Unassociated Document
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended March 31, 2008.
OR
¨ TRANSITION
REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period
from
to
Commission
File Number 000-33415
CYBERLUX
CORPORATION
(Name
of
Small Business Issuer in Its Charter)
Nevada
|
91-2048978
|
(State
of Incorporation)
|
(IRS
Employer Identification No.)
|
4625
Creekstone Drive
Suite
130
Research
Triangle Park
Durham,
NC 27703
(Address
of Principal Executive Offices)
(919)
474-9700
Issuer's
Telephone Number
Indicate
by check mark whether the issuer (1) filed all reports required to be filed
by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past
90 days.
Yes
x
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated Filer
|
accelerated
filer
|
non-accelerated
filer
|
Smaller
reporting Company
|
|
|
|
|
¨
|
¨
|
¨
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨
No
x
Number
of
shares outstanding of the issuer’s Common Stock as of May 14, 2008:
581,806,183
CYBERLUX
CORPORATION
Quarterly
Report on Form 10-Q for the
Quarterly
Period Ending March 31, 2008
Table
of
Contents
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets:
|
|
|
|
|
|
March
31, 2008 (Unaudited) and December 31, 2007 (Audited)
|
|
3
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Losses:
|
|
|
|
|
|
Three
months Ended March 31, 2008 and 2007 (Unaudited)
|
|
4
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
Three
months Ended March 31, 2008 and 2007 (Unaudited)
|
|
5
|
|
|
|
|
|
|
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Information:
|
|
|
|
|
|
March
31, 2008
|
|
6-32
|
|
|
|
|
|
|
|
Item
2.
|
Management
Discussion and Analysis
|
|
33
|
|
|
|
|
|
|
Item
3.
|
Controls
and Procedures
|
|
40
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
|
41
|
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
41
|
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
41
|
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
|
41
|
|
|
|
|
|
|
Item
5.
|
Other
Information
|
|
41
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
|
42
|
|
|
|
|
|
Signatures
|
|
|
CYBERLUX
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(unaudited)
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
71,560
|
|
$
|
626
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$8,646
|
|
|
72,103
|
|
|
77,815
|
|
Inventories,
net of allowance of $43,333
|
|
|
143,273
|
|
|
157,379
|
|
Other
current assets
|
|
|
19,776
|
|
|
10,000
|
|
Total
current assets
|
|
|
306,712
|
|
|
245,820
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $176,150
and
$169,171, respectively
|
|
|
67,628
|
|
|
74,607
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Deposits
|
|
|
24,400
|
|
|
24,400
|
|
Patents
and development costs, net of accumulated amortization of $951,111
and
$819,639, respectively
|
|
|
3,023,863
|
|
|
3,155,335
|
|
Total
other assets
|
|
|
3,048,263
|
|
|
3,179,735
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,422,603
|
|
$
|
3,500,162
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
$
|
-
|
|
$
|
33,178
|
|
Accounts
payable
|
|
|
851,250
|
|
|
733,538
|
|
Accrued
liabilities
|
|
|
2,567,922
|
|
|
2,345,133
|
|
Short-term
notes payable - related parties
|
|
|
407,823
|
|
|
397,064
|
|
Short-term
notes payable
|
|
|
169,853
|
|
|
196,067
|
|
Short-term
convertible notes payable
|
|
|
4,005,435
|
|
|
3,050,510
|
|
Total
current liabilities
|
|
|
8,002,283
|
|
|
6,755,490
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Derivative
liability relating to convertible debentures
|
|
|
18,309,890
|
|
|
17,334,621
|
|
Warrant
liability relating to convertible debentures
|
|
|
3,790,257
|
|
|
4,509,538
|
|
Total
long-term liabilities
|
|
|
22,100,147
|
|
|
21,844,159
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
30,102,430
|
|
|
28,599,649
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Series A convertible preferred stock, $0.001 par value; 200 shares
designated, 26.9806 and 28.9806 issued and outstanding as of March
31,
2008 and December 31, 2007, respectively; liquidation preference
of
$219,892 and $231,845 as of December 31, 2007 and 2006,
respectively
|
|
|
134,900
|
|
|
144,900
|
|
|
|
|
|
|
|
|
|
DEFICIENCY
IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Class
B convertible preferred stock, $0.001 par value, 3,650,000 shares
designated; 3,650,000 shares issued and outstanding for March 31,
2008 and
December 31, 2007; liquidation preference of $3,650,000 as of March
31,
2008 and December 31, 2007
|
|
|
3,650
|
|
|
3,650
|
|
Class
C convertible preferred stock, $0.001 par value, 700,000 shares
designated; 150,000 shares issued and outstanding for March 31, 2008
and
December 31, 2007, liquidation preference of $3,863,240 and $3,823,230,
as
of March 31, 2008 and December 31, 2007, respectively
|
|
|
150
|
|
|
150
|
|
Common
stock, $0.001 par value, 700,000,000 shares authorized; 566,806,181and
552,342,881 shares issued and outstanding as of March 31, 2008 and
December 31, 2007
|
|
|
566,806
|
|
|
552,343
|
|
Additional
paid-in capital
|
|
|
15,854,390
|
|
|
15,286,709
|
|
Accumulated
deficit
|
|
|
(43,239,723
|
)
|
|
(41,087,239
|
)
|
Deficiency
in stockholders' equity
|
|
|
(26,814,727
|
)
|
|
(25,244,387
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and (deficiency) in stockholders' equity
|
|
$
|
3,422,603
|
|
$
|
3,500,162
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
CYBERLUX
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
REVENUE:
|
|
$
|
186,839
|
|
$
|
49,462
|
|
Cost
of goods sold
|
|
|
(104,563
|
)
|
|
(40,320
|
)
|
Gross
margin (loss)
|
|
|
82,276
|
|
|
9,142
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,979
|
|
|
5,934
|
|
Research
and development
|
|
|
152
|
|
|
69,713
|
|
General
and administrative expenses
|
|
|
715,078
|
|
|
887,280
|
|
Total
operating expenses
|
|
|
722,209
|
|
|
962,927
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM OPERATIONS
|
|
|
(639,933
|
)
|
|
(953,785
|
)
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) relating to adjustment of derivative and warrant liability
to
fair value of underlying securities
|
|
|
(255,988
|
)
|
|
3,523,832
|
|
Interest
expense, net
|
|
|
(796,642
|
)
|
|
(527,800
|
)
|
Debt
acquisition costs
|
|
|
(459,921
|
)
|
|
11,420
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) before provision for income taxes
|
|
|
(2,152,484
|
)
|
|
2,053,667
|
|
|
|
|
|
|
|
|
|
Income
taxes (benefit)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) AVAILABLE TO COMMON STOCKHOLDERS
|
|
$
|
(2,152,484
|
)
|
$
|
2,053,667
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic
|
|
|
557,490,415
|
|
|
189,015,023
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-fully diluted
|
|
|
Note
A
|
|
|
Note
A
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share-basic
|
|
$
|
(0.00
|
)
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
Loss
per share - fully diluted
|
|
|
Note
A
|
|
|
Note
A
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
$
|
24,000
|
|
$
|
24,000
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
CYBERLUX
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income (loss) available to common stockholders
|
|
$
|
(2,152,484
|
)
|
$
|
2,053,667
|
|
Adjustments
to reconcile net income (loss) to cash used in operating
activities
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,979
|
|
|
5,934
|
|
Amortization
|
|
|
131,472
|
|
|
131,473
|
|
Common
stock issued in connection issuance of debt
|
|
|
385,108
|
|
|
-
|
|
Common
stock issued in connection with services rendered
|
|
|
2,300
|
|
|
-
|
|
Beneficial
conversion feature relating to convertible debenture
|
|
|
184,736
|
|
|
-
|
|
Accretion
of convertible notes payable
|
|
|
454,925
|
|
|
401,096
|
|
Unrealized
(gain) loss on adjustment of derivative and warrant liability to
fair
value of underlying securities
|
|
|
255,988
|
|
|
(3,523,832
|
)
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
5,712
|
|
|
116,425
|
|
Inventories
|
|
|
14,106
|
|
|
(8,803
|
)
|
Prepaid
expenses and other assets
|
|
|
(9,776
|
)
|
|
10,413
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
|
(33,178
|
)
|
|
-
|
|
Accounts
payable
|
|
|
117,712
|
|
|
168,167
|
|
Accrued
liabilities
|
|
|
222,790
|
|
|
97,604
|
|
Net
cash (used in) operating activities
|
|
|
(413,611
|
)
|
|
(547,856
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
cash acquired in connection with acquisition of Hybrid Lighting
Technologies, Inc
|
|
|
-
|
|
|
150,000
|
|
Acquisition
of fixed assets
|
|
|
-
|
|
|
(11,316
|
)
|
Net
cash provided by investing activities:
|
|
|
-
|
|
|
138,684
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
proceeds from issuance of convertible debentures
|
|
|
500,000
|
|
|
-
|
|
Proceeds
from exercise of warrants
|
|
|
-
|
|
|
-
|
|
Proceeds
from sale of warrants
|
|
|
-
|
|
|
-
|
|
Net
proceeds (payments) from borrowing on long term basis
|
|
|
(26,214
|
)
|
|
(26,107
|
)
|
Net
proceeds (payments) to notes payable, related parties
|
|
|
10,759
|
|
|
66,000
|
|
Net
cash provided by financing activities:
|
|
|
484,545
|
|
|
39,893
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
70,934
|
|
|
(369,279
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
626
|
|
|
395,812
|
|
Cash
and cash equivalents at end of period
|
|
$
|
71,560
|
|
$
|
26,533
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
-
|
|
$
|
-
|
|
Income
Taxes Paid
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Unrealized
(gain) loss in adjustment of derivative and warrant liability to
fair
value of underlying securities
|
|
|
255,988
|
|
|
(3,523,832
|
)
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES
General
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of
America for interim financial information and the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.
In
the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Accordingly,
the results from operations for the three period ended March 31, 2008, are
not
necessarily indicative of the results that may be expected for the year ended
December 31, 2008. The unaudited condensed financial statements should be read
in conjunction with the December 31, 2007 financial statements and footnotes
thereto included in the Company's Form 10-KSB for the year ended December 31,
2007.
Business
and Basis of Presentation
Cyberlux
Corporation (the "Company") is incorporated on May 17, 2000 under the laws
of
the State of Nevada. Until December 31, 2004, the Company was a development
state enterprise as defined under Statement on Financial Accounting Standards
No.7, Development Stage Enterprises ("SFAS No.7"). The Company develops,
manufactures and markets long-term portable lighting products for commercial
and
industrial users. While the Company has generated revenues from its sale of
products, the Company has incurred expenses, and sustained losses. Consequently,
its operations are subject to all risks inherent in the establishment of a
new
business enterprise. As of March 31, 2008, the Company has accumulated losses
of
$43,239,723.
The
consolidated financial statements include the accounts of its wholly owned
subsidiaries, SPE Technologies, Inc. and Hybrid Lighting Technologies, Inc.
All
significant intercompany balances and transactions have been eliminated in
consolidation.
Revenue
Recognition
Revenues
are recognized in the period that products are provided. For revenue from
product sales, the Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which superseded
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
("SAB101"). SAB 101 requires that four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the selling price is fixed and determinable; and
(4)
collectability is reasonably assured. Determination of criteria (3) and (4)
are
based on management's judgments regarding the fixed nature of the selling prices
of the products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund
will
be required. At March 31, 2008 and December 31, 2007, the Company did not have
any deferred revenue.
SAB
104
incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”), MULTIPLE
DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21
on
the Company’s financial position and results of operations was not
significant.
Reclassification
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
Concentrations
of Credit Risk
Financial
instruments and related items which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess
of
the FDIC insurance limit. The Company periodically reviews its trade receivables
in determining its allowance for doubtful accounts. At March 31, 2008 and
December 31, 2007, allowance for doubtful receivable was
$8,646.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Stock
based compensation
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R (revised 2004), Share-Based Payment" which is a revision
of
FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
approach in Statement 123R is similar to the approach described in Statement
123. However, Statement 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro-forma disclosure is no longer an
alternative. This statement does not change the accounting guidance for share
based payment transactions with parties other than employees provided in
Statement of Financial Accounting Standards No. 123(R). This statement does
not
address the accounting for employee share ownership plans, which are subject
to
AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock
Ownership Plans.” On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company had to comply with Statement 123R and use the Fair Value based
method of accounting no later than the first quarter of 2006. The Company
implemented SFAS No. 123(R) on January 1, 2006 using the modified
prospective method. The fair value of each option grant issued after January
1,
2006 was determined as of grant date, utilizing the Black-Scholes option pricing
model. The amortization of each option grant will be over the remainder of
the
vesting period of each option grant.
As
more
fully described in Note I below, the Company granted stock options over the
years to employees of the Company under a non-qualified employee stock option
plan. As of December 31, 2005, 34,000,000 stock options were outstanding and
exercisable.
In
prior
years, the Company applied the intrinsic-value method prescribed in Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees,” to account for the issuance of stock options to employees and
accordingly compensation expense related to employees’ stock options were
recognized in the prior year financial statements to the extent options granted
under stock incentive plans had an exercise price less than the market value
of
the underlying common stock on the date of grant.
For
the
year ended December 31, 2006, the Company granted 34,930,000 stock options
to
employees with exercise prices of $0.022 to $0.04 per share expiring ten years
from date of issuance. The fair value of the options was determined using the
Black-Scholes option pricing model with the following assumptions: expected
dividend yield: 0%; volatility from 364% to 373%; risk free interest rate from
4.57% to 5.04%. The fair value of $1,131,500 was recorded as a current period
charge to earnings.
Net
Income (loss) Per Common Share
The
following reconciliation of net income and share amounts used in the computation
of income (loss) per share for the three months ended March 31,
2007:
|
|
Three Months Ended
March 31, 2007
|
|
Net
income used in computing basic net income per share
|
|
$
|
2,053,667
|
|
Impact
of assumed assumptions:
|
|
|
|
|
Accretion
of convertible debenture charged to interest expense
|
|
|
401,096
|
|
Impact
of equity classified as liability:
|
|
|
|
|
Gain
on warrant liability marked to fair value
|
|
|
(3,523,832
|
)
|
Net
loss in computing diluted net loss per share:
|
|
$
|
(1,069,069
|
)
|
The
weighted average shares outstanding used in the basic net income per share
computations for the three months ended March 31, 2007 was 189,015,023. In
determining the number of shares used in computing diluted loss per share,
the
Company added approximately 1,201,705,941potentially dilutive securities for
the
three months ended March 31, 2007. The potentially dilutive securities added
were mostly attributable to the warrants, options and convertible debentures
outstanding. As a result, the diluted loss per share for the three months ended
March 31, 2007 was $0.00.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Patents
The
Company acquired in December 2006, for $2,270,000, and January 2007, for
$1,387,000, patents in conjunction with the acquisitions of SPE Technologies,
Inc and Hybrid Lighting Technologies, Inc, respectively. The patents have an
estimated useful life of 7 years. Accordingly, the Company recorded an
amortization charge to current period earnings of $131,472 for the three months
ended March 31, 2008 and 2007. Patents are comprised of the
following:
Description
|
|
Cost
|
|
Accumulated amortization
and impairments
|
|
Net carrying value at March
31, 2008
|
|
Development
costs
|
|
$
|
293,750
|
|
$
|
293,750
|
|
$
|
-0-
|
|
Patents
|
|
|
2,294,224
|
|
|
409,683
|
|
|
1,884,541
|
|
Patents
|
|
|
1,387,000
|
|
|
247,678
|
|
|
1,139,322
|
|
Total
|
|
$
|
3,974,974
|
|
$
|
951,111
|
|
$
|
3,023,863
|
|
Derivative
Financial Instruments
The
Company's derivative financial instruments consist of embedded derivatives
related to the 10% Secured Convertible Debentures (see Note D). These embedded
derivatives include certain conversion features, variable interest features,
call options and default provisions. The accounting treatment of derivative
financial instruments requires that the Company record the derivatives and
related warrants at their fair values as of the inception date of the Note
Agreement and at fair value as of each subsequent balance sheet date. In
addition, under the provisions of EITF Issue No. 00-19, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock," as a result of entering into the Notes, the Company is
required to classify all other non-employee stock options and warrants as
derivative liabilities and mark them to market at each reporting date. Any
change in fair value inclusive of modifications of terms will be recorded as
non-operating, non-cash income or expense at each reporting date. If the fair
value of the derivatives is higher at the subsequent balance sheet date, the
Company will record a non-operating, non-cash charge. If the fair value of
the
derivatives is lower at the subsequent balance sheet date, the Company will
record non-operating, non-cash income. Conversion-related derivatives were
valued using the intrinsic method and the warrants using the Black Scholes
Option Pricing Model with the following assumptions: dividend yield of 0%;
annual volatility of 528%; and risk free interest rate from 3.36% to 3.70%.
The
derivatives are classified as long-term liabilities.
Registration
rights
In
with
raising capital through the issuance of Convertible Notes, the Company has
issued convertible debentures and warrants in that have registration rights
with
liquidated damages for the underlying shares. As the contract must be
settled by the delivery of registered shares and the delivery of the registered
shares is not controlled by the Company, pursuant to EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock”, the net value of the of the underlying embedded derivative
and warrants at the date of issuance was recorded as liabilities on the balance
sheet. Liquidated damages are estimated and accrued as a liability at each
reporting date. The Company has accrued an estimated $620,659 in liquidation
damages.
Recent
accounting pronouncements
In
July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for
uncertainty in Income Taxes”. FIN 48 clarifies the accounting for Income Taxes
by prescribing the minimum recognition threshold a tax position is required
to
meet before being recognized in the financial statements. It also provides
guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition and clearly scopes
income taxes out of SFAS 5, “Accounting for Contingencies”. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company has not yet
evaluated the impact of adopting FIN 48 on our consolidated financial position,
results of operations and cash flows.
In
September 2006 the Financial Account Standards Board (the “FASB”) issued its
Statement of Financial Accounting Standards 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application of
this
Statement will change current practice. FAS 157 effective date is for fiscal
years beginning after November 15, 2007. The Company does not expect adoption
of
this standard will have a material impact on its financial position, operations
or cash flows.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements (continued)
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”. This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income
of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring
an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date
for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows.
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP
00-19-2")
which addresses accounting for registration payment arrangements. FSP
00-19-2
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument
or
other agreement, should be separately recognized and measured in accordance
with
FASB Statement No. 5, Accounting for Contingencies. FSP
00-19-2
further clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other applicable
generally accepted accounting principles without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to the issuance
of
EITF 00-19-2, this guidance shall be effective for financial statements issued
for fiscal years beginning after December 15, 2006 and interim periods within
those fiscal years. The Company adopted FSP 00-19-2 in the preparation of the
financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial condition or results of operations.
In
December 2007, the FASB issued SFAS No. 141(R),"Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in
an
acquiree, including the recognition and measurement of goodwill acquired in
a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. Earlier adoption
is prohibited and the Company is currently evaluating the effect, if any, that
the adoption will have on its financial position, results of operations or
cash
flows.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest
in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS
No. 160"), which will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity within the consolidated balance sheets.
SFAS
No. 160 is effective as of the beginning of the first fiscal year beginning
on
or after December 15, 2008. Earlier adoption is prohibited and the Company
is currently evaluating the effect, if any, that the adoption will have on
its
financial position, results of operations or cash flows.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES
Notes
payable at March 31, 2008 and December 31, 2007:
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
10%
convertible note payable, unsecured and due September, 2003; accrued
and
unpaid interest due at maturity; Note holder has the option to convert
note principal together with accrued and unpaid interest to the Company’s
common stock at a rate of $0.50 per share. The Company is in violation
of
the loan covenants
|
|
$
|
2,500
|
|
|
-
|
|
$
|
2,500
|
|
$
|
2,500
|
|
|
-
|
|
$
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
convertible debenture, due three years from date of the note with
interest
payable quarterly during the life of the note. The note is convertible
into the Company’s common stock at the lower of a) $0.03 or b) 25% of the
average of the three lowest intraday trading prices for the common
stock
on a principal market for twenty days before, but not including,
conversion date. The Company granted the note holder a security interest
in substantially all of the Company’s assets and intellectual property and
registration rights. The Company is in violation of the loan covenants
(see below)
|
|
|
1,094,091
|
|
|
67,741
|
|
|
1,026,350
|
|
|
1,094,091
|
|
|
158,665
|
|
|
935,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
convertible debenture, due three years from date of the note with
interest
payable quarterly during the life of the note. The note is convertible
into the Company’s common stock at the lower of a) $0.6 or b) 25% of the
average of the three lowest intraday trading prices for the common
stock
on a principal market for twenty days before, but not including,
conversion date. The Company granted the note holder a security interest
in substantially all of the Company’s assets and intellectual property and
registration rights. The Company is in violation of the loan covenants
(see below)
|
|
|
800,000
|
|
|
150,502
|
|
|
649,498
|
|
|
800,000
|
|
|
216,986
|
|
|
583,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due three years from date of the note with
interest
payable quarterly during the life of the note. The note is convertible
into the Company’s common stock at the lower of a) $0.10 or b) 25% of the
average of the three lowest intraday trading prices for the common
stock
on a principal market for twenty days before, but not including,
conversion date. The Company granted the note holder a security interest
in substantially all of the Company’s assets and intellectual property and
registration rights (see below)
|
|
$
|
700,000
|
|
$
|
173,242
|
|
$
|
526,758
|
|
$
|
700,000
|
|
$
|
231,416
|
|
$
|
468,584
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
8%
convertible debenture, due March 2009 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
$
|
500,000
|
|
$
|
164,384
|
|
$
|
335,616
|
|
$
|
500,000
|
|
$
|
205,936
|
|
$
|
294,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
convertible debenture, due July 2009 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
500,000
|
|
|
220,548
|
|
|
279,452
|
|
|
500,000
|
|
|
262,100
|
|
|
237,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
convertible debenture, due September 2009 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
280,000
|
|
|
138,849
|
|
|
141,151
|
|
|
280,000
|
|
|
162,119
|
|
|
117,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
convertible debenture, due December 2009 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
600,000
|
|
|
344,110
|
|
|
255,890
|
|
|
600,000
|
|
|
393,973
|
|
|
206,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due April 2010 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
$
|
400,000
|
|
$
|
272,877
|
|
$
|
127,123
|
|
$
|
400,000
|
|
$
|
306,119
|
|
$
|
93,881
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
|
March
31, 2008
|
|
December
31, 2007
|
|
|
|
Gross Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
8%
convertible debenture, due May 2010 with interest payable quarterly
during
the life of the note. The note is convertible into the Company’s common
stock at the lower of a)$0.10 or b) 25% of the average of the three
lowest
intraday trading prices for the common stock on a principal market
for
twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
$
|
150,000
|
|
$
|
104,110
|
|
$
|
45,890
|
|
$
|
150,000
|
|
$
|
116,575
|
|
$
|
33,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due June 2010 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
150,000
|
|
|
108,356
|
|
|
41,644
|
|
|
150,000
|
|
|
120,822
|
|
|
29,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due June 2010 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
150,000
|
|
|
112,329
|
|
|
37,671
|
|
|
150,000
|
|
|
124,795
|
|
|
25,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due July 2010 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
150,000
|
|
|
114,109
|
|
|
35,891
|
|
|
150,000
|
|
|
126,575
|
|
|
23,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
convertible debenture (warrant), maturing March 2015 with interest
accruing until conversion. The warrant is exercisable at the greater
of a)
$0.012 or b) 75% of the average of three lowest intraday trading
prices
for the common stock on a principal market for twenty days before,
but
including, conversion date. The Company issued 6,763,300 shares of
its
common stock as security.
|
|
$
|
500,000
|
|
|
-
|
|
|
500,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
current maturities:
|
|
|
5,976,591
|
|
|
(1,971,157
|
)
|
|
(4,005,434
|
)
|
|
(5,476,591
|
)
|
|
(2,426,081
|
)
|
|
(3,050,510
|
)
|
Long
term portion
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Company entered into a Securities Purchase Agreement with four accredited
investors on April 23, 2005 for the issuance of an aggregate of $1,500,000
of
convertible notes (“Convertible Notes”) and attached to the Convertible Notes
was warrants to purchase 25,000,000 shares of the Company’s common stock. The
Convertible Notes accrue interest at 10% per annum, payable quarterly, and
are
due three years from the date of the note. The note holder has the option to
convert any unpaid note principal to the Company’s common stock at a rate of the
lower of a) $0.03 or b) 25% of the average of the three lowest intraday trading
prices for the common stock on a principal market for the 20 trading days
before, but not including, conversion date. The effective interest rate at
the
date of inception was 270.43% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $1,500,000 in exchange for total proceeds of $1,352,067. The proceeds
that the Company received were net of prepaid interest of $72,933 representing
the first eight month’s interest and related fees and costs of
$75,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on April 23, 2005. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $945,313 and $554,687 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in
lieu
of the Default Amount, the number of shares of Common Stock of the Borrower
equal to the Default Amount divided by the Conversion Price then in
effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months ended March 31, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $90,925 and $123,288,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on October 24, 2005 for the issuance of $800,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 800,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 10% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.06
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 142.28% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $800,000 in exchange for total proceeds of $775,000. The proceeds
that
the Company received were net of related fees and costs of $25,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on October 24, 2005. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $743,770 and $56,230 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in
lieu
of the Default Amount, the number of shares of Common Stock of the Borrower
equal to the Default Amount divided by the Conversion Price then in
effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months ended March 31, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $66,484 and $65,753,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on December 28, 2005 for the issuance of $700,000 of convertible
notes
(“Convertible Notes”) and attached to the Convertible Notes were warrants to
purchase 700,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 158.81% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $700,000 in exchange for total proceeds of $675,000. The proceeds
that
the Company received were net of related fees and costs of $25,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on December 28, 2005. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $655,921 and $44,079 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three month period ended March 31, 2008 and 2007, the Company amortized the
debt
discount and charged to interest expense $58,174 and $57,534,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on March 31, 2006 for the issuance of $500,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 19,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 11.01% per annum.
As
of
December 31, 2007, the Company issued to investors of the Convertible Notes
a
total amount of $500,000 in exchange for total proceeds of $460,000. The
proceeds that the Company received were net of related fees and costs of
$40,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on March 31, 2006. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $136,612 and $363,388 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three month period ended March 31, 2008 and 2007, the Company amortized the
debt
discount and charged to interest expense $41,553 and $41,096,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on July 28, 2006 for the issuance of $500,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 15,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 6% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 10.00% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $500,000 in exchange for total proceeds of $490,000. The proceeds
that
the Company received were net of related fees and costs of $10,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on July 28, 2006. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $200,000 and $300,000 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three month period ended March 31, 2008 and 2007, the Company amortized the
debt
discount and charged to interest expense $41,553 and $41,096,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on September 26, 2006 for the issuance of $280,000 of convertible
notes (“Convertible Notes”) and attached to the Convertible Notes was warrants
to purchase 10,000,000 shares of the Company’s common stock. The Convertible
Note accrues interest at 6% per annum, payable quarterly, and are due three
years from the date of the note. The note holder has the option to convert
any
unpaid note principal to the Company’s common stock at a rate of the lower of a)
$0.10 or b) 25% of the average of the three lowest intraday trading prices
for
the common stock on a principal market for the 20 trading days before, but
not
including, conversion date. The effective interest rate at the date of inception
was 9.36% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $280,000 in exchange for total proceeds of $259,858. The proceeds
that
the Company received were net of related fees and costs of $20,142.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on September 26, 2006. These embedded derivatives
included certain conversion features, variable interest features, call options
and default provisions. The accounting treatment of derivative financial
instruments requires that the Company allocate the relative fair values of
the
derivatives and related warrants as of the inception date of the Securities
Purchase Agreement up to the proceeds amount and to fair value as of each
subsequent balance sheet date. At the inception of the Securities Purchase
Agreement, the Company allocated $100,513 and $179,487 to the embedded
derivatives and related warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months period ended March 31, 2008 and 2007, the Company amortized the
debt discount and charged to interest expense $23,269 and $23,014,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on December 20, 2006 for the issuance of $600,000 of convertible
notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 20,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 6% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 15.00% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $600,000 in exchange for total proceeds of $590,000. The proceeds
that
the Company received were net of related fees and costs of $10,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on December 20, 2006. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $360,000 and $240,000 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months ended March 31, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $49,863 and $49,315,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on April 18, 2007 for the issuance of $400,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 235.00% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $400,000 in exchange for total proceeds of $360,000. The proceeds
that
the Company received were net of related fees and costs of $40,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on April 18, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $386,378 and $13,622 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months ended March 31, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $33,242 and $-0- ,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on May 1, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 80.83% per annum.
As
of
March 31 2008, the Company issued to investors of the Convertible Notes a total
amount of $150,000 in exchange for total proceeds of $150,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on May 1, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $135,154 and $14,846 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months ended March 31, 2008, the Company amortized the debt discount
and
charged to interest expense $12,466.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 1, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 91.87% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $150,000 in exchange for total proceeds of $150,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on June 1, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $136,938 and $13,062 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months ended March 31, 2008, the Company amortized the debt discount
and
charged to interest expense $12,466.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 30, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 85.51% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $150,000 in exchange for total proceeds of $150,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on June 30, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $135,966 and $14,034 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months ended March 31, 2008, the Company amortized the debt discount
and
charged to interest expense $12,466.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on July 13, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 85.13% per annum.
As
of
March 31, 2008, the Company issued to investors of the Convertible Notes a
total
amount of $150,000 in exchange for total proceeds of $150,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on July 13, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $135,903 and $14,097 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when
due
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
March 31, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
three months ended March 31, 2008, the Company amortized the debt discount
and
charged to interest expense $12,466.
As
of
March 31, 2008, the Company has accrued $816,586 in default provision
liabilities and liquidated damages relating the to the above described
Securities Purchase Agreements.
On
March
10, 2008, the Company sold a warrant to purchase 20,833,333 shares of its common
stock at the greater of a) $0.012 or b) 75% of the average of three lowest
intraday trading prices for the common stock on a principal market for twenty
days before, but including, conversion date. The warrant exercise amount accrues
interest at 0.5% per month until exercised.
Although
described as a warrant, the instrument was considered a convertible debenture
for accounting purposes.
In
accordance with EITF 98-5, the Company recognized an imbedded beneficial
conversion feature present in the convertible note. The Company allocated a
portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital. The Company recognized and measured an aggregate
of
$184,736 of the proceeds, which is equal to the intrinsic value of the imbedded
beneficial conversion feature, to additional paid in capital and a discount
against the convertible note payable. The debt discount attributed to the
beneficial conversion feature charged to current period earnings as interest
expense.
Additionally,
in conjunction with the issuance of the above described debenture, the Company
issued an aggregate of 6,763,300 and 7,500,000 shares of its common stock to
be
held as security and as a financing cost of the transaction, respectively.
The
charged a total of $385,109 of debt acquisition costs to current period
earnings.
The
accompanying financial statements comply with current requirements relating
to
warrants and embedded derivatives as described in FAS 133, EITF 98-5 and 00-27,
and APB 14 as follows:
|
·
|
The
Company allocated the proceeds received between convertible debt
and
detachable warrants based upon the relative fair market values on
the
dates the proceeds were received. The fair values of the detachable
warrants and the embedded derivatives were determined under the
Black-Scholes option pricing formula and the intrinsic method,
respectively
|
|
·
|
Subsequent
to the initial recording, the increase (or decease) in the fair value
of
the detachable warrants, determined under the Black-Scholes option
pricing
formula and the increase (or decrease) in the intrinsic value of
the
embedded derivatives of the convertible debentures are recorded as
adjustments to the liabilities at December 31, 2006 and 2005,
respectively.
|
|
·
|
The
expense relating to the increase (or decrease) in the fair value
of the
Company’s stock reflected in the change in the fair value of the warrants
and derivatives is included as other income item as a gain or loss
arising
from convertible financing on the Company’s balance
sheet.
|
|
·
|
Accreted
principal of $5,476,591 and $3,048,010 as of March 31, 2008 and December
31, 2007.
|
NOTE
C-WARRANT LIABILITY
Total
warrant liability as of March 31, 2008 and December 31, 2007 is comprised of
the
following:
|
|
March 31,
2008
|
|
December 31,
2007
|
|
Fair
value of warrants relating to convertible debentures
|
|
$
|
1,574,985
|
|
$
|
1,874,970
|
|
Fair
value of other outstanding warrants
|
|
|
2,215,272
|
|
|
2,634,568
|
|
Total
|
|
$
|
3,790,257
|
|
$
|
4,509,538
|
|
Warrants
were valued at the date of inception and at March 31, 2008 and December 31,
2007
using the Black Scholes Option Pricing Model.
The
assumptions used at March 31, 2008 and December 31, 2007 were as
follows:
|
|
March 31, 2008
|
|
December 31,
2007
|
|
Expected
volatility
|
|
|
578
|
%
|
|
528
|
%
|
Expected
dividend yield
|
|
|
-0-
|
%
|
|
-0-
|
%
|
Average
risk free rate
|
|
|
1.62%
to 2.06
|
%
|
|
3.45
|
%
|
Expected
life (a)
|
|
|
1.62 to 6.28 yrs
|
|
|
1.01
to 6.53 yrs
|
|
(a)The
expected option life is based on contractual expiration dates.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
D - NOTE PAYABLE
Note
payable as of March 31, 2008 and December 31, 2007, comprised of the
following:
|
|
March 31, 2008
|
|
December 31, 2007
|
|
Note
payable, 24% interest per annum; due in 90 days; secured by specific
accounts receivables
|
|
$
|
169,853
|
|
$
|
196,067
|
|
NOTE
E - NOTES AND CONVERTIBLE NOTES PAYABLE-RELATED PARTY
Notes
payable-related party is comprised of the following:
|
|
March
31,
2008
|
|
December
31,
2007
|
|
Notes
payable, 12% per annum; due on demand; unsecured
|
|
$
|
158,473
|
|
$
|
147,714
|
|
|
|
|
|
|
|
|
|
Notes
payable, 10% per annum, due on demand; unsecured
|
|
|
249,350
|
|
|
249,350
|
|
|
|
|
407,823
|
|
|
397,064
|
|
Less:
current maturities:
|
|
|
(407,823
|
)
|
|
(397,064
|
)
|
Long
term portion:
|
|
$
|
-
|
|
$
|
-
|
|
NOTE
F -STOCKHOLDER'S EQUITY
Series
A - Convertible Preferred stock
The
Company has also authorized 5,000,000 shares of Preferred Stock, with a par
value of $.001 per share.
On
December 30, 2003, the Company filed a Certificate of Designation creating
a
Series A Convertible Preferred Stock classification for 200 shares.
The
Series A Preferred stated conversion price of $.10 per shares is subject to
certain anti-dilution provisions in the event the Company issues shares of
its
common stock or common stock equivalents below the stated conversion price.
Changes to the conversion price are charged to operations and included in
unrealized gain (loss) relating to adjustment of derivative and warrant
liability to fair value of underlying securities.
In
December, 2003, the Company issued 155 shares of its Series A Preferred stock,
valued at $5,000 per share. The stock has a stated value of $5,000 per share
and
a conversion price of $0.10 per share and warrants to purchase an aggregate
of
15,500,000 shares of our common stock.
In
May,
2004, the Company issued 15.861 shares of its Series A Preferred stock, valued
at $5,000 per share. The stock has a stated value of $5,000 per share and a
conversion price of $0.10 per share and warrants to purchase an aggregate of
1,600,000 shares of our common stock.
In
the
year ended December 31, 2004, 7 of the Series A Preferred shareholders exercised
the conversion right and exchanged 19 shares of Series A Preferred for 950,000
shares of the Company's common stock.
In
the
year ended December 31, 2005, 20 of the Series A Preferred shareholders
exercised the conversion right and exchanged 92 shares of Series A Preferred
for
4,600,000 shares of the Company's common stock.
In
the
year ended December 31, 2006, 9 of the Series A Preferred shareholders exercised
the conversion right and exchanged 20.88 shares of Series A Preferred for
1,019,032 shares of the Company’s common stock
In
the
three months ended March 31, 2008, 1 of the Series A Preferred shareholders
exercised the conversion right and exchanged 2 shares of Series A Preferred
for
100,000 shares of the Company’s common stock
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Series
A - Convertible Preferred stock (continued)
The
holders of the Series A Preferred shall have the right to vote, separately
as a
single class, at a meeting of the holders of the Series A Preferred or by such
holders' written consent or at any annual or special meeting of the stockholders
of the Corporation on any of the following matters: (i) the creation,
authorization, or issuance of any class or series of shares ranking on a parity
with or senior to the Series A Preferred with respect to dividends or upon
the
liquidation, dissolution, or winding up of the Corporation, and (ii) any
agreement or other corporate action which would adversely affect the powers,
rights, or preferences of the holders of the Series A Preferred.
The
holders of record of the Series A Preferred shall be entitled to receive
cumulative dividends at the rate of twelve percent per annum (12%) on the face
value ($5,000 per share) when, if and as declared by the Board of Directors,
if
ever. All dividends, when paid, shall be payable in cash, or at the option
of
the Company, in shares of the Company’s common stock. Dividends on shares of the
Series A Preferred that have not been redeemed shall be payable quarterly in
arrears, when, if and as declared by the Board of Directors, if ever, on a
semi-annual basis. No dividend or distribution other than a dividend or
distribution paid in Common Stock or in any other junior stock shall be declared
or paid or set aside for payment on the Common Stock or on any other junior
stock unless full cumulative dividends on all outstanding shares of the Series
A
Preferred shall have been declared and paid. These dividends are not recorded
until declared by the Company. As of the period ended March 31, 2008, $0 in
dividends was accumulated.
Upon
any
liquidation, dissolution or winding up of the Corporation, whether voluntary
or
involuntary, and after payment of any senior liquidation preferences of any
series of Preferred Stock and before any distribution or payment is made with
respect to any Common Stock, holders of each share of the Series A Preferred
shall be entitled to be paid an amount equal in the greater of (a) the face
value denominated thereon subject to adjustment for stock splits, stock
dividends, reorganizations, reclassification or other similar events (the
"Adjusted Face Value") plus, in the case of each share, an amount equal to
all
dividends accrued or declared but unpaid thereon, computed to the date payment
thereof is made available, or (b) such amount per share of the Series A
Preferred immediately prior to such liquidation, dissolution or winding up,
or
(c) the liquidation preference of $5,000.00 per share, and the holders of the
Series A Preferred shall not be entitled to any further payment, such amount
payable with respect to the Series A Preferred being sometimes referred to
as
the "Liquidation Payments."
Because
the Series A Shares include a redemption feature that is outside of the control
of the Company and the stated conversion price is subject to reset, the Company
has classified the Series A Shares outside of stockholders' equity in accordance
with Emerging Issues Task Force ("EITF") Topic D-98, "Classification and
Measurement of Redeemable Securities." In accordance with EITF Topic D-98,
the
fair value at date of issuance was recorded outside of stockholders’ equity in
the accompanying balance sheet. Dividends on the Series A Shares are reflected
as a reduction of net income (loss) attributable to common
stockholders.
In
connection with the issuance of the Series A Preferred and related warrants,
the
holders were granted certain registration rights in which the Company agreed
to
timely file a registration statement to register the common shares and the
shares underlying the warrants, obtain effectiveness of the registration
statement by the SEC within ninety-five (95) days of December 31, 2003, and
maintain the effectiveness of this registration statement for a preset time
thereafter. In the event the Company fails to timely perform under the
registration rights agreement, the Company agrees to pay the holders of the
Series A Preferred liquidated damages in an amount equal to 1.5% of the
aggregate amount invested by the holders for each 30-day period or pro rata
for
any portion thereof following the date by which the registration statement
should have been effective. The initial registration statement was filed and
declared effective by the SEC within the allowed time , however the Company
has
not maintained the effectiveness of the registration statement to date.
Accordingly, the Company issued 203,867 shares of common stock as liquidated
damages on December 10, 2004. The Company has not been required to pay any
further liquidated damages in connection with the filing or on-going
effectiveness of the registration statement.
The
Company was required to record a liability relating to the detachable warrants
as described in FAS 133, EITF 98-5 and 00-27, and APB 14. As such:
|
Subsequent
to the initial recording, the increase in the fair value of the detachable
warrants, determined under the Black- Scholes option pricing formula,
are
accrued as adjustments to the liabilities at March 31, 2008 and December
31, 2007, respectively.
|
|
The
expense relating to the increase in the fair value of the Company's
stock
reflected in the change in the fair value of the warrants (noted
above) is
included as an other comprehensive income item of an unrealized gain
or
loss arising from convertible financing on the Company's balance
sheet.
|
The
warrants expired unexercised in the year ended December 31,
2006.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Series
B - Convertible Preferred stock
On
February 19, 2004, the Company filed a Certificate of Designation creating
a
Series B Convertible Preferred Stock classification for 800,000
shares.
In
January, 2004, the Company issued 800,000 shares of its Series B Preferred
in
lieu of certain accrued management service fees payable and notes payable
including interest payable thereon totaling $800,000 to officers of the company.
The shares of the Series B Preferred are non voting and convertible, at the
option of the holder, into common shares at $0.10 per share per share. The
shares issued were valued at $1.00 per share, which represented the fair value
of the common stock the shares are convertible into. In connection with the
transaction, the Company recorded a beneficial conversion discount of $800,000
-
preferred dividend relating to the issuance of the convertible preferred stock.
None of the Series B Preferred shareholders have exercised their conversion
right and there are 800,000 shares of Series B Preferred shares issued and
outstanding at March 31, 2008.
The
holders of the Series B Preferred shall have the right to vote, separately
as a
single class, at a meeting of the holders of the Series B Preferred or by such
holders' written consent or at any annual or special meeting of the stockholders
of the Corporation on any of the following matters: (i) the creation,
authorization, or issuance of any class or series of shares ranking on a parity
with or senior to the Series B Preferred with respect to dividends or upon
the
liquidation, dissolution, or winding up of the Corporation, and (ii) any
agreement or other corporate action which would adversely affect the powers,
rights, or preferences of the holders of the Series B Preferred.
The
holders of record of the Series B Preferred shall be entitled to receive
cumulative dividends at the rate of twelve percent per annum (12%) on the face
value ($1.00 per share) when, if and as declared by the Board of Directors,
if
ever. All dividends, when paid, shall be payable in cash, or at the option
of
the Company, in shares of the Company’s common stock. Dividends on shares of the
Series B Preferred that have not been redeemed shall be payable quarterly in
arrears, when, if and as declared by the Board of Directors, if ever, on a
semi-annual basis. No dividend or distribution other than a dividend or
distribution paid in Common Stock or in any other junior stock shall be declared
or paid or set aside for payment on the Common Stock or on any other junior
stock unless full cumulative dividends on all outstanding shares of the Series
B
Preferred shall have been declared and paid. These dividends are not recorded
until declared by the Company. As of March 31, 2008 $ 404,000 in dividends
were
accumulated.
Upon
any
liquidation, dissolution or winding up of the Corporation, whether voluntary
or
involuntary, and after payment of any senior liquidation preferences of any
series of Preferred Stock and before any distribution or payment is made with
respect to any Common Stock, holders of each share of the Series B Preferred
shall be entitled to be paid an amount equal in the greater of (a) the face
value denominated thereon subject to adjustment for stock splits, stock
dividends, reorganizations, reclassification or other similar events (the
"Adjusted Face Value") plus, in the case of each share, an amount equal to
all
dividends accrued or declared but unpaid thereon, computed to the date payment
thereof is made available, or (b) such amount per share of the Series B
Preferred immediately prior to such liquidation, dissolution or winding up,
or
(c) the liquidation preference of $1.00 per share, and the holders of the Series
B Preferred shall not be entitled to any further payment, such amount payable
with respect to the Series B Preferred being sometimes referred to as the
"Liquidation Payments."
Series
C - Convertible Preferred stock
On
November 13, 2006, the Company filed a Certificate of Designation creating
a
Series C Convertible Preferred Stock classification for 100,000 shares.
Subsequently amended on January 11, 2007 to 700,000 shares.
In
December 2006, the Company issued 100,000 shares of its Series C Preferred
stock
in conjunction with the acquisition of SPE Technologies, Inc. The shares of
the
Series C Preferred are non voting and convertible, at the option of the holder,
into common shares one year from issuance. The number of common shares to be
issued per Series C share is adjusted based on the average closing bid price
of
the previous ten days prior to the date of conversion based on divided into
$25.20 The shares issued were valued at $25.20 per share, which represented
the
fair value of the common stock the shares are convertible into. None of the
Series C Preferred shareholders have exercised their conversion right and there
are 100,000 shares of Series C Preferred shares issued and outstanding at March
31, 2008.
The
holders of record of the Series C Preferred shall be entitled to receive
cumulative dividends at the rate of five percent per annum (5%), compounded
quarterly, on the face value ($25.00 per share) when, if and as declared by
the
Board of Directors, if ever. All dividends, when paid, shall be payable in
cash,
or at the option of the Company, in shares of the Company’s common stock.
Dividends on shares of the Series C Preferred that have not been redeemed shall
be payable quarterly in arrears, when, if and as declared by the Board of
Directors, if ever, at the time of conversion. These dividends are not recorded
until declared by the Company. As of March 31, 2008 $-0- in dividends were
accumulated.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Common
stock
The
Company has authorized 950,000,000 shares of common stock, with a par value
of
$.001 per share. As of March 31, 2008 and December 31, 2007, the Company has
566,806,181 and 552,142,881 shares issued and outstanding,
respectively.
During
the year ended December 31, 2007,
holders
converted 10 shares of preferred stock – Class A into 500,000 shares of
common stock. Each share of preferred stock is convertible into 50,000 shares
of
common stock.
In
January 2007, the Company issued 25,564,000 shares of its common stock on
conversion of $247,496 of convertible debentures.
In
January 2007, the Company issued 26,500,000 shares of its common stock in
connection with the acquisition of Hybrid Lighting Technologies,
Inc.
In
February 2007, the Company issued 24,309,800 shares of its common stock on
conversion of $184,592 of convertible debentures.
In
March
2007, the Company issued 18,021,800 shares of its common stock on conversion
of
$116,242 of convertible debentures.
In
April
2007, the Company issued 33,357,000 shares of its common stock on conversion
of
$154,554 of convertible debentures
In
April
2007, the Company issued 2,500,000 shares of its common stock in exchange for
services rendered. The Company valued the shares issued at $27,500, which
approximated the fair value of the shares issued during the periods the services
were rendered.
In
April
2007, the Company issued 5,226,182 shares of its common stock on conversion
of
$104,524 of related party convertible debentures and related
interest.
In
May
2007, the Company issued 48,579,100 shares of its common stock on conversion
of
$106,345 of convertible debentures
In
June
2007, the Company issued 60,418,910 shares of its common stock on conversion
of
$86,128 of convertible debentures.
In
July
2007, the Company issued 90,328,573 shares of its common stock on conversion
of
$101,827 of convertible debentures.
In
August
2007, the Company issued 11,568,802 shares of its common stock on conversion
of
$10,412 of convertible debentures.
In
September 2007, the Company issued 26,650,000 shares of its common stock in
exchange for services rendered. The Company valued the shares issued at $90,610
which approximated the fair value of the shares issued during the periods the
services were rendered.
In
January 2008,
holders
converted 2 shares of preferred stock – Class A into 100,000 shares of
common stock. Each share of preferred stock is convertible into 50,000 shares
of
common stock.
In
January 2008, the Company issued 100,000 shares of its common stock in exchange
for services rendered. The Company valued the shares issued at $2,300, which
approximated the fair value of the shares issued during the periods the services
were rendered.
In
February 2008, the Company issued 6,763,300 shares of its common stock as
security in conjunction with the sale of a warrant (see Note B above). The
Company valued the shares issued at $183,609, which approximated the fair value
of the shares issued at the date of issuance, and charged current period
earnings.
In
February 2008, the Company issued 7,500,000 shares of its common stock in
conjunction with the sale of a warrant (see Note B above). The Company valued
the shares issued at $202,500, which approximated the fair value of the shares
issued at the date of issuance, and charged current period earnings.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
G -STOCK OPTIONS AND WARRANTS
Class
A Warrants
The
following table summarizes the changes in warrants outstanding and related
prices for the shares of the Company’s common stock issued to shareholders at
March 31, 2008:
Exercise Price
|
|
Number
Outstanding
|
|
Warrants
Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
|
|
Weighted
Average
Exercise price
|
|
Number
Exercisable
|
|
Warrants
Exercisable
Weighted
Average
Exercise Price
|
|
$
|
0.001
|
|
|
50,000,000
|
|
|
4.501
|
|
$
|
0.001
|
|
|
50,000,000
|
|
|
0.001
|
|
0.02
|
|
|
50,000,000
|
|
|
4.18
|
|
|
0.02
|
|
|
50,000,000
|
|
|
0.02
|
|
0.03
|
|
|
25,000,000
|
|
|
2.13
|
|
|
0.03
|
|
|
25,000,000
|
|
|
0.03
|
|
0.10
|
|
|
991,500
|
|
|
1.17
|
|
|
0.10
|
|
|
991,500
|
|
|
0.10
|
|
0.25
|
|
|
58,500
|
|
|
0.75
|
|
|
0.25
|
|
|
58,500
|
|
|
0.25
|
|
0.50
|
|
|
50,000
|
|
|
0.53
|
|
|
0.50
|
|
|
50,000
|
|
|
0.50
|
|
1.05
|
|
|
100,000
|
|
|
0.75
|
|
|
1.05
|
|
|
100,000
|
|
|
1.05
|
|
0.03075
|
|
|
49,760,443
|
|
|
4.14
|
|
|
0.03075
|
|
|
49,760,443
|
|
|
0.03075
|
(a)
|
|
|
|
175,960,443
|
|
|
|
|
|
|
|
|
175,960,443
|
|
|
|
|
|
(a)
|
See
terms of warrants issued below
|
Transactions
involving the Company’s warrant issuance are summarized as follows:
|
|
Number of Shares
|
|
Weighted Average
Price
|
|
Outstanding
at December 31, 2006
|
|
|
99,895,000
|
|
$
|
0.09
|
|
Granted
|
|
|
200,000,000
|
|
|
0.01525
|
|
Exercised
|
|
|
(50,239,557
|
)
|
|
(0.03
|
)
|
Canceled
or expired
|
|
|
(73,695,000
|
)
|
|
(0.07
|
|
Outstanding
at December 31, 2007
|
|
|
175,960,443
|
|
|
0.016
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at March 31, 2008
|
|
|
175,960,443
|
|
|
0.016
|
|
For
the
year ended December 31, 2006, warrants totally 64,000,000 were issued in
connection with debt financing. The warrants are exercisable until seven years
after date of issuance with 19,000,000 at a purchase price of $0.10 per share,
45,000,000 at $0.06 per share. The 19,000,000 warrants have a reset provision
should the Company issue shares below $0.10 per share excluding conversion
of
related debt.
Warrants
granted during the year ended December 31, 2007 totaling 50,000,000 were issued
in connection with debt financing. The warrants are exercisable until five
years
after the date of issuance at a purchase price of $0.02 per share.
In
the
year ended December 31, 2007, the Company sold 100,000,000 five year warrants
with an exercise price of 50% of the average closing price of the twenty trading
days prior to warrant execution. The transaction, to the extent that it is
to be
satisfied with common stock of the Company would normally be included as equity
obligations. However, in the instant case, due to the indeterminate number
of
shares which might be issued under the embedded convertible host conversion
feature, the Company is required to record a liability relating to warrants
and
as such has recorded the fair value of the embedded conversion feature, using
the Black-Scholes option pricing method, as a liability for the current
period.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
G -STOCK OPTIONS AND WARRANTS (continued)
Class
A Warrants (continued)
In
the
year ended December 31, 2007, the Company sold 50,000,000 five year warrants
with an exercise price of $0.001.
Employee
Stock Options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to employees of
the
Company under a non-qualified employee stock option plan at March 31, 2008:
|
|
Options
Outstanding
|
|
|
|
Options
Exercisable
|
|
|
|
|
|
Weighted Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
Contractual Life
|
|
Exercise
|
|
Number
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
(Years)
|
|
Price
|
|
Exercisable
|
|
Price
|
|
$
|
0.2125
|
|
|
2,000,000
|
|
|
5.71
|
|
$
|
0.2125
|
|
|
2,000,000
|
|
$
|
0.2125
|
|
0.2125
|
|
|
2,000,000
|
|
|
6.12
|
|
|
0.2125
|
|
|
2,000,000
|
|
|
0.2125
|
|
0.022
|
|
|
20,500,000
|
|
|
8.62
|
|
|
0.022
|
|
|
20,500,000
|
|
|
0.022
|
|
0.0295
|
|
|
4,000,000
|
|
|
7.10
|
|
|
0.0295
|
|
|
4,000,000
|
|
|
0.0295
|
|
0.04
|
|
|
14,430,000
|
|
|
8.32
|
|
|
0.04
|
|
|
14,430,000
|
|
|
0.04
|
|
0.10
|
|
|
9,502,307
|
|
|
6.01
|
|
|
0.10
|
|
|
9,502,307
|
|
|
0.10
|
|
Transactions
involving stock options issued to employees are summarized as
follows:
|
|
|
|
Weighted Average
|
|
|
|
Number of Shares
|
|
Price Per Share
|
|
Outstanding
at December 31, 2006
|
|
|
52,432,307
|
|
|
0.0562
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at December 31, 2007
|
|
|
52,432,307
|
|
|
0.0562
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at March 31, 2008
|
|
|
52,432,307
|
|
$
|
0.0562
|
|
The
Company did not grant employee stock options in the three month period ended
March 31, 2008 and 2007.
NOTE
H -RELATED PARTY TRANSACTIONS
From
time
to time, the Company's principal officers have advanced funds to the Company
for
working capital purposes in the form of unsecured promissory notes, accruing
interest at 10% to 12% per annum. As of March 31, 2008 and December 31, 2007,
the balance due to the officers was $407,823 and $397,064, respectively.
NOTE
I -COMMITMENTS
AND CONTINGENCIES
Consulting
Agreements
The
Company has consulting agreements with outside contractors, certain of whom
are
also Company stockholders. The Agreements are generally for a term of 12 months
from inception and renewable automatically from year to year unless either
the
Company or Consultant terminates such engagement by written notice.
Operating
Lease Commitments
The
Company leases office space in Durham, NC on a six year lease expiring December
31, 2012, for an annualized rent payment of $88,020. Additionally the Company
leases warehouse space on a month to month basis for $550 per month. At March
31, 2008, schedule of the future minimum lease payments is as
follows:
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE
I -COMMITMENTS
AND CONTINGENCIES (continued)
2008
|
|
|
88,020
|
|
2009
|
|
|
88,020
|
|
2010
|
|
|
88,020
|
|
2011
|
|
|
88,020
|
|
2012
|
|
|
88,020
|
|
Litigation
The
Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity. There was no outstanding
litigation as of March 31, 2008.
NOTE
J - BUSINESS CONCENTRATION
Sales
to
3 major customers approximated $185,368 or 98% of total sales for the thee
months ended March 31, 2008 (3 major customers approximated $11,646 or 23%
of
total sales for the three months ended March 31, 2007).
Purchases
from the Company's 5 major suppliers accounted for 81% of total purchases for
the three months ended March 31, 2008 (3 major suppliers accounted for 43%
of
total purchases for the three months ended March 31, 2007).
NOTE
L- GOING CONCERN MATTERS
The
accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities
in
the normal course of business. As shown in the accompanying consolidated
financial statements, as of March 31, 2008, the Company incurred accumulated
losses of $43,239,723. The Company’s current liabilities exceeded its current
assets by $7,695,571 as of March 31, 2008. These factors among others may
indicate that the Company will be unable to continue as a going concern for
a
reasonable period of time.
The
Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance the
Company will be successful in its effort to secure additional equity financing.
If
operations and cash flows continue to improve through these efforts, management
believes that the Company can continue to operate. However, no assurance can
be
given that management's actions will result in profitable operations or the
resolution of its liquidity problems.
NOTE
M – SUBSEQUENT EVENTS
In
April
2008, the Company borrowed a aggregate of $140,000. In conjunction with the
borrowing, the Company issued a total of 10,000,000 shares of its common
stock
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
The
following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. There are several important factors that could cause actual results
to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. The Company has sought to
identify the most significant risks to its business, but cannot predict whether
or to what extent any of such risks may be realized nor can there be any
assurance that the Company has identified all possible risks that might arise.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company's stock. The following
discussion and analysis should be read in conjunction with the financial
statements of the Company and notes thereto. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment from our Management.
Overview
We
are a
Nevada corporation that was incorporated on May 17, 2000. We were founded to
design, develop, market and sell advanced lighting systems that utilize light
emitting diodes as illumination elements.
To
address the opportunity in the $12 billion general lighting market, we have
developed a line of LED lighting products for the military, homeland security,
and commercial markets. We design and engineer products that adapt technology
advancements from semiconductor manufacturers, including Cree, Inc., for use
in
products that serve our selected markets.
Military
/ Homeland Security Business Development and Sales
On
January 15, 2008, we announced today that we had been selected to provide
portable task lighting for the City of New York's new 911 Public Safety
Answering Center. Selected by Evans Consoles, the manufacturer of the new 911
Dispatch Command Consoles, our Portable LED Task Light will illuminate the
work
environment of the new 911 public safety call taking and dispatching operators.
We received an initial order from Evans Consoles for 355 units valued at over
$64,000.
Evans
Consoles (www.evansonline.com),
the
world leader in the design and manufacture of mission-critical custom control
room solutions, selected us to develop the LED Task Light in order to meet
the
energy-efficiency, durability and performance requirements of the new City
of
New York 911 Public Safety Answering Center (PSAC). Through our military
specification (milspec) design/build process, we with collaborated Evans
Consoles to develop a lighting solution for the public safety call center
market. The resulting milspec LED Task Light will replace the traditional
fluorescent task lighting fixtures typically used in existing call
centers.
The
milspec LED Task Light performs for over 50,000 hours without a lighting element
replacement, and operates with up to 52% more energy efficiency on low lighting
levels and up to 31% more energy efficiency on high lighting levels when
compared to traditional fluorescent task lighting. Our milspec LED Task Lighting
products provide up to 1000 lumens of illumination with 12 watts of power and
utilize a patent-pending thermal management system for optimal lighting
performance.
In
addition, our milspec LED Task Light is the only LED task light available that
is compatible with the Johnson Controls Personal Environments control center.
The Johnson Control system is typically used by call center operators, including
those in New York City, to control lighting, heating and air conditioning within
their personal operating environment. The dual-arm milspec LED Task Light is
adjustable and adaptable to any call center operator's lighting needs and is
dimmed and controlled using the Johnson Controls system to vary the amount
of
light according to task.
On
February 19, 2008, we announced today that we had received the first commitment
for 80 BrightEye and 60 WatchDog Visible and Covert Portable Illumination
Systems from the United States Air Force (USAF). This initial USAF order for
our
tactical lighting equipment equates to $3,318,646 in revenue, including spares
and maintenance supplies. We project that operations will be cash flow positive
with the fulfillment of these first USAF orders.
The
2008
Department of Defense Appropriations legislation contains $8.0 million for
the
equipping of the USAF with Cyberlux Portable Illumination Systems. As part
of
this $8.0 million budget, the USAF Air Mobility Command will first fulfill
the
requirements of the Operations, Installation and Mission Support commands for
the BrightEye and WatchDog systems. The remaining $4.6 million appropriations
will be allocated within the Air Mobility Command and other USAF commands during
the remaining Fiscal Year 2008.
On
March
24, 2008, we announced today that we had successfully completed the field
demonstration of the new 4-meter tower-based BrightEye high-performance
solid-state LED lighting system. The testing was conducted by us and the United
States Air Force Air Mobility Command at Fort Huachuca, the home to the U.S.
Army Intelligence Center, located in Arizona. The new BrightEye 4M Tower
Portable Illumination System is the latest product we developed to fulfill
the
United States Air Force requirements for portable, light-weight, battery-powered
visible and covert night vision- compatible lighting systems for air field
support, aircraft maintenance and forward air base in-theater lighting
capability.
The
BrightEye 4M Tower Portable Illumination System was tested in both visible
and
covert lighting modes to demonstrate advanced lighting capability during various
scenarios, including force protection and broad area security lighting, first
responder rapid set up capability, night vision-compatible illumination for
aircraft maintenance, and general operational lighting for ground operation
support of supply aircraft such as the C-130. All testing scenarios met the
Air
Mobility Command (AMC) expectations, including illumination levels, power system
runtimes, system weight levels and deployment set-up times.
The
2008
Department of Defense Appropriations legislation contains $8.0 million for
the
equipping of the United States Air Force (USAF) with our Portable Illumination
Systems. Of the $8.0 million budget, the USAF Air Mobility Command will utilize
$3.3M to fulfill initial Operations, Installation and Mission Support
requirements. The remaining $4.6M will be allocated within the USAF for the
purchase of various BrightEye systems including the Dual Lighthead Portable
Illumination Systems and the new 4M Tower Portable Illumination System during
the remaining Fiscal Year 2008.
In
an
earlier field test evaluation, the AMC determined that the BrightEye System
is
97% smaller in footprint, weighs 94% less than the current diesel- powered
incandescent lighting systems and saves an estimated 63% in daily operating
costs. In addition, the AMC concluded that the BrightEye System provides
versatile and economical tactical lighting capability as required by
expeditionary forces across all U.S. armed services.
During
2006, we began pursuing the Military / Homeland Security market with a Cyberlux
product category known as ‘Tactical Illumination Systems’ which provide bright
white LED lighting and covert night vision-compatible lighting in a
self-contained portable battery powered system. In September of 2006, we signed
a contract with United States Air Force (USAF) to deliver a commercial off
the
shelf (COTS) version of our BrightEye product for use as an battery-powered
visible and covert lighting for expeditionary military force deployment. In
February of 2007, we delivered the BrightEye VAC product to the USAF for field
testing and evaluation. In September of 2007, the USAF completed the field
testing and reported that the BrightEye system provided a 54% annual operations
and maintenance cost savings, a 63% daily operational cost savings, and a 97%
space / 94% weight savings when compared to their current lighting system.
As a
result, we were successful in securing $8M in USAF acquisition budget in the
2008 Department of Defense budget. We are currently preparing to manufacture
the
first $5M in USAF purchase orders for BrightEye systems. We believe that the
remaining $3M will be purchased during the 2008 fiscal year, but we have yet
to
receive commitments to confirm the mix of products to be purchased. In addition
in December 2007, we received an order from the National Guard Bureau for
$313,004 to supply 17 BrightEye Systems to the National Guard emergency
responder units to be used as the tactical lighting solution for disaster
response. We are currently producing and shipping BrightEye units to fulfill
this purchase order by March 2008.
Also
during 2006, we registered with the Department of Homeland Security (DHS) as
a
Secure Border Initiative subcontractor for the opportunity to provide advanced
lighting capability to the effort to secure the northern and southern U.S.
borders. Once The Boeing Company was awarded the contract as the prime
contractor to deploy the Secure Border Initiative solution, known as SBInet,
we
began marketing the Cyberlux BrightEye technology to Boeing and the appropriate
DHS organizations. In September of 2007, we were selected as an SBInet lighting
system supplier and executed a SBInet supplier contract with The Boeing Company
to provide advanced portable lighting systems for the SBInet mobile
infrastructure solution. In November of 2007, we received the first purchase
order from The Boeing Company for our BrightEye 10M Tower Lighting System for
$31,185, which we produced and shipped to Boeing in November. The SBInet Mobile
Infrastructure team is in field tests with the BrightEye 10M Tower System and
we
expect to deploy the System during 3Q/4Q 2008 timeframe.
Retail
Business Development and Sales
During
2006 after several years of attempts, we were successful in closing the sale
of
our EverOn product to Wal-mart Stores, Inc., our largest retail customer to
date, for $39,793 and continued our on-air EverOn sales relationship QVC that
resulted in $42,350. The importance of the Wal-Mart contract was demonstrated
when we were able to use this sale as a reference when we closed the sale of
our
EverOn product with The Home Depot for $64,507 in October 2006. In 2007, The
Home Depot business increased to $139,167 and continues to grow in already
in
2008. With several major retailers as customers, we now have the experience
to
build further retail sales during 2008.
Technology
Portfolio
Between
November of 2006 and January of 2007, we acquired the world-wide exclusive
rights to two technologies that when combined create a breakthrough in
solid-state lighting capability. Through the combination of the hybrid organic
/
inorganic white and multi-color lighting technology acquired from the University
of California-Santa Barbara (UCSB) with the Scattered Photon
ExtractionTM
(SPE)
technology acquired from Rensselaer Polytechnic Institute (RPI), Cyberlux will
commercialize the resulting proprietary lighting technology as “Hybrid Lighting
Technology” (HLT) and market the core technology under the “LumenOptic”
technology brand. We expect the resulting lighting technology to yield a lower
cost, more energy-efficient lighting source than currently available in
solid-state light-emitting diode (LED) solutions.
Specifically,
we acquired the worldwide exclusive rights to patent 5,966,393 “Hybrid
Light-Emitting Sources for Efficient and Cost Effective White Lighting and
for
Full-Color Applications” from UCSB. This technology patent defines the method
and practice for creating a white or multi-colored lighting source by combining
the photoluminescence of polymers and/or organic films with photon emissions
from a solid-state inorganic light source. The principle inventors include
Nobel
Laureate Dr. Alan Heeger and Dr. Steven DenBaars, Professor of Materials and
Co-Director of the UCSB Solid-State Lighting Center, who will advise the Company
on the HLT technology commercialization.
In
addition, we acquired the worldwide exclusive rights to five pending patents
that define the Scattered Photon Extraction technology method and practice
from
RPI. The principle inventor from RPI is the Director of the RPI Lighting
Research Center, Dr. Nadarajah
Narendran. Dr. Narendran will also be advising the Company on the HLT technology
commercialization.
Based
on
the technology acquired from UCSB and RPI, both leading solid-state lighting
research institutions, we are positioned to introduce compelling lighting
products to the $12B lighting industry. The Company’s ability to commercialize,
innovative and introduce proprietary lighting technologies such as HLT, either
in unique Cyberlux products or through an OEM licensing model, will capture
the
opportunity for major advances in the lighting industry where low cost, energy
efficient lighting solutions are in high demand for the foreseeable
future.
Traditional
LED lighting sources produce light when a solid-state material emits a photon
through a phosphor downconversion material to create white and multi-color
light. With HLT, the phosphor is replaced with a less costly, more efficient
polymer or organic film downconversion material. In addition, HLT utilizes
the
SPE technology to optically maximize the light output of the lighting source.
Because of the fundamental difference in the nature of the HLT technologies
compared to traditional LEDs, we intends to broadly market the technology across
large lighting industry market segments through OEM licensing and Cyberlux
product solutions. During December of 2007, we began negotiations with a major
lighting fixture manufacturer on licensing some or all of the HLT technology
for
future product development.
Financing
Capability
During
2007, we began a financing relationship with Deutsche Bank through two warrant
purchase agreements that resulted in financings of $760K in 2007 through warrant
exercise. We anticipate long-term financing relationship with Deutsche Bank
that
will also include purchase order financing as continue to grow through the
significant expansion of our Military / Homeland Security business. Our ability
to move from a toxic financing relationship with the NIR Group to a traditional
warrant purchase relationship with Deutsche Bank is a significant step for
the
Company, and we intend to utilize this relationship to continually improve
our
business operations and our balance sheet.
Results
of Operations
Three
months ended March 31, 2008 compared to the three months ended March 31,
2007
REVENUES
Revenues
for the three months ended March 31, 2008 were $186,839 as compared to $49,462
for the same period last year.
The
increase in revenue was attributed to sales of our Keon product to Bank of
America in the amount of $181,636.
OPERATING
EXPENSES
Operating
expenses for the three months ended March 31, 2008, were $722,209 as compared
to
$962,927 for the same period ended March 31, 2007. Included in the three months
ended March 31, 2008 were $152 in expenses for research & development. This
compares to $69,713 for the three months ended March 31, 2007.
We
reported an unrealized loss for the change in fair value or warrants and debt
derivatives of $(255,988) as compared to a gain of $3,523,832 for the same
period last year. Although the change of $(255,988) is unrelated to our
operating activities, the decrease in included in our reported net
loss.
As
a
result of limited capital resources and minimal revenues from operations from
its inception, we have relied on the issuance of equity securities to
non-employees in exchange for services. Our management enters into equity
compensation agreements with non-employees if it is in our best interest under
terms and conditions consistent with the requirements of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation. In order to conserve
our limited operating capital resources, we anticipate continuing to compensate
non-employees for services during the next twelve months. This policy may have
a
material effect on our results of operations during the next twelve
months.
Liquidity
and Capital Resources
As
of
March 31, 2008, we had a working capital deficit of $7,695,571. This compares
to
a working capital deficit of $509,670 as of December 31, 2007. Accrued interest
on notes payable was $2,018,725 compared to accrued interest of $1,893,561
as
December 31, 2007. Accounts payable as of March 31, 2008 were $851,250 and
compares to $733,538 as compared to December 31, 2007. As a result of our
operating losses for the three months ended March 31, 2008, we generated a
cash
flow deficit of $413,611 from operating activities. Cash flows from financing
activities provided $484,545 primarily from the issuance of convertible
debentures for the three months ended March 31, 2008.
While
we
have raised capital to meet our working capital and financing needs in the
past,
additional financing is required in order to meet our current and projected
cash
flow deficits from operations and development.
By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits through the next twelve months. However, if thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
Our
independent certified public accountant has stated in their report included
in
our December 31, 2007, Form 10-KSB that we have incurred operating losses in
the
last two years, and that we are dependent upon management's ability to develop
profitable operations. These factors among others may raise substantial doubt
about our ability to continue as a going concern.
April
2007 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on April 18, 2007, for the sale of
(i)
$400,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on April 18, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
May
2007
Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on May 1, 2007, for the sale of (i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on May 1, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
We
will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even
if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to
us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing inventory.
June
6,
2007 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on June 6, 2007, for the sale of (i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on June 6, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
We
will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even
if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to
us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing inventory.
June
20,
2007 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on June 20, 2007, for the sale of
(i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on June 20, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
We
will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even
if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to
us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing inventory.
Critical
Accounting Policies
In
February 2006, the FASB issued SFAS No. 155. “Accounting for certain Hybrid
Financial Instruments an amendment of FASB Statements No. 133 and 140,” or SFAS
No. 155. SFAS No. 155 permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips
are
not subject to the requirements of Statement No. 133, establishes a requirement
to evaluate interests in securitized financial assets to identify interests
that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. We do not expect the adoption of SFAS 155 to have a material
impact on our consolidated financial position, results of operations or cash
flows.
In
March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability
each
time it undertakes an obligation to service a financial asset by entering into
a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The adoption of SFAS No.156
did
not have a material impact on the Company's financial position and results
of
operations.
In
July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for
uncertainty in Income Taxes”. FIN 48 clarifies the accounting for Income Taxes
by prescribing the minimum recognition threshold a tax position is required
to
meet before being recognized in the financial statements. It also provides
guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition and clearly scopes
income taxes out of SFAS 5, “Accounting for Contingencies”. FIN 48 is effective
for fiscal years beginning after December 15, 2006. We have not yet evaluated
the impact of adopting FIN 48 on our consolidated financial position, results
of
operations and cash flows.
In
September 2006 the Financial Account Standards Board (the “FASB”) issued its
Statement of Financial Accounting Standards 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application of
this
Statement will change current practice. FAS 157 effective date is for fiscal
years beginning after November 15, 2007. The Company does not expect adoption
of
this standard will have a material impact on its financial position, operations
or cash flows.
Non-GAAP
Financial Measures
The
financial statements appearing in this quarterly report on Form 10-Q do not
contain any financial measures which are not in accordance with generally
accepted accounting procedures.
Inflation
In
the
opinion of management, inflation has not had a material effect on our financial
condition or results of its operations.
Off-Balance
Sheet Arrangements
We
do not
maintain off-balance sheet arrangements nor do we participate in non-exchange
traded contracts requiring fair value accounting treatment.
Product
Research and Development
We
anticipate incurring approximately $500,000 in research and development
expenditures in connection with the development of our military and Homeland
Security, portable illumination,system, lighting and our hybrid lighting
technnology that is based on the recently acquired patent rights from Renssealer
Polytechnic Institute and at the University of California Santa
Barbara.
These
projected expenditures are dependent upon our generating revenues and obtaining
sources of financing in excess of our existing capital resources. There is
no
guarantee that we will be successful in raising the funds required or generating
revenues sufficient to fund the projected costs of research and development
during the next twelve months.
Acquisition
or Disposition of Plant and Equipment
We
do not
anticipate the sale of any significant property, plant or equipment during
the
next twelve months. We do not anticipate the acquisition of any significant
property, plant or equipment during the next 12 months.
ITEM
3.
CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as
of March 31, 2008. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.
Based
on our evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting.
We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes
may
include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II -
OTHER INFORMATION
Item
1.
Legal Proceedings.
From
time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.
On
April
16, 2007, Casey Tool and Machine Co. filed a complaint against us in the Circuit
Court for the Fourth Judical District, Shelbyville, Illinois, alleging breach
of
contract for failure to pay $14,222 on an account payable. We intend to resolve
this matter in a judious manner.
On
September 5, 2007, we announced that we had commenced an action against AJW
Partners, LLC, AJW Offshore, LTD., AJW Qualified Partners, LLC, and New
Millennium Capital Partners II, LLC, (the “Defendants”) in the United States
District Court for the Southern District of New York for violations of the
anti-fraud provisions of the Securities Act of 1934, fraud, negligent
misrepresentation, breach of fiduciary duty, breach of contract, breach of
implied covenant of good faith and fair dealing and conversion. The complaint
alleges that the Defendants utilized an illegal trading scheme involving
deceptive secured loan financings to convert shares of Company’s common stock
for the Defendants’ own use and benefit. The trading scheme involved the
Defendants manipulating the Company’s stock price downward by short sales. In
addition the complaint seeks declaratory, injunctive and monetary relief. On
September 17, 2007, AJW Partners, LLC, AJW Offshore, LTD., AJW Qualified
Partners, LLC, New Millennium Capital Partners II, LLC and AJW Master Fund,
LTD,
filed and action against us in the Supreme Court of the State of New York,
County of New York alleging breach of contract. On September 26, 2007, we
removed the state law complaint to federal court to join the federal court
complaint. On March 17, 2008, the federal court having determined that it lacked
subject matter jurisdiction over the state court complaint, remanded the case
back to state court. On May 1, 2008, we filed our answer and affirmative and
separate defenses and our counterclaims for declaratory, injunctive and monetary
relief.
On
September 13, 2007, Britannia Law Office commenced an action against us and
our
President, Mark D. Schmidt, in the General Court of Justice, Superior Court
Division, Durham County. North Carolina, alleging breach of contract, additional
payments due under contract, unjust enrichment, fraud and unfair trade practices
arising out of a consultant agreement. These
motions are currently pending. We believe that their claims are without merit
and we will vigorously defend these claims.
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds.
In
January 2008,
holders
converted 2 shares of preferred stock – Series A into 100,000 shares of
common stock. Each share of preferred stock is convertible into 50,000 shares
of
common stock.
In
January 2008, we issued 100,000 shares of its common stock in exchange for
services rendered.
In
February 2008, the Company issued 6,763,300 shares of its common stock as
security in conjunction with the sale of a warrant.
In
February 2008, the Company issued 7,500,000 shares of its common stock in
conjunction with the sale of a warrant.
Item
3.
Defaults Upon Senior Securities.
On
August
21, 2007, we received a Notice of Default from AJW Partners, LLC, New Millennium
Capital Partners II, LLC, AJW Qualified Partners, LLC and AJW Offshore, LTD.
(collectively, the “Investors”), claiming that we were purportedly in default of
certain obligations under our notes issued to the Investors due to our failure
to honor any further conversion of notes to common stock.
Item
4.
Submission of Matters to a Vote of Security Holders.
None.
Item
5.
Other Information.
Subsequent
Events.
In
April
2008, we borrowed a aggregate of $140,000. In conjunction with the borrowing,
the Company issued a total of 10,000,000 shares of its common
stock.
On
May 8,
2008, the Minnesota National Guard issued a Purchase Order for two BrightEye
Portable Lighting Systems for a total purchase price of $36,824.
On
May 9,
2008, the New York National Guard issued a Purchase Order for two BrightEye
Portable Lighting Systems and two BrightEye Field Spare Parts kits for a total
purchase price of $49,648.
Item
6.
Exhibits
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
|
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)
|
|
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer)
|
SIGNATURES
In
accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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CYBERLUX
CORPORATION
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Date:
May 14, 2008
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By:
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/s/
DONALD F. EVANS
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Donald
F. Evans
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Chief
Executive Officer (Principal Executive Officer) and
Chairman
of the Board of Directors
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Date:
May 14, 2008
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By:
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/s/
DAVID D. DOWNING
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David
D. Downing
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Chief
Financial Officer (Principal Financial Officer and
Principal
Accounting Officer)
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