10QSB/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

(Amendment #1)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,2005

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Lighting Science Group Corporation

(Exact name of small business issuer as specified in its charter)

Delaware	0-20354	23-2596710
(State or other jurisdiction of incorporation of organization)	(Commission file number)	(I.R.S. Employer Identification No.)

2100 McKinney Ave., Suite 1555, Dallas, Texas	75201
(Address of principal executive offices)	(Zip Code)

214-382-3630

(Issuer’s telephone number, including area code)

__________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Check whether the Issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

__X__YES ____ NO

As of May 16, 2005, there were 54,908,104 shares of Common Stock issued and outstanding and 2,260,966 shares of 6% Convertible Preferred Stock issued and outstanding.

Transitional Small Business Disclosure Format: ____YES __X__ NO

EXPLANATORY NOTE

Lighting Science Group Corporation (“the Company”) hereby amends its Quarterly Report on Form 10-QSB (originally filed on May 16, 2005) to revise the presentation of pro forma disclosures in the financial statements of certain significant transactions which occurred subsequent to March 31, 2005 and to clarify the waiver of rights in bankruptcy by the Series A Preferred Stockholders, including voting and conversion rights, and to clarify the disclosures related to the negotiated exchange of such Series A Preferred Stock for the Company’s common stock. The Company is also amending Item 3 - “Controls and Procedures” - to disclose that we maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure, and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This disclosure was omitted from Form 10-QSB as originally filed.

Other than as set forth in this Amendment No. 1, no information included in the initial Form 10-QSB has been amended by this Form 10-QSB/A. This Form 10-QSB/A continues to speak as of the date that the initial Form 10-QSB was filed with the SEC, and we have not updated the disclosures herein to reflect any information or events subsequent to the filing of the initial Form 10-QSB.

LIGHTING SCIENCE GROUP CORPORATION AND SUBSIDIARY

FORM 10-QSB

For the Quarter Ended March 31, 2005

TABLE OF CONTENTS

Part I.FINANCIAL INFORMATION

Item 1.Financial Statements

Consolidated Balance Sheet

March 31, 2005

Consolidated Statements of Operations

for the three months ended March 31, 2005 and 2004

for the period beginning September 26, 2003 and ended March 31, 2005

Consolidated Statements of Cash Flows

for the three months ended March 31, 2005 and 2004

for the period beginning September 26, 2003 and ended March 31, 2005

Notes to Consolidated Financial Statements

Item 2.Plan of Operation

Item 3.Controls and Procedures

Part II. OTHER INFORMATION

Item 1.Legal Proceedings

Item 2.Changes in Securities

Item 3.Defaults upon Senior Securities

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

Item 5.Other Information

Item 6.Exhibits and Reports on Form 8-K

Signatures

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

LIGHTING SCIENCE GROUP CORPORATION

AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Page
Consolidated Balance Sheet	F-2
Consolidated Statements of Operations	F-3
Consolidated Statements of Cash Flows	F-4
Notes to the Consolidated Financial Statements	F-5

F-1

LIGHTING SCIENCE GROUP CORPORATION

AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2005

(UNAUDITED)

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	114,400
Accounts receivable		2,735
Inventory		49,020
Prepaid expenses		304,491
Total current assets		470,646
PROPERTY AND EQUIPMENT, net (Note 6)		317,873
OTHER ASSETS
Reorganized value in excess of amounts allocable to identifiable assets (Note 3)		2,793,224
Intellectual property, net (Notes 2 and 6)		1,153,833
Property rights agreement, net (Notes 2 and 6)		767,722
Goodwill (Note 2)		154,097
Security deposits		7,983
Total other assets		4,876,859
TOTAL ASSETS	$	5,665,378
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	24,065
Accrued payroll taxes		17,627
Accrued interest to affiliate		341,226
Note payable - related party		1,851,299
Current portion of note payable - related party		25,000
Notes payable - directors and officers		220,000
Total current liabilities		2,479,217
LONG-TERM DEBT
Note payable - related party		150,000
TOTAL LIABILITIES		2,629,217
COMMITMENTS AND CONTINGENCIES
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
Common Stock, $.001 par value, 495,000,000 shares authorized, 51,414,903 shares issued and outstanding		51,415
Additional paid-in-capital		8,421,448
Accumulated deficit during the development stage		(5,437,235	)
TOTAL STOCKHOLDERS’ EQUITY		3,036,161
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,665,378
The accompanying notes are an integral part of the consolidated financial statements.

F-2

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-3

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-4

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 to operate 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 holder of the Series A Preferred Stock agreed to waive its rights, including its voting and conversion rights, and 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.

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.

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 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.

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.

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 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 exchange the note and accumulated interest thereon for 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.

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		—

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 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 Series A 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. Under the terms of the Plan under which the Company emerged from bankruptcy, such rights were waived, including voting and conversion rights. At March 31, 2005, dividends in arrears but not declared by the Company on the Series A Preferred Stock totaled $1,680,000. The liquidation preference of each Series A Preferred 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.

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 change the exemption it was relying on to 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 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 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 or other product sales 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 and 3% of revenue on other product sales which he is responsible for closing.

NOTE 12: SUBSEQUENT EVENTS

Exchange of Preferred Stock and Debt held by Match for Common Stock

On April 12, 2005 the Company announced that the Company and Match had negotiated the exchange of 533,333 shares of Series A Preferred Stock held by Match and the Match debt (See Notes 8 and 9) into common stock of the Company at an exchange ratio of $1.725 per share that was approximately 15% in excess of the market price of the stock at the date the exchange 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 exchange, carried cumulative dividends of $0.30 per annum for each share. 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 exchange calculation, the amount of $1,670,685 was used as the amount of the dividend to reflect the unpaid dividend on the date the exchange ratio of $1.725 per share 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 were exchanged for 2,127,933 shares of common stock.

The debt to Match of $1,851,299 plus $341,226 of accrued interest was also exchanged for common stock. Match offered to reduce the accrued interest by $250,000 and to exchange the debt at the same exchange ratio of $1.725 per share. As a result, the total of $1,942,525 due on the line of credit was exchanged for 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.

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.

Pursuant to SFAS 133 and EITF Abstract No. 00-19, the warrants issued to the Convertible Preferred Stock purchasers and the conversion feature associated with the Convertible Preferred Stock have been determined to be derivative instruments. Accordingly, the fair value of these derivative instruments will be recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the Convertible Preferred Stock. Such discount will be accreted from the date of issuance to the redemption date of the Convertible Preferred Stock.

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 will be applied in classifying the 6% Convertible Preferred Stock separate from Stockholders’ Equity.

The Company incurred 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. The fair value of these warrants totaled $290,000 and such amount will be charged to Other Expense and credited to Additional Paid-In Capital.

The summary pro forma consolidated balance sheet as of March 31, 2005 reflecting these subsequent transactions is as follows:

	March 31, 2005
				Pro-forma Adjustments
		Per Books			Debit				Credit				Pro forma
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	114,400		$	6,935,000	(4	)	$	700,859	(4b	)	$	6,378,577
					256,000	(3	)		225,964	(6	)
Other current assets	$	356,246			-				-				356,246
Total current assets		470,646			7,191,000				225,964				6,734,823
PROPERTY AND EQUIPMENT, net		317,873			-				-				317,873
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 and accrued expenses	$	41,692		$	-			$	-			$	41,692
Current portion of note payable - related party		25,000			-				-				25,000
Accrued interest to affiliate		341,226			91,226	(2	)		-				-
					250,000	(2a	)
Note payable - related party		1,851,299			1,851,299	(2	)		-				-
Notes payable - directors and officers		220,000			276,000	(5	)		256,000	(3	)		-
					200,000	(6	)
Total current liabilities		2,479,217			2,668,525				256,000				66,692
OTHER LIABILITIES
Note payable - related party		150,000			-				-				150,000
Liabilities under derivative contracts		-							7,235,086	(4a	)		7,235,086
		150,000			-				7,235,086				7,385,086
TOTAL LIABILITIES		2,629,217			2,668,525				7,491,086				7,451,778
COMMITMENTS AND CONTINGENCIES
6% CONVERTIBLE PREFERRED STOCK, $.001 par value, 2,260,966 shares issued and outstanding, liquidation value of $7,235,086									6,935,000	(4	)
		-			7,235,086	(4a	)		300,086	(5	)		-
STOCKHOLDERS’ EQUITY
Series A Preferred Stock, $.001 par value, 5,000,000 shares authorized; 533,333 shares issued and outstanding		533			533	(1	)		-				-
Common Stock, $.001 par value, 495,000,000 shares authorized, 51,414,903 shares issued and outstanding		51,415			-				2,128	(1	)		54,669
									1,126	(2	)
Additional paid-in-capital		8,421,448							1,669,090	(1	)		12,321,937
									1,941,399	(2	)
									290,000	(4b	)
Accumulated deficit during the development stage		(5,437,235	)		1,670,685	(1	)		250,000	(2a	)		(7,898,829)
					24,086	(5	)
					25,964	(6	)
					990,859	(4b	)
TOTAL STOCKHOLDERS’ EQUITY		3,036,161			1,671,218				4,153,743				4,477,777
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,665,378		$	12,565,688			$	18,879,915			$	11,929,555

Pro Forma Adjustments

(1) To give effect to exchange of Series A Preferred Stock (Match, Inc.) for common stock during April 2005.

(2) To give effect to exchange of note payable (Match, Inc.) for common stock during April 2005.

(2a) This amount represents the accrued interest forgiven by Match, Inc. on the exchange 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 recorded in income in the second quarter of 2005.

(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.

(4a) To give effect to value assigned to the derivative features on the Warrants and 6% Preferred Stock at date of issuance during May 2005. 

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

(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-5

ITEM 2. Plan of Operation 

Information contained in this report, other than historical information, should be considered forward-looking and subject to various risk factors and uncertainties. For instance, strategies and operations of Lighting Science Group Corporation (the “Company”) involve risks of competition, changing market conditions, changes in laws and regulations affecting it and the lighting industry and numerous other factors discussed in this report and in the Company’s filings with the Securities and Exchange Commission. Accordingly, actual results may differ materially from those in any forward-looking statements.

As of the date of this report, 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. Accordingly, its 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, 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. 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.

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 ultimately evolve to solid state lighting.

As a result of the recent innovations in LED technology described above, several designers have begun to focus their attention on LEDs as a new source of product for traditional lighting needs. LED bulbs are now available in a variety of light bases and sizes, most of which are suitable only for specialty lighting. LED bulbs are rugged, durable, and visible in daylight. Their 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.

Industry studies have predicted that LED-based lighting will replace over 40% of incandescent lighting applications by 2025.³ It is estimated that by the same year solid state lighting could reduce the global amount of electricity used for lighting by 50%.⁴ The Company believes that no other use of electricity can offer such a large energy-savings potential.

Through market analysis and research, management has identified 11 benefits of LED lighting compared to incandescent and fluorescent lighting.

1. Lowest total cost of ownership of all bulbs

- Bulbs + electricity:

-- >85% lower energy cost than incandescent bulbs

-- >50% lower energy cost than fluorescent bulbs

- Also save on labor, air conditioning costs, and insurance

2. Greatly extended life up to 50,000 hours

- 25-50 times longer than incandescent bulbs

- 4-16 times longer than fluorescent bulbs

3.Very low energy consumption

- Approximately 8-10 times more energy efficient than incandescent bulbs

- Approximately 2 to 4 times more energy efficient than fluorescent bulbs

4. Better quality light output 

- Minimum ultraviolet (UV) and infrared (IR) radiation

5. “On” is on

- LED bulbs instantly reach 100% of their light output, unlike fluorescent bulbs that take up to eight seconds to reach their full light output

6. Dimmable

- LED bulbs can be made to work with dimmer switches, unlike most fluorescent bulbs

7. Intrinsically safe

- Very limited heat generation and cool to the touch

- Very hot halogen and incandescent bulbs start a large number of fires each year

8. Smaller, more flexible light fixtures

- Useful for lighting tight spaces, such as cabinets and closets

9. Durable

- Vibration and shock resistant because there are no filaments to break

10. Easy disposal

- No hazardous materials, unlike fluorescent bulbs which have recycling rules

11. Cleaner for the environment. One 100-watt bulb over 50,000 hours will:

- Reduce carbon dioxide emissions by 5,000 pounds

- Reduce sulphur dioxide emissions by 20 pounds

- Reduce nitrous oxide emissions by 15 pounds

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 substantial progress, 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.

Competitive Advantages

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. With its enabling technologies, the Company believes that it has positioned itself at the forefront of the emerging solid state lighting industry and established a competitive advantage for the reasons outlined below.

·   Digital lighting expertise is the Company’s core competency. The Company has and will continue to generate important intellectual properties:

-   Patent pending digital lighting engineering design

-   Patent pending bulb design appearance

-   Patent pending manufacturing processes

·   Compared with 65-watt incandescent bulbs, ODL bulbs reduce energy use by up to 85%, with a useful life up to 50 times longer (50,000 hours).

·   Several factors contribute to the benefits produced by the Company’s ODL technology:

-   The patent pending manufacturing processes reduce production costs to allow retail pricing that is both affordable and provides a fast payback through reduced energy consumption in most applications.

-   ODL bulbs have added functionality - they are dimmable and reach their full operating level instantly unlike most fluorescent bulbs.

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

Strategy

The Company 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 its Shared Savings Program ^SM described below.

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

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

The Company plans to pursue the following near-term markets in 2005:

·   Flashlights - The Company has developed a flashlight that 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 the Company’s proprietary design. The flashlight is currently under evaluation by a “big-box” retailer.

·   Cabinet Lighting - The Company has a developed a small lamp, called the Puck Light, which has been purchased by a major Las Vegas hotel to replace 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. A designer and manufacturer of hotel, office, and school furniture has announced that it will incorporate the Company’s proprietary cabinet lighting into the manufacturer’s line of furniture.

·   Floodlights - The Company has developed a second generation floodlight prototype that equals or exceeds existing BR30 65-watt floodlights (currently 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. The Company plans initial shipments of the floodlight in “Daylight White” during 2005. The Company intends to market this light through big-box retailers, lighting distributors, under shared savings programs and on a direct basis in certain industries. The Company intends to prototype a “Warm White” version of the floodlight in the third quarter of 2005, and plans 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. 

·   Outdoor Lighting - The Company is currently prototyping a shoebox and cobra head form factor streetlight that it believes will be competitive with 150 watt - 250 watt conventional street lights on poles 30 feet or less in height. Other forms, such as cobra head, in higher wattage equivalents (e.g. 400 watts) are planned.

The Company has entered into an agreement with an LED manufacturer in China to fabricate the Company’s ODL products. The products are assembled in a 20,000 square meter manufacturing facility and then transported to various points of distribution. While Lighting Science is focused on the near-term opportunities discussed above, management believes that the Company’s ODL technology has a number of other applications.

The Company currently has four sources of supply for LEDs used in the assembly of if its lighting products. The Company buys LEDs from two domestic manufacturers and two foreign manufacturers. All suppliers have adequate capacity to provide sufficient quantities of LEDs to meet the Company’s forecasted needs. The Company’s 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 the Company’s forecasted needs. One domestic supplier and one foreign supplier provide microelectronic components for the various lighting products. The Company has no sole source supply for any of the components required for the manufacture of its lighting products.

The Company’s budget for research and development for calendar year 2005 is expected to be $1.2 million.

The Company expects to increase its personnel base during 2005.

_____________________

^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

Strategic Alliances

Agreement with Giuliani Capital Advisors

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 the Company and a to-be-formed entity (the “Joint Venture”). 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. As part of its services GCA has agreed to provide the following services:

  ·   Assist the Company on an exclusive basis to raise capital for the Joint Venture;

·   Evaluate financial and organization structures on a non-exclusive basis relating to the Company’s different market opportunities;

·   Advise the Company on sources of debt and equity capital available to fund the Joint Venture;

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

·   Assist the Company to arrange meetings with various governmental entities and utilities, both domestic and international to acquire light poles and related infrastructure; and

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

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.

This transaction is further described in Form 8-K filed on February 23, 2005 along with a copy of the letter agreement between the parties. The joint venture agreement contemplated in the letter agreement between the Company and GCA was executed on May 4, 2005.

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.

Liquidity and Capital Resources

Exchange of Debt and Equity held by Match, Inc.

As of January 1, 2005, Notes Payable - Related Parties totaled $1,851,299 plus $315,554 of accrued interest thereon. This amount is payable to Match, Inc., (“Match”) which is owned by a revocable trust that is itself controlled by Ronald E. Lusk who is the Company’s chairman and chief executive officer. After reviewing a report from its outside financial advisors, the board of directors concluded that the nature of the Company’s outstanding debt would preclude the Company from successfully completing a contemplated financing transaction and that a proposal to exchange the debt for common stock of the Company should be explored.

Mr. Lusk proposed an exchange ratio of $1.725 per share, the average of the closing price of the common stock over the five-day period ended March 15, 2005. Upon noting that the average trading price of the stock was $1.50 per share at the time the proposal was reviewed and that Mr. Lusk was willing to reduce the accrued interest payable on the note by $250,000, the board decided that it was in the best interest of the Company to accept the proposal from Mr. Lusk. As a result, the board of directors of the Company voted on April 11, 2005 to accept the offer and exchange the debt of $1,851,299 plus the remaining accrued interest of $91,226 into 1,126,101 shares of common stock of the Company.

The Company’s outside financial advisors also made a similar recommendation with respect to the Series A Preferred Stock held by Match, and Mr. Lusk proposed a similar plan to exchange the preferred stock and the accumulated unpaid dividend thereon for common stock of the Company. On July 25, 1994, the Company sold 533,333 shares of 8% cumulative Series A Preferred Stock at a price of $3.75 per share, or a total of $2 million. The Series A Preferred Stock, owned by Match at the date of the exchange, carried cumulative dividends of $0.30 per annum for each share. The cumulative unpaid dividend with respect to the preferred stock was $1,670,685, producing a total liquidation preference of $3,670,685. Mr. Lusk proposed the same exchange ratio as the debt of $1.725 per share. The board also voted to exchange the Series A Preferred Stock and cumulative dividend to 2,127,933 shares of common stock.

Loans from Certain Directors and Members of Senior Management

During the first and second quarters of 2005, certain members of the board of directors and senior management (“Lender” or “Lenders”) of the Company agreed to loan the Company an aggregate of $476,000 on a short-term basis. 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 the sale of the Company’s newly-issued 6% Convertible Preferred Stock described in Part II, Item 2. A Lender has the opportunity to invest the proceeds from the loan repayment into the Company’s 6% Convertible Preferred Stock issue.

ITEM 3: Controls and Procedures

We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure, and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The management of the Company, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Report. Based on that evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective. Subsequent to the end of the period covered by this report, our Chief Financial Officer became our Executive Vice President - Legal and we hired a new Chief Financial Officer who became our principal financial and accounting officer. Our new Chief Financial Officer has reviewed our disclosure controls and procedures and concurs that, as of the end of the period covered by this report, such controls and procedures are effective.

In addition, the management of the Company, with the participation of the Company’s chief executive officer and chief financial officer, has evaluated whether any change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the time period covered by this Report. Based on that evaluation, the Company’s chief executive officer and chief financial officer have concluded that there has been no change in the Company’s internal control over financial reporting during the time period covered by this Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1: Legal Proceedings

As of the date of this report, there is no pending litigation against the Company, nor, to the best of the Company’s knowledge, is there any threatened legal action in connection with the activities of the Company.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Common Stock Issued During the 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 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 under the aforementioned private placement. The Company issued a total of 34,314 shares of common stock to the six outside directors of the Company on March 21, 2005 as compensation for services rendered as board members during the quarter.

Warrants Issued During the Quarter

In connection with certain strategic agreements during the quarter, the Company issued warrants to Giuliani Capital Advisors (“GCA”) and Equity Group (“Equity”). GCA received warrants for 1,650,000 shares at an exercise price of $0.80 per share. Equity received warrants for 750,000 shares at $0.60 per share. On April 11, 2005, the board of directors of the Company approved the issuance of warrants in connection with loans made to the Company by certain directors and members of senior management (the “Lenders”). As of the date of this report, warrants for a total of 460,000 shares of common stock at an exercise price of $1.50 per share are issuable to the Lenders.

Item 3: Defaults Upon Senior Securities

None

Item 4: Submission of Matters to a Vote of Security Holders

None

Item 5: Other Information

None

Item 6: Exhibits

(a) Exhibits required by Item 601 of Regulation S-K

Exhibit No.	Document
31.1*	Rule 13a-14 Certification dated August 11, 2005, by Ronald E. Lusk, Chief Executive Officer
31.2*	Rule 13a-14 Certification dated August 11, 2005, by Michael N. Lavey, Chief Financial Officer.
32.1**	Section 1350 Certification dated August 11, 2005, by Ronald E. Lusk, Chief Executive Officer.
32.2**	Section 1350 Certification dated August 11, 2005, by Michael N. Lavey, Chief Financial Officer.

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LIGHTING SCIENCE GROUP CORPORATION (Registrant)
Date: ____________	By /s/ RONALD E. LUSK
	Ronald E. Lusk
	Chief Executive Officer
Date: ____________	By /s/ MICHAEL N. LAVEY
	Michael N. Lavey
	Chief Financial Officer and Principal Accounting Officer

EX-31.1

Exhibit 31.1

Certification Pursuant to Rule 13A-14

Under the Securities Exchange Act of 1934, As Amended

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Ronald E. Lusk, certify that:

1.I have reviewed this quarterly report on Form 10-QSB/A of the Lighting Science Group Corporation (“registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:August 11, 2005

/s/ Ronald E. Lusk

Ronald E. Lusk, President and CEO

of Lighting Science Group Corporation

EX-31.2

Exhibit 31.2

Certification Pursuant to Rule 13A-14

Under the Securities Exchange Act of 1934, As Amended

(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Michael N. Lavey, certify that:

1.I have reviewed this quarterly report on Form 10-QSB/A of Lighting Science Group Corporation (“registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:August 11, 2005

/s/ Michael N. Lavey

Michael N. Lavey, Chief Financial Officer

of Lighting Science Group Corporation

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350 (AS ADOPTED

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002)

In connection with the filing of the Lighting Science Group Corporation (the “Company”) Form 10-QSB/A for the period ending March 31,2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Lusk, President and Chief Executive Officer of the Company, certify to my knowledge and in my capacity as an officer of the Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and,

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Signed on August 11, 2005

/s/ Ronald E. Lusk

Ronald E. Lusk, Chief Executive Officer of

Lighting Science Group Corporation

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350 (AS ADOPTED

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002)

In connection with the filing of the Lighting Science Group Corporation (the “Company”) Form 10-QSB/A for the period ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael N. Lavey, Chief Financial Officer of the Company, certify to my knowledge and in my capacity as an officer of the Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and,

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Signed on August 11, 2005.

/s/ Michael N. Lavey

Michael N. Lavey, Chief Financial Officer of

Lighting Science Group Corporation