4 shall be payable in securities or property other than cash, the value of such distribution shall be the fair market value of such securities or other property as determined in good faith by the Independent Directors.

5.Series Redemption. The Corporation shall redeem, from any source of funds legally available therefor, all outstanding Preferred Shares on May 10, 2010 (the “Series Redemption Date”). The Corporation shall effect such redemption on the Series Redemption Date by paying in cash in exchange for the Preferred Shares to be redeemed a sum equal to the Purchase Price of the Series plus all declared or accumulated but unpaid dividends on such shares.

6.Conversion.

(a)Right to Convert; Forced Conversion. Each Holder shall have the right to convert, at any time and from time to time after the Closing Date, all or any part of the Preferred Shares held by such Holder into such number of fully paid and non-assessable Conversion Shares as is determined in accordance with the terms hereof (a “Conversion”). In addition, if all of the Forced Conversion Conditions are met, the Corporation shall have the right, upon written notice delivered to each Holder (the “Forced Conversion Notice”), to cause all of the Holders to convert all (but not less than all) of their Preferred Shares into Conversion Shares. Upon a forced Conversion under this paragraph 6(a), the other provisions of this paragraph 6 shall apply as if such forced Conversion were a voluntary Conversion by all of the Holders.

(b)Conversion Notice. In order to convert Preferred Shares, a Holder shall send to the Corporation by facsimile transmission, at any time prior to 3:00 p.m., central time, on the Business Day on which such Holder wishes to effect such Conversion (the “Conversion Date”), a notice of conversion in substantially the form attached as Annex I hereto (a “Conversion Notice”), stating the number of Preferred Shares to be converted, the amount of dividends accrued (but remaining unpaid) thereon, and a calculation of the number of shares of Common Stock issuable upon such Conversion in accordance with the formula set forth in paragraph 6(c) below setting forth the basis for each component thereof, including the details relating to any adjustments made to the Conversion Price. The Holder shall promptly thereafter send the Conversion Notice and the certificate or certificates being converted to the Corporation. The Corporation shall issue a new certificate for Preferred Shares to the Holder in the event that less than all of the Preferred Shares represented by a certificate are converted; provided, however, that the failure of the Corporation to deliver such new certificate shall not affect the right of the Holder to submit a further Conversion Notice with respect to such Preferred Shares and, in any such case, the Holder shall be deemed to have submitted the original of such new certificate at the time that it submits such further Conversion Notice. Except as otherwise provided herein, upon delivery of a Conversion Notice by a Holder in accordance with the terms hereof, such Holder shall, as of the applicable Conversion Date, be deemed for all purposes to be the record owner of the Common Stock to which such Conversion Notice relates. In the case of a dispute between the Corporation and a Holder as to the calculation of the Conversion Price or the number of Conversion Shares issuable upon a Conversion (including, without limitation, the calculation of any adjustment to the Conversion Price following any adjustment thereof), the Corporation shall issue to such Holder the number of Conversion Shares that are not disputed within the time periods specified in paragraph 6(d) below and shall submit the disputed calculations to a certified public accounting firm of national reputation (other than the Corporation’s regularly retained accountants) within two (2) Business Days following the Corporation’s receipt of such Holder’s Conversion Notice. The Corporation shall cause such accountant to calculate the Conversion Price as provided herein and to notify the Corporation and such Holder of the results in writing no later than three (3) Business Days following the day on which such accountant received the disputed calculations (the “Dispute Procedure”). Such accountant’s calculation shall be deemed conclusive absent manifest error. The fees of any such accountant shall be borne by the party whose calculations were most at variance with those of such accountant.

(c)Number of Conversion Shares. The number of Conversion Shares to be delivered by the Corporation to a Holder pursuant to a Conversion shall be determined by dividing (i) the aggregate Liquidation Value of such Holder’s Preferred Shares to be converted by (ii) the Conversion Price in effect on the applicable Conversion Date.

(d)Delivery of Conversion Shares. The Corporation shall, no later than the close of business on the third (3^rd) Business Day following the later of the date on which the Corporation receives a Conversion Notice from a Holder by facsimile transmission pursuant to paragraph 6(b), above, and the date on which the Corporation receives the related Preferred Shares certificate (such third Business Day, the “Delivery Date”), issue and deliver or cause to be delivered to such Holder the number of Conversion Shares determined pursuant to paragraph 6(c) above (without any restrictive legend if permitted by the terms of the Purchase Agreement); provided, however, that any Conversion Shares that are the subject of a Dispute Procedure shall be delivered no later than the close of business on the third (3^rd) Business Day following the determination made pursuant thereto.

(e)Delivery Procedures. As long as the Corporation’s designated transfer agent (the “Transfer Agent”) participates in the DTC’s Fast Automated Securities Transfer program (“FAST”) and no restrictive legend is required pursuant to the terms of this Certificate of Designation or the Purchase Agreement, the Corporation shall effect delivery of Conversion Shares to the Holder by crediting the account of the Holder or its nominee at DTC (as specified in the applicable Conversion Notice) with the number of Conversion Shares required to be delivered, no later than the close of business on the applicable Delivery Date. In the event that the Transfer Agent is not a participant in FAST or if the Holder so specifies in its Conversion Notice or otherwise in writing on or before the Conversion Date, the Corporation shall effect delivery of Conversion Shares by delivering to the Holder or its nominee physical certificates representing such Conversion Shares, no later than the close of business on such Delivery Date. Conversion Shares delivered to the Holder shall not contain any restrictive legend unless such legend is required pursuant to the terms of the Purchase Agreement. If any Conversion would create a fractional Conversion Share, such fractional Conversion Share shall be disregarded and the number of Conversion Shares issuable upon such Conversion, in the aggregate, shall be the next closest number of Conversion Shares. 

(f)Failure to Deliver Conversion Shares.(i) In the event that, for any reason, a Holder has not received certificates representing the number of Conversion Shares specified in the applicable Conversion Notice, without any restrictive legend (except to the extent a restrictive legend is required by the terms of the Purchase Agreement) on or before the Delivery Date therefor (a “Conversion Default”), and such failure to deliver certificates continues for two (2) Business Days following the delivery of written notice thereof from such Holder (such second Business Day following such written notice being referred to herein as the “Conversion Default Date”), the Corporation shall pay to such Holder payments (“Conversion Default Payments”) in the amount of (A) “N”multiplied by (B) the aggregate Liquidation Value of the Preferred Shares which are the subject of such Conversion Default multiplied by (C) one percent (1%), where “N” equals the number of days elapsed between the Conversion Default Date and the date on which all of the certificates representing such Conversion Shares (without any restrictive legend to the extent permitted by the terms of the Purchase Agreement) are issued and delivered to such Holder. Amounts payable hereunder shall be paid to the Holder in immediately available funds on or before the fifth (5^th) Business Day of the calendar month immediately following the calendar month in which such amounts have accrued.

(ii)In the event of a Conversion Default, a Holder may, upon written notice to the Corporation, regain on the date of such notice the rights of such Holder under the Preferred Shares that are the subject of such Conversion Default. In such event, such Holder shall retain all of such Holder’s rights and remedies with respect to the Corporation’s failure to deliver such Conversion Shares (including without limitation the right to receive the cash payments specified in paragraph 6(f)(i) above through the date of such written notice).

(iii) The Holders’ rights and remedies hereunder are cumulative, and no right or remedy is exclusive of any other. In addition to any other remedies provided herein, each Holder shall have the right to pursue actual damages for the Corporation’s failure to issue and deliver Conversion Shares timely after the applicable Delivery Date, including, without limitation, damages relating to any purchase of shares of Common Stock by or on behalf of such Holder in order to make delivery on a sale effected in anticipation of receiving Conversion Shares, such damages to be in an amount equal to (A) the aggregate amount paid by such Holder for the shares of Common Stock so purchased minus (B) the aggregate amount received by such Holder upon the sale of such Conversion Shares, and such Holder shall have the right to pursue all other remedies available to it at law or in equity (including, without limitation, a decree of specific performance and/or injunctive relief).

(g)Adjustments. The Conversion Price shall be subject to adjustment from time to time as follows:

(i) In the event that the Corporation shall (A) pay a dividend or make a distribution, in shares of Common Stock, on any class of Capital Stock of the Corporation or any subsidiary which is not directly or indirectly wholly owned by the Corporation, (B) split or subdivide its outstanding Common Stock into a greater number of shares, or (C) combine its outstanding Common Stock into a smaller number of shares, then in each such case the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of each share of the Series thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such holder would have owned or have been entitled to receive after the occurrence of any of the events described above had such share of the Series been converted immediately prior to the occurrence of such event. An adjustment made pursuant to this paragraph 6(g)(i) shall become effective immediately after the close of business on the record date in the case of a dividend or distribution (except as provided in paragraph 6(l) below) and shall become effective immediately after the close of business on the effective date in the case of such subdivision, split or combination, as the case may be. Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under clauses (ii) and (iii) below.

(ii) In the event that the Corporation shall issue or distribute New Securities, in any such case at a price per share less than $0.80 or that would entitle the holders of the New Securities to subscribe for or purchase shares of Common Stock at less than $0.80 per share (provided that the issuance of Common Stock upon the exercise of New Securities that are rights, warrants, options or convertible or exchangeable securities (“New Derivative Securities”) will not cause an adjustment in the Conversion Price if no such adjustment would have been required at the time such New Derivative Security was issued), then the Conversion Price in effect immediately prior thereto shall be adjusted so that the Conversion Price shall equal the price at which the Corporation issues or distributes such New Securities (or the price at which the holders of the New Securities are entitled to subscribe for or purchase shares of Common Stock). Each such adjustment shall be made successively whenever any such New Securities are issued. In determining whether any New Derivative Securities entitle the holders to subscribe for or purchase shares of Common Stock at less than $0.80 per share, there shall be taken into account any consideration received by the Corporation for such New Derivative Securities, the value of such consideration, if other than cash, to be determined in good faith by the Independent Directors, whose determination shall be conclusive and described in a certificate filed with the records of corporate proceedings of the Corporation. Notwithstanding the foregoing, in no event shall an adjustment be made under this clause (ii) if such adjustment would result in raising the then-effective Conversion Price.

(iii) No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price then in effect; provided, however, that any adjustments that by reason of this paragraph 6(g)(iii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 6(g) shall be made to the nearest cent or nearest 1/100th of a share.

(iv) Notwithstanding anything to the contrary set forth in this paragraph 6(g), no adjustment shall be made to the Conversion Price upon any issuance that is not included within the definition of “New Securities” under Section 3.7 of the Purchase Agreement.

(v) The Corporation from time to time may reduce the Conversion Price by any amount for any period of time in the discretion of the Board of Directors.

(vi)   In the event that, at any time as a result of an adjustment made pursuant to paragraph 6(g)(i) through 6(g)(iii) above, the holder of any share of the Series thereafter surrendered for conversion shall become entitled to receive any shares of the Corporation other than shares of the Common Stock, thereafter the number of such other shares so receivable upon conversion of any share of the Series shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in paragraphs 6(g)(i) through 6(g)(v) above, and the other provisions of this paragraph 6(g)(vi) with respect to the Common Stock shall apply on like terms to any such other shares.

(h)In case of any reclassification of the Common Stock (other than in a transaction to which paragraph 6(g)(i) applies), any consolidation of the Corporation with, or merger of the Corporation into, any other entity, any merger of another entity into the Corporation (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Corporation), any sale or transfer of all or substantially all of the assets of the Corporation or any compulsory share exchange, pursuant to which share exchange the Common Stock is converted into other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the holder of each share of the Series then outstanding shall have the right thereafter, during the period such share shall be convertible, to convert such share only into the kind and amount of securities, cash and other property receivable upon the reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock of the Corporation into which a share of the Series might have been converted immediately prior to the reclassification, consolidation, merger, sale, transfer or share exchange assuming that such holder of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consummation of such transaction, subject to adjustment as provided in paragraph 6(g) above following the date of consummation of such transaction. As a condition to any such transaction, the Corporation or the person formed by the consolidation or resulting from the merger or which acquires such assets or which acquires the Corporation’s shares, as the case may be, shall make provisions in its certificate or articles of incorporation or other constituent document to establish such right. The certificate or articles of incorporation or other constituent document shall provide for adjustments which, for events subsequent to the effective date of the certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this paragraph 6. The provisions of this paragraph 6(h) shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges.

(i)If:

(i)  the Corporation shall take any action which would require an adjustment in the Conversion Price pursuant to Section 6(g); or

(ii) the Corporation shall authorize the granting to the holders of its Common Stock generally of rights, warrants or options to subscribe for or purchase any shares of any class or any other rights, warrants or options; or

(iii) there shall be any reclassification or change of the Common Stock (other than a subdivision or combination of its outstanding Common Stock or a change in par value) or any consolidation, merger or statutory share exchange to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all or substantially all of the assets of the Corporation; or

(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Corporation;

then, the Corporation shall cause to be filed with the transfer agent for the Series and shall cause to be delivered to each Holder in accordance with the notice provisions of the Purchase Agreement, as promptly as possible, but at least 20 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, warrants or options or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights, warrants or options are to be determined, or (B) the date on which such reclassification, change, consolidation, merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding-up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in this paragraph 6(i).

(j)Whenever the Conversion Price is adjusted as herein provided, the Corporation shall promptly file with the transfer agent for the Series a certificate of an officer of the Corporation setting forth the Conversion Price after the adjustment and setting forth a brief statement of the facts requiring such adjustment and a computation thereof. The Corporation shall promptly cause a notice of the adjusted Conversion Price to be delivered to each Holder.

(k)In any case in which paragraph 6(g) provides that an adjustment shall become effective immediately after a record date for an event and the date fixed for such adjustment pursuant to paragraph 6(g) occurs after such record date but before the occurrence of such event, the Corporation may defer until the actual occurrence of such event issuing to the holder of any Preferred Shares converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment.

(l)In case the Corporation shall take any action affecting the Common Stock, other than actions described in this paragraph 6, which in the opinion of the Board of Directors would materially adversely affect the conversion right of the Holders, the Conversion Price may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances; provided, however, that in no event shall (i) the Board of Directors be required to take any such action and (ii) any such action result in an increase in the Conversion Price.

(m)The Corporation shall list the shares of Common Stock required to be delivered upon conversion of Preferred Shares, prior to delivery, upon each national securities exchange or any similar system of automated dissemination of securities prices, if any, upon which the Common Stock is listed at the time of delivery.

7.Status of Shares. All Preferred Shares that are at any time redeemed or converted pursuant to paragraph 5 or 6 above, and all Preferred Shares that are otherwise reacquired by the Corporation and subsequently canceled by the Board of Directors, shall be retired and shall not be subject to reissuance.

8.Voting Rights. Each holder of shares of the Series shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of the Series could be converted and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law), voting together with the Common Stock as a single class and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of the Series held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

9.Restrictions and Limitations. So long as any Preferred Shares remain outstanding, the Corporation, shall not, without the vote or written consent by the holders of at least a majority of the outstanding Preferred Shares, voting together as a single class:

(i) Redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking or other analogous fund for such purpose) any share or shares of its Capital Stock, except for (a) a transaction in which all outstanding shares of preferred stock are concurrently redeemed, purchased or otherwise acquired, (b) conversion into or exchange for Junior Stock, or (c) redemption in accordance with paragraph 5 hereof; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost plus interest at a rate not to exceed nine percent (9%) per annum, or, if lower than cost, at fair market value, upon the occurrence of certain events, such as the termination of employment; and provided further, that the total amount applied to the repurchase of shares of Common Stock shall not exceed $100,000 during any twelve month period;

(ii)alter, modify or amend the terms of the Series in any way;

(iii) create any new series or class of capital stock having a preference over the Series as to payment of dividends, redemption or distribution of assets upon a Liquidation Event or any other liquidation, dissolution or winding up of the Corporation;

(iv)increase the authorized number of shares of the Series;

(v) re-issue any Preferred Shares which have been converted or redeemed in accordance with the terms hereof;

(vi) issue any securities of the Corporation ranking senior to Preferred Shares either as to the payment of dividends or as to rights in liquidation, dissolution or winding-up of the affairs of the Corporation;

(vii) issue any shares of the Series except pursuant to the terms of the Purchase Agreement;

(viii) enter into any definitive agreement or commitment (which would be consummated before the Series Redemption Date) with respect to any of the foregoing; or

(ix) cause or permit any Subsidiary to engage in or enter into any definitive agreement or commitment (which would be consummated before the Series Redemption Date) with respect to any of the foregoing.

In the event that the Holders of at least a majority of the outstanding Preferred Shares agree to allow the Corporation to alter or change the rights, preferences or privileges of the Series pursuant to applicable law, no such change shall be effective to the extent that, by its terms, such change applies to less than all of the Preferred Shares then outstanding.

10.Certain Definitions. As used in this Certificate, the following terms shall have the following respective meanings:

“Affiliate” of any specified person means any other person directly or indirectly controlling or controlled by or under common control with such specified person. For purposes of this definition, “control” when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities or otherwise; and the term “controlling” and “controlled” having meanings correlative to the foregoing.

“Capital Stock” of any person or entity means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in the common stock or preferred stock of such person or entity, including, without limitation, partnership and membership interests.

“Change of Control” means the existence or occurrence of any of the following: (a) the sale, conveyance or disposition of all or substantially all of the assets of the Corporation; (b) the effectuation of a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of (other than as a direct result of normal, uncoordinated trading activities in the Common Stock generally); (c) the consolidation, merger or other business combination of the Corporation with or into any other entity, immediately following which the prior stockholders of the Corporation fail to own, directly or indirectly, at least fifty percent (50%) of the voting equity of the surviving entity; (d) a transaction or series of transactions in which any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) acquires more than fifty percent (50%) of the voting equity of the Corporation; (e) the replacement of a majority of the Board of Directors with individuals who were not nominated or elected by at least a majority of the directors at the time of such replacement; or (f) a transaction or series of transactions that constitutes or results in a “going private transaction” (as defined in Section 13(e) of the Exchange Act and the regulations of the Commission issued thereunder).

“Conversion Price” means $0.80, as adjusted from time to time pursuant to the terms of paragraph 6.

“Current Market Price” means, when used with respect to any security as of any date, the volume weighted average price of such security on the ten (10) consecutive Trading Days immediately preceding (but not including) such date as reported for consolidated transactions with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading or, if such security is not listed or admitted to trading on any national securities exchange, the volume weighted average price of such security on the ten (10) consecutive Trading Days immediately preceding (but not including) such date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or such other system then in use or, if such security is not quoted by any such organization, the volume weighted average price of such security as of the ten (10) consecutive Trading Days immediately preceding (but not including) such date furnished by a New York Stock Exchange member firm selected by the Corporation, or if such security is not quoted by any such organization and no such New York Stock Exchange member firm is able to provide such prices, such price as is determined by the Independent Directors in good faith.

“Forced Conversion Conditions” means all of the following:

(i) the Registration Statement (as defined in the Registration Rights Agreement) shall have been declared effective and shall continue to be effective and available to each Holder on the date of the Forced Conversion Notices, and is expected to remain effective and available for use for at least 30 days thereafter, and shall cover the number of shares of Common Stock required by the Registration Rights Agreement;

(ii) (x) the Common Stock shall be listed on the American Stock Exchange, the New York Stock Exchange, or the Nasdaq National Market, or shall be quoted on the OTC Bulletin Board or in the “Pink Sheets”, and trading in the Common Stock on such market or exchange shall not then be suspended, (y) the Corporation shall be in compliance, in all material respects, with each of the quantitative and qualitative listing standards and requirements (without regards to any specified grace periods) of such market, and (z) the Corporation shall not have received any notice from such market that the Corporation may not be in such compliance;

(iii)after the Closing Date, the closing price of the Common Stock (as reported for consolidated transactions with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, then in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or such other system then in use or, if the Common Stock is not quoted by any such organization, then as furnished by a New York Stock Exchange member firm selected by the Corporation) shall have equaled or exceeded $1.60 for a period of no less than 20 out of any 30 consecutive Trading Days;

(iv)the average daily trading volume of the Common Stock shall have exceeded 150,000 shares for the 20 consecutive Trading Days immediately preceding (but not including) the date of the Forced Conversion Notices; and

(v) a Fundamental Change, or an event that with the giving of notice or lapse of time (or both) would constitute a Fundamental Change, shall not have occurred and be continuing.

“Fundamental Change” means any of the following events or circumstances: (i) any representation or warranty of the Corporation (as deemed revised by any changes of which the Corporation notified the Holders before the Closing) set forth in the Purchase Agreement or the other Transaction Documents fails to be true and correct in all material respects as of the date when made or as of the Closing Date as if made on the Closing Date; (ii) the Corporation fails at any time to comply with or perform in all material respects all of the agreements, obligations and conditions set forth in the Purchase Agreement, this Certificate or the other Transaction Documents that are required to be complied with or performed by the Corporation; (iii) a Change of Control occurs; or (iv) a Liquidation Event occurs or is publicly announced by or with respect to the Corporation.

“Holder” means any holder of Preferred Shares, all of such holders being the “Holders”.

“Independent Directors” means directors that (i) are not 5% or greater stockholders of the Corporation or the designee of any such stockholder; (ii) are not officers or employees of the Corporation, any of its subsidiaries or of a stockholder referred to above in clause (i); (iii) are not Related Persons; and (iv) do not have relationships that, in the opinion of the Board of Directors, would interfere with their exercise of independent judgment in carrying out the responsibilities of the directors.

“PIK Dividend Price” means 0.85 multiplied by the Current Market Price as of the applicable Dividend Payment Date.

“Purchase Agreement” means that certain Securities Purchase Agreement dated as of May 10, 2005, by and among the Corporation and the Purchasers named therein.

“Registration Rights Agreement” means that certain Registration Rights Agreement dated as of May 10, 2005, by and among the Corporation and the Purchasers named therein.

“Related Person” means an individual related to an officer, director or employee of the Corporation or any of its Affiliates which relation is by blood, marriage or adoption and not more remote than first cousin.

“Stock Payment Conditions” means all of the following:

(i) the Registration Statement shall have been declared effective and shall continue to be effective and available to each Holder for the duration of the applicable Stock Payment Period, and shall cover the number of shares of Common Stock required by the Registration Rights Agreement;

(ii) (x) the Common Stock shall be listed on the American Stock Exchange, the New York Stock Exchange, or the Nasdaq National Market, or shall be quoted on the OTC Bulletin Board or in the “Pink Sheets”, and trading in the Common Stock on such market or exchange shall not then be suspended, (y) the Corporation shall be in compliance, in all material respects, with each of the quantitative and qualitative listing standards and requirements (without regards to any specified grace periods) of such market, and (z) the Corporation shall not have received any notice (which has not subsequently been resolved before the applicable Stock Payment Period) from such market that the Corporation may not be in such compliance; and

(iii) a Fundamental Change, or an event that with the giving of notice or lapse of time (or both) would constitute a Fundamental Change, shall not have occurred and be continuing.

ANNEX1

CONVERSION NOTICE

The undersigned hereby elects to convert shares of 6% Convertible Preferred Stock (the “Preferred Stock”), represented by stock certificate No(s). , into shares of common stock (“Common Stock”) of Lighting Science Group Corporation (the “Company”) according to the terms and conditions of the Certificate of Designation relating to the Preferred Stock (the “Certificate of Designation”), as of the date written below. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Certificate of Designation.

Conversion Date:

Number of Shares of

Preferred Stock to be Converted:

Amount of Accrued Dividends:

Applicable Conversion Price:

Number of Shares of

Common Stock to be Issued:

Name of Holder:

Address:

Signature:

Name:

Title:

[  ]The Holder represents to the Company that the resale or transfer of the Conversion Shares represented hereby was effected via delivery of a prospectus pursuant to the registration statement and was in compliance with any applicable state securities or blue sky laws. (check box if applicable)

Holder Requests Delivery to be made: (check one)

[  ] By Delivery of Physical Certificates to the Above Address

[  ] Through Depository Trust Corporation (Account _________)

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed on its behalf by its undersigned Chairman and Chief Executive Officer this 10^th day of May, 2005.

Ron Lusk, Chairman & CEO

EX-3.2

BYLAWS

of

LIGHTING SCIENCE GROUP CORPORATION

(a Delaware corporation)

Index

ARTICLE I

STOCKHOLDERS

Section                                                          Page

1.01  Annual meetings .........................................................................  1

1.02  Special meetings ........................................................................  1

1.03  Notice ..................................................................................  1

1.04  Record dates ............................................................................  2

1.05  Quorum and adjournment ..................................................................  3

1.06  Organization of meetings ................................................................  3

1.07  Action by stockholders ..................................................................  4

1.08  Voting rights of stockholders ...........................................................  4

1.09  Stockholders list .......................................................................  4

1.10  Inspectors of election ..................................................................  4

1.11  Procedure at stockholders meetings ......................................................  5

1.12  Proxies .................................................................................  6

1.13  Voting by fiduciaries and pledges .......................................................  7

1.14  Voting by joint holders of shares .......................................................  7

1.15  Voting by corporations ..................................................................  7

1.16  Voting by minors; other matters .........................................................  8

1.17  Consents in lieu of meetings ............................................................  8

ARTICLE II

DIRECTORS

2.01  Qualifications; number, term of office, election ........................................  9

2.02  Annual and other regular meetings .......................................................  9

2.03  Special meetings ........................................................................  9

2.04  Notice of Board meetings ................................................................  9

2.05  Quorum of and action by directors; written consents ..................................... 10

2.06  Organization ............................................................................ 10

2.07  Committees .............................................................................. 10

2.08  Presumption of assent ................................................................... 11

2.09  Resignation ............................................................................. 11

2.10  Removal ................................................................................. 11

2.11  Vacancies ............................................................................... 11 

2.12  Compensation ............................................................................ 12   

ARTICLE III

GENERAL PROVISIONS REGARDING NOTICE; TELEPHONIC MEETINGS

3.01  Manner of giving notice ................................................................. 12

3.02  Waiver of notice ........................................................................ 12

3.03  Modification of proposal contained in notice ............................................ 12

3.04  Use of conference telephone and similar equipment ....................................... 13

ARTICLE IV

OFFICERS AND EMPLOYEES

4.01  Number, qualifications and designation .................................................. 13

4.02  Election and term of office; authority .................................................. 13

4.03  Non-Executive officers; employees and agents ............................................ 13

4.04  Resignations ............................................................................ 14

4.05  Removal ................................................................................. 14

4.06  Vacancies ............................................................................... 14

4.07  Compensation; bonding ................................................................... 14

4.08  The Chairman ............................................................................ 14

4.09  The President ........................................................................... 14

4.10  Vice Presidents ......................................................................... 14

4.11  The Secretary and assistant secretaries ................................................. 15

4.12  The Treasurer and assistant treasurers .................................................. 15

ARTICLE V

SHARES OF CAPITAL STOCK

5.01  Share certificates ...................................................................... 15

5.02  Issuance; registration .................................................................. 15

5.03  Transfer of shares ...................................................................... 16

5.04  Transfer agents and registrars .......................................................... 16

5.05  Lost, stolen, destroyed or mutilated certificates ....................................... 16

5.06  Holders of record ....................................................................... 16

ARTICLE VI

EXECUTION OF INSTRUMEN.TS, ETC.; MISCELLANEOUS

6.01  Checks, deposits, etc ................................................................... 16

6.02  Other contracts ......................................................................... 17

6.03  Interested directors or officers; quorum ................................................ 17

6.04  Voting securities owned by the Corporation .............................................. 18

6.05  Corporate records ....................................................................... 18 

6.06  Offices ................................................................................. 18   

6.07  Corporate seal ....................................... .................................. 19

6.08  Fiscal year ............................................................................. 19

ARTICLE VII

INDEMNIFICATION

7.01  Scope of indemnification ................................................................ 19

7.02  Proceedings initiated by Indemnified Representatives .................................... 20

7.03  Advancing expenses ...................................................................... 21

7.04  Insurance; security ..................................................................... 21

7.05  Payment of indemnification or advance ................................................... 21

7.06  Contribution ............................................................................ 21

7.07  Mandatory indemnification ............................................................... 22

7.08  Contract rights; amendment or repeal; reliance .......................................... 22

7.09  Article VII not exclusive; survival of rights ........................................... 22

ARTICLE VIII

AMENDMENTS

8.01  Amendment of bylaws ..................................................................... 22

BYLAWS

ARTICLE I

STOCKHOLDERS

Section 1.01. Annual meetings. An annual meeting of the stockholders shall be held each year. The annual meeting shall be held at such time and place, within or without the State of Delaware, and on such date (not a legal holiday at the place of the meeting) as may be fixed by the Board of Directors, or if not so fixed, then at 11:00 a.m., Central Daylight Saving time, on the third Thursday in April, if not a legal holiday at the place of the meeting, and if a legal holiday, then on the next succeeding day which is not a legal holiday, at the principal business office of the Corporation. At the annual meeting the stockholders shall elect directors and shall transact such other business as may properly be brought before the meeting. If an annual meeting is not held within thirteen months after the date of incorporation of the Corporation, or within thirteen months after the last annual meeting, any stockholder or director of the Corporation may apply to the Delaware Court of Chancery for an order requiring an annual meeting to be held.

Section 1.02. Special meetings. Special meetings of the stockholders may be called at any time, for the purpose or purposes set forth in the call, by the Chairman of the Board, the President or the Board of Directors. Special meetings shall be held at such time and place, within or without the State' of Delaware, and on such date (not a legal holiday at the place of the meeting), as may be fixed by the Board of Directors, or if not so fixed by the Board of Directors, then on the thirtieth day after the date such meeting is called, if not a legal holiday at the place of the meeting, and if a legal holiday, then on the next succeeding day which is not a legal holiday, at the principal business office of the Corporation.

Section 1.03.Notice.

 (a) General rule. Written notice of every meeting of the stockholders shall be given by, or at the direction of, the Secretary to each stockholder of record entitled to vote at the meeting not less than 10 nor more than 60 days before the date fixed for the meeting. However, if a purpose of the meeting is to act upon an agreement of merger or consolidation pursuant to section 251 of the General Corporation Law of the State of Delaware (the "General Corporation Law"), or a proposal to sell, lease or exchange all or substantially all of the Corporation's property and assets pursuant to Section 271 of the General Corporation Law, such notice shall be given not less than 20 nor more than 60 days before the date fixed for the meeting.

 (b) Contents. In the case of a special meeting of stockholders, the notice shall specify the general nature of the business to be transacted and shall contain such other material as may be required by law. Any business may be transacted at an annual meeting regardless of whether the notice calling such meeting contains a reference thereto, except as otherwise required by law.

 (c) Adjourned stockholders meetings. When a meeting of stockholders is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than thirty days or unless a new record date is fixed for the adjourned meeting, in which case notice of such adjourned meeting shall be given as provided in Section 1.03(a). At the adjourned meeting any business may be transacted which could have been transacted at the original meeting.

 (d) Stockholders without forwarding addresses. Notices need not be sent to any stockholder to whom either (i) notices of two consecutive annual meetings, and all notices of stockholders meetings or of the taking of action by written consent of the stockholders without a meeting between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during any twelve-month period, have been mailed by the Corporation addressed to the stockholder at the stockholder's address as shown on the records of the Corporation and have been returned undeliverable. Whenever the stockholder delivers to the Corporation a notice containing the stockholder's then current address, the requirement that notices be given to the stockholder shall be reinstated.

Section 1.04. Record dates.

 (a) Fixing a record date for voting at a meeting. The Board of Directors may fix a date and time before any meeting of stockholders as a record date for the determination of the stockholders entitled to notice of, or to vote at, the meeting, which date, except in the case of an adjourned meeting, shall be not more than 60 or less than 10 days before the date of the meeting, and shall not precede the day on which the Board of Directors fixed the record date. Such record date shall also apply to any adjournment of the meeting, unless the Board of Directors fixes a new record date for the adjourned meeting in accordance with the preceding sentence. Only stockholders of record on the date and time so fixed shall be so entitled, notwithstanding any transfer of shares on the books of the Corporation after any such record date.

 (b) Fixing a record date for other purposes. The Board of Directors may similarly fix a record date and time (i) for the determination of stockholders of record entitled to consent to corporate action in writing without a meeting, in which case such record date shall not be more than I0 days after the day on which the Board of Directors fixed the record date and shall not precede that day, or (ii) for the determination of stockholders of record entitled to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock, or for any other purpose, in which case such record date shall not be more than 60 days before such action.

 (c) When a record date is not fixed. If a record date is not fixed pursuant to Sections 1.04(a) or 1.04(b):

 (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day before the day on which notice of the meeting is first given to stockholders or, if notice is waived, the close of business on the day before the day on which the meeting is held.

 (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when prior action by the Board of Directors is not required, shall be the close of business on the day on which the first signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to (1) the Secretary, or (2) the principal place of business of the Corporation, or (3) the registered office of the Corporation in Delaware (with such delivery to be by hand or by certified or registered mail, return receipt requested). If prior action by the Board of Directors is required, such record date shall be the close of business on the day such action is taken.

 (iii) The record date for determining stockholders for any other purpose shall be the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.

Section 1.05. Quorum and adjournment.

 (a) General rule. A meeting of stockholders shall not be organized for the transaction of business unless a quorum is present. The presence in person or by proxy of the holders of at least a majority of the shares entitled to be voted at the meeting shall constitute a quorum. Shares of its own capital stock belonging to the Corporation, or shares of the Corporation's capital stock belonging to another corporation if the Corporation holds, directly or indirectly, a majority of the shares of such other corporation entitled to vote in the election of directors, shall not be counted in determining the total number of outstanding shares, or the number of shares present at the meeting, for quorum purposes.

 (b) Adjournment for lack of quorum. If a meeting cannot be organized because a quorum is not present, those stockholders present may adjourn the meeting to such time and place as they may determine.

 (c) Withdrawal of stockholders. Once a meeting is duly organized, the stockholders present may continue to do business until adjournment notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

 (d) Special rule for election of directors. If one of the purposes of a meeting is the election of directors, and such meeting has been adjourned twice for lack of a quorum, those stockholders who attend the third attempt to convene the meeting shall constitute a quorum for the purpose of electing directors whether or not they would constitute a quorum for other purposes pursuant to Section 1.05(a), so long as there is present in person or by proxy the holders of at least one-third of the shares entitled to be voted at the meeting.

Section 1.06. Organization of meetings. At every meeting of the stockholders, the Chairman of the Board shall act as chairman of the meeting. If the Chairman of the Board is not present, then one of the following persons present, in the following order, shall act as chairman of the meeting: the President, or a person chosen by majority vote of the stockholders present at

the meeting. The Secretary or an Assistant Secretary, or in their absence a person appointed by the chairman of the meeting, shall act as secretary of the meeting and take the minutes thereof.

Section 1.07. Action by stockholders. Any proposal submitted to a vote of the stockholders shall be approved if a majority of the votes entitled to be cast with respect to such proposal by stockholders present at the meeting in person or by proxy are cast in favor of such proposal and, if any shares are entitled to be voted thereon as a class, if of the votes entitled to be cast with respect to such proposal by stockholders of the class present at the meeting in person or by proxy are cast in favor of such proposal.

Section 1.08. Voting rights of stockholders. Unless otherwise provided in the certificate of incorporation, each person shall be entitled to one vote for each share of capital stock registered in the name of such person on the books of the Corporation on the record date for such matter determined pursuant to Section 1.04. The date and time of the opening and the closing of the polls for each matter on which the stockholders will vote at a meeting shall be announced at the meeting. No ballots, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted after the closing of the polls.

Section 1.09. Stockholders list.

 (a) General rule. At least ten days before every meeting of stockholders, the Secretary shall prepare a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten days prior to the meeting, either at the place where the meeting is to be held, or at another place within the city where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting and may be inspected during the whole time of the meeting by any stockholder who is present. The Corporation's stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger or the stockholders list or to vote in person or by proxy at any meeting of stockholders.

 (b) Effect of non-compliance. Failure to comply with Section 1.09(a) shall not affect the validity of any action taken at a meeting prior to a demand at such meeting, by any stockholder entitled to vote thereat, to examine the list, except that if the directors willfully neglect or refuse to produce the stockholders list at any meeting for the election of directors, they shall be ineligible for election to any office at the meeting.

Section 1.10. Inspectors of election.

 (a) Appointment. Before any meeting of stockholders, the Board of Directors may appoint inspectors of election to act at the meeting or any adjournment thereof. If inspectors of election are not so appointed by the Board of Directors, the chairman of the meeting may, and on the request of any stockholder shall, appoint inspectors of election at the meeting. The number of inspectors of election shall be one or three. Inspectors of election need not be stockholders. A person who is a candidate for an office to be filled at the meeting shall not act as an inspector of election. Each inspector of election, at or before the meeting and before beginning his or her duties, shall take and sign an oath faithfully to execute the duties of inspector of election with strict impartiality and according to the best of his or her ability.

 (b) Vacancies. In case any person appointed as a judge of election fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Board of Directors before the convening of the meeting or by the chairman of the meeting at the meeting.

 (c) Duties. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, whether a quorum is present, and the authenticity, validity and effect of proxies and ballots; receive all votes and ballots; hear and determine all challenges and questions in any way arising in connection with the right to vote, and retain for at least 60 days a record of the disposition of all such challenges; count and tabulate all votes; determine the results and certify them to the chairman of the meeting; and do such acts as may be proper to conduct the vote with fairness to all stockholders.

 (d) Evidence to be considered. In determining the validity and counting of proxies and ballots, the inspectors of election shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 1.12(b), ballots, and the regular books and records of the Corporation, except that the inspectors of election may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons who represent more votes than the holder of a proxy is authorized by the record owner to cast, or more votes than the stockholder holds of record. If the inspectors of election consider such other reliable information, the certificate of the inspectors of election made pursuant to Section 1.10(e) shall specify the precise information so considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which it was obtained and the basis for the belief of the inspectors of election that the information is accurate and reliable.

 (e) Report and certificate. On request of the chairman of the meeting, or of any stockholder, the inspectors of election shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein.

Section 1.11. Procedure at stockholders meetings. The organization of each meeting of stockholders, the order of business and all matters relating to the manner of conducting the meeting shall be determined by the chairman of the meeting, whose decisions may be overruled only by a majority of the votes entitled to be east on any matter by stockholders present at the meeting in person or by proxy. Such votes shall not be taken by ballot. Meetings shall be conducted in a manner designed to accomplish the business of the meeting in a prompt and orderly fashion and to be fair and equitable to all stockholders, but it shall not be necessary to follow Roberts' Rules of Order or any other manual of parliamentary procedure.

Section 1.12. Proxies.

 (a) General rule

 (i) Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for the stockholder by proxy. The presence of, or vote or other action at a meeting, or the expression of consent or dissent to corporate action in writing without a meeting, by a person holding a proxy of such stockholder shall constitute the presence of, or vote or action by, or written consent or dissent of, such stockholder.

 (ii) If two or more persons hold proxies with respect to the same shares, the Corporation shall, unless otherwise expressly provided in such proxies, accept as the vote with respect to all such shares the vote cast by a majority of such persons and, if a majority of such persons cannot agree whether such shares shall be voted or upon the manner of voting such shares, the voting of such shares shall be divided equally among such persons.

 (b) Execution and filing. Every proxy shall be in writing, signed manually or by facsimile by the stockholder of record or by such stockholder's duly authorized officer, director, employee or agent, and filed with the Secretary. A telegram, telex, cablegram, datagram or similar electronic transmission from a stockholder or attorney-in-fact, or a photographic or other copy, facsimile telecommunication or similar reliable and complete reproduction of a writing executed by a stockholder or attorney-in-fact, (i) may be treated as properly executed for purposes of this subsection and (ii) shall be so treated if it sets forth a confidential and unique identification number or other mark furnished by the Corporation to the stockholder for the purposes of a particular meeting or transaction.

 (c) Revocation; expiration. A duly executed proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective with respect to the Corporation until written notice thereof has been given to the Secretary. An unrevoked proxy shall not be valid after three years from the date of its execution unless the proxy provides for a longer period. A proxy shall not be revoked by the death or incapacity of the stockholder unless, before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary.

  (d) Expenses. The Corporation shall pay the reasonable expenses of the solicitation of votes, proxies or consents of stockholders by or on behalf of the Board of Directors or its nominees for election to the Board, including solicitation by professional proxy solicitors and otherwise.

Section 1.13. Voting by fiduciaries and pledgees. Shares held of record by a trustee or other fiduciary, an assignee for the benefit of creditors or a receiver may be voted, or proxies relating thereto granted, by the trustee, fiduciary, assignee or receiver. A stockholder whose stock is pledged shall be entitled to vote the pledged shares, or to grant proxies with respect thereto, until such shares have been transferred of record into the name of the pledgee or a nominee of the pledgee; except that if, in the transfer of the pledged shares by the stockholder to the pledgee on the books of the Corporation, the stockholder has expressly empowered the pledgee to vote the pledged shares, then only the pledgee or the proxy of the pledgee may vote such shares.

Section 1.14. Voting by joint holders of shares.

 (a) General rule. If shares or other securities having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, then (i) if any of such persons are present in person or by proxy, all of such shares shall be deemed to be represented for the purpose of determining whether a quorum is present, and (ii)(1) if only one of such persons votes such shares, the vote of such person binds all of such persons, (2) if more than one of such persons vote such shares, the votes of the majority of such persons so voting binds all of such persons, and (3) if more than one of such persons vote such shares but their votes are evenly split on any particular matter, each such person may vote such shares in proportion to the interest of such person therein, unless a court having jurisdiction shall order otherwise.

 (b) Exception. If there has been filed with the Secretary (i) written notice that the voting rights with respect to such shares are different from the rights provided in Section 1.14(b), and (ii) a copy, certified by an attorney at law to be correct, of the instrument or order appointing such joint holders or creating the relationship of such joint holders to one another and providing for their voting rights with respect to the shares, then the persons specified as having such voting power in the latest-dated document so filed, and only those persons, shall be entitled to vote the shares or grant proxies relating thereto, but only in accordance with such document.

Section 1.15. Voting by corporations.

 (a) Voting by corporate stockholders. Shares held of record by another corporation may be voted, or proxies relating thereto may be granted, by any of its officers or agents, unless there has been filed with the Secretary a copy of a resolution of such other corporation's board of directors or a provision of its certificate or articles of incorporation or bylaws, certified to be correct by one of such corporation's officers, appointing some other person its general or special proxy, in which case that person shall be entitled to vote the shares held of record by such corporation.

 (b) Shares owned by the Corporation. Shares of its own capital stock belonging to the Corporation, or shares of the Corporation's capital stock belonging to another corporation if the Corporation holds, directly or indirectly, a majority of the shares of such other corporation entitled to vote in the election of directors, shall not be entitled to vote. Nothing in this section shall be construed as limiting the right of the Corporation to vote stock, including its own capital stock, held by it in a fiduciary capacity.

Section 1.16. Voting by minors; other matters. The Corporation may treat every natural person who holds shares or other obligations of the Corporation as having capacity to receive and to empower others to receive dividends, interest, principal and other payments or distributions, to vote or express consent or dissent and to make elections and exercise rights relating to such shares or obligations unless, in the case of payments or distributions on shares, the Secretary or the transfer agent of the Corporation or, in the case of payments or distributions on other obligations, the Treasurer or paying agent of the Corporation, has received written notice that the holder is a minor or is otherwise legally incapacitated.

Section 1.17. Consents in lieu of meetings.

 (a) Action by consent. Any action required or permitted to be taken at a meeting of the stockholders or of a class of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

 (b) Formal requirements for action by consent. Every written consent shall bear the date of signature of each stockholder who signs it. No written consent shall be effective to take the corporate action referred to therein unless (i) written consents signed by a sufficient number of stockholders to take such action are delivered to the Secretary, and (ii) such delivery of consents sufficient to take such action is completed within 60 days of the date of the earliest-dated consent so delivered.

 (c) Notice to non-consenting stockholders. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing to such action.

ARTICLE II

DIRECTORS

Section 2.01. Qualifications; number; term of office; election. Each director of the Corporation shall be a natural person of full age who need not be a resident of Delaware or a stockholder of the Corporation. The Board of Directors shall consist of such number of persons as may be determined from time to time by the Board of Directors. A full Board of Directors shall be elected at each annual meeting of the stockholders. Each director shall hold office from the time of his or her election until the election of his or her successor, or until his or her earlier death, resignation or removal. A decrease in the number of directors constituting the full Board of Directors shall not have the effect of shortening the term of office of any incumbent director. In elections of directors, voting need not be by ballot unless balloting is required by vote of the stockholders taken before the voting for the election of directors begins. Unless otherwise provided by law or in the certificate of incorporation, the candidates receiving the highest numbers of votes cast in the election shall be elected, even if such numbers are less than a majority of the votes cast.

Section 2.02. Annual and other regular meetings. A regular meeting of the Board of Directors shall be held immediately after the annual meeting of the stockholders, or at such other time and at such place as may be designated from time to time by the Board of Directors. Such regular meeting shall be the annual organization meeting at which the Board shall organize itself and elect the Executive Officers of the Corporation and may transact any other business. Other regular meetings of the Board of Directors shall be held on such dates and at such times and places, within or without Delaware, as shall be designated from time to time by the Board of Directors. Any business may be transacted at any regular meeting.

Section 2.03. Special meetings. A special meeting of the Board of Directors may be called at any time by the Board itself, or by the Chairman or the President, or by at least one-fourth of the directors, to be held on such date and at such time and place, within or without Delaware, as shall be specified by the person or persons calling the meeting. Any business may, be transacted at any special meeting.

 Section 2.04. Notice of Board meetings. Once the dates, times and places of regular meetings of the Board of Directors has initially been determined by the Board of Directors, notices of such regular meetings thereafter need not be given unless any such date, time or place is changed, in which case notice thereof shall be given in the manner provided below for special meetings. Notice of every special meeting of the Board of Directors shall be given to each director by telephone or in writing at least 24 hours (in the case of notice by telephone, telex, TWX or fax) or 48 hours (in the case of notice by telegraph, courier service or express mail) or five days (in the case of notice by first class mail) before the time at which the meeting is to be held. Every such notice shall state the date, time and place of the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in a notice of the meeting.

Section 2.05. Quorum of and action by directors written consents. A majority of the directors in office shall be necessary to constitute a quorum for the transaction of business, except as otherwise provided in Section 7.05(b). If a quorum is not present at any meeting, the meeting may be adjourned from time to time by a majority of the directors present until a quorum shall be present, but notice of the time and place to which such meeting is adjourned shall be given to any directors not present either in writing or personally or by telephone at least eight hours prior to the hour of reconvening. The acts of a majority of the directors present and voting at a meeting at which a quorum is present shall be the acts of the Board of Directors. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if, prior or subsequent to the action, all of the directors in office consent thereto in writing and such consent or consents are filed with the minutes of the Board.

Section 2.06. Organization. The Chairman of the Board, if present, or if not, the President, if the President is a director and is present, or if not, a director designated by the Board, shall preside at each meeting of the Board. The Secretary, if present, or if not, any Assistant Secretary, shall take the minutes at all meetings of the Board of Directors. In the absence of the Secretary and an Assistant Secretary, the presiding officer shall designate any person to take the minutes of the meeting.

Section 2.07. Committees.

 (a) Establishment and powers. The Board of Directors may, by resolution adopted by a majority of the directors in office, establish one or more standing or temporary committees (which may include an Executive Committee), consisting of one or more directors, who shall serve at the pleasure of the Board. Any such committee shall have and may exercise such powers and authority of the Board of Directors as the Board may specify from time to time, which may include the declaration of dividends; provided that a committee shall not have any power or authority as to the following: (i) the recommendation or submission to stockholders of any action requiring approval of stockholders under the Delaware General Corporation Law, (ii) the adoption of an agreement of merger or consolidation, (iii) amendment of the certificate of incorporation except as specifically permitted by Section 2.07(b), (iv) the creation or filling of vacancies in the Board of Directors, (v) the adoption, amendment or repeal of the bylaws, (vi) the amendment or repeal of any resolution of the Board of Directors that by its terms is amendable or repealable only by the Board of Directors, or (vii) action on any matter committed by these bylaws or by resolution of the Board of Directors to another committee of the Board of Directors.

 (b) Certain terms of securities. Notwithstanding Section 2.07(a)(iii), a committee may, to the extent authorized by the Board of Directors in a resolution providing for the issuance of shares of stock, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation, or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, or fix the number of shares of any series of stock, or authorize the increase or decrease of the shares of any series.

 (c) Alternate members. The Board may designate one or more directors as alternate members of any committee who may replace my absent or disqualified member at any meeting of the committee or for the purposes of any written action by the committee. In the absence or disqualification of a member and alternate member or members of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member.

 (d) Procedures. The term “Board of Directors” or “Board,” when used in any provision of these bylaws relating to the organization or procedures of or the manner of taking action by the Board of Directors, shall be construed to include and refer to any Executive Committee or other committee of the Board.

Section 2.08. Presumption of assent. Minutes of each meeting of the Board and each committee of the Board, respectively, shall be made available to each director or member of such committee, respectively, at or before the next succeeding meeting of the Board or such committee. A director who is present at a meeting of the Board, or of a committee of the Board, at which action on any matter is taken shall be presumed to have assented to the action taken unless the director's dissent is entered in the minutes of the meeting or unless the director files a written dissent to the action with the secretary of the meeting before the adjournment thereof or transmits the dissent in writing to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a director who voted in favor of the action. Nothing in this section shall bar a director from asserting that minutes of the meeting incorrectly omitted his or her dissent if, promptly upon receipt of a copy of such minutes, the director notifies the Secretary, in writing, of the asserted omission or inaccuracy.

Section 2.09. Resignation. Any director may resign by submitting his or her resignation to the Secretary. Such resignation shall become effective upon its receipt by the Secretary or as otherwise specified therein.

Section 2.10. Removal.

 (a) Removal by the stockholders. The entire Board of Directors, or any individual director, may be removed from office, with or without cause, by the vote of the stockholders. In case the entire Board or any one or more directors are so removed, new directors may be elected by the stockholders at the same meeting.

 (b) Removal by the Board. The Board of Directors may declare vacant the office of a director who has been judicially declared of unsound mind or who has been convicted of an offense punishable by imprisonment for a term of more than one year. Failure to attend a meeting or meetings of the Board shall not entitle the Board to remove such director.

Section 2.11. Vacancies. Vacancies in the Board of Directors that shall occur by reason of death, resignation, removal, increase in the number of directors or any other cause whatever may be filled (unless filled pursuant to Section 2.10(a)) by a majority vote of the remaining directors, whether or not a quorum, or by a sole remaining director, and each person so elected shall be a director to serve for the balance of the unexpired term. When one or more directors resign from the Board effective at a future date, the directors then in office, including those who have so resigned, shall have power by the applicable vote to fill the vacancies, the vote thereon to take effect when the resignations become effective.

Section 2.12. Compensation. The Board of Directors shall have the authority to fix the compensation of directors for their services as directors. A director may be a salaried officer of the Corporation.

ARTICLE III

GENERAL PROVISIONS REGARDING NOTICE; TELEPHONIC MEETINGS

Section 3.01. Manner of giving notice. Whenever written notice is required to be given to any person under the provisions of the Delaware General Corporation Law or by the certificate or these bylaws, it may be given to the person either personally or by sending a copy thereof by first class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission, to the address (or to the telex, TWX or fax number) of the person appearing on the books of the Corporation or, in the case of directors, supplied by the director to the Corporation for the purpose of notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of fax, when received. A notice of meeting shall specify the date, time and place of the meeting and any other information required by any provision of the Delaware General Corporation Law, the certificate of incorporation or these bylaws.

Section 3.02. Waiver of notice.

 (a) Written waiver. Whenever any notice is required to be given under the provisions of the Delaware General Corporation Law, the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of the notice. Neither the business to be transacted at, nor the purpose of, a meeting need be specified in the waiver of notice of the meeting.

 (b) Waiver by attendance. Attendance of a person at any meeting shall constitute a waiver of notice of the meeting except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened.

Section 3.03. Modification of proposal contained in notice. Whenever the language of a proposed resolution is included in a written notice of a meeting required to be given under the provisions of the Delaware General Corporation Law or the certificate of incorporation or these bylaws, the meeting considering the resolution may without further notice adopt it with such clarifying or other amendments as do not enlarge its original purpose.

Section 3.04. Use of conference telephone and similar equipment. One or more persons may participate in a meeting of the Board of Directors or any committee thereof, or the stockholders of the Corporation, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at the meeting.

ARTICLE IV

OFFICERS AND EMPLOYEES

Section 4.01. Number, qualifications and designation. The Executive Officers of the Corporation shall be a Chairman, a President, a Secretary and a Treasurer, and such other officers of the Corporation as the Board of Directors may designate from time to time as Executive Officers. The Corporation shall have such other officers from time to time as the Board may determine. Other than the Chairman, who must also be a director, officers may but need not be directors or stockholders of the Corporation. The President and the Secretary shall be natural persons of full age. Any number of offices may be held by the same person. The Board of Directors shall elect from among the directors the Chairman.

Section 4.02. Election and term of office; authority. The Executive Officers of the Corporation shall be elected annually by the Board of Directors at the regular annual meeting of the Board, and shall hold office at the pleasure of the Board of Directors. Other officers of the Corporation shall be elected by the Board of Directors or appointed pursuant to Section 4.03, and shall hold office at the pleasure of the Board of Directors and of the Executive Officer, if any, charged with their supervision. All officers of the Corporation, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be provided by or pursuant to resolutions or orders of the Board of Directors or, in the absence of controlling provisions in the resolutions or orders of the Board of Directors, as may be determined by or pursuant to these bylaws. The Board of Directors may delegate for the time being some or all of the powers and duties of any officer to any other person whom the Board may select.

Section 4.03. Non-Executive officers; employees and agents. The Board of Directors may from time to time elect such other officers as the Board deems appropriate, to have such authority and perform such duties as are provided in these bylaws or as the Board may from time to time determine. The Board of Directors may delegate to any Executive Officer or committee of the Board the power to appoint non-Executive officers and to prescribe the authority and duties of such officers. The Chairman, or other officers of the Corporation pursuant to authority delegated by the Chairman, may employ from time to time such other agents, employees and independent contractors as the Chairman or such other officer may deem advisable for the prompt and orderly transaction of the business of the Corporation, may prescribe their duties and the conditions of their employment, fix their compensation and dismiss them at any time, without prejudice to their contract rights, if any.

Section 4.04. Resignations. Any officer may resign at any time upon written notice to the Secretary. The resignation shall be effective upon receipt thereof by the Secretary or at such subsequent time as may be specified in the notice of resignation.

Section 4.05. Removal. Any officer of the Corporation may be removed by the Board of Directors, and any employee or agent may be dismissed by the Chairman, in any case with or without cause. The removal shall be without prejudice to the contract rights, if any, of any person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.

Section 4.06. Vacancies. Any vacancy in any office or position by reason of death, resignation, removal, disability or any other cause shall be filled in the manner provided in these bylaws for regular election or appointment to such office or position.

Section 4.07. Compensation; bonding. The compensation of the officers elected by the Board of Directors shall be fixed from time to time by the Board. The compensation of any other officers, employees and agents shall be fixed from time to time by the Chairman or such other officer or committee to which the Chairman delegates such power. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise.

Section 4.08. The Chairman. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors, and shall have such other powers and duties as from time to time may be prescribed by the Board.

Section 4.09. The President. Subject to the control of the Board of Directors, the President shall have general supervision of and general management and executive powers over all the property, operations, business, affairs and employees of the Corporation, and shall see that the policies and programs adopted or approved by the Board are carded out. The President shall exercise such further powers and duties as from time to time may be prescribed by these bylaws or by the Board of Directors.

Section 4.10. Executive Vice Presidents. Executive Vice Presidents may be given by resolution of the Board general executive powers, subject to the control of the Chairman or the President, concerning one or more or all segments of the operations of the Corporation. Executive Vice Presidents shall exercise such further powers and duties as from time to time may be prescribed by these bylaws, the Board of Directors, the Chairman or the President. At the request of the President, or in the President's absence or disability, the senior Executive Vice President shall exercise the powers and duties of the President.

Section 4.11. The Secretary and assistant secretaries. The Secretary or an assistant secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record the proceedings of the stockholders and of the Board and of committees of the Board in a book or books to be kept for that purpose; shall see that notices are given and records and reports properly kept and filed by the Corporation as required by law and these bylaws; and shall be the custodian of the seal of the Corporation and see that it is affixed to all documents to be executed on behalf of the Corporation under its seal. The Secretary shall exercise such further powers and duties as from time to time may be prescribed by these bylaws or by the Board of Directors or the President. At the request of the Secretary, or in the Secretary's absence or disability, an assistant secretary shall exercise the powers and duties of the Secretary.

Section 4.12. The Treasurer and assistant treasurers. The Treasurer shall be the chief accounting officer of the Corporation. The Treasurer or an assistant treasurer shall have or provide for the custody of the funds or other property of the Corporation; shall collect and receive or provide for the collection and receipt of moneys earned by or in any manner due to or received by the Corporation; shall deposit all funds in his or her custody as Treasurer in such banks or other places of deposit as the Board of Directors may from time to time designate; and shall, whenever so required by the Board, render an account showing all transactions as Treasurer and the financial condition of the Corporation. The Treasurer shall exercise such further powers and duties as from time to time may be prescribed by these bylaws or by the Board of Directors or the President. At the request of the Treasurer, or in the Treasurer's absence or disability, an assistant treasurer shall exercise the powers and duties of the Treasurer.

ARTICLE V

SHARES OF CAPITAL STOCK

Section 5.01. Share certificates. Every record holder of fully-paid stock of the Corporation shall be entitled to a share certificate or certificates representing the shares held of record by such holder, unless the Board of Directors provides by resolution or resolutions that some or all of any or all classes or series of the Corporation's stock shall be uncertificated shares. Each such certificate shall state that the Corporation is incorporated under the laws of Delaware, the name of the person to whom the certificate is issued and the number and class of shares and the designation of the series, if any, that the certificate represents, and otherwise shall be in such form as the Board of Directors may from time to time prescribe. The Board may authorize the issuance of certificates for fractional shares or, in lieu thereof, scrip or other evidence of ownership, which may (or may not) as determined by the Board entitle the holder thereof to voting, dividends or other rights of stockholders.

 Section 5.02. Issuance; registration. The stock ledger or transfer books and blank share certificates shall be kept by the Secretary or by any transfer agent or registrar designated by the Board of Directors for that purpose. The share certificates of the Corporation shall be numbered and registered in the stock ledger or transfer books of the Corporation as they are issued or transferred. Such certificates shall be signed by the Chairman of the Board or the President, and by the Secretary or the Treasurer or an assistant secretary or an assistant treasurer, and shall bear the seal of the Corporation or a facsimile thereof. Any or all the signatures on the certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer, transfer agent or registrar before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer, transfer agent or registrar had not ceased to be such at the date of its issue. The provisions of this Section shall be subject to any inconsistent or contrary agreement at the time between the Corporation and any transfer agent or registrar.

Section 5.03. Transfer of shares. Transfers of certificated shares of stock of the Corporation shall be made on the stock ledger or transfer books of the Corporation only upon surrender to the Corporation or its transfer agent of the certificate or certificates for such shares, properly endorsed by, or accompanied by an appropriate stock power properly signed by, the record holder of such shares or by such record holder's assignee, agent or legal representative, who shall furnish proper evidence of authority. No transfer shall be made inconsistent with Article 8 of the Delaware Uniform Commercial Code, as such sections exist at the time of the purported transfer. Whenever any transfer of shares shall be made for collateral security and not absolutely, that fact shall be so expressed in the entry of transfer if both the transferor and the transferee request the Corporation to do so when the certificates are presented for transfer or uncertificated shares are requested to be transferred. Except as provided in Section 5.05, every certificate surrendered for transfer shall be cancelled.

Section 5.04. Transfer agents and registrars. The Board of Directors may appoint one or more banks, trust companies or other corporations, organized under the laws of any state of the United States or under the laws of the United States, as agent or agents for the Corporation in the transfer of the stock of the Corporation or as registrar or registrars of the stock of the Corporation.

Section 5.05. Lost, stolen, destroyed or mutilated certificates. New certificates for shares of stock may be issued to replace certificates lost, stolen, destroyed or mutilated upon such conditions as the Board of Directors may from time to time determine, which may but need not include the giving of a satisfactory bond or other indemnity.

Section 5.06. Holders of record. The Corporation shall be entitled to treat the holder of record of any share or shares of stock of the Corporation as the holder and owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.

ARTICLE V

EXECUTION OF INSTRUMENTS, ETC.; MISCELLANEOUS

Section 6.01. Checks, deposits, etc. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board of Directors may approve or designate, and all such funds shall be withdrawn only upon checks or other orders signed by such officers or employees as the Board shall from time to time determine. Facsimile signatures on checks may be used unless prohibited by the Board of Directors.

Section 6.02. Other contracts. Except as provided in Section 6.01, all notes, bonds, endorsements (other than for deposit), guarantees and other evidences of indebtedness of the Corporation, and all deeds, mortgages, contracts and other instruments by which the Corporation is to be bound, shall be executed in writing by the Chairman, the President or any Executive Vice President, or by any other officer, employee or agent of the Corporation upon whom authority to execute any of the foregoing, which may be general or confined to specific instances, has been conferred by the Board of Directors. Any officer of the Corporation so authorized may delegate, from time to time, by instrument in writing, all or any part of such authority to any other person or persons if such delegation has been authorized by the Board of Directors, which authorization may be general or confined to specific instances. The affixation of the corporate seal shall not be necessary to the valid execution, assignment or endorsement by the Corporation of any instrument or other document.

Section 6.03. Interested directors or officers; quorum.

 (a) General rule. No contract or transaction between the Corporation and one or more of its directors or officers or between the Corporation and another corporation, partnership, association, joint venture, trust or other organization in which one or more of the Corporation's directors or officers are directors or officers or have a financial or other interest, shall be void or voidable solely for that reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because the votes of such interested directors or officers are counted for that purpose, if:

 (i) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee and the Board or the committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors even though the disinterested directors are less than a quorum; or

 (ii) the material facts as to such interested director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon and the contract or transaction is specifically approved in good faith by vote of those stockholders; or

 (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors or a committee thereof or the stockholders.

 (b) Quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof that authorizes a contract or transaction specified in Section 6.03(a).

Section 6.04. Voting securities owned by the Corporation. Securities owned by the Corporation and having voting power in any other corporation shall be voted by the Chairman, the President or any Executive Vice President, unless the Board confers authority to vote with respect thereto, which may be general or confined to specific investments, upon some other person. Any person authorized to vote such securities shall have the power to appoint proxies, with general power of substitution.

Section 6.05. Corporate records.

 (a) Required records. The Corporation shall keep complete and accurate books and records of account, minutes of the proceedings of the incorporators, stockholders and Board of Directors and a stock ledger giving the names and addresses of all stockholders and the number and class of shares held by each. The stock ledger shall be kept at either the registered office of the Corporation in Delaware or at its principal place of business wherever situated or at the office of its registrar or transfer agent.

 (b) Form of records. Any records kept by the Corporation in the regular course of its business, including records relating to meetings of the stockholders or the Board of Directors or any committee thereof, and including its stock ledger, books of account and minute books, may be kept on, or in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records.

 (c) Right of inspection. Every stockholder of record shall, upon written demand under oath stating a proper purpose therefore, have a right to inspect, in person or by agent or attorney, during the usual hours for business, the Corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts there from. A proper purpose shall mean a purpose reasonably related to the interest of the person as a stockholder. In every, instance where an attorney or other agent is the person who seeks the right of inspection, the demand under oath shall be accompanied by a power of attorney or other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business wherever situated. Any director shall have the right to inspect the Corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to the director's position as a director.

 Section 6.06. Offices. The principal business office of the Corporation shall be at 11910 Greenville Avenue, Suite 300, Dallas, Texas, unless changed as authorized by the Board of Directors. The Corporation may have offices at such places within or without Delaware as the business of the Corporation may require. The registered office of the corporation in Delaware shall be at 1013 Centre Road, Wilmington, Delaware, until otherwise established by an amendment of the certificate of incorporation or by the Board of Directors and a record of the change is filed with the Delaware Secretary of State and duly recorded in the manner provided by law.

Section 6.07. Corporate seal. The Board of Directors shall prescribe the form of a suitable corporate seal, which shall contain the full name of the Corporation and the year and state of incorporation.

Section 6.08. Fiscal year. The fiscal year of the Corporation shall end on such day as shall be fixed by the Board of Directors.

ARTICLE VII

INDEMNIFICATION

Section 7.01. Scope of indemnification.

 (a) General rule. The Corporation shall indemnify an Indemnified Representative who was or is a party, or is threatened to be made a party, to any threatened, pending or completed Proceeding by reason of the fact that the Indemnified Representative is or was a serving in an Indemnified Capacity. Such indemnity shall be against all Liabilities of whatever nature, which the Indemnified Representative has incurred or may incur in connection with such Proceeding. The terms Indemnified Representative, Proceeding, Indemnified Capacity and Liabilities are defined in paragraph (e) of this Section 7.01.

 (b) Exceptions. Notwithstanding paragraph (a) of this Section 7.01, indemnification shall not be provided:

 (i) if the Indemnified Representative did not act in good faith and in a manner the Indemnified Representative reasonably believed to be in, or not opposed to, the best interests of the Corporation (or, as to action with respect to an employee benefit plan, the interests of participants in and beneficiaries of the plan);

 (ii) with respect to any criminal Proceeding, if the Indemnified Representative had reasonable cause to believe the conduct of the Indemnified Representative was unlawful;

 (iii) with respect to any Proceeding by or in the right of the Corporation to procure a judgment in its favor, if the Indemnified Representative is adjudged to be liable to the Corporation, except as may be otherwise ordered by the Delaware Court of Chancery or the court in which such Proceeding was brought; or

 (iv) to the extent that indemnification has been determined by a court to be unlawful.

 (c) Partial payment. If an Indemnified Representative is entitled to indemnification in respect of a portion, but not all, of any Liabilities to which the Indemnified Representative may be subject, the Corporation shall indemnify the Indemnified Representative to the maximum extent for such portion of such Liabilities.

 (d) Presumption. The termination of any Proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the Indemnified Representative is not entitled to indemnification, except as otherwise provided in Section 7.01(b)(iii).

 (e) Definitions. For purposes of this Article VII:

 (i) “Indemnified Capacity” means any and all past, present and future service by an Indemnified Representative in one or more capacities as a director, officer, employee or agent of the Corporation, or, at the request of the Corporation, as a director, officer, employee, agent, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other entity or enterprise;

 (ii) "Indemnified Representative” means any and all directors, officers, employees and agents of the Corporation and any person serving at the request of the Corporation as a director, officer, employee, agent, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other entity or enterprise);

 (iii) “Liability” means any damage, judgment, amount paid in settlement, fine, penalty, punitive damages, excise tax assessed with respect to an employee benefit plan, or cost or expense, of any nature (including, without limitation, attorneys' fees and disbursements), actually and reasonably incurred by an Indemnified Representative in connection with a Proceeding, and includes without limitation liabilities resulting from any actual or alleged breach or neglect of duty, error, misstatement or misleading statement, negligence, gross negligence or act giving rise to strict or products liability; and

 (iv) “Proceeding” means any threatened, pending or completed action, suit, appeal or other proceeding of any nature, whether civil, criminal, administrative or investigative, whether formal or informal, whether brought by or on behalf of the Corporation, a class of its security holders, an employee benefit plan or its participants or beneficiaries, or otherwise, and including but not limited to an action by or in the right of the Corporation to procure a judgment in its favor.

Section 7.02. Proceedings initiated by Indemnified Representatives. Notwithstanding any other provision of this Article VII, the Corporation shall not indemnify an Indemnified Representative, or make any advance pursuant to Section 7.03, for any Liability incurred in a Proceeding initiated (other than by the assertion of counterclaims or affirmative defenses) or participated in as an intervenor or amicus curiae by the Indemnified Representative unless the initiation of or participation in the Proceeding is authorized, either before or after its commencement, by the affirmative vote of a majority of the directors in office. This Section 7.02 shall not apply to reimbursement of expenses incurred in successfully prosecuting or defending the rights of an Indemnified Representative granted by or pursuant to this Article.

Section 7.03. Advancing expenses. Except as provided in Section 7.02, expenses (including attorneys’ fees and disbursements) incurred by an Indemnified Representative in defending any Proceeding shall be paid by the Corporation, as an advance to the Indemnified Representative, in advance of the final disposition of the Proceeding, upon receipt of an undertaking by or on behalf of the Indemnified Representative to repay the amount so advanced by the Corporation if it is ultimately determined that the Indemnified Representative is not entitled to be indemnified by the Corporation pursuant to this Article VII. The financial ability of an Indemnified Representative to repay such an advance shall not be a prerequisite to the making of the advance.

Section 7.04. Insurance; security. The Corporation may, on behalf of itself or any Indemnified Representative, purchase and maintain insurance, obtain a letter of credit, act as self-insurer, create a reserve, trust, escrow, cash collateral or other trusteed or non-trusteed fund or ac-count, enter into indemnification agreements, pledge or grant a security interest in any assets or properties of the Corporation, or use any other mechanism or arrangement whatsoever in such amounts, at such costs and upon such other terms and conditions as the Board of Directors shall deem appropriate, against any Liability which might be asserted against or incurred by the Corporation or any Indemnified Representative, whether or not the Corporation would have the power to indemnify the Indemnified Representative against such Liability under the provisions of this Article VII. The determination of the Board with respect to such amounts, costs, terms and conditions shall be conclusive.

Section 7.05. Payment of indemnification or advance.

 (a) Advances. Within 30 days after a written request for an advance pursuant to Section 7.03 has been delivered to the Secretary or the Treasurer, the Corporation shall provide such advance unless the Board of Directors determines that the person making such request is not entitled to such indemnification or advance. Such determination by the Board shall be conclusive.

 (b) Indemnification. Unless ordered by a court, any indemnification pursuant to this Article VII shall be made only as authorized in the specific case upon a determination that such indemnification is authorized by this Article VII. Such determination shall be made (i) by the Board of Directors by a majority vote of the directors who were not parties to the Proceeding, even though less than a quorum, (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iii) by the stockholders. A determination made pursuant to this paragraph (b) shall be conclusive.

Section 7.06. Contribution. If the indemnification provided for in this Article VII or otherwise is unavailable for any reason in respect of any Liability or portion thereof, the Corporation shall contribute to the Liabilities to which the Indemnified Representative may be subject in such proportion as is appropriate to reflect the intent of this Article VII or otherwise.

Section 7.07. Mandatory indemnification. To the extent that any director, officer, employee or agent of the Corporation, whether or not an Indemnified Representative, has been successful on the merits or otherwise in defense of any Proceeding, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith.

Section 7.08. Contract rights; amendment or repeal; reliance. All rights, duties and obligations of the Corporation and each Indemnified Representative under this Article VII shall be deemed to constitute a contract between the Corporation and the Indemnified Representative pursuant to which the Corporation and such Indemnified Representative intend to be legally bound. Any repeal, amendment or modification of any provision of this Article VII shall be prospective only and shall not affect any rights or obligations then existing. Each person who acts as an Indemnified Representative of the Corporation shall be deemed to be doing so in reliance upon the rights provided by this Article VII.

Section 7.09. Article VII not exclusive; survival of rights. The rights granted by this Article VII shall not be deemed exclusive of any other right as to which a person seeking indemnification, contribution or advancement of expenses may be entitled under any statute, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an indemnified capacity and as to action in any other capacity. A person who has otherwise ceased to be an Indemnified Representative, and the heirs and personal representatives of such person, shall continue to have the rights of an Indemnified Representative under this Article VII with respect to any Proceeding in which such person, or such heirs or personal representatives, may incur a Liability arising from an action, or failure to act, while such person was an Indemnified Representative.

ARTICLE VIII

AMENDMENTS

 Section 8.01. Amendment of bylaws. These bylaws may be amended or repealed, or new bylaws may be adopted by vote of a majority of the directors in office at any regular or special meeting of the Board of Directors. Any change in these bylaws shall take effect when adopted unless otherwise provided in the resolution effecting the change.

EX-4.8

SUBSCRIPTION AGREEMENT

TO BE DELIVERED BY ACCREDITED INVESTORS

The Phoenix Group Corporation

2100 McKinney Avenue

Suite 1555

Dallas, TX 75201

RE: Purchase of Shares of The Phoenix Group Corporation

Gentlemen:

I am delivering this letter in connection with an offer of shares of common stock, $0.001 par value per share (the “Shares”), of The Phoenix Group Corporation (the “Company”).

Subject to the terms and conditions hereof, I hereby irrevocably subscribe for and agree to purchase __________ Shares for the purchase price of $________ per Share (which purchase price was approved via the attached Board Resolution). At the Company’s election, I hereby either (i) tender herewith a certified bank check payable to the order of the Company in such amount or (ii) agree to make such funds immediately available by wire transfer to such account as the Company may specify in writing to me. Upon receipt of payment therefor, the Company shall deliver one or more share certificates representing the Shares in such denominations and in such names as I may instruct.

I agree that the Shares I may purchase pursuant to the terms of this Subscription Agreement will be subject to a registration rights agreement in the form attached hereto as Exhibit A, as amended, supplemented, restated or otherwise modified from time to time (the “Registration Rights Agreement”).

I hereby represent, warrant and confirm that I am an “accredited investor” as defined in Regulation D under the Securities Act of 1933 (the “Securities Act”), and I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of purchasing the Shares.

I have concluded that I am an accredited investor because:

(initial all that apply)

_________I am a natural person who has a net worth or joint net worth with my spouse exceeding $1,000,000 at the time of purchase.

_________I am a natural person who individually had income in excess of $200,000 in each of the two most recent years or joint income with my spouse in excess of $300,000 in each of those years and who reasonably expects income in excess of those levels in the current year.

_________I am a director or executive officer of the Company (Note: the term “executive officer” means the president, any vice president in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function, or any other person who performs similar policy making functions for the Company).

_________The subscriber is either (a) a bank as defined in Section 3(a)(2) of the Securities Act or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity, (b) any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, (c) an insurance company as defined in Section 2(13) of the Securities Act, (d) an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of such Act, (e) a Small Business Investment Company licensed by the United States Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, (f) any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000, or (g) an employee benefit plan within the meaning of Title 1 of the Employee Retirement Income Security Act of 1974, as amended, if the investment decision is made by a plan fiduciary which is either a bank, a savings and loan association, insurance company, or registered investment advisor, or if the plan has assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors.

_________The subscriber is a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.

_________The subscriber is any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.

_________The subscriber is any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as defined in section 230.506(b)(2)(ii) of Regulation D promulgated under the Securities Act.

________The subscriber is any entity in which all of the equity owners are accredited investors.

In the case of a husband and wife subscribing jointly, satisfaction of the net worth standards must be determined by aggregating their net worth and satisfaction of the income standards must be determined by joint or individual tax returns, as the case may be. Any other persons subscribing for Shares jointly, including members of partnerships formed for the purpose of purchasing Shares, must each satisfy the applicable net worth and income standards without regard to the other joint purchasers. In the case of a subscriber that is itself a partnership (other than a partnership formed for the purpose of purchasing Shares) or a trust, the applicable net worth and income standards must be satisfied by the entity. In the case of a subscriber purchasing as custodian for a minor, the applicable net worth and income standards must be satisfied by the custodian.

I further represent, warrant, and confirm that:

·   any purchase of Shares by me will be for my own account, for investment only and not with a view toward the resale or distribution thereof.

·   I do not presently have any reason to anticipate any change in my present financial circumstances or other particular occasion or event which would cause me to sell such Shares.

·   I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of purchasing the Shares; I am experienced in buying instruments similar to the Shares; I am able to bear the economic risk of an investment in the Shares; and I acknowledge that an investment in the Shares involves a high degree of risk, including the possible loss of my entire investment, and there is no assurance of any income from such investment.

·   I have adequate means of providing for current needs and possible personal contingencies and have no need for liquidity in the investment in the Company.

·   I understand that the Shares have not been and will not be registered under the Securities Act, as amended, or any state law. I agree to notify the Company prior to any proposed sale, transfer, distribution or other disposition of any Shares or any beneficial interest therein, and will not sell, transfer, distribute or otherwise dispose of any Shares without the consent of the Company, which may be granted or withheld in the Company’s sole discretion, and unless the Shares are registered or such sale, transfer, distribution or other disposition is exempt from registration. I understand that, except as set forth in the Registration Rights Agreement, the Company has no intention to register the Shares with the United States Securities and Exchange Commission or any State of the United States and is under no obligation to assist me in obtaining or complying with any exemption from registration. The Company may require that a proposed transferee meet appropriate financial suitability standards and that the transferor furnish a legal opinion satisfactory to the Company and its counsel that the proposed transfer complies with applicable federal, state and any other applicable securities laws. An appropriate legend evidencing such restrictions may be placed on any certificates issued representing the Shares and appropriate stop transfer instructions may be placed with respect to the Shares.

·   I must bear the economic risk of investment in the Company for an indefinite period of time, since the Shares have not been registered under the Securities Act nor any state securities laws and cannot be sold unless the Shares are either subsequently registered under the Securities Act and applicable state laws (and the Company has no obligation to register the Shares except pursuant to the Registration Rights Agreement) or an exemption from such registration is available.

·   I am not purchasing Shares based upon representations, oral or written, by any person with respect to the future value of, or income from, the Shares, or the length of time that I will be required to remain as the owner of the Shares but rather upon an independent examination and judgment as to the prospects of the Company.

·   The Shares were not offered to me by means of general solicitations, publicly disseminated advertisements or sales literature.

·   I have not authorized any broker, dealer, agent, finder or similar person to act on my behalf nor do I have any knowledge of any broker, dealer, agent, finder or similar person purporting to act on my behalf with respect to this transaction.

·   I acknowledge that there is a very limited market for the Shares and that it is not anticipated that any significant public market for the Shares will develop.

·   I acknowledge that I was provided copies of the Company's filings with the SEC since May 24,2004 including: the Company's Annual Report on Form 10-KSB, filed May 24, 2004 and Form 10-Q SB, filed May 24, 2004. I have been afforded the opportunity to review these documents and to ask questions of representatives of the Company and receive satisfactory answers thereto, as I deem necessary in connection with my decision to purchase the Shares.

·   I have been afforded the opportunity to ask questions of representatives of the Company and receive satisfactory answers thereto, as I deem necessary in connection with my decision to purchase the Shares.

·   I am not entitled to cancel, terminate or revoke this Subscription Agreement or any agreements of the undersigned hereunder and understand that this Subscription Agreement shall survive my death or disability.

·   I acknowledge that the offering of Shares is not subject to any minimum number of Shares being purchased and that the proceeds from the offering may be insufficient to achieve the results contemplated in the Company’s business plan.

·   I acknowledge that the price for the Shares and the number of Shares being offered in the offering were determined by the Company and there has been no independent appraisal of the Shares.

·   I acknowledge that the Company has limited operating history on which to base a decision to invest in the Shares.

·   I acknowledge that any financial projections provided to me by the Company are subject to numerous risks and uncertainties and that the actual results of the Company will vary from those contained in the financial projections and such variations may be material and adverse.

The representations, warranties and acknowledgments of this letter are true and accurate as of the date hereof, shall be true and correct as of the date of delivery of this letter to the Company, and shall survive such delivery to the Company. If in any respect any such representation, warranty or acknowledgment shall not be true and accurate prior to such delivery, I shall give immediate written notice of such fact to the Company, specifying which representations, warranties and acknowledgments are not true and accurate and the reasons therefor.

I acknowledge that I understand the meaning and legal consequences of the representations, warranties and acknowledgments contained in this letter, and I agree to indemnify and hold harmless the Company, its directors, officers and any of its affiliates, associates, agents and employees from and against any and all loss, damage or liability (including costs and reasonable attorney’s fees and disbursements) due to or arising out of a breach of any representation, warranty or acknowledgment by me.

I further acknowledge that the Company intends to use the net proceeds from my purchase of the Shares for working capital and general corporate purposes. I understand that the amounts actually expended by the Company for such purposes will vary significantly depending on a number of factors and that the Company’s management will have broad discretion with respect to the use of such proceeds.

I further acknowledge that in the event the Company issues additional securities in the future, including in connection with future acquisitions, employment arrangements or the issuance or exercise of warrants and stock options, I may experience dilution in net tangible book value per Share.

If an investment in the Company is being made by a corporation, partnership, trust or estate, I, the person signing on behalf of the undersigned entity, represent that I have all right and authority, in my capacity as an officer, general partner, trustee, executor or other representative of such corporation, partnership, trust or estate, as the case may be, to make such decision to invest in the Company and to execute and deliver this Subscription Agreement on behalf of such corporation, partnership, trust or estate as the case may be, enforceable in accordance with its terms. In addition, the undersigned entity will, upon request of the Company, deliver any documents evidencing the existence of such corporation, partnership, trust or estate, the legality of an investment in the Shares and the authority of the person executing this Subscription Agreement on behalf of the undersigned entity. I also represent on behalf of the undersigned entity that any such corporation, partnership or trust was not formed for the purpose of buying the Shares hereby subscribed.

Subject only to the acceptance of this Subscription Agreement by the Company, I make, constitute and appoint the Company, acting through any of its authorized members, directors, managers, partners and officers and with power of substitution, my true and lawful agent and attorney, with full power and authority in my name, place and stead, to make, execute, acknowledge, record and/or file (i) any certificate or other document required to effect the formation, continuation or qualification of the Company that legal counsel to the Company deems necessary or desirable to comply with any federal, state or other law applicable to the Company, and (ii) any amendments to any of the foregoing. The power of attorney granted hereby is a special power of attorney coupled with an interest and shall be irrevocable to the fullest extent permitted by law.

This Subscription Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and may be amended or superseded only by a writing executed by the parties.

 THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

Dated:

Address:

SSN/EIN: ____________________

ACCEPTED:

THE PHOENIX GROUP CORPORATION

By:

Name:Ron Lusk

Title:Chairman

Exhibit A

Form of Registration Rights Agreement

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (the “Agreement”), dated as of ____________________ by and among The Phoenix Group Corporation, a Delaware corporation (the “Company”), and the purchasers named on the signature pages hereto (the “Purchasers”).

PRELIMINARY STATEMENT

Pursuant to the Subscription Agreement (as defined below), each Purchaser has agreed to purchase shares of the Company’s Common Stock (the “Shares”) relying, in part, on the Company granting the registration rights set forth in this Agreement.

ACCORDINGLY, to induce the Purchasers to enter into the Subscription Agreement and to purchase the Shares and in consideration of the mutual representations and agreements set forth in this Agreement, the Company and the Purchasers, intending to be legally bound, now agree as follows:

STATEMENT OF AGREEMENT

SECTION 1.DEFINITIONS.

1.1Certain Definitions. As used in this Agreement, the following terms shall have the following meanings:

“Affiliate” means any entity controlling, controlled by or under common control with a designated Person. For the purposes of this definition, “control” shall have the meaning specified as of the date of this Agreement for that word in Rule 405 promulgated by the SEC under the Securities Act of 1933.

“Common Stock” means the common stock, par value $0.001 per share, of the Company.

“Equity Security” shall mean any stock or similar security, including without limitation securities containing equity features and securities containing profit participation features, or any security convertible or exchangeable, with or without consideration, into or for any stock or similar security, or any security carrying any warrant or right to subscribe to or purchase any stock or similar security, or any such warrant or right.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect from time to time.

“Person” means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Registrable Securities” shall mean the Shares and any Common Stock issued with respect to the Shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, until the earliest to occur of (a) the date on which such security has been effectively registered under the Securities Act and disposed of in accordance with a registration statement and (b) the date on which such security may be sold pursuant to Rule 144 (without any volume limitations thereunder) or may be sold without compliance with such rule.

“Rule 144” means Rule 144 promulgated by the SEC under the Exchange Act, as such rule may be amended from time to time, or any successor rule thereto.

“SEC” means the Securities and Exchange Commission of the United States of America or any successor to the rights and duties thereof.

“Shares” means the shares of Common Stock of the Company purchased by the Purchasers under the terms of the Subscription Agreements.

“Subscription Agreement(s)” means the Subscription Agreements dated as of ____________________, 2004 by and between the Company and each of the Purchasers.

1.2Incorporated Definitions. Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings set forth in the Subscription Agreements.

SECTION 2.REGISTRATION.

2.1Piggyback Registration.

 (a)Except as set forth in Section 2.1(b), as, if and when the Company proposes to register any Common Stock under the Securities Act for sale to the public, on a form that would also permit the registration of the Registrable Securities (other than registrations on Form S-8, or any successor form, or Form S-4, or any successor form) (an “Eligible Registration”), each such time it will give written notice to the holders of Registrable Securities (the “Holders”) of its intention so to do. Upon the written request of a Holder received by the Company within 20 days after the giving of any such notice by the Company, to register such number of shares of Registrable Securities held by such Holder specified in such written request, the Company will cause the Registrable Securities as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company with respect to such Eligible Registration, all to the extent requisite to permit the sale or other disposition by such Holder (in accordance with its written request) of such Registrable Securities so registered. In the event that any Eligible Registration pursuant to this Section 2.1 shall be, in whole or in part an underwritten offering of Common Stock (an “Underwritten Offering”), the number of shares of Registrable Securities to be included in such an underwriting may be reduced if and to the extent that the managing underwriter shall be of the opinion that such inclusion would materially adversely affect the marketing of the securities to be sold by the Company therein. In the event such a reduction is necessary, the reduction shall be borne first by the Holders proposing to sell Registrable Securities in the Underwritten Offering, on a pro-rata basis, based on the aggregate number of shares of Registrable Securities that each Holder proposed to offer for sale in the Underwritten Offering. Notwithstanding the foregoing provisions, the Company may for any reason and without the consent of the Holders in good faith withdraw any registration statement referred to in this Section 2.1 without thereby incurring any liability to the Holders.

(b)Notwithstanding the foregoing, an Eligible Registration may occur only during the one year period following the issuance of the Shares to the Purchasers. No Eligible Registration shall occur except at the times allowed pursuant to this Section 2.1(b).

2.2Registration Statement Form. Registrations pursuant to Section 2.1 shall be on such appropriate registration form of the SEC as shall be selected by the Company.

2.3Expenses. Except as otherwise provided in this Section 2.3, all expenses incurred in connection with each registration pursuant to Section 2.1 hereof (excluding in each case underwriting discounts and commissions applicable to Registrable Securities), including, without limitation, in each case, all registration, filing and other fees of the securities exchange; all fees and expenses of complying with securities or blue sky laws; all word processing, duplicating and printing expenses, messenger, delivery and shipping expenses; fees and disbursements of the accountants and counsel for the Company including the expenses of any special audits or “cold comfort” letters or opinions required by or incident to such registrations; and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions, if any, shall be borne by the Company. In all cases, the Holders shall pay the underwriting discounts and commissions applicable to the securities sold by the Holders.

2.4Effective Registration Statement. Registrations pursuant to this Section 2 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective (unless a substantial cause of the failure of such registration statement to become effective shall be attributable to the Holders), (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason, resulting in a failure to consummate the offering of Registrable Securities offered thereby, (iii) if after a registration statement with respect thereto has become effective, the offering of Registrable Securities offered thereby is not consummated due to factors beyond the control of the Purchasers, other than the fact that the underwriters have advised the Holders that the Registrable Securities cannot be sold at a net price equal to or above the net price anticipated at the time of filing of the preliminary prospectus, or (iv) if the conditions to closing specified in the underwriting agreement entered into in connection with such registration are not satisfied (unless a substantial cause of such conditions to closing not being satisfied shall be attributable to the Holders).

2.5Selection of Underwriters. If a registration pursuant to Section 2.1 hereof involves an underwritten offering, the underwriter or underwriters thereof shall be selected by the Company in its sole discretion.

SECTION 3.REGISTRATION PROCEDURES.

3.1Procedures. The Company will, subject to the limitations provided herein, as expeditiously as possible:

(a)prepare and file with the SEC the requisite registration statement to effect such registration, and thereafter, use reasonable efforts to cause such registration statement to become effective; provided that before filing a registration statement or prospectus or any amendments or supplements thereto, including documents incorporated by reference, the Company will furnish to counsel to the Holders of the Registrable Securities covered by such registration statement and the managing underwriter or underwriters, if any, draft copies of all such documents proposed to be filed (other than exhibits, unless so requested) a reasonable time prior thereto, which documents will be subject to the reasonable review of such counsel and such Holders and underwriters, and will notify each Holder of the Registrable Securities of any stop order issued by the SEC in connection therewith and take all reasonable actions required to remove such stop order;

(b)prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; provided, however, that the Company shall not in any event be required to keep a registration statement filed pursuant to Section 2.1 effective for a period of more than nine months after such registration statement becomes effective; and provided further that the Company may, at any time, delay the filing or suspend the effectiveness of any registration under this Agreement, or without suspending such effectiveness, instruct the Purchasers not to sell any Registrable Securities included in any such registration, (i) if the Company shall have determined upon the advice of counsel that the Company would be required to disclose any actions taken or proposed to be taken by the Company in good faith and for valid business reasons, including without limitation, the acquisition or divestiture of assets, which disclosure would have a material adverse effect on the Company or on such actions, or (ii) if required by law, to update the prospectus relating to any such registration to include updated financial statements (a “Suspension Period”) by providing the Purchasers with written notice of such Suspension Period and the reasons therefore; provided, however, that the Company will not be required to disclose such reasons with particularity if an authorized executive officer of the Company certifies that the Company believes it is required by law to delay the filing or suspend the effectiveness of any such registration. In addition, the Company shall not be required to keep any registration effective, or may without suspending such effectiveness, instruct the Purchasers if it has Registrable Securities included in such registration not to sell such securities, during any period which the Company is instructed, directed, ordered or otherwise requested by any governmental agency or self-regulatory organization to stop or suspend such trading or sales (“Supplemental Extension Period”). In the event of a Suspension Period or Supplemental Extension Period, the period during which any registration under this Agreement is to remain effective pursuant to this Section 3.1(b) shall be tolled until the end of any such Suspension Period or Supplemental Extension Period. The Company will use reasonable efforts to restrict any Suspension Period or Supplemental Extension Period to less than 60 days;

(c)furnish to the Purchasers such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, and such other documents, as the Purchasers may reasonably request;

(d)use its reasonable efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each seller thereof shall reasonably request and to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this Section 3.1(d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction.

(e)use its reasonable efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other United States Federal or state governmental agencies or authorities as may be necessary to enable the Purchasers to consummate the disposition of such Registrable Securities;

(f)notify in writing the Purchasers, if Registrable Securities are covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of the Purchasers prepare and furnish to the Purchasers a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made.

(g)otherwise use reasonable efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act;

(h)provide and cause to be maintained a transfer agent for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; and

(i)use its reasonable efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the Company’s Common Stock is then listed.

3.2Information Requirements. It shall be a condition precedent to the obligations of the Company to take any action with respect to registering the Purchasers’ Registrable Securities pursuant to this Section 3 that the Purchasers furnish the Company in writing such information regarding the Purchasers, the Registrable Securities and other securities of the Company held by the Purchasers, and the distribution of such securities as the Company may from time to time reasonably request in writing. If a Purchaser refuses to provide the Company with any of such information on the grounds that it is not necessary to include such information in the registration statement, the Company may exclude the Purchaser’s Registrable Securities from the registration statement unless such Purchaser provides the Company with an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Company and its counsel, to the effect that such information need not be included in the registration statement.

The Purchasers agree by acquisition of such Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.1(f), the Purchasers will forthwith discontinue the Purchasers’ disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until the Purchasers’ receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.1(f) and, if so directed by the Company, will deliver to the Company copies, other than permanent file copies then in the Purchasers’ possession, of the current prospectus relating to such Registrable Securities at the time of receipt of such notice.

SECTION 4.UNDERWRITTEN OFFERINGS.

If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration under Section 2 hereof, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be satisfactory in substance and form to the Company and the underwriters and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in Section 6 hereof. If requested by the underwriters of any underwritten offering pursuant to a registration under Section 2 hereof, the Purchasers agree to enter into an agreement with such underwriters not to sell their shares of stock in the Company for a period of time (not to exceed 180 days) after the effectiveness of a registration statement equal to the period of time which the sellers of securities in such registration have agreed not to sell their shares after the effectiveness of such registration statement. The Purchasers shall be a party to such underwriting agreement and must cooperate with the Company in the negotiation of the underwriting agreement. The Purchasers shall not be required to make any representations, warranties or agreements with the Company other than representations, warranties or agreements regarding the Purchasers, Purchasers’ Registrable Securities and other securities of the Company, the Purchasers’ intended method of distribution, and any representations, warranties or agreements required by law.

SECTION 5.PREPARATION; REASONABLE INVESTIGATION.

In connection with the preparation and filing of each registration statement under the Securities Act in connection with an Eligible Registration, the Company will give the Purchasers and their respective agents and advisors and the underwriters, if any, the reasonable opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the option of the Purchasers’ counsel, to conduct a reasonable investigation within the meaning of the Securities Act. Subject to the rights and obligations of the Company under the Securities Act and other applicable laws, the Purchasers shall have the right to review and approve those portions of such registration statement that directly pertain to the Purchasers.

SECTION 6.INDEMNIFICATION

6.1Indemnification by the Company. In the event any Registrable Securities are included in a registration statement under this Agreement, to the extent permitted by law, the Company will, and hereby does, indemnify and hold harmless each Purchaser, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls each Purchaser or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which each Purchaser or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse the Purchasers and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Purchasers, and providedfurther that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person’s failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus and such delivery would have mitigated liability. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Purchasers or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such seller.

6.2Indemnification by the Purchasers. In the event any Registrable Securities are included in a registration statement under this Agreement, to the extent permitted by law, each Purchaser whose Registrable Securities are registered pursuant to such registration statement will, and hereby does indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 6.1) each underwriter, each Person who controls such underwriter within the meaning of the Securities Act, the Company, each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in strict conformity with written information furnished to the Company by the Purchasers expressly for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; provided that the Purchasers shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person’s failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any underwriter, the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such seller.

6.3Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in Sections 6.1 and 6.2, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 6, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement, which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement without the consent of the indemnifying party.

6.4Other Indemnification. Indemnification similar to that specified in the preceding subdivisions of this Section 6 (with appropriate modifications) shall be given by the Company and the Purchasers with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority other than the Securities Act.

6.5Indemnification Payments. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred.

6.6Contribution. If the indemnification provided for in this Section 6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue statement of material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 6.3 hereof, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6.6 were determined by prorata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 6.6 no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

If indemnification is available under this Section 6, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 6.1 through Section 6.5 hereof without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 6.6.

SECTION 7.REPORTING REQUIREMENTS UNDER EXCHANGE ACT.

If and when the Company registers the Common Stock under the Exchange Act, thereafter the Company shall use its reasonable efforts to keep effective the registration of its Common Stock under Section 12 of the Exchange Act and shall timely file such information, documents and reports as the SEC may require or prescribe under Section 13 of the Exchange Act. The Company shall timely file such information, documents and reports which a corporation, partnership or other entity subject to Section 13 or 15(d) (whichever is applicable) of the Exchange Act is required to file.

If the Company is subject to the reporting requirements of either Section 13 or 15(d) of the Exchange Act, the Company shall forthwith upon request furnish the Purchasers (i) a written statement by the Company that it has complied with such reporting requirements, (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents filed by the Company with the SEC as the Purchasers may reasonably request in availing itself of an exemption for the sale of Registrable Securities without registration under the Securities Act. The Company acknowledges and agrees that the purpose of the requirements contained in this Section 7 are to enable the Purchasers to comply with the current public information requirement contained in Paragraph (c) of Rule 144 under the Securities Act should the Purchasers ever wish to dispose of any of the Securities of the Company acquired by it without registration under the Securities Act in reliance upon Rule 144 (or any other similar exemptive provision). In addition, the Company shall take such other measures and file such other information, documents and reports, as shall hereafter be required by the SEC as a condition to the availability of Rule 144 under the Securities Act (or any similar exemptive provision hereafter in effect).

SECTION 8.STOCKHOLDER INFORMATION.

The Company may require the Purchasers to furnish the Company such information in writing with respect to the Purchasers and the distribution of its Registrable Securities as the Company may from time to time reasonably request in writing and as shall be required by law or by the SEC in connection therewith.

SECTION 9.FORMS.

All references in this Agreement to particular forms of registration statements are intended to include, and shall be deemed to include, references to all successor forms which are intended to replace, or to apply to similar transactions as, the forms herein referenced.

SECTION 10.TRANSFER OF REGISTRATION RIGHTS.

The registration rights granted to the Purchasers under this Agreement may not be transferred without the prior written consent of the Company, which may be withheld or granted in the Company’s sole discretion.

SECTION 11.AMENDMENT.

This Agreement may be amended only by a written agreement signed by the Company and the Purchasers.

SECTION 12.NOTICES.

All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be delivered, or mailed first-class postage prepaid, registered or certified mail,

(a)If to a Purchaser at its respective address as shown on the books of the Company, or at such other address as such Purchaser may specify by written notice to the Company, or

(b)If to the Company at 2100 McKinney Avenue, Suite 1555, Dallas, Texas 75201, Attention: Chief Executive Officer; or at such other address as the Company may specify by written notice to the Purchaser,

and such notices and other communications shall for all purposes of this Agreement be treated as being effective or having been given if delivered personally, or, if sent by mail, when received.

SECTION 13.COUNTERPARTS.

This Agreement may be executed concurrently in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

SECTION 14.CHOICE OF LAW.

THIS AGREEMENT AND THE VALIDITY AND ENFORCEABILITY HEREOF SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO CONFLICT OF LAWS RULES OR CHOICE OF LAWS RULES THEREOF.

SECTION 15.SEVERABILITY.

Should any one or more of the provisions of this Agreement or any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement, shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby.

SECTION 16.WHOLE AGREEMENT.

This Agreement constitutes the complete agreement and understanding by and among the parties hereto and shall supersede any prior understanding, agreement or representation by or among the parties, whether written or oral, related to the subject matter hereof.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives effective the day and year first above written.

THE PHOENIX GROUP CORPORATION

By:

Name:Ron Lusk

Title:Chairman and CEO______

PURCHASERS:

____________________________________

Name:

Address:

EX-4.9

Purchaser List for 2004 Private Placement

In connection with the acquisition of Lighting Science, Inc., Lighting Science Group undertook a private placement (“2004 Private Placement”) of Lighting Science Group’s common stock under Regulation D of the Securities Act of 1933. Each purchaser executed a Subscription Agreement for the 2004 Private Placement as set forth at Exhibit 4.8 - Form of Subscription Agreement for 2004 Private Placement. A total of $3,874,890 was raised through the sale of 18,425,244 shares of Lighting Science Group’s common stock, as follows:

Date	Issuee	No. of Shares		Price per Share		Total
05/17/04	Philip R. Lacerte	1,041,667	$	0.240	$	250,000
05/27/04	Lieser, Charles D.	8,334		0.240		2,000
05/27/04	Quince Associates, LP	416,667		0.240		100,000
05/27/04	Schereck, William J.	41,667		0.240		10,000
05/27/04	Terrell, Charles T.	41,667		0.240		10,000
05/27/04	Tipton, Paul S.	62,500		0.240		15,000
05/27/04	Unimark Insurance Company	41,667		0.240		10,000
05/27/04	Young, George Parker	104,167		0.240		25,000
05/28/04	Barson, Alan	20,834		0.240		5,000
05/28/04	Barson, Alan	83,334		0.240		20,000
05/28/04	Barson, Trust for Daniel G	10,417		0.240		2,500
05/28/04	Barson, Trust for Sophia J.	10,417		0.240		2,500
05/28/04	Boudreaux, Reece	20,834		0.240		5,000
05/28/04	Christensen, Clay	25,000		0.240		6,000
05/28/04	Christensen, Wade	20,834		0.240		5,000
05/28/04	Mills, John A.	20,834		0.240		5,000
06/07/04	Conner, Halden	41,667		0.240		10,000
06/07/04	Norris, Eric	83,334		0.240		20,000
06/07/04	Taccetta Family LTD Partnership	62,500		0.240		15,000
07/15/04	Lieser, Charles D.	20,834		0.240		5,000
07/15/04	Pierce, Andy G.	104,167		0.240		25,000
08/09/04	Charles T. Terrell	41,667		0.240		10,000
08/09/04	David Sands	83,334		0.240		20,000
08/09/04	Elise C. Ayers	31,250		0.240		7,500
08/09/04	Granville Merritt	938		0.240		225
08/09/04	Jeffrey J. Ayers	938		0.240		225
08/12/04	John A. Collingwood	83,334		0.240		20,000
08/13/04	Edward I. Lanier	62,500		0.240		15,000
08/20/04	Antonio C. Alamo	104,167		0.240		25,000
08/20/04	Halden Conner	20,834		0.240		5,000
08/20/04	Robert H. Shelton	4,167		0.240		1,000
08/20/04	Robert M. McMonigle	104,167		0.240		25,000
08/23/04	G. Patrick Simpkins, Jr.	104,167		0.240		25,000
08/24/04	Charles T. Terrell	52,084		0.240		12,500
08/24/04	Chase G. Dickinson	417		0.240		100
08/24/04	East Park Research, Inc.	208,334		0.240		50,000
08/24/04	J. Michael McWilliams	62,500		0.240		15,000
08/24/04	Joan H. Gardner	20,834		0.240		5,000
08/24/04	Phillip W. Mirabelli	62,500		0.240		15,000
08/24/04	SGD Family Limited Partnership	62,500		0.240		15,000
08/25/04	Barbara Ann Churchman	417		0.240		100
08/25/04	Holly A. Davis	62,500		0.240		15,000
08/25/04	Mary D. Beougher	62,500		0.240		15,000
08/25/04	Max G. Garoutte & Sandra B. Garoutte	62,500		0.240		15,000
08/25/04	The Bristol Company	62,500		0.240		15,000
08/26/04	Eric Norris	125,000		0.240		30,000
08/26/04	Suzanne M. Farina	83,334		0.240		20,000
08/27/04	Allen B. Smith and Jo A. Smith	83,334		0.240		20,000
08/27/04	Brian H. Wald	104,167		0.240		25,000
08/30/04	Clyde Hargrove	41,667		0.240		10,000
08/30/04	Daniel H. Bradley	104,167		0.240		25,000
08/30/04	Fitzgerald Realty Group, Inc., PSP	150,000		0.240		36,000
08/30/04	Lara L. Poynor	41,667		0.240		10,000
08/30/04	Paul S. Tipton	125,000		0.240		30,000
08/30/04	Randy Phillips	41,667		0.240		10,000
08/30/04	USGT Investors, LP	31,250		0.240		7,500
08/31/04	Dennis Brett	62,500		0.240		15,000
08/31/04	Thomas Bradley	104,167		0.240		25,000
09/02/04	G. Patrick Kevlin	41,667		0.240		10,000
09/02/04	George Parker Young	312,500		0.240		75,000
09/02/04	Robert L. Woodson, III	41,838		0.239		10,000
09/03/04	BLF Investments, LP	416,667		0.240		100,000
09/03/04	D. Craig Martin	208,333		0.240		50,000
09/03/04	Reagan K. Vidal	62,500		0.240		15,000
09/03/04	Scott Murray	20,833		0.240		5,000
09/03/04	Steve Bronner	62,500		0.240		15,000
09/03/04	Stuart G. Dickinson	62,500		0.240		15,000
09/10/04	Craig R. Hudson	175,000		0.240		42,000
09/10/04	Daryl N. Snadon	104,167		0.240		25,000
09/10/04	Quince Associates, LP	416,667		0.240		100,000
09/16/04	Andrew N. Adler	208,333		0.240		50,000
09/16/04	Tanner Gill	41,667		0.240		10,000
09/22/04	Chris M. Gigl	41,667		0.240		10,000
09/22/04	Steve Dulin	208,333		0.240		50,000
09/22/04	William Arnold	83,333		0.240		20,000
10/01/04	USGT Investors, LP	129,688		0.154		20,000
10/04/04	Amy C. Lacerte	125,000		0.160		20,000
10/04/04	Stuart G. Dickinson	200,000		0.240		48,000
10/05/04	Bernie Selmanson	20,000		0.240		4,800
10/05/04	Wendy S. Berkeley	4,167		0.240		1,000
10/08/04	Mark L. Sutton	208,333		0.240		50,000
10/20/04	Dianne Norris	83,333		0.240		20,000
10/20/04	Kate Blackmon	12,500		0.240		3,000
10/21/04	Joan H. Gardner	10,417		0.240		2,500
10/22/04	Greenfield Capital V, L.P.	1,504,167		0.066		100,000
10/22/04	James E. Fitzgerald	187,500		0.240		45,000
10/22/04	Phillip C. McGraw	416,667		0.240		100,000
10/22/04	Robert J. Schlegel	1,000,000		0.240		240,000
11/08/04	Donald R. Harkleroad	55,000		0.240		13,200
11/08/04	Jill Greene	10,000		0.240		2,400
11/08/04	K.C. White	10,000		0.240		2,400
11/08/04	Jennifer Lim	10,000		0.240		2,400
11/08/04	Michael Anderson	5,000		0.240		1,200
11/08/04	Joseph McCord	5,000		0.240		1,200
11/08/04	Tim Myers	5,000		0.240		1,200
11/08/04	SDW Investments, Ltd.	196,667		0.239		47,000
11/08/04	Stan T. Waldrop	100,000		0.240		24,000
11/08/04	Stan T. Waldrop	150,000		0.240		36,000
11/08/04	Stan T. Waldrop	250,000		0.240		60,000
11/08/04	Trust for Patrick Barley	345,000		0.241		83,000
11/10/04	Philip R. Lacerte	1,666,667		0.150		250,000
11/17/04	Ronald E. Lusk Revocable Trust	2,083,333		0.240		500,000
11/19/04	MRM Capital, LP	1,000,000		0.125		125,000
11/24/04	Stan T. Waldrop	100,000		0.240		24,000
11/24/04	Stan T. Waldrop	100,000		0.240		24,000
11/24/04	Stan T. Waldrop	100,000		0.240		24,000
11/24/04	Stan T. Waldrop	325,000		0.240		78,000
12/08/04	Philip R. Lacerte	625,000		0.240		150,000
12/21/04	Marasco, Mark	41,667		0.240		10,000
12/31/04	Fredric S. Maxik - Family Trusts	6,000		0.240		1,440
01/18/05	Phillips, Josh	41,666		0.240		10,000
02/03/05	McBride, Curtis	41,667		0.240		10,000
		18,425,255			$	3,874,890

EX-23.1

Independent Registered Public Accounting Firm’s Consent

The Board of Directors and Stockholders

Lighting Science Group Corporation

Dallas, Texas

We consent to the use and inclusion in this Form SB-2 Registration Statement and the Prospectus, which is part of this Registration Statement, of our report dated February 9, 2005 on our audit of the consolidated financial statements of Lighting Science Group Corporation and Subsidiaries at December 31, 2004 and September 26, 2003 and for the year ended December 31, 2004 and the period from September 26, 2003 through December 31, 2003 and the period from September 26, 2003 through December 31, 2004 and the period from January 1, 2003 through September 25, 2003.

We also consent to the reference to our Firm under the caption “Experts” in the Registration Statement and Prospectus.

Turner, Stone & Company, L.L.P.

Certified Public Accountants

Dallas, Texas

July 11, 2005