Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended: December 31, 2008
Commission file
number 000-33415
CYBERLUX
CORPORATION
(Exact
name of registrant as specified in its charter)
Nevada
|
|
91-2048978
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
4625
Creekstone Drive, Suite 130
|
|
Research
Triangle Park
|
|
Durham, North Carolina
|
27703
|
(Address
of principal executive offices)
|
(zip
code)
|
Issuer's
Telephone Number: (919) 474-9700
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.001 par value
(Title if
Class)
Indicate
by check mark whether the issuer (1) has 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 shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to Form
10-K.
Yes ¨ No x Delinquent
filers are disclosed herein.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non- accelerated filer, or a small reporting
company.
¨ Large accerated
filer ¨ Accelerated
filer ¨ Non-accelerated
filer x Smaller reporting
company
Total
revenues for Fiscal Year 2008 were $632,529, with an unfulfilled order backlog
of $249,781.
The
aggregate market value of the Common Stock held by non-affiliates (as affiliates
are defined in Rule 12b-2 of the Exchange Act) of the registrant, computed by
reference to the average of the high and low price on May 15, 2009, was
$11,572,283.
As of May
15, 2009 there were 999,955,532 shares of issuer’s common stock
outstanding.
Transitional
Small Business Disclosure Format (check one): Yes ¨ No x
CYBERLUX
CORPORATION
ANNUAL
REPORT ON FORM 10-K
For
the Fiscal Year Ended December 31, 2007
TABLE
OF CONTENTS
|
|
|
Page
|
PART
I
|
|
|
|
Item 1.
|
Business
|
|
3
|
Item 2.
|
Properties
|
|
4
|
Item 3.
|
Legal
Proceedings
|
|
4
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
|
5
|
|
|
|
|
PART
II
|
|
|
|
Item
5.
|
Market
for Registrant’s Common Equity and Related Stockholder
Matters
|
|
6
|
Item
6.
|
Management’s
Discussion and Analysis of Financial Condition and Results Of
Operations
|
|
21
|
Item
7.
|
Financial
Statements
|
|
41
|
Item
8.
|
Changes
in and Disagreements with Accountants on Auditing and Financial
Disclosure
|
|
42
|
Item
8A
|
Controls
and Procedures
|
|
42
|
Item
8B.
|
Other
Information
|
|
44
|
|
|
|
|
PART
III
|
|
|
|
Item
9.
|
Directors
and Executive Officers of the Registrant
|
|
45
|
Item
10.
|
Executive
Compensation
|
|
48
|
Item
11.
|
Security
Ownership of Certain Beneficial Owners and Management
|
|
50
|
Item
12.
|
Certain
Relationships and Related Transactions
|
|
53
|
|
|
|
|
PART
IV
|
|
|
|
Item
13.
|
Exhibits
|
|
54
|
Item 14.
|
Principal
Accountant Fees and Services
|
|
59
|
|
|
|
|
Signatures
|
|
|
60
|
This Form
10-K contains forward-looking statements within the meaning of the federal
securities laws. These forward-looking statements are necessarily based on
certain assumptions and are subject to significant risks and uncertainties.
These forward-looking statements are based on management's expectations as of
the date hereof, and the Company does not undertake any responsibility to update
any of these statements in the future. Actual future performance and results
could differ from that contained in or suggested by these forward-looking
statements as a result of factors set forth in this Form 10-K (including those
sections hereof incorporated by reference from other filings with the Securities
and Exchange Commission), in particular as set forth in the "Management’s
Discussion and Analysis and Results of Operation" under Item 6.
In this
Form 10-K references to "Cyberlux", “the Company”, "we," "us," and "our" refer
to Cyberlux Corporation.
PART
I
ITEM 1.
|
DESCRIPTION
OF BUSINESS
|
OVERVIEW
We are
principally devoted to designing, developing and marketing advanced lighting
systems that utilize white (and other) light emitting diodes as illumination
elements.
We are developing and marketing new
product applications of solid-state diodal illumination (TM) that demonstrate
added value over traditional lighting systems. Using proprietary technology, we
are creating a family of products including portable illumination systems for
military and Homeland Security, retail products, commercial task and accent
lighting, emergency and security lighting. We believe our solid-state lighting
technology offers extended light life, greater energy efficiency and greater
overall cost effectiveness than other existing forms of illumination. Our
business model is to address the large lighting industry market segments with
solid-state lighting products and technologies, including our proprietary hybrid
lighting technology, that includes military and Homeland Security applications,
direct and indirect task and accent lighting applications, indoor/outdoor
downlighting applications, commercial and residential lighting
applications..
For the
military and Homeland Security portable illumination products, our target
markets include all branches of the military and all government organizations
providing homeland security services, such as border control and airport
security. For our retail products, our target customers include the home
improvement and consumer goods retailers and name-brand companies that we would
supply products to as the original equipment manufacturer.
REGULATION
Our
advertising and sales practices concerning our products are regulated by the
Federal Trade Commission and state consumer protection laws. Such regulations
include restrictions on the manner that we promote the sale of our products. We
believe we are in material compliance with such regulations. We believe that we
will be able to comply in all material respects with laws and regulations
governing the conduct of business operations in general. We are not aware of any
pending government regulations that may adversely affect our
business.
RESEARCH
AND DEVELOPMENT ACTIVITIES
We
anticipate continuing to incur research and development expenditures in
connection with the development of our portable illumination system and new 2009
commercial product lines during the next twelve months. In addition, we will
continue to incur research and development expenditures in connection with the
commercialization of our Hybrid Lighting Technology.
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.
Employees
We
currently have 13 full time employees and eight firms acting as sales and
business development agents. Our employees are primarily at the executive level
based upon our role in coordination of outsource contracts for manufacturing and
other production considerations. Currently, there exist no organized labor
agreements or union agreements between us and our employees. We believe that our
relations with our employees are good.
ITEM
2.
|
DESCRIPTION
OF PROPERTY
|
We
maintain our principal office at 4625 Creekstone Drive, Suite 130, Research
Triangle Park, Durham, North Carolina 27703. Our telephone number at that office
is (919) 474-9700 and our facsimile number is (919) 474-9712. We
lease 7,472 square feet of office space. The lease expires on December 31, 2012.
The monthly rent is $11,002.52, subject to an annual cost of living
increase. We believe that our current office space and facilities are
sufficient to meet our present needs and do not anticipate any difficulty
securing alternative or additional space, as needed, on terms acceptable to us.
We maintain websites at www.cyberlux.com and www.luxSel.com. The information
contained on those websites is not deemed to be a part of this annual
report.
ITEM
3.
|
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. Except as disclosed below,
we are currently not aware of any such legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse affect
on our business, financial condition or operating results.
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 judicious 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. This litigation is currently in the discovery phase.
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. Plaintiff seeks compensation pursuant to a consulting agreement of
$30,000 and the issuance of five million shares of the Company’s common stock.
These motions
are currently pending. On March 12, 2009,
the parties executed a mutual settlement and release agreement.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
ITEM
5.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
Our
common stock is quoted on the OTC Bulletin Board under the symbol
"CYBL".
For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
|
|
High($)
|
|
|
Low ($)
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.53 |
|
|
|
0.19 |
|
Second
Quarter
|
|
|
0.85 |
|
|
|
0.27 |
|
Third
Quarter
|
|
|
0.55 |
|
|
|
0.23 |
|
Fourth
Quarter
|
|
|
0.35 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.07 |
|
|
|
0.02 |
|
Second
Quarter
|
|
|
0.20 |
|
|
|
0.05 |
|
Third
Quarter
|
|
|
0.15 |
|
|
|
0.05 |
|
Fourth
Quarter
|
|
|
0.15 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.12 |
|
|
|
0.06 |
|
Second
Quarter
|
|
|
0.08 |
|
|
|
0.06 |
|
Third
Quarter
|
|
|
0.07 |
|
|
|
0.04 |
|
Fourth
Quarter
|
|
|
0.05 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.04 |
|
|
|
0.01 |
|
Second
Quarter
|
|
|
0.02 |
|
|
|
0.01 |
|
Third
Quarter
|
|
|
0.
0083 |
|
|
|
0.0021 |
|
Fourth
Quarter
|
|
|
0.037 |
|
|
|
0.0195 |
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.0215 |
|
|
|
0.021 |
|
Second
Quarter
|
|
|
0,129 |
|
|
|
0.0048 |
|
Third
Quarter
|
|
|
0.009 |
|
|
|
0.0021 |
|
Fourth
Quarter
|
|
|
0.042 |
|
|
|
0.003 |
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.0045 |
|
|
|
0.001 |
|
Second
Quarter (1)
|
|
|
0.0035 |
|
|
|
0.001 |
|
(1) As of
May 14, 2009
DESCRIPTION
OF SECURITIES
Common
Stock
We are
authorized to issue up to 1,450,000,000 shares of common stock, par value $.001.
As of May 15, 2009, there
were 999,955,532
shares of common stock outstanding. Holders of the common stock are entitled to
one vote per share on all matters to be voted upon by the stockholders. Holders
of common stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally available therefore.
Upon the liquidation, dissolution, or winding up of our company, the holders of
common stock are entitled to share ratably in all of our assets which are
legally available for distribution after payment of all debts and other
liabilities and liquidation preference of any outstanding common stock. Holders
of common stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of common stock are validly issued, fully paid
and non-assessable.
Preferred
Stock
Our
Articles of Incorporation authorize the issuance of 10,000,000 shares of
preferred stock, $0.001 par value per share, the designation and rights of which
are to be determined by our Board of Directors. Our Board of Directors has
authority, without action by the shareholders, to issue all or any portion of
the authorized but unissued preferred stock in one or more series and to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights, and other rights of such series. We consider it desirable to
have preferred stock available to provide increased flexibility in structuring
possible future acquisitions and financing and in meeting corporate needs which
may arise. If opportunities arise that would make desirable the issuance of
preferred stock through either public offering or private placements, the
provisions for preferred stock in our Articles of Incorporation would avoid the
possible delay and expense of a shareholder's meeting, except as may be required
by law or regulatory authorities. Issuance of the preferred stock could result,
however, in a series of securities outstanding that will have certain
preferences with respect to dividends and liquidation over the common stock
which would result in dilution of the income per share and net book value of the
common stock.
Issuance
of additional common stock pursuant to any conversion right which may be
attached to the terms of any series of preferred stock may also result in
dilution of the net income per share and the net book value of the common stock.
The specific terms of any series of preferred stock will depend primarily on
market conditions, terms of a proposed acquisition or financing, and other
factors existing at the time of issuance. Our Board of Directors may issue
additional preferred stock in future financing, but has no current plans to do
so at this time. The issuance of Preferred Stock could have the effect of making
it more difficult for a third party to acquire a majority of our outstanding
voting stock.
As of May
15, 2009, we had 26.9806 shares of our Series A Convertible Preferred Stock
issued and outstanding. Each share is convertible into 50,000 shares of common
stock. The Series A Convertible Preferred have the following designations and
rights:
Maturity: |
Perpetual
Preferred |
|
|
Dividend:
|
12%
per annum. The dividend shall be payable semi-annually in cash or common
stock at our option.
|
Fixed
Conversion Price:
|
The
Series A Convertible Preferred shall be convertible into common stock at
$0.10 per share.
|
Stated
Value:
|
$5,000
per share
|
Mandatory
Conversion:
|
Beginning
180 days from the effective date of a registration statement, if the
closing bid price for our common stock exceeds $1.50 for a period of 10
consecutive trading days, we have the right to force the holders to
convert the Series A Convertible Preferred into common stock at the
applicable conversion price.
|
Limitations
on Conversion.
|
Each
holder of the Series A Convertible Preferred shares shall not convert the
shares into common stock such that the number of shares of common stock
issued after the conversion would exceed, when aggregated with all other
shares of common stock owned by such holder at such time, in excess of
4.99% of our then issued and outstanding shares of common
stock.
|
No
Voting Rights.
|
The
holders of the Series A convertible shares have no voting rights until
their shares are converted to common
shares.
|
The Board
of Directors, pursuant to our Articles of Incorporation and By-Laws, authorized
Series B Convertible Preferred Stock which was issued to officers and directors
in order to convert accrued management fees and other liabilities into4,650,000
shares of the Series B Preferred Stock. The Series B Convertible Preferred Stock
has the following designations and rights:
Term:
|
Perpetual
Preferred
|
Conversion:
|
Each
share of the Series B Convertible Preferred Stock may be converted to 10
shares of our common stock at the option of the
bearer.
|
Voting
Rights:
|
Except
with respect to transactions upon which the Series B Preferred stock shall
be entitled to vote separately, the Series B Preferred Stock shall have
superior voting rights equal to ten times the number of shares of Common
Stock such holder of Series B Preferred Stock would receive upon
conversion of such holder's shares of Series B Preferred Stock. The
conversion price is $0.10 per
share.
|
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. There are
currently 150,000 Series C Convertible Preferred shares
outstanding.
Term:
|
Perpetual
Preferred
|
|
|
Dividend: |
5%
per annum |
|
|
Conversion: |
The
shares of the Series
C Preferred are convertible, at
the option of the holder into common shares one year from
issuance. |
No
Voting Rights.
|
The
holders of the Series A convertible shares have no voting rights until
their shares are converted to common
shares.
|
Common
stock
Options
There are currently options outstanding
that have been issued to our officers and directors to purchase 235,452,307
shares of our common stock.
Convertible
Securities and Warrants
Not
including approximately 83,010,628 shares of common stock issuable upon exercise
of outstanding options and warrants, approximately 25,939,462 shares of common
stock are issuable, based on current market prices, upon conversion of
outstanding secured convertible notes issued pursuant to the Securities Purchase
Agreement dated September 23, 2004, approximately 50,000,000 shares of common
stock are issuable, based on current market prices, upon conversion of
outstanding secured convertible notes issued pursuant to the Securities Purchase
Agreement dated April 22, 2005. approximately 22,857,143 shares of common stock
are issuable, based on current market prices, upon conversion of outstanding
secured convertible notes issued pursuant to the Securities Purchase Agreement
dated October 24, 2005 and approximately 22,222,222 shares of common stock are
issuable, based on current market prices, upon conversion of outstanding secured
convertible notes issued pursuant to the Securities Purchase Agreement dated
December 28, 2005.
SEPTEMBER
2004 SECURITIES PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on September 23, 2004 for the sale of
(i) $1,500,000 in secured convertible notes, and (ii) warrants to purchase
2,250,000 shares of our common stock. As of March 31, 2006,
$597,194.10 of the secured convertible notes has been converted and $902,805.90
remains outstanding.
The
investors provided us with an aggregate of $1,500,000 as follows:
|
·
|
$500,000
was disbursed on September 23,
2004;
|
|
·
|
$500,000
was disbursed on October 20, 2004;
and
|
|
·
|
$500,000
was disbursed on November 18, 2004.
|
The notes
bear interest at 10%, mature two years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
·
|
50%
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.
|
We have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading at or
below $.60 per share. Prepayment of the notes is to be made in cash equal to
150% of the outstanding principal and accrued interest.
Our right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
The full
principal amount of the secured convertible notes are due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.50 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights. No
dividend can be issued while the notes are in effect.
APRIL
2005 SECURITIES PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on April 22, 2005 for the sale of (i)
$1,500,000 in secured convertible notes, and (ii) warrants to purchase
25,000,000 shares of our common stock.
The
investors provided us with an aggregate of $1,500,000 as follows:
|
·
|
$600,000
was disbursed on April 22, 2005;
|
|
·
|
$500,000
was disbursed on May 24, 2005; and
|
|
·
|
$400,000
was disbursed on July 19, 2005.
|
The notes
bear interest at 10%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
·
|
50%
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.
|
We have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading at or
below $.03 per share. Prepayment of the notes is to be made in cash equal to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We also
have a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.03. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes are due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.03 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights. No dividend can
be issued while the notes are in effect.
OCTOBER
2005 STOCK PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on October 24, 2005, for the sale of
(i) $800,000 in secured convertible notes, and (ii) warrants to
purchase 800,000 shares of our common stock.
The notes
bear interest at 10%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
·
|
50%
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.
|
We have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading at or
below $.03 per share. Prepayment of the notes is to be made in cash equal to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We also
have a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.10. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes are due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.10 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights. No dividend can
be issued while the notes are in effect.
DECEMBER
2005 STOCK PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on December 28, 2005, for the sale of
(i) $700,000 in secured convertible notes, and (ii) warrants to purchase 700,000
shares of our common stock.
The 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:
|
·
|
55%
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.
|
We have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading at or
below $.09 per share. Prepayment of the notes is to be made in cash equal to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We also
have a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes are due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.15 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights. No dividend can
be issued while the notes are in effect.
MARCH
2006 STOCK PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on March 27, 2006, for the sale of (i)
$500,000 in secured convertible notes, and (ii) warrants to purchase 19,000,000
shares of our common stock.
The 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:
|
·
|
55%
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.
|
We have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading at or
below $.13 per share. Prepayment of the notes is to be made in cash equal to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We also
have a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes are 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 $0.10 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights. No dividend can
be issued while the notes are in effect.
JULY
2006 STOCK PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on July 28, 2006, for the sale of (i)
$500,000 in secured convertible notes, and (ii) warrants to purchase 15,000,000
shares of our common stock.
The notes
bear interest at 6%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
·
|
40%
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.
|
We have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading at or
below $.13 per share. Prepayment of the notes is to be made in cash equal to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We also
have a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes are 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 $0.10 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights. No dividend can
be issued while the notes are in effect.
SEPTEMBER
2006 STOCK PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on September 26, 2006, for the sale of
(i) $280,000 in secured convertible notes, and (ii) warrants to purchase
10,000,000 shares of our common stock.
The notes
bear interest at 6%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
·
|
40%
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.
|
We have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading at or
below $.13 per share. Prepayment of the notes is to be made in cash equal to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We also
have a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes are 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 $0.10 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights. No dividend can
be issued while the notes are in effect.
DECEMBER
2006 STOCK PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on December 20, 2006, for the sale of
(i) $600,000 in secured convertible notes, and (ii) warrants to purchase
20,000,000 shares of our common stock.
The notes
bear interest at 6%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
·
|
40%
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.
|
We have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading at or
below $.13 per share. Prepayment of the notes is to be made in cash equal to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We also
have a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes are 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 $0.10 per share. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights. No dividend can
be issued while the notes are in effect.
APRIL
2007 SECURITIES 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. No dividend can be issued while the notes are in
effect.
MAY
2007 SECURITIES 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. No dividend can be issued while the notes are in
effect.
JUNE
6, 2007 SECURITIES 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. No
dividend can be issued while the notes are in effect.
JUNE
20, 2007 SECURITIES 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.
We also
has a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.10. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. In addition, we have granted the
investors a security interest in substantially all of our assets and
intellectual property and registration rights. No dividend can be issued while
the notes are in effect.
JULY
2007 SECURITIES PURCHASE AGREEMENT
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on July 18, 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 July 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) $0.02 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.
We also
has a partial call option under the terms of the secured convertible notes in
any month in which the current price of our common stock is below $0.10. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest for
that month, which will stay any conversions of the secured convertible notes by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. In addition, we have granted the
investors a security interest in substantially all of our assets and
intellectual property and registration rights. No dividend can be issued while
the notes are in effect.
Penny Stock
Regulation.
Shares of our common stock are subject
to rules adopted by the Securities and Exchange Commission that regulate
broker-dealer practices in connection with transactions in “penny
stocks.” Penny stocks are generally equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in those securities is provided by the
exchange or system). The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from those rules,
deliver a standardized risk disclosure prepared by the Securities and Exchange
Commission, which contains the following:
|
·
|
A
description of the nature and level of risk in the market for penny stocks
in both public offerings and secondary
trading;
|
|
·
|
A
description of the broker’s or dealer’s duties to the customer and of the
rights and remedies available to the customer with respect to violation to
such duties or other requirements of securities’
laws;
|
|
·
|
A
brief, clear, narrative description of a dealer market, including “bid”
and “ask” prices for penny stocks and the significance of the spread
between the “bid” and “ask” price;
|
|
·
|
A
toll-free telephone number for inquiries on disciplinary
actions;
|
|
·
|
Definitions
of significant terms in the disclosure document or in the conduct of
trading in penny stocks; and
|
|
·
|
Such
other information and in such form (including language, type, size and
format), as the Securities and Exchange Commission shall require by rule
or regulation.
|
Prior to
effecting any transaction in a penny stock, the broker-dealer also must provide
the customer the following:
|
·
|
The
bid and offer quotations for the penny
stock;
|
|
·
|
The
compensation of the broker-dealer and its salesperson in the
transaction;
|
|
·
|
The
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market
for such stock; and
|
|
·
|
Monthly
account statements showing the market value of each penny stock held in
the customer’s account.
|
In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser’s written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably
statement.
These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock
rules. Holders of shares of our common stock may have difficulty
selling those shares because our common stock will probably be subject to the
penny stock rules for an indeterminate period of time.
Recent
Sales of Unregistered Securities
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 March 2008, the Company issued
6,763,300 shares of its common stock as security in conjunction with the sale of
a warrant.
In March 2008, the Company issued
7,500,000 shares of its common stock in conjunction with the sale of a
warrant.
In April 2008, we borrowed a aggregate
of $122,000. In conjunction with the borrowing, we issued a total of
10,000,000 shares of our common stock..
In May 2008, we borrowed a aggregate of
$63,000. In conjunction with the borrowing, we issued a total of
15,000,000 shares of our common stock..
In June 2008, we borrowed a aggregate
of $49,000. In conjunction with the borrowing, we issued a total of
5,000,000 shares of our common stock..
In June 2008, we issued 5,000,000
shares to Donald F. Evans, our former CEO and Chairman of the Board pursuant to
a Separation Agreement.
In July 2008, we borrowed a aggregate
of $132,500. In conjunction with the borrowing, we issued a total of
12,500,000 shares of our common stock.
On July 29, 2008, we issued 36,000,000
shares of our common stock to our employees pursuant to an Incentive Stock
Grant
Plan.
On August 7, 2008, we reissued
3,650,000 shares of Series B Convertible Preferred shares (“Series B shares”) to
management. The previously issued Series B shares had been converted
to common in a financing transaction.
In August 2008, we borrowed
an aggregate of $127,500. In conjunction with the borrowing, we
issued a total of 15,000,000 shares of our common stock.
On August 12, 2008, we issued 6,971,116
shares of common stock to RBSM Advisors, LLC for $62,740 in
services.
On September 9, 2008, we
issued 2,200,000 shares of our common stock to D.G. Yarborough, Inc. for $14,500
in services.
In September 2008, we borrowed an
aggregate of $56,250. In conjunction with the borrowing, we issued a
total of 7,500,000 shares of our common stock.
In October 2008, we borrowed an
aggregate of $146,735, In conjunction with the borrowing, we issued a
total of 38,712,121
shares of
our common stock.
On October 21, 2008, we issued
2,000,000 shares to David D. Downing for $7,200 in services.
In October 2008, we issued 8,000,000
shares to Scott Elliott for $26,400 in services.
On December 2, 2008, we issued 250,000
shares to Matthew Hendrickson for $375 in services.
On December 17, 2008, we issued
25,250,000 shares of our common stock to our employees pursuant to an Incentive
Stock Grant Plan.
In December 2008, we borrowed an
aggregate of $29,250. In conjunction with the borrowing, we issued a
total of 22,500,000 shares of our common stock.
ITEM
6.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULT OF
OPERATIONS.
|
This
report contains forward-looking statements. Actual results and events
could differ materially from those projected, anticipated, or implicit, in the
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this report.
With the
exception of historical matters, the matters discussed herein are
forward-looking statements that involve risks and
uncertainties. Forward-looking statements include, but are not
limited to, statements concerning anticipated trends in revenues and net income,
projections concerning operations and available cash flow. Our actual
results could differ materially from the results discussed in such
forward-looking statements. The following discussion of our financial condition
and results of operations should be read in conjunction with our financial
statements and the related notes thereto appearing elsewhere
herein.
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. White diodes are a relatively new
phenomenon that offer major advances in illumination technology. Our diodes
consume 92% less energy than incandescent counterparts to produce comparable
light output. In electrochemical (battery powered) applications, this diminution
of energy consumption positions our lighting solutions as more durable and
reliable than other interim lighting alternatives. In standard alternating
current electrical applications, the calculated life of LEDs as lighting
elements is over 20 years versus 750 hours for traditional incandescent light
bulbs. These exceptional performance characteristics, diminutive energy
consumption and extended life, have prompted diode implementation in traffic
lights and automotive brake lights, but have not yet significantly occurred in
our area of focus, diodal illumination (tm). Diodal illumination is the
production of light through the use of white light emitting diodes. A light
emitting diode is a chemical compound that produces a visible light when an
electrical current is applied. This production of light through a diode is
contrasted with light from a typical light bulb, in which light is produced as a
by-product of a burning filament contained within a vacuum globe. The diode uses
92% less energy to produce comparable light to that of a traditional light
bulb.
On January 15, 2008, we announced that
the 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, the Cyberlux 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.
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 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 Cyberlux tactical lighting equipment equates
to $3,318,646 in revenue, including spares and maintenance supplies. We
projected 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 our 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.
The BrightEye Portable Illumination
System is designed as a portable visible and night-vision compatible
illumination system for general mission tactical lighting, force protection,
maintenance lighting, expeditionary base protection, disaster first responders,
and other rapidly deployable high-intensity lighting applications. Using
advanced optics, advanced solid-state lighting technology, and light-weight
battery power, all contained in an easily transportable wheeled case, the
BrightEye system is capable of eliminating the space-consuming bulk, noise and
energy consumption of the current generator-powered incandescent lighting
systems. Unique to the marketplace, the BrightEye system provides both white and
night-vision compatible covert lighting, a capability not available in
traditional lighting systems.
On March 24, 2008, we announced that
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 Cyberlux 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 developed by Cyberlux 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 Cyberlux 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.
On April 8, 2008, we announced that
that we had competed its National Program budget forecast for solid-state
lighting systems for use within the Department of Defense (DOD) and submitted
this forecast to its sponsorship in the House of Representatives and Senate for
2009 Fiscal Year (October 1, 2008 to September 30, 2009) budget consideration.
We estimated the continuation of its Portable Illumination System National
Program rollout within the DOD to be more than $25 million, which represents
expanded demand for its tactical covert and visible lighting systems of over
300% from 2008 to 2009.
Although we delivered our BrightEye and
WatchDog Systems to certain commands within the USAF and the National Guard and
the USAF has committed $3.3 million of the $8.0 million 2008 National Program
budget for Portable Illumination Systems, these equipment requests, and the
remaining $4.7M 2008 budget, remain unshipped pending designation of the
National Stocking Numbers (NSNs) by the Defense Logistics Agency. This
protracted accounting delay has created the need for two short-term equity
financings which have recently been concluded.
On April 17, 2008, we announced that we
received a request from the National Guard to participate in the Vigilant Guard
2008 Disaster Response Exercise in Beaufort, South Carolina from April 21st
through April 24th. The Vigilant Guard event is designed to simulate the chaotic
aftermath of an earthquake or terrorist attack and will include 50 specific
missions designed to test emergency response, search and rescue, evacuation and
distribution of goods capabilities. We deployed a team of our specialists to
operate the BrightEye 4M Tower Illumination Systems and the BrightEye Dual
Lighthead Tactical Illumination Systems to provide rapid set-up and
'stadium-bright' lighting capability during the various exercises.
Over the last two years, we haave
worked with select National Guard units and the National Guard Bureau to refine
the capabilities of our portable visible and night-vision compatible
illumination systems for general mission tactical lighting, disaster first
response, force protection, maintenance lighting, expeditionary base protection
and other rapidly deployable high-intensity lighting applications. Participation
in the Vigilant Guard 2008 event, along with over 2,000 National Guardsmen from
11 states, is a continuation of the customer/manufacturer solutions-oriented
relationship we have developed with the National Guard.
On April 24, 2008, we announced that we
had received a purchase commitment for 10 BrightEye Dual Lighthead Tactical
Illumination Systems from the Air National Guard. The initial Air National Guard
order for 10 BrightEye Systems equates to $187,412 in revenue. In December 2007,
the National Guard Bureau purchased 17 BrightEye Systems, a $313,004 purchase
order, to equip the Nation's emergency response CERFP teams.
Over the last year, we have worked with
select Air National Guard units to evaluate the BrightEye products in order to
refine the capabilities of the Cyberlux portable visible and night-vision
compatible illumination systems. The Air National Guard intends to deploy the 10
BrightEye Dual Lighthead Tactical Illumination Systems to Aviation Support
Facilities across the country. The BrightEye Systems will be used for aircraft
maintenance lighting, expeditionary base lighting and other high-intensity
lighting applications that require rapid deployment and a small size/weight
footprint.
On May 2, 2008, we announced that the
U.S. Patent Office has recently awarded patent protection for 29 claims
contained within two of our patent filings that address the apparatus and
methods for providing multi-mode solid-state lighting. These 29 claims provide
us with patent protection that extends to its WatchDog and BrightEye family of
tactical lighting products, as well as other future product
releases.
The claims awarded by the U.S. Patent
Office address a broad array of solid-state lighting devices that are comprised
of an array of light emitting diodes (LEDs) with a corresponding control circuit
that provides the system with power sensing, motion sensing and ambient light
sensing for system control, along with a localized electrical energy source that
powers the array of LEDs for illumination, along with a reflector positioned
proximate to the array of LEDs for reflecting and optimizing the light output of
the LEDs.
In addition, the awarded claims address
the method of operating an LED light device that operates by sensing electrical
power information, sensing mode of illumination information provided by a user
via a user interface, sensing LED intensity information provided by the user via
the user interface, directing an array of LEDs to operate in either a spot-light
mode of illumination, a flood-light mode of illumination, or a combined mode of
illumination based upon the sensed mode of illumination information, and
displaying the information to the user via a user interface based upon the
sensed battery electrical power information, the sensed mode of illumination
information, and the sensed LED intensity information.
The 29 claims awarded under our two
patent filings create an extensible intellectual property platform for current
tactical lighting system production and future lighting system
development.
On May 12, 2008, we announced that we
had received the next in a series of multi-million dollar commitments from the
United States Air Force (USAF). The new commitment represents an additional 50
WatchDog Visible and Covert Portable Illumination Systems, an additional 30
BrightEye Dual Lighthead Portable Illumination Systems and 40 BrightEye 4M Tower
Portable Illumination Systems. This USAF order for our tactical lighting
equipment equates to $2,189,245 in revenue, including spares and maintenance
supplies. We projected that with aggregate USAF orders of over $5.5 million,
operations will be profitable upon fulfillment of these orders.
The 2008 Department of Defense
Appropriations legislation allocates $8.0 million for the equipping of the USAF
with our Portable Illumination Systems. As part of this $8.0 million budget, the
USAF Air Mobility Command is fulfilling the requirements of the Logistics,
Operations, Installation and Mission Support commands for the BrightEye and
WatchDog systems. The remaining $2.5 million in appropriations will be allocated
within other USAF commands during Fiscal Year 2008 which ends September
30th.
BrightEye Portable Illumination System
family is designed as visible and night-vision compatible illumination systems
for general mission tactical lighting, force protection, maintenance lighting,
expeditionary base protection, disaster first responders, and other rapidly
deployable high- intensity lighting applications. Using advanced optics,
advanced solid-state lighting technology, light-weight Li-On battery power, all
contained in an easily transportable wheeled case, the BrightEye system is
capable of eliminating the space-consuming bulk, noise and energy consumption of
the current generator-powered incandescent lighting systems. Unique to the
marketplace, the BrightEye system provides both white and night-vision
compatible covert lighting, a capability not available in traditional lighting
systems.
On May 14, 2008, we announced that we
had received purchase commitments from the New York Air National Guard, the New
York National Guard Civilian Support Team, the Indiana National Guard and the
Minnesota National Guard for BrightEye Tactical Illumination Systems. The
BrightEye Systems are for immediate deployment to Iraq with the various state
National Guard and Air National Guard units. The new orders total $163,005 in
revenue.
Over the last year, we have supported
the National Guard Bureau with the deployment of BrightEye systems to
state-level National Guard and Air National Guard units. This effort has
generated over $750,000 in orders and over $650,000 thus far in 2008, all
incremental revenue to the $8.0 million Department of Defense Appropriations
Budget for U.S. Air Force.
Over the last six months, the National
Guard Bureau purchased 17 BrightEye Systems, a $313,004 purchase, to equip the
Nation's emergency response CERFP teams and Air National Guard purchased 10
BrightEye Systems, a $187,412 purchase, to support the Aviation Support
Facilities across the country. The BrightEye Systems will be used for
maintenance lighting, expeditionary base lighting and general lighting
applications that require rapid deployment and a small size/weight footprint.
Most recently, Cyberlux has supported the Air National Guard's Emergency Medical
Support (EMEDS) units with remote lighting capability provided by the BrightEye
4M Tower System, and the EMEDS units are now pursuing the BrightEye systems for
field deployment.
The BrightEye Portable Illumination
Systems are designed as visible and night-vision compatible illumination system
for mission-critical tactical lighting requiring rapidly deployable,
high-intensity lighting capability. Using advanced optics, advanced solid-state
lighting technology, and light- weight advanced battery power, all contained in
easily transportable wheeled cases, the BrightEye Systems are capable of
eliminating the space-consuming bulk, noise and energy consumption of the
current generator-powered incandescent lighting systems. Unique to the
marketplace, the BrightEye Systems provide broad area visible white lighting and
night-vision compatible IR lighting capable of operating all night on an
advanced battery power system, capabilities not available in traditional
lighting systems.
The BrightEye Systems are available
through the General Services Administration (GSA) Federal Supply Schedule 56 for
Specialty Lighting products under Cyberlux GSA Contract
GS-07F-9409S.
On May 15, 2008, we announced that we
had received an invitation from the Boeing Intelligence & Security Systems
Division to attend the Secure Border Initiative (SBInet) supplier briefing
scheduled for May 22, 2008 in Washington, D.C.
In September of 2007, we were awarded
the SBInet Toolkit Supplier Contract to supply the BrightEye Portable Visible
and Covert 10 Meter Tower Lighting System as part of the SBInet's mobile command
infrastructure. The Company is one of only two lighting companies, and the only
solid-state LED lighting solutions company, to be awarded the SBInet Toolkit
Supplier Contract for portable lighting. In November, we fulfilled the first
system order from The Boeing Company associated with the SBInet deployment plans
for the Mexican and Canadian borders.
On June 3, 2008, we announced that the
Defense Logistics Agency has awarded National Stocking Numbers to our Portable
Illumination System line of products. The Defense Logistics Agency (DLA), the
largest combat support agency within the Department of Defense (DOD), is the
source for nearly every supply item, whether for combat readiness, emergency
preparedness or the day-to-day operations of the Army, Air Force, Navy, Marine
Corps and federal agencies. National Stocking Numbers (NSNs) are standardized,
officially recognized item numbers used by the United States Government, the
North Atlantic Treaty Organization (NATO) and many governments around the world
to purchase and manage billions of dollars worth of procurement annually. The
assignment of NSNs will enable us to easily and efficiently expand their
military customer base to the global military marketplace.
Our Portable Illumination Systems are
designed as visible and night-vision compatible illumination systems for
mission-critical tactical lighting that requires rapidly deployable,
high-intensity lighting capability. Using advanced optics, advanced solid-state
lighting technology, and light-weight advanced battery power, all contained in
easily transportable wheeled cases, the WatchDog and BrightEye tactical lighting
systems provide broad area visible white lighting and night-vision compatible IR
lighting capable of operating all night on an advanced battery power system,
capabilities not available in traditional lighting systems.
Our Portable Illumination Systems were
first available through the General Services Administration (GSA) Federal Supply
Schedule 56 for Specialty Lighting products under Cyberlux GSA Contract
GS-07F-9409S and will continue to be purchasable through the GSA. The new
National Stocking Numbers assigned to the Cyberlux Portable Illumination System
products are:
WatchDog
System
|
GSA
P/N 2CP0150
|
NSN
6230015635690
|
WatchDog
System Spares Kit
|
GSA
P/N 2CP0169
|
NSN
6210015635711
|
|
|
|
BrightEye
Dual Lighthead
|
|
|
System
|
GSA
P/N 2CP0170
|
NSN
6230015635725
|
BrightEye
Dual Lighthead
|
|
|
System
Spares Kit
|
GSA
P/N 2CP0180
|
NSN
6210015635748
|
|
|
|
BrightEye
4M Tower System
|
GSA
P/N 2CP0190
|
NSN
6230015635774
|
BrightEye
4M Tower System
|
|
|
Spares
Kit
|
GSA
P/N 2CP0191
|
NSN
6210015635807
|
|
|
|
BrightEye
10M Tower System
|
GSA
P/N 2CP0182
|
NSN
6230015635832
|
BrightEye
10M Tower System
|
|
|
Spares
Kit
|
GSA
P/N 2CP0183
|
NSN
6210015635839
|
|
|
|
BrightEye
Portable Power
|
|
|
System
|
GSA
P/N 2CP0185
|
NSN
6115015635624
|
The 2008 Department of Defense
Appropriations legislation established a National Program of $8.0 million for
the equipping of the United States Air Force with our Portable Illumination
Systems during Fiscal Year 2008 ending September 30th. The designation of the
NSNs will enable us to meet these requirements as well as the additional
requests for our equipment from other branches of the U.S. Armed Services as
well as NATO.
On June 26, 2008, we announced that we
had posted record revenues of $137,284 for the week ending June 20, 2008. We
produced and shipped BrightEye Dual Lighthead System orders in record time for
immediate deployment to Iraq with National Guard units from New York, Indiana
and Minnesota. In addition, the Company verified that its production and
distribution processes will support the output needed to fulfill the United
States Air Force production requirements.
Over the last year, we have supplied
BrightEye systems to state-level National Guard and Air National Guard units,
generating $650,000 in revenue in 2008. The National Guard and Air National
Guard revenue is incremental to the 2008 Department of Defense Appropriations
legislation that allocates $8.0 million for the equipping of the United States
Air Force with our Portable Illumination Systems.
On June 30, 2008, we announced that our
Board of Directors has unanimously approved Mark D. Schmidt, President and Chief
Operating Officer, to succeed Donald F. Evans as Chief Executive Officer,
effective July 1, 2008. The appointment of Mr. Schmidt concludes a two-year
internal transition plan during which time Mr. Schmidt managed our operations.
Mr. Evans, who founded the Company in 1999 and has led us as Chairman and Chief
Executive Officer since 2000, is beginning a planned phased retirement at age
73. In conjunction with his retirement plan, Mr. Evans' estate advisors have
proposed to privately place or otherwise liquidate up to 25% of his Cyberlux
equity holdings over the next three years.
In a related matter, the our Board of
Directors also unanimously appointed John W. Ringo, our Corporate Counsel and
Company Director, as the new Chairman of the Board of Directors.
On June 30, 2008, we announced that we
had entered into a business development, sales and product solutions
relationship with A and A Logistics, Inc. For over 17 Years, the founders of A
and A Logistics, Inc. have delivered solutions on demand to the U.S. military,
U.S. government agencies such as the Federal Emergency Management Agency (FEMA)
and the U.S. Postal Service (USPS), state and local municipal government
agencies, and foreign military organizations.
In addition to the consultative
relationship A and A Logistics has with the U.S. Special Operations Command
(USSOCOM), we were recently appointed to the Task Force on the Reconstruction of
Afghanistan. Selected for the diversity of experience and the expertise of the A
and A Logistics management team, the Company will focus on business development
in Afghanistan and on accelerating the development of essential businesses and
services for the mutual benefit of the people and government of Afghanistan and
the private sector.
In representing us in business
development and sales efforts A and A Logistics will assist customers such as
USSOCOM and FEMA with requirements, concept and solution development, along with
product delivery services including logistics support. With a focus on
technology solutions that provide critical life-sustaining support for the
Warfighter and the Emergency Responder, A and A Logistics currently provides
customers with portable lighting products and generators, solar powered
electrical systems, self-powered IED detection products, and water purification
systems.
On August 22, 2008, we announced that
we had received purchase orders from the Oklahoma National Guard for BrightEye
Tactical Illumination Systems. These BrightEye Systems are for immediate
deployment and will be used by the state's National Guard unit.
We have successfully sold our BrightEye
Systems to 23 National Guard states within the National Guard Bureau, and we
expect this momentum to continue until the majority of the states are outfitted
with BrightEye tactical lighting systems.
On August 28, 2008, we announced that
the U.S. Patent Office has recently awarded patent protection for 21 claims
contained within our U.S. Patent Application for Portable Light Device,
Application Number 11/336,562 filed on January 21, 2006. The new patent claims
define specific areas of patent protection for our BrightEye and WatchDog
portable lighting products and augment the 29 patent claims announced in May
2008. In combination, the 50 patent claims provide us with thorough patent
protection for its WatchDog and BrightEye family of tactical lighting products,
as well as any future products developed on this patent foundation.
The new claims awarded by the U.S.
Patent Office address a lighting device comprised of an array of LEDs that
operate in spot-light and flood-light modes of illumination, or in a
spot-light/flood-light combined mode, with alterable intensity levels,
controlled by an electrical power system and electrical sensor operation.
Further, the new claims cover the user interface that allows the user to change
operating modes continuously between spot-light and flood- light illumination
and to display the battery power capacity on a percentage and time interval
basis.
In addition, the claims address the
specifics around the use of narrowing lenses as LED optics adapted to focus
illumination in a cone angle between 4 and 50 degrees. This unique optical
method and practice enable the spot-light and flood-light modes of
illumination.
Lastly, the claims address the use of a
computer and computer-executable programming instructions for operating a
lighting device. The operations are defined as comprising the steps of sensing
electrical power information, sensing modes of illumination information and
sensing LED intensity information provided by a user via the user interface,
directing the array of LEDs to operate in either a spot-light, flood-light or
combined mode of illumination, directing the array of LEDs to operate at a
desired intensity level, and displaying the power supply capacity message to the
user based upon the sensed electrical power, mode of illumination and LED
intensity information.
These newly awarded 21 patent claims
provide us with a deeper, more extensible intellectual property platform for the
current tactical lighting system products and for future lighting systems
currently under development. Importantly, the combined 50 patent claims create a
significant licensing portfolio that will allow other companies access to these
fundamental LED lighting capabilities.
On September 9, 2008, we announced that
we had entered into a business development, project consulting and product sales
relationship with Sabot 6, Inc. Sabot 6, Inc. specializes in accelerating the
adoption of innovative technologies within the Department of Defense (DoD) and
Federal government marketplace. Sabot 6 has significant government and military
experience and has access to a network of uniquely qualified experts in the
Power, Energy and Government Operations fields.
Under the agreement, the Sabot 6 firm
will provide tactical and strategic sales planning, access to senior government
officials and tactical users, access to soldiers for hands-on evaluation and
ongoing product sales support for governmental entities not yet addressed by us.
In addition, Sabot 6 will provide a specific focus on the procurement process
for our current Portable Illumination System products and will spearhead future
development projects where Cyberlux will leverage the company's significant
engineering and product development knowhow. If needed, Sabot 6 will also
provide surge support in specific areas of expertise, at any location deemed
necessary by us or our customer. This combination of capabilities will
immediately enhance our revenue pipeline, particularly in the Energy, Security
and Power Surety market segments.
On September 10, 2008, we announced
that we had received a purchase order from the Hawaiian Air National Guard for
the purchase of a BrightEye Tactical Illumination System.
We have demonstrated continued success
in selling its flagship product, the BrightEye Tactical Illumination System, to
individual state-level National Guard units across the country. The Company
feels strongly that it is positioned to be the tactical lighting leader within
multiple branches of the United States Armed Services in the
future.
On October 17, 2008, the Company filed
a protest with the General Accountability Office on the unfair and prejudicial
treatment it received during the contracting process which resulted in the
inability of Cyberlux to fairly compete for Solicitation Award
FA4452-08-R-0025. This protest was filed based on the following
claims: (1) ambiguous and unclear specification in the statement of work of RFP
FA4452-08-R-0025 which obscured the requirements and resulted in the exclusion
of Cyberlux from the list of technically compliant offerors and further ensured
that Cyberlux would be the highest bidder; (2) ambiguous and unclear evaluation
criteria which resulted in the initial exclusion of Cyberlux from technical
compliance and ensured that Cyberlux could only be the high bidder in an unfair
process; (3) inappropriate process steps involving a lack of timely notice were
utilized to further mask the adverse prejudicial treatment of Cyberlux and other
potential offerors in the 2nd phase of this Air Mobility Command procurement
action; and (4) the competition was not open and not fair because after
amendments were made and two bidders with known prices were considered
technically acceptable, Cyberlux specifically asked the Contracting Officer if
the Company could lower the prices of its bid during the Final Proposal
Revisions (Best and Final Offers), and the Contracting Officer failed to notify
Cyberlux that it could lower its price.
On
February 23, 2009, the General Accountability Office denied the
protest.
The
Company is currently evaluating further legal actions regarding the infringement
of its patent rights, which have not been licensed to any third party at this
time.
On October 3, 2008, we announced that
our WatchDog and BrightEye tactical lighting systems were the only two solutions
listed in Resolution NO. J-29, RELATING TO LIGHT EMITTING DIODE PORTABLE
ILLUMINATION SYSTEMS, adopted during the 130th National Guard Association of the
United States (NGAUS) General Conference held during Sept. 20-22, 2008 in
Baltimore, MD.
We have equipped 27 National Guard
Units with its BrightEye tactical lighting systems and anticipates substantial
order flow from the NGAUS 2009 congressional funding recommendation as adopted
in Resolution No. J-29 for LED Portable Illumination Systems.
NGAUS (http://www.ngaus.org/) is a
nonpartisan organization representing nearly 45,000 current and former Army and
Air National Guard officers. It was formed in 1878 with the goal of obtaining
better equipment, standardized training and a more combat-ready force by
petitioning Congress for resources.
On October 20, 2008, we announced that
we had received a purchase order from the Hawaiian National Guard for the
purchase of an additional BrightEye Tactical Illumination System.
With 27 state-level National Guard
units having purchased BrightEye Tactical Illumination Systems, We have
demonstrated continued success in selling its leadership product to individual
National Guard units across the country. We are positioned to be the tactical
lighting leader within multiple branches of the United States Armed
Services.
On October 31, 2008, we announced that
we had entered into a product development, business development and product
sales relationship with Sacred Power Corporation, a leading provider of
renewable energy solutions. Sacred Power Corporation specializes in solar power
solutions and provides innovative renewable energy technologies to the
Department of Defense (DOD) and Federal government marketplace. Sacred Power, a
Native American owned and operated 8(a) certified company, has significant
government and military experience in the design and delivery of
telecommunication, power generation and electrification projects.
Under the terms of the agreement
between the two companies, Sacred Power and Cyberlux will work as prime
contractor/subcontractor teaming partners on solid-state lighting and solar
power renewable energy opportunities. In addition, the companies will support
cross-product and cross-channel sales initiatives where Cyberlux will utilize
the solar power capability of Sacred Power to offer a range of renewable power
options for its Cyberlux Portable Illumination System products, and Sacred Power
will leverage our solid-state lighting capability, including our Portable
Illumination System products, in its renewable energy projects. This combination
of capabilities will immediately enhance the presence of both companies in the
Energy, Security and Power Surety market segments.
As a first project, the two companies
have been awarded a purchase order contract from Sandia National Laboratories on
behalf of the DOD to provide portable, solar powered visible and covert LED
security lighting systems for testing, evaluation and future deployment across
the DOD agencies. For this project, Sacred Power will provide the solar power
solution and system integration capability, and Cyberlux will provide the
visible and covert LED security lighting solution.
On December 2, 2008, we announced that
the United States Special Operations Command (SOCOM), had placed its first order
for two BrightEye Tactical Lighting Systems. Secured through one of our
contractual sales arms, this purchase order will supply SOCOM with BrightEye
units for field testing and evaluation by the U.S. Army Special Operations
Command at Fort Bragg, N.C.
The United States Special Operations
Command (SOCOM) was activated in April 1987 to provide command, control and
training for all special operations forces (SOF) in the United States. SOCOM
headquarters is at MacDill Air Force Base, Fla. Its component commands include
the U.S. Army Special Operations Command at Fort Bragg, N.C.; the Air Force
Special Operations Command, Hurlburt Field, Fla; the Naval Special Warfare
Command, Coronado, Calif.; and the Joint Special Operations Command at Fort
Bragg, N.C. The John F. Kennedy Special Warfare Center and School, the U.S. Air
Force Special Operations School and the Naval Special Warfare Center are also
assigned to the command.
Intellectual
Property
The following summarizes the patent and
trademark holding of Cyberlux Corporation.
Cyberlux
Corporation is the registered owner of the CYBERLUX® mark for lighting products,
namely, diodal illuminators. Trademark applications are pending for
the CAMPLIGHT™, FOCALBRIGHT™, RELIABRIGHT™, SENSORBRIGHT™, RELYON™, FOCUSON™,
EVERON™, and KEON™ marks. The above marks are registered under
International Goods and Services Class 9 (Electrical and Scientific Apparatus),
Class 11 (Environmental Control Apparatus), or both.
Cyberlux has the world-wide exclusive
rights to U.S. Patent No. 5,966,393 from the University of California-Santa
Barbara. In addition, the Company has the world-wide exclusive rights
to a suite of pending patents that define Scattered Photon ExtractionTM (SPE)
technology, which were acquired from Rensselaer Polytechnic
Institute. The combination of these two technologies forms the patent
foundation for the resulting proprietary lighting technology known as “Hybrid
White Light” (HWL) and “Hybrid Multi-color Light” (HML). HWL and HML
is expected to yield a lower cost, more energy-efficient lighting source than
currently
available
in solid-state light-emitting diode (LED) solutions.
Cyberlux Corporation is the owner of
U.S. Patent No. 6,752,515, which issued June 22, 2004, and is entitled Apparatus
and Method for Providing Emergency Lighting. Cyberlux Corporation
also owns U.S. Patent No. 6,986,589, which issued January 17, 2006, and is
entitled Apparatus and Method for Providing an Emergency Lighting Augmentation
System. Cyberlux Corporation is the owner of U.S. Patent No.
7,045,975, which issued May 16, 2006 and is entitled Apparatus and Methods for
Providing Emergency Safety Lighting. Six patent applications are
currently pending before the USPTO. Two additional patent
applications are currently being prepared but have not yet been filed with the
USPTO. In November 2006, Cyberlux was awarded 21 patent claims 21
claims by the U.S. Patent Office for our Emergency Safety Lighting will
accelerate our further pursuit of providing long-term solutions for interim and
emergency lighting in hotels, hospitals, elder care facilities, apartment
complexes and residences. The lighting device, designed as a replacement
electrical wall outlet, simply plugs into an existing outlet after removal of
its cover plate. Although the lighting device continues to operate as an
electrical outlet, it also contains a constant charge battery; a motion sensor
for initiating low levels of lighting for gentle illumination of a darkened room
or navigation of a corridor; a power sensor for broadcasting a high level of
light up the attendant wall surface to reflect off of the ceiling thereby
illuminating a room or corridor; and a photo cell that detects ambient light in
the space which disables the system. The lighting device is intended to provide
long-term solutions for emergency and interim lighting. The patent addresses an
electrochemical lighting system capable of providing prolonged illumination with
the use of light emitting diodes (LEDs) as the illumination source. In addition,
on November 18, 2008. we were granted U.S.Patent No. 7,452,099, which is
entitled Portable Lighting Device and embodies portable LED lighting devices
comprised of a body, a handle, a user interface and a pivotal support of a
lighting element assembly.
All other issued patents and presently
filed United States patent applications are briefly described
below.
Pat. No.
6,752,515 - The patent addresses an improved emergency or interim lighting
device and associated methods for providing emergency or temporal lighting. The
device satisfies the need for an electrochemical lighting system capable of
providing prolonged illumination over the life of the power unit. The device
benefits from the use of light emitting diodes (“LEDs”) as the illumination
source, which provides optimum lumen output with considerably less power
consumption than conventional incandescent lighting devices. By providing a
unique diode/parabolic reflector arrangement the directional limitations of
conventional LED lighting devices are overcome and wide area illumination
coverage is possible. Additionally, the device provides multiple illumination
levels that may be triggered by a power outage condition.
Pat. No.
6,986,589 - The patent addresses an emergency lighting device having at least
one LED, a local energy source such as a lithium ion battery, a control circuit
in electric communication with the at least one LED and further sensing a main
power supply, and a reflector for broadcasting light produced by the LED to
designated areas. The application describes an emergency lighting
device that transforms existing fluorescent, incandescent or halogen light
fixtures into emergency lighting systems for homes, hospitals, hotels, nursing
homes and businesses. The device includes a power sensor for
triggering the control circuit to engage the LEDs when electrical service is
disrupted, thereby broadcasting a wash of light over an otherwise darkened room
or corridor.
Pat. No.
7,045,975 - The patent application addresses a lighting device that transforms
existing electrical wall outlets into an emergency lighting system for homes,
hospitals, hotels, nursing homes and businesses. The lighting device,
designed as a replacement electrical wall outlet or receptacle, simply plugs
into an existing dual outlet after removal of its faceplate. The
lighting device continues to function as an electrical outlet, however, also
comprises a local power source such as a constant charge lithium ion battery; a
motion sensor for initiating a low level of lighting for darkened room or
corridor transit; a power sensor for activating a high level of light when
electrical service is disrupted, thereby broadcasting a wash of light over an
otherwise darkened room or corridor; and a photoelectric cell which detects
daylight or otherwise provided lighting of the room or corridor and thereby
prevents unnecessary power usage.
Ser. No.
11/392,428 - The patent application is a divisional of Pat. No. 7,045,975
described above and addresses subject matter that was restricted by the USPTO
during prosecution of the ‘975 patent.
Pat. No.
7,452,099 - The patent application is directed to a portable light system having
a body, an arm pivotally attached to the body, and one or more lighting elements
disposed at one end of the arm. The portable light device further
includes a handle, one or more batteries, an on-off switch, and one or more
power cords for transmitting or receiving electrical energy. The
portable light device is adapted to operate in a spot light mode of
illumination, a flood light mode of illumination, or a combination
thereof. The device benefits from the use of LEDs as an illumination
source. LEDs provide optimum lumen output with considerably less
power consumption than conventional lighting devices. Finally, the
device provides real-time battery life information to a user such that the
performance of the device may be tailored to extend or shorten expected battery
life as needed.
Ser. No.
11/089,073 - The patent application is directed to a key cap light assembly that
produces an efficient beam of light and is adaptable to a variety of key
types. The key cap light has an elastomeric sleeve that is adapted to
enclose a variety of key heads having different sizes, shapes, and
thicknesses. The elastomeric sleeve binds an LED assembly to the key
to provide an energy efficient, operator-activated, light source proximate the
key.
Ser. No.
60/757,654 - The patent application is directed to a device for illuminating a
yard sign that uses an efficient beam of light and that is adapted to cycle on
and off. The illuminating device includes a main body portion
configured to attach to the yard sign, a switch, a control circuit, a power
source, at least one arm adjustably attached to the main body portion, and a
light head disposed proximate an end of the at least one arm that comprises at
least one LED assembly. The control circuit of the device is
advantageously configured to automatically cycle the LED assembly on and off at
predetermined daily illumination intervals.
Ser. No.
60/757,654 - The patent application is directed to an improved apparatus, method
and system for providing multi-mode illumination. Specifically,
exemplary embodiments of the present invention include a lighting apparatus
capable of multiple modes of illumination and battery powered
operation. The lighting apparatus further includes a fuel gauge
module that is capable of displaying an expected battery life based on a
selected operating mode and a current state of charge of the
battery. Lighting devices structured in accordance with various
embodiments of the invention may be light-weight and portable to improve ease of
transport and deployment. Such lighting devices may also include a
stable and yet retractable mounting device.
Ser. No.
60/793,541 - The patent application is directed to an improved tilt bracket and
associated system for coupling an illumination device to a
surface. For example, in one embodiment, the improved tilt bracket
and associated system may be adapted to couple one or more LED arrays to the
under-mount surface of a cabinet. In this regard, such tilt brackets
and associated systems may provide enhanced LED array cooling and greater
mounting flexibility.
Critical
Accounting Policies
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments:
o
stock-based compensation;
o revenue
recognition; and
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.
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 September 30,
2007 and December 31, 2006, 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.
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 $816,856 in liquidation
damages.
RESULTS
OF OPERATIONS
Results
of Operations for the Years Ended December 31, 2007 and 2006
Compared.
Revenues
for the year ended December 31, 2008 were $639,529. This compares to
revenues of $ 721,148 for the year ended December 31, 2007.
Cost of
goods sold were $405,939 for 2008 compared with $514,231 for
2007.
Operating
expenses for the year ended December 31, 2008 were $5,430,931compared with
$3,875,668 for the year ended December 31, 2007. Included in expenses
for 2008 was $517,915 for consulting services compared with $198,178 for the
previous year.
|
|
For the Years Ended
|
|
|
|
12/31/2008
|
|
|
12/31/2007
|
|
|
|
|
|
|
|
|
Salaries
& benefits
|
|
|
1,649,459 |
|
|
|
1,893,994 |
|
Marketing
and advertising
|
|
|
26,352 |
|
|
|
163,278 |
|
Rent
|
|
|
124,695 |
|
|
|
81,265 |
|
Insurance
|
|
|
|
|
|
|
13,691 |
|
Depreciation
and amortization
|
|
|
25,617 |
|
|
|
553,595 |
|
Impairment
Loss Research and development
|
|
|
1,698,229 |
|
|
|
164,7936 |
|
Legal
expense
|
|
|
224,657 |
|
|
|
224,657 |
|
Accounting
services
|
|
|
1514,621 |
|
|
|
45,029 |
|
Investor
relations
|
|
|
22,414 |
|
|
|
19,788
|
|
Travel,
living and entertainment
|
|
|
86,109 |
|
|
|
150,658 |
|
Office
expenses
|
|
|
1,416,310 |
|
|
|
550,898 |
|
Bad
debt expense
|
|
|
1,796 |
|
|
|
14,024 |
|
|
|
|
5,430,931 |
|
|
|
3,677,491 |
|
Interest
expense for 2008 was $2,793,580 compared to $2,645,375for
2007. Included in interest expense for 2006 is $1,926,625which was
booked to recognize the imbedded beneficial conversion feature of the $4,500,000
convertible notes payable entered into during the 3rd and
4th
quarters of 2004, 2005 and 2006.
The net
loss realized for 2008 was $11,323,482, or $0.02 per share on an average of
643,052,619 shares outstanding and compares to net loss of $15,619,897, or
$0.04 per share on an average of 383,858,373 shares outstanding for the year
2007.
Liquidity
and Capital Resources
As of
December 31, 2008, we had a working capital deficit of $10,546,455. As a result
of our operating losses for the year ended December 31. 2008, we generated a
cash flow deficit of $1,184,170 from operating activities. Cash flows generated
through investing activities was $0 during the year ended December 31, 2008. We
met our cash requirements during this period through the issuance of $525,000
Convertible Notes Payable and $675,760 from the sale of Common
Stock.
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, dated as
of May 15, 2009, that we have incurred operating losses, 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.
The
Company has engaged Ayuda Equity Funding, LLC to provide equity-collateralized
loan financing as a non-toxic incremental financing option to fund the Company’s
ongoing operations. The Company provides Ayuda Equity Funding, LLC with freely
trading shares of common stock for use as collateral for capital loans then made
to the Company. Ayuda Equity Funding, LLC values the freely trading shares
at a 30% discount to market and provides collateralized capital loans to the
Company in return.
The Company completed an equity
financing with St. George Investments, LLC (SGI), an Illinois limited liability
company, on March 21, 2008 for $1,500,000. The equity financing is
structured as a 25% discount to market Warrant transaction that provides
$500,000 in capital at closing, followed by four traunches of $250,000
each. Each $250,000 traunch is staggered at 60-day intervals commencing in
six months on September 22, 2008, which is the date that shares are salable
pursuant to Rule 144 upon exercise of the Warrant. The Company issued
7,500,000 shares of Common Stock to SGI in order to induce the SGI to purchase
the $1,500,000 Warrant. In addition, 6,763,300 additional shares
of Common Stock were issued as Performance Stock in the name of SGI
to remain in their original certificated form and remain in escrow with the law
firm of Anslow & Jaclin, LLP acting as escrow agent. As a
provision of the Warrant Purchase Agreement, we pledged 35,736,700 shares of
“Pledge Stock” to be held in escrow as a potential remedy
in the event of the occurrence of certain identified “trigger events”. On June
23rd
, 2008, one trigger event, the closing price of our stock, went below the
identified market price of $0.012 per share, triggrering the release from escrow
of the 6,763,300 shares of Performance Stock and the 35,736,700 shares of Pledge
stock”. This trigger event, as defined in the Warrant Purchase
Agreement, also increased the Warrant Account by 25% of the balance, or
$375,000, in exchange for the elimination of the 25% discount to
market.
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.
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
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 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.
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.
On
February 16, 2006 the Financial Accounting Standards Board (FASB) issued
SFAS 155, “Accounting for Certain Hybrid Instruments,” which amends SFAS 133,
“Accounting for Derivative Instruments and Hedging Activities,” and SFAS 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities.” SFAS 155 allows financial instruments that have embedded
derivatives to be accounted for as a whole (eliminating the need to bifurcate
the derivative from its host) if the holder elects to account for the whole
instrument on a fair value basis. SFAS 155 also clarifies and amends certain
other provisions of SFAS 133 and SFAS 140. This statement is effective for all
financial instruments acquired or issued in fiscal years beginning after
September 15, 2006. The Company does not expect its adoption of this new
standard to have a material impact on its financial position, results of
operations or cash flows.
Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment.
In March
2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for
Conditional Asset Retirement Obligations, an interpretation of FASB Statement
No. 143,” which requires an entity to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred if the liability’s
fair value can be reasonably estimated. The Company is required to adopt the
provisions of FIN 47 no later than the first quarter of fiscal 2006. The Company
does not expect the adoption of this Interpretation to have a material impact on
its consolidated financial position, results of operations or cash flows In May
2005 the FASB issued Statement of Financial Accounting Standards (SFAS) No. 154,
“Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20
and FASB Statement No. 3.” SFAS 154 requires retrospective application to prior
periods’ financial statements for changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. SFAS 154 also requires that retrospective application of a
change in accounting principle be limited to the direct effects of the change.
Indirect effects of a change in accounting principle, such as a change in
non-discretionary profit-sharing payments resulting from an accounting change,
should be recognized in the period of the accounting change. SFAS 154 also
requires that a change in depreciation, amortization, or depletion method for
long-lived, non-financial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. Early adoption is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date this
Statement is issued. The Company does not expect the adoption of this SFAS to
have a material impact on its consolidated financial position, results of
operations or cash flows.
Product
Research and Development
We
anticipate continuing to incur research and development expenditures in
connection with the development of our Advanced Illumination Systems
during the next twelve months. We anticipate that we will expend
approximately $800,000 in this endeavor.
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.
Risk
Factors
Much of
the information included in this annual report includes or is based upon
estimates, projections or other "forward-looking statements". Such
forward-looking statements include any projections or estimates made by us and
our management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other future performance
suggested herein.
Such estimates, projections or other
"forward-looking statements" involve various risks and uncertainties as outlined
below. We caution the reader that important factors in some cases have affected
and, in the future, could materially affect actual results and cause actual
results to differ materially from the results expressed in any such estimates,
projections or other "forward-looking statements".
Our common shares are considered
speculative. Prospective investors should consider carefully the risk factors
set out below.
Risks Relating to Our
Business:
We
Have a History Of Losses Which May Continue, Which May Negatively Impact Our
Ability to Achieve Our Business Objectives.
We
incurred a net loss of $11,322,912 for the year ended December 31, 2008 compared
to a net loss of $15,619,897 for the year ended December 31, 2007. We cannot
assure you that we can achieve or sustain profitability on a quarterly or annual
basis in the future. Our operations are subject to the risks and
competition inherent in the establishment of a business enterprise. There can be
no assurance that future operations will be profitable. Revenues and profits, if
any, will depend upon various factors, including whether we will be able to
continue expansion of our revenue. We may not achieve our business objectives
and the failure to achieve such goals would have an adverse impact on
us.
If
We Are Unable to Obtain Additional Funding Our Business Operations Will be
Harmed and If We Do Obtain Additional Financing Our Then Existing Shareholders
May Suffer Substantial Dilution.
We will
require additional funds to sustain and expand our sales and marketing
activities. We anticipate that we will require up to approximately $4
million to fund our continued operations for the next twelve months, depending
on revenue from operations. We need additional
funding for research and development, increasing inventory, marketing and
general and administrative expenses. Although this amount is less than our net
losses in the past, we expect to decrease our general and administrative
expenses by eliminating most of our consulting fees. In the event
that we cannot significantly reduce our consulting fees, we will need to raise
additional funds to continue our operations. Additional capital will be
required to effectively support the operations and to otherwise implement our
overall business strategy. There can be no assurance that financing
will be available in amounts or on terms acceptable to us, if at all. The
inability to obtain additional capital will restrict our ability to grow and may
reduce our ability to continue to conduct business operations. If we are unable
to obtain additional financing, we will likely be required to curtail our
marketing and development plans and possibly cease our operations. Any
additional equity financing may involve substantial dilution to our then
existing shareholders.
Our
Independent Auditors Have Expressed Substantial Doubt About Our Ability to
Continue As a Going Concern, Which May Hinder Our Ability to Obtain Future
Financing.
In their
report dated May 15, 2009, our independent auditors stated that our financial
statements for the year ended December 31, 2008 were prepared assuming that we
would continue as a going concern. Our ability to continue as a going concern is
an issue raised as a result of losses for the year ended December 31, 2008 in
the amount of $11,322,912 . We continue to experience net operating losses. Our
ability to continue as a going concern is subject to our ability to generate a
profit and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans and grants from various financial institutions where possible.
Our continued net operating losses increase the difficulty in meeting such goals
and there can be no assurances that such methods will prove
successful.
Many
Of Our Competitors Are Larger and Have Greater Financial and Other Resources
Than We Do and Those Advantages Could Make It Difficult For Us to Compete With
Them.
The lighting and illumination industry
is extremely competitive and includes several companies that have achieved
substantially greater market shares than we have, and have longer operating
histories, have larger customer bases, and have substantially greater financial,
development and marketing resources than we do. If overall demand for our
products should decrease it could have a materially adverse affect on our
operating results.
Our
Trademark and Other Intellectual Property Rights May Not be Adequately Protected
Outside the United States, Resulting in Loss of Revenue.
We believe that our trademarks, whether
licensed or owned by us, and other proprietary rights are important to our
success and our competitive position. In the course of our international
expansion, we may, however, experience conflict with various third parties who
acquire or claim ownership rights in certain trademarks. We cannot assure that
the actions we have taken to establish and protect these trademarks and other
proprietary rights will be adequate to prevent imitation of our products by
others or to prevent others from seeking to block sales of our products as a
violation of the trademarks and proprietary rights of others. Also, we cannot
assure you that others will not assert rights in, or ownership of, trademarks
and other proprietary rights of ours or that we will be able to successfully
resolve these types of conflicts to our satisfaction. In addition, the laws of
certain foreign countries may not protect proprietary rights to the same extent,
as do the laws of the United States.
Our
Principal Stockholders, Officers And Directors Own a Controlling Interest in Our
Voting Stock And Investors Will Not Have Any Voice in Our
Management.
On October 10, 2007, we issued
3,650,000 shares of Series B Convertible Preferred Stock (“Series B stock”)to
our officers and directors which are convertible into 36,500,000 shares of
common stock and, in the aggregate, have the right to cast 365,000,000 million
votes in any vote by our shareholders. On January 22, 2009, we issued 1,000,000
additional shares of Series B stock to our officers and directors. Combined with
the number of shares of common stock held by our officers and directors, they
have the right to cast approximately 56% of all votes by our
shareholders. As a result, these stockholders, acting together, will
have the ability to control substantially all matters submitted to our
stockholders for approval, including:
|
o
|
election
of our board of directors;
|
|
o
|
removal
of any of our directors;
|
|
o
|
amendment
of our certificate of incorporation or bylaws;
and
|
|
o
|
adoption
of measures that could delay or prevent a change in control or impede a
merger, takeover or other business combination involving
us.
|
As a result of their ownership and
positions, our directors and executive officers collectively are able to
influence all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. In addition, sales
of significant amounts of shares held by our directors and executive officers,
or the prospect of these sales, could adversely affect the market price of our
common stock. Management's stock ownership may discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of us,
which in turn could reduce our stock price or prevent our stockholders from
realizing a premium over our stock price.
Risks Relating to Our Common
Stock:
We
Have Issued a Large Amount of Stock in Lieu of Cash for Payment of Expenses and
Expect to Continue this Practice in the Future. Such Issuances of
Stock Will Cause Dilution to Our Existing Stockholders.
Due
to our limited economic resources, we try to issue stock in lieu of cash for
payment of expenses and services provided for us. In 2008, we issued
9,700,000 shares of common stock in exchange for expenses and services
rendered. We anticipate issuing shares of common stock whenever
possible in lieu of cash to conserve our financial position. The
number of shares of common stock issued is directly related to our stock price
at the time of issuance. In the event that our stock price drops, we
will be required to issue larger amounts of shares for expenses and services
rendered, if the other party is willing to accept stock at all. The issuance of
shares of common stock will have the effect of diluting the proportionate equity
interest and voting power of holders of our common stock, including investors in
this offering.
If
We Fail to Remain Current on Our Reporting Requirements, We Could be Removed
From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to
Sell Our Securities and the Ability of Stockholders to Sell Their Securities in
the Secondary Market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
Our
Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading
Market in Our Securities is Limited, Which Makes Transactions in Our Stock
Cumbersome and May Reduce the Value of an Investment in Our Stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
|
·
|
that
a broker or dealer approve a person's account for transactions in penny
stocks; and
|
|
·
|
the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
|
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
|
·
|
obtain
financial information and investment experience objectives of the person;
and
|
|
·
|
make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
|
·
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
|
·
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the
transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
Trends,
Risks and Uncertainties
We have
sought to identify what we believe to be the most significant risks to our
business, but we cannot predict whether, or to what extent, any of such risks
may be realized nor can we guarantee that we have identified all possible risks
that might arise. Investors should carefully consider all of such risk factors
before making an investment decision with respect to our Common
Stock.
ITEM
7.
|
FINANCIAL
STATEMENTS
|
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
FORMING
A PART OF ANNUAL REPORT
PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934
CYBERLUX
CORPORATION
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
|
|
Report
of Independent Registered Certified Public Accounting
Firms
|
F-1
|
|
|
Consolidated
Balance Sheets at December 31, 2008 and 2007
|
F-2
|
|
|
Consolidated
Statements of Operations for the Years ended December 31, 2008 and
2007
|
F-3
|
|
|
Consolidated
Statement of Deficiency in Stockholders' Equity for the Years ended
December 31,2008 and 2007
|
F-4
- F-6
|
|
|
Consolidated
Statements of Cash Flows for the Years ended December 31, 20087and
2006
|
F-7
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
- F-45
|
Turner,
Jones & Associates, PLLC
Certified
Public Accountants
108
Center Street, North, 2nd Floor
Vienna,
Virginia 22180-5712
(703)
242-6500
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Cyberlux
Corporation and Subsidiaries
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
We have
audited the accompanying consolidated balance sheet of Cyberlux Corporation and
subsidiaries as of December 31, 2008 and December 31, 2007 and the related
consolidated statements of income, stockholders' equity and cash flows for year
then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Cyberlux Corporation and
subsidiaries as of December 31, 2008 and December 31, 2007, and the results of
its operations and its cash flows for the year ended December 31, 2008 and
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.
The
accompanying consolidated financial statements must have been prepared assuming
the Company will continue as a going concern. As discussed in Note L
to the consolidated financial statements, the Company has suffered recurring
losses from operations, negative working capital, and negative cash flows from
operations that raise substantial doubt about its ability to continue as a going
concern. Management's plan in regard to these matters is also
described in Note N. The consolidated financial statements do not
include adjustments that might result from the outcome of this
uncertainty.
Vienna,
Virginia
May 15,
2009
|
|
Turner,
Jones & Associates, PLLC
|
CYBERLUX
CORPORATION
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2008 AND 2007
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$ |
19,233 |
|
|
$ |
626 |
|
Accounts
receivable, net of allowance for doubtful accounts of $1,803 and $8,646,
respectively
|
|
|
249,924 |
|
|
|
77,815 |
|
Inventories,
net of allowance of $43,333
|
|
|
53,202 |
|
|
|
157,379 |
|
Other
current assets
|
|
|
32,198 |
|
|
|
10,000 |
|
Total
current assets
|
|
|
354,557 |
|
|
|
245,820 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $194,788 and
$169,171, respectively
|
|
|
48,990 |
|
|
|
74,607 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
25,511 |
|
|
|
24,400 |
|
Patents
and development costs, net of accumulated amortization and write off of
$3,043,757 and $819,639, respectively
|
|
|
931,217 |
|
|
|
3,155,335 |
|
Total
other assets
|
|
|
956,728 |
|
|
|
3,179,735 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
1,360,275 |
|
|
$ |
3,500,162 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
$ |
86 |
|
|
$ |
33,178 |
|
Accounts
payable
|
|
|
1,,299,145 |
|
|
|
733,538 |
|
Accrued
liabilities
|
|
|
3,425,885 |
|
|
|
2,345,133 |
|
Short-term
notes payable - related parties
|
|
|
402,823 |
|
|
|
397,064 |
|
Short-term
notes payable
|
|
|
192,865 |
|
|
|
196,067 |
|
Warrant
payable
|
|
|
935,000 |
|
|
|
- |
|
Short-term
convertible notes payable
|
|
|
4,645,207 |
|
|
|
3,050,510 |
|
Total
current liabilities
|
|
|
10,901,012 |
|
|
|
6,755,490 |
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Derivative
liability relating to convertible debentures
|
|
|
24,384,586 |
|
|
|
17,334,621 |
|
Warrant
liability relating to convertible debentures
|
|
|
255,042 |
|
|
|
4,509,538 |
|
Total
long-term liabilities
|
|
|
24,639,628 |
|
|
|
21,844,159 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
35,540,639 |
|
|
|
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 December 31,
2008 and 2007; liquidation preference of $219,892 and $231,845 as of
December 31, 2008 and 2007, 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 as of December 31,
2008 and 2007; liquidation preference of $3,650,000 as of
December 31, 2008 and 2007
|
|
|
3,650 |
|
|
|
3,650 |
|
Class
C convertible preferred stock, $0.001 par value, 700,000 shares
designated; 150,000 shares issued and outstanding as of December 31, 2008
and 2007, liquidation preference of $3,992,333 and $3,823,230, as of
December 31, 2008 and 2007, respectively
|
|
|
150 |
|
|
|
150 |
|
Common
stock, $0.001 par value, 950,000,000 shares authorized; 814,426,120and
552,342,881 shares issued and outstanding as of December 31,
2008 and 2007, respectively
|
|
|
814,426 |
|
|
|
552,343 |
|
Additional
paid-in capital
|
|
|
17,277,230 |
|
|
|
15,286,709 |
|
Accumulated
deficit
|
|
|
(52,410,720 |
) |
|
|
(41,087,239 |
) |
Deficiency
in stockholders' equity
|
|
|
(34,315,264 |
) |
|
|
(25,244,387 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and (deficiency) in stockholders' equity
|
|
$ |
1,360,275 |
|
|
$ |
3,500,162 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
YEARS
ENDED DECEMBER 31, 2008 AND 2007
|
|
2008
|
|
|
2007
|
|
REVENUE:
|
|
$ |
639,529 |
|
|
$ |
721,148 |
|
Cost
of goods sold
|
|
|
(405,939 |
) |
|
|
(514,231 |
) |
Gross
margin (loss)
|
|
|
233,590 |
|
|
|
206,917 |
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,617 |
|
|
|
27,706 |
|
Research
and development
|
|
|
3,582 |
|
|
|
164,793 |
|
Impairment
loss
|
|
|
1,698,229 |
|
|
|
- |
|
General
and administrative expenses
|
|
|
3,703,503 |
|
|
|
3,683,169 |
|
Total
operating expenses
|
|
|
5,430,931 |
|
|
|
3,875,668 |
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM OPERATIONS
|
|
|
(,197,341 |
) |
|
|
(3,668,751 |
) |
|
|
|
|
|
|
|
|
|
Debt
forgiveness
|
|
|
- |
|
|
|
381,652 |
|
Unrealized
gain (loss) relating to adjustment of derivative and warrant liability to
fair value of underlying securities
|
|
|
(2,795,469 |
) |
|
|
(9,620,645 |
) |
Interest
expense, net
|
|
|
(2,793,580 |
) |
|
|
(2,645,375 |
) |
Debt
acquisition costs
|
|
|
(536,602 |
) |
|
|
(66,778 |
) |
|
|
|
|
|
|
|
|
|
Net
Income (loss) before provision for income taxes
|
|
|
(11,322,912 |
) |
|
|
(15,619,897 |
) |
|
|
|
|
|
|
|
|
|
Income
taxes (benefit)
|
|
|
490 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) AVAILABLE TO COMMON STOCKHOLDERS
|
|
$ |
(11,323,482 |
) |
|
$ |
(15,619,897 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic
|
|
|
643,052,619 |
|
|
|
383,858,373 |
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share-basic
|
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
Loss
per share-fully diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
$ |
96,000 |
|
|
$ |
96,000 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX
CORPORATION
STATEMENT
OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
Class B Preferred
|
|
|
Class C Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Stock
|
|
|
Common
|
|
|
Stock
|
|
|
Subscription
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Receivable
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance,
January 1, 2007
|
|
|
800,000 |
|
|
$ |
800 |
|
|
|
100,000 |
|
|
$ |
100 |
|
|
$ |
128,279,157 |
|
|
$ |
128,279 |
|
|
$ |
25,000 |
|
|
$ |
12,186,420 |
|
|
$ |
(25,467,342 |
) |
|
$ |
(13,126,743 |
) |
Common
stock issued in January 2007 as payment towards convertible
debentures
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,564,000 |
|
|
|
25,564 |
|
|
|
- |
|
|
|
221,932 |
|
|
|
- |
|
|
|
247,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercised at $0.25 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
100 |
|
|
|
(25,000 |
) |
|
|
24,900 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Class C stock issued in connection with the acquisition of Hybrid Lighting
Technologies, Inc.
|
|
|
- |
|
|
|
- |
|
|
|
50,000 |
|
|
|
50 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
768,450 |
|
|
|
- |
|
|
|
768,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with the acquisition of Hybrid
Lighting Technologies, Inc.
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,500,000 |
|
|
|
26,500 |
|
|
|
- |
|
|
|
742,000 |
|
|
|
- |
|
|
|
768,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in January 2007 in connection with conversion of preferred
stock, Class A
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
500,000 |
|
|
|
500 |
|
|
|
- |
|
|
|
49,500 |
|
|
|
- |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in February 2007 as payment towards convertible
debentures
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,309,800 |
|
|
|
24,310 |
|
|
|
- |
|
|
|
160,282 |
|
|
|
- |
|
|
|
184,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in March 2007 as payment towards convertible
debentures
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18,021,800 |
|
|
|
18,022 |
|
|
|
- |
|
|
|
98,220 |
|
|
|
- |
|
|
|
116,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in April 2007 as payment towards convertible
debentures
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
33,357,000 |
|
|
|
33,357 |
|
|
|
- |
|
|
|
121,197 |
|
|
|
- |
|
|
|
154,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock issued in April 2007 as payment towards compensation
|
|
|
2,850,000 |
|
|
|
2,850 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
367,650 |
|
|
|
- |
|
|
|
370,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in April 2007 for services rendered at $0.011 per
share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,500,000 |
|
|
|
2,500 |
|
|
|
- |
|
|
|
25,000 |
|
|
|
- |
|
|
|
27,500 |
|
Subtotal
|
|
|
3,650,000 |
|
|
$ |
3,650 |
|
|
|
150,000 |
|
|
$ |
150 |
|
|
$ |
259,131,757 |
|
|
$ |
259,132 |
|
|
$ |
- |
|
|
$ |
14,765,551 |
|
|
$ |
(25,467,342 |
) |
|
$ |
(10,438,859 |
) |
CYBERLUX
CORPORATION
STATEMENT
OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
Class B Preferred
|
|
|
Class C Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Stock
|
|
|
Common
|
|
|
Stock
|
|
|
Subscription
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Receivable
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance
forward
|
|
|
3,650,000 |
|
|
$ |
3,650 |
|
|
|
150,000 |
|
|
$ |
150 |
|
|
$ |
259,131,757 |
|
|
$ |
259,132 |
|
|
$ |
- |
|
|
$ |
14,765,551 |
|
|
$ |
(25,467,342 |
) |
|
$ |
(10,438,859 |
) |
Common
stock issued in April 2007 as payment towards related party debentures and
related interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,226,182 |
|
|
|
5,226 |
|
|
|
- |
|
|
|
99,298 |
|
|
|
- |
|
|
|
104,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of warrants to purchase common stock in May 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
150,000 |
|
|
|
- |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in May 2007 as payment towards convertible
debentures
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
48,579,100 |
|
|
|
48,579 |
|
|
|
- |
|
|
|
57,766 |
|
|
|
- |
|
|
|
106,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants in June 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32,216,950 |
|
|
|
32,217 |
|
|
|
- |
|
|
|
95,282 |
|
|
|
- |
|
|
|
127,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in June 2007 as payment towards convertible
debentures
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
60,418,910 |
|
|
|
60,419 |
|
|
|
- |
|
|
|
25,709 |
|
|
|
- |
|
|
|
86,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in July 2007 as payment towards convertible
debentures
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
90,328,573 |
|
|
|
90,328 |
|
|
|
- |
|
|
|
11,499 |
|
|
|
- |
|
|
|
101,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in August 2007 as payment towards convertible
debentures
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,568,802 |
|
|
|
11,569 |
|
|
|
|
|
|
|
(1,157 |
) |
|
|
- |
|
|
|
10,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants in September 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18,022,607 |
|
|
|
18,023 |
|
|
|
- |
|
|
|
13,201 |
|
|
|
- |
|
|
|
31,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in September 2007 for services rendered at $0.034 per
share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,650,000 |
|
|
|
26,650 |
|
|
|
- |
|
|
|
63,960 |
|
|
|
- |
|
|
|
90,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in October 2007 for services rendered at $0.029 per
share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
|
|
200 |
|
|
|
- |
|
|
|
5,600 |
|
|
|
- |
|
|
|
5,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15,619,897 |
) |
|
|
(15,619,897 |
) |
Balance,
December 31, 2007
|
|
|
3,650,000 |
|
|
$ |
3,650 |
|
|
|
150,000 |
|
|
$ |
150 |
|
|
$ |
552,342,881 |
|
|
$ |
552,343 |
|
|
$ |
- |
|
|
$ |
15,286,709 |
|
|
$ |
(41,087,239 |
) |
|
$ |
(25,244,387 |
) |
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX
CORPORATION
STATEMENT
OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
Class B Preferred
|
|
|
Class C Preferred
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Stock
|
|
|
Common
|
|
|
Stock
|
|
|
Subscription
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Receivable
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance,
forward
|
|
|
3,650,000 |
|
|
$ |
3,650.0 |
|
|
|
150,000 |
|
|
$ |
150 |
|
|
$ |
552,342,881 |
|
|
$ |
552,343 |
|
|
$ |
- |
|
|
$ |
15,286,709 |
|
|
$ |
(41,087,239 |
) |
|
$ |
(25,244,387 |
) |
Common
stock issued in January 2008 in connection with conversion of preferred
stock, Class A
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
100 |
|
|
|
- |
|
|
|
9,900 |
|
|
|
- |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in February 2008 for services rendered at $0.023 per
share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
100 |
|
|
|
- |
|
|
|
2,200 |
|
|
|
- |
|
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in conjunction with the issuance of debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,263,300 |
|
|
|
14,263 |
|
|
|
- |
|
|
|
370,845 |
|
|
|
- |
|
|
|
385,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
184,736 |
|
|
|
- |
|
|
|
184,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
126,212,123 |
|
|
|
126,212 |
|
|
|
- |
|
|
|
549,548 |
|
|
|
- |
|
|
|
675,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in settlement of debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,971,116 |
|
|
|
6,971 |
|
|
|
|
|
|
|
55,769 |
|
|
|
|
|
|
|
62,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services rendered
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
114,436,700 |
|
|
|
114,437 |
|
|
|
- |
|
|
|
817,523 |
|
|
|
- |
|
|
|
931,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11,323,482 |
)) |
|
|
(11,323,482 |
) |
|
|
|
3,650,000 |
|
|
$ |
3,650 |
|
|
|
150,000 |
|
|
$ |
150 |
|
|
$ |
814,426,120 |
|
|
$ |
814,426 |
|
|
$ |
- |
|
|
$ |
17,277,230 |
|
|
$ |
(52,410,721 |
) |
|
$ |
(34,315,264 |
) |
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOW
YEAR
ENDED DECEMBER 31, 2008 AND 2007
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income (loss) available to common stockholders
|
|
$ |
(11,323,481 |
) |
|
$ |
(15,619,897 |
) |
Adjustments
to reconcile net income (loss) to cash used in operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,617 |
|
|
|
27,706 |
|
Amortization
|
|
|
525,889 |
|
|
|
525,889 |
|
Impairment
loss
|
|
|
1,698,229 |
|
|
|
- |
|
Common
stock issued in connection issuance of debt
|
|
|
385,108 |
|
|
|
- |
|
Common
stock issued in connection with services rendered
|
|
|
941,000 |
|
|
|
123,910 |
|
Preferred
stock issued as compensation
|
|
|
- |
|
|
|
370,500 |
|
Gain
on repurchase and cancellation of warrants
|
|
|
|
|
|
|
(381,652 |
) |
Beneficial
conversion feature relating to convertible debenture
|
|
|
619,736 |
|
|
|
- |
|
Accretion
of convertible notes payable
|
|
|
1,569,697 |
|
|
|
1,873,298 |
|
Unrealized
(gain) loss on adjustment of derivative and warrant liability to fair
value of underlying securities
|
|
|
2,795,469 |
|
|
|
9,620,645 |
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(172,109 |
) |
|
|
99,270 |
|
Inventories
|
|
|
104,177 |
|
|
|
40,392 |
|
Prepaid
expenses and other assets
|
|
|
(23,309 |
) |
|
|
11,182 |
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
|
67,935 |
|
|
|
33,178 |
|
Accounts
payable
|
|
|
561,607 |
|
|
|
168,663 |
|
Accrued
liabilities
|
|
|
1,080,752 |
|
|
|
654,870 |
|
Net
cash (used in) operating activities
|
|
|
(1,184,710 |
) |
|
|
(2,452,046 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
cash acquired in connection with acquisition of Hybrid Lighting
Technologies, Inc
|
|
|
- |
|
|
|
150,000 |
|
Acquisition
of fixed assets
|
|
|
- |
|
|
|
(44,000 |
) |
Net
cash provided by (used in) investing activities:
|
|
|
- |
|
|
|
106,000 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of convertible debentures
|
|
|
525,000 |
|
|
|
1,000,000 |
|
Proceeds
from sale of common stock
|
|
|
675,760 |
|
|
|
|
|
Proceeds
from exercise of warrants
|
|
|
- |
|
|
|
158,723 |
|
Proceeds
from sale of warrants
|
|
|
- |
|
|
|
600,000 |
|
Net
proceeds (payments) from borrowing on long term basis
|
|
|
(3,202 |
) |
|
|
148,668 |
|
Net
proceeds (payments) to notes payable, related parties
|
|
|
5,759 |
|
|
|
43,469 |
|
Net
cash provided by (used in)
financing activities:
|
|
|
1,203,317 |
|
|
|
1,950,860 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
18,607 |
|
|
|
(395,186 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
626 |
|
|
|
395,812 |
|
Cash
and cash equivalents at end of period
|
|
$ |
19,233 |
|
|
$ |
626 |
|
|
|
|
|
|
|
|
|
|
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
|
|
$ |
2,795,469 |
|
|
$ |
9,620,645 |
|
Common
stock issued for services rendered
|
|
$ |
941,000 |
|
|
$ |
123,910 |
|
Preferred
stock issued as compensation
|
|
$ |
- |
|
|
$ |
370,500 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
A-SUMMARY OF ACCOUNTING POLICIES
General
A summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows:
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 December 31, 2008, the Company has accumulated losses
of $52,360,720.
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.
Acquisitions
On
December 28, 2006, the Company acquired SPE Technologies, Inc, a Florida
corporation, as a wholly owned subsidiary. SPE Technologies, Inc. was acquired
by issuance 100,000 shares of Class C 5% convertible preferred stock valued at
the time acquisition at $2,520,000.
The total
consideration paid was $2,520,000 and the significant components of the
transaction are as follows:
Preferred
Stock issued:
|
|
$
|
2,520,000
|
|
|
|
|
|
|
Cash
received
|
|
$
|
250,000
|
|
Patents
received
|
|
|
2,270,000
|
|
Liabilities
assumed
|
|
|
(
-
|
)
|
|
|
|
|
|
Net:
|
|
$
|
2,520,000
|
|
On
January 11, 2007, the Company acquired Hybrid Lighting Technologies, Inc, a
Florida corporation, as a wholly owned subsidiary. Hybrid Lighting Technologies,
Inc was acquired by issuance of 26,500,000 shares of its common stock and 50,000
shares of Class C 5% convertible preferred stock. The total value assigned at
the time of acquisition of $1,537,000.
The total
consideration paid was $1,537,000 and the significant components of the
transaction are as follows:
Common
stock issued:
|
|
$
|
768,500
|
|
Preferred
stock issued:
|
|
|
768,500
|
|
Preferred
Stock issued:
|
|
$
|
1,537,000
|
|
|
|
|
|
|
Cash
received
|
|
$
|
150,000
|
|
Patents
received
|
|
|
1,387,000
|
|
Liabilities
assumed
|
|
|
(
-
|
)
|
|
|
|
|
|
Net:
|
|
$
|
1,537,000
|
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
The
Company has adopted SFAS No. 142, “Goodwill and Other Intangible Assets”,
whereby the Company periodically tests its intangible assets for impairment. On
an annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets are tested for impairment, and write-downs
will be included in results from operations.
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 December 31, 2008 and 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.
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash
equivalents
For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
Foreign Currency
Translation
The
Company translates the foreign currency financial statements in accordance with
the requirements of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities are translated at current exchange
rates, and related revenue and expenses are translated at average exchange rates
in effect during the period. Resulting translation adjustments are recorded as a
separate component in stockholders' equity. Foreign currency translation gains
and losses are included in the statement of operations.
Accounts
Receivables
Accounts
Receivable are shown at December 31, 2008 and December 31, 2007 net of Allowance
for Doubtful Accounts in the amounts of $1,803 and $8,646. Our policy is to
provide an allowance when an Account becomes greater than 90 days past due. An
account is charged off when it is determined by management to be
uncollectible.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
The
Company presently utilizes the services of Prestige Capital to provide financing
for our Accounts Receivable invoices. Prestige Capital advances seventy-five
percent (75%) of the face value of the invoices submitted by the Company to
Prestige Capital for financing. Prestige Capital holds in reserve the remaining
twenty-five percent (25%) of the invoice value until the invoice is paid by the
invoiced company to Prestige. Provided that there are no outstanding chargebacks
or disputes, Prestige pays the reserve amount, less any financing fees due
Prestige, on the Friday following the week in which the invoice is collected by
Prestige from the Company receiving the invoice from the Company.
Prestige
Capital’s financing fees are based on the number of days an invoice is
outstanding from the date of the initial 75% advance payment. If the invoice is
paid by the invoiced company within 30 days, a financing fee of three percent
(3%) is paid to Prestige from the 25% reserve; if paid within 40 days a
financing fee of four percent (4%) is paid to Prestige; if paid within 50 days a
financing fee of five percent (5%) is paid to Prestige; if paid within 60 days a
financing fee of six percent (6%) is paid to Prestige; and an additional one
percent (1%) for each 10 day period thereafter until the invoice is paid by the
invoiced company.
Inventories
Inventories
are stated at the lower of cost or market determined by the average cost method.
The Company provides inventory allowances based on estimates of obsolete
inventories. Inventories consist of products available for sale to distributors
and customers as well as raw material.
Components
of inventories as of December 31, 2008 and 2007 are as follows:
|
|
2007
|
|
|
2007
|
|
Component
parts
|
|
$ |
34,632 |
|
|
$ |
151,940 |
|
Finished
goods
|
|
|
61,903 |
|
|
|
48,772 |
|
|
|
|
96.535 |
|
|
|
200,712 |
|
Less:
allowance for obsolete inventory
|
|
|
(43,333
|
) |
|
|
(43,333
|
) |
|
|
$ |
53,202 |
|
|
$ |
157,379 |
|
Property and
Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives as follows:
Furniture
and fixtures
|
|
7
years
|
Office
equipment
|
|
3
to 5 years
|
Leasehold
improvements
|
|
5
years
|
Manufacturing
equipment
|
|
3
years
|
Advertising
costs
The
Company expenses all costs of marketing and advertising as incurred. Marketing
and advertising costs totaled $6,356 and $20,437 for the year ended December 31,
2008 and 2007, respectively.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Research and
Development
The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs".
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. The Company expenditures
were $3,582 and $164,793 on research and product development for the year ended
December 31, 2008 and 2007, respectively.
Reclassification
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
Impairment of long lived
assets
The
Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
144). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SF AS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to
sell.
Fair
Values
On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value
Measurements” (SFAS No. 157) as amended by FASB Statement of Position (FSP)
FAS 157-1 and FSP FAS 157-2. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value, and enhances fair value measurement
disclosure. FSP FAS 157-2 delays, until the first quarter of fiscal year 2009,
the effective date for SFAS No. 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). The
adoption of SFAS No. 157 did not have a material impact on the Company’s
financial position or operations.
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 December 31, 2008 and
2007, allowance for doubtful receivable was $1,803 and $8,646,
respectively.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
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.
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.
Segment
reporting
The
Company follows Statement of Financial Accounting Standards No.130, Disclosures
About Segments of an Enterprise and Related Information. The Company operates as
a single segment and will evaluate additional segment disclosure requirements as
it expands its operations.
Income
taxes
The
Company follows Statement of Financial Accounting Standard No.109, Accounting
for Income Taxes (SFAS No.109) for recording the provision for income taxes.
Deferred tax assets and liabilities are computed based upon the difference
between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset or
liability is expected to be realized or settled. Deferred income tax expenses or
benefits are based on the changes in the asset or liability during each period.
If available evidence suggests that it is more likely than not that some portion
or all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of change. Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse
At
December 31, 2008, the Company has available for federal income tax purposes a
net operating loss carryforward of approximately $50,000,000, expiring in the
year 2023, that may be used to offset future taxable income. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earnings history of
the Company; it is more likely than not that the benefits will not be realized.
Due to significant changes in the Company's ownership, the future use of its
existing net operating losses may be limited. Components of deferred tax assets
as of December 31, 2008 are as follows:
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Income taxes
(continued)
Non
current:
|
|
|
|
Net
operating loss carry forward
|
|
$
|
17,500,000
|
|
Valuation
allowance
|
|
|
(17,500,000
|
)
|
Net
deferred tax asset
|
|
$
|
—
|
|
Patents
The
Company acquired in December 2006, for $2,294,000, 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 $525,889 and $525,889 for the
years ended December 31, 2008 and 2007, respectively. Patents are comprised of
the following:
December
31, 2007:
Description
|
|
Cost
|
|
|
Accumulated
amortization
and
impairments
|
|
|
Net
carrying
value
at
December
31,
2007
|
|
Development
costs
|
|
$ |
293,750 |
|
|
$ |
293,750 |
|
|
$ |
-0- |
|
Patents
|
|
|
2,294,224 |
|
|
|
327,746 |
|
|
|
1,966,478 |
|
Patents
|
|
|
1,387,000 |
|
|
|
198,143 |
|
|
|
1,188,857 |
|
Total
|
|
$ |
3,974,974 |
|
|
$ |
819,639 |
|
|
$ |
3,155,335 |
|
December
31, 2008:
Description
|
|
Cost
|
|
|
Accumulated
amortization
and
impairments
|
|
|
Net
carrying
value
at
December
31,
2008
|
|
Development
costs
|
|
$ |
293,750 |
|
|
$ |
293,750 |
|
|
$ |
-0- |
|
Patents
|
|
|
2,294,224 |
|
|
|
1,646,277 |
|
|
|
648,017 |
|
Patents
|
|
|
1,387,000 |
|
|
|
1,103,800 |
|
|
|
283,200 |
|
Total
|
|
$ |
3,974,974 |
|
|
$ |
3,043,757 |
|
|
$ |
931,218 |
|
During
the years ended December 31, 2008 and 2007, the Company management preformed an
evaluation of its intangible assets (Patents) for purposes of determining the
implied fair value of the assets at acquisition date(s). During the year ended
December 31, 2008, the tests indicated that the recorded remaining book value of
its patents exceeded their fair value, as determined by discounted cash flows
and accordingly recorded an impairment charge of $1,698,229 to current
operations. Considerable management judgment is necessary to estimate the fair
value. Accordingly, actual results could vary significantly from management’s
estimates.
2009
|
|
$
|
186,244
|
|
2010
|
|
|
186,244
|
|
2011
|
|
|
186,244
|
|
2012
|
|
|
186,244
|
|
2013
and thereafter
|
|
|
186,242
|
|
Total
|
|
$
|
931,218
|
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Comprehensive Income
(Loss)
The
Company adopted Statement of Financial Accounting Standards No. 130; “Reporting
Comprehensive Income” (SFAS) No. 130 establishes standards for the reporting and
displaying of comprehensive income and its components. Comprehensive income is
defined as the change in equity of a business during a period from transactions
and other events and circumstances from non-owners sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 requires other comprehensive
income (loss) to include foreign currency translation adjustments and unrealized
gains and losses on available for sale securities.
Liquidity
As shown
in the accompanying consolidated financial statements, the Company incurred net
loss from operations of $9,140,254 for the year ended December 31, 2008. The
Company's current liabilities exceeded its current assets by $10,061,456 as of
December 31, 2008.
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 362%; and risk free interest rate from 0.37% to 1.55%. 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 $816,856 in liquidation
damages.
Recent accounting
pronouncements
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. The Company does not expect the adoption of SFAS No. 141R in 2009
will have a material effect on its consolidated financial position, results of
operations or cash flows.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Recent accounting
pronouncements
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. The Company
does not expect the adoption of SFAS No. 160 in 2009 to have a material effect
on its consolidated financial position, results of operations or cash
flows.
In
December 2007, the FASB ratified the consensus in Emerging Issues Task Force
(EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements”
(EITF 07-1). EITF 07-1 defines collaborative arrangements and requires
collaborators to present the result of activities for which they act as the
principal on a gross basis and report any payments received from (made to) the
other collaborators based on other applicable authoritative accounting
literature, and in the absence of other applicable authoritative literature, on
a reasonable, rational and consistent accounting policy is to be elected.
EITF 07-1 also provides for disclosures regarding the nature and purpose of
the arrangement, the entity’s rights and obligations, the accounting policy for
the arrangement and the income statement classification and amounts arising from
the agreement.
EITF 07-1
will be effective for fiscal years beginning after December 15, 2008, which
will be the Company’s fiscal year 2009, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date.
The
Company does not expect the adoption of EITF 07-1in 2009 to have a material
effect on its consolidated financial position, results of operations or cash
flows.
In
June 2008, the FASB ratified the consensus on Emerging Issues Task Force
(EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature)
is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which is the first
part of the scope exception in paragraph 11(a) of SFAS No. 133, for
purposes of determining whether the instrument should be classified as an equity
instrument or accounted for as a derivative instrument. The provisions of EITF
Issue No. 07-5 are effective for financial statements issued for fiscal
years beginning after December 15, 2008 and will be applied retrospectively
through a cumulative effect adjustment to retained earnings for outstanding
instruments as of that date. The Company does not expect the adoption of EITF
07-05 to have a material effect on its consolidated financial position, results
of operations or cash flows.
In March
2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133” (“SFAS No. 161”). SFAS No. 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged. The Company does not expect the
adoption of SFAS No. 161 to have a material effect on its consolidated financial
position, results of operations or cash flows.
In April
2008, the FASB issued FSP No. FAS 142-3,“Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. The Company is required to adopt FSP 142-3 on January
1, 2009, earlier adoption is prohibited. The guidance in FSP 142-3
for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after adoption, and the
disclosure requirements shall be applied prospectively to all intangible assets
recognized as of, and subsequent to, adoption. The Company does not expect
the adoption of FSP No. FAS 142-3 to have a material effect on its consolidated
financial position, results of operations or cash flows.
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162"). SFAS No.
162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy). SFAS No.
162 will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles." The Company does not
expect the adoption of SFAS No. 162 to have a material effect on its
consolidated financial position, results of operations or cash
flows.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) " ("FSP APB 14-1"). FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate. FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 on a retroactive basis. The Company is currently evaluating the
potential impact, if any, of the adoption of FSP APB 14-1 on its
consolidated financial position, results of operations or cash
flows.
In May
2008, the FASB issued FASB Statement No. 163, “Accounting for Financial
Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60,
“Accounting and Reporting by Insurance Enterprises”, applies to financial
guarantee insurance contracts issued by insurance enterprises.
The standard is effective for financial statements issued for fiscal
years beginning after December 15, 2008, including interim periods in that year.
The Company does not expect the adoption of SFAS 163 to have a material effect
on its consolidated financial statements.
In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that
contain rights to receive non-forfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. The Company does
not expect the adoption of FSP EITF No. 03-6-1 to have a material effect on
its consolidated financial position, results of operations or cash
flows.
In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active.”
This position clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active. It also reaffirms the notion of fair value as an
exit price as of the measurement date. This position was effective upon
issuance, including prior periods for which financial statements have not been
issued. The adoption had no impact on the Company’s consolidated financial
statements.
In
December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets, which is effective for fiscal years ending
after December 15, 2009. FSP 132(R)-1 requires disclosures about fair value
measurements of plan assets that would be similar to the disclosures about fair
value measurements required by SFAS 157. The Company is assessing the potential
effect of the adoption of FSP 132(R)-1 on its consolidated financial
statements.
In
December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8,
Disclosures about Transfers of Financial Assets and Interests in Variable
Interest Entities. The FSP requires extensive additional disclosure by public
entities with continuing involvement in transfers of financial assets to
special-purpose entities and with variable interest entities (VIEs), including
sponsors that have a variable interest in a VIE. This FSP became effective for
the first reporting period ending after December 15, 2008 and did not have
any material impact on the Company's consolidated financial
statements.
In
January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue
No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue
No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends
the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest
Income and Impairment on Purchased Beneficial Interests and Beneficial Interests
that Continue to be Held by a Transferor in Securitized Financial Assets” to
achieve more consistent determination of whether an other-than-temporary
impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it
did not have a material impact on the consolidated financial
statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
B - PROPERTY, PLANT, AND EQUIPMENT
Property,
plant and equipment at December 31, 2008 and 2007 are as follows:
|
|
2008
|
|
|
2007
|
|
Furniture
and fixtures
|
|
$ |
56,348 |
|
|
$ |
56,348 |
|
Office
and computer equipment
|
|
|
62,061 |
|
|
|
62,061 |
|
Leasehold
improvements
|
|
|
21,989 |
|
|
|
21,989 |
|
Manufacturing
equipment
|
|
|
103,380 |
|
|
|
103,380 |
|
|
|
|
243,778 |
|
|
|
243,778 |
|
Less:
accumulated depreciation
|
|
|
(194,788
|
) |
|
|
(169,171
|
) |
|
|
$ |
48,990 |
|
|
$ |
74,607 |
|
During
the years ended December 31, 2008 and 2007, depreciation expense charged to
operations was $25,617 and $27,706, respectively.
NOTE
C - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2008 and 2007 are as
follows:
|
|
2008
|
|
|
2007
|
|
Accounts
payable
|
|
$ |
1,299,147 |
|
|
$ |
733,538 |
|
Accrued
interest and liquidation damages (see Note D below)
|
|
|
2,438,682 |
|
|
|
1,893,561 |
|
Accrued
payroll and payroll taxes
|
|
|
510,779 |
|
|
|
155,661 |
|
Other
accrued liabilities
|
|
|
476,424 |
|
|
|
295,911 |
|
Total
|
|
$ |
4,725,032 |
|
|
$ |
3,078,671 |
|
NOTE
D-CONVERTIBLE DEBENTURES
Notes
payable at December 31, 2008 and 2007:
|
|
December
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 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
|
|
|
25,000
|
|
-
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
-
|
|
$
|
1,094,091
|
|
$
|
1,094,091
|
|
$
|
158,665
|
|
$
|
935,426
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross
Principal
Amount
|
|
|
Less:
Unamortized
Discount
|
|
|
Net
|
|
|
Gross
Principal
Amount
|
|
|
Less:
Unamortized
Discount
|
|
|
Net
|
|
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 |
|
|
$ |
|
|
|
$ |
800,000 |
|
|
$ |
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 |
|
|
|
|
|
|
|
700,000 |
|
|
|
700,000 |
|
|
|
231,416 |
|
|
|
468,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
38,813 |
|
|
|
461,187 |
|
|
|
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 |
|
|
|
94,977 |
|
|
|
405,023 |
|
|
|
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 |
|
|
$ |
68,530 |
|
|
$ |
211,470 |
|
|
$ |
280,000 |
|
|
$ |
162,119 |
|
|
$ |
117,881 |
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Gross Principal
Amount
|
|
|
Less:
Unamortized
Discount
|
|
|
Net
|
|
|
Gross
Principal
Amount
|
|
|
Less:
Unamortized
Discount
|
|
|
Net
|
|
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 |
|
|
$ |
193,425 |
|
|
$ |
406,575 |
|
|
$ |
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 |
|
|
|
172,420 |
|
|
|
227,580 |
|
|
|
400,000 |
|
|
|
306,119 |
|
|
|
93,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
66,438 |
|
|
|
83,562 |
|
|
|
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 |
|
|
|
70,685 |
|
|
|
79,315 |
|
|
|
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 |
|
|
$ |
74,658 |
|
|
$ |
75,342 |
|
|
$ |
150,000 |
|
|
$ |
124,795 |
|
|
$ |
25,205 |
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Gross Principal
Amount
|
|
|
Less:
Unamortized
Discount
|
|
|
Net
|
|
|
Gross
Principal
Amount
|
|
|
Less:
Unamortized
Discount
|
|
|
Net
|
|
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 |
|
|
$ |
76,438 |
|
|
$ |
73,562 |
|
|
$ |
150,000 |
|
|
$ |
126,575 |
|
|
$ |
23,425 |
|
Total
|
|
|
5,501,591 |
|
|
|
(856,384
|
) |
|
|
4,645,207 |
|
|
|
5,476,591 |
|
|
|
(2,426,081
|
) |
|
|
3,050,510 |
|
Less:
current maturities:
|
|
|
5,501,591 |
|
|
|
(856,384
|
) |
|
|
4,645,207 |
|
|
|
5,476,591 |
|
|
|
(2,426,081
|
) |
|
|
3,050,510 |
|
Long
term portion
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
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
December 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
|
|
·
|
Change
of control
|
|
·
|
Trading
market limitations
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $158,665 and $135,609,
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
December 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $216,986 and $266,667,
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
December 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $231,416 and $233,333,
respectively.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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, 2008, 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
December 31, 2008 and 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 CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $167,123 and $166,667,
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
December 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
As of
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $167,123 and $166,667,
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
December 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
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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
December 31 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $93,589 and $93,333, 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
December 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:
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
|
·
|
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
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $200,548 and $200,000,
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
December 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $133,699 and $93,881,
respectively.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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
December 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
December 31, 2008 and 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 CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $50,137 and $33,425, respectively.
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
December 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
As of
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $50,137 and $29,178.
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
December 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
|
|
·
|
Change
of control
|
|
·
|
Trading
market limitations
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $50,137 and $25,205, respectively.
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
December 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:
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
|
·
|
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
|
|
·
|
Change
of control
|
|
·
|
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
December 31, 2008 and 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.
For the
year ended December 31, 2008 and 2007, the Company amortized the debt discount
and charged to interest expense $50,137 and $23,425, respectively.
As of
December 31, 2008, the Company has accrued $816,586 in default provision
liabilities and liquidated damages relating to the above described Securities
Purchase Agreements.
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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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
Company 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, 2008 and 2007,
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 $4,645,207 and $3,050,510 as of December 31, 2008 and
2007.
|
NOTE
E – WARRANT PAYABLE
NOTE
F-WARRANT LIABILITY
Total
warrant liability as of December 31, 2008 and 2007 is comprised of the
following:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Fair
value of warrants relating to convertible debentures
|
|
$ |
105,091 |
|
|
$ |
1,874,970 |
|
Fair
value of other outstanding warrants
|
|
|
149,951 |
|
|
|
2,634,568 |
|
Total
|
|
$ |
255,042 |
|
|
$ |
4,509,538 |
|
Warrants
were valued at the date of inception and at December 31, 2008 and 2007 using the
Black Scholes Option Pricing Model.
The
assumptions used at December 31, 2008 and 2007 were as follows:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Expected
volatility
|
|
|
362
|
% |
|
|
528
|
% |
Expected
dividend yield
|
|
|
-0-
|
% |
|
|
-0-
|
% |
Average
risk free rate
|
|
0.37%
to 1.55 |
% |
|
|
3.45
|
% |
Expected
life (a)
|
|
1.31 to 5.53 yrs
|
|
|
1.01 to 6.53 yrs
|
|
(a)The
expected option life is based on contractual expiration dates.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
G - NOTE PAYABLE
Note
payable as of December 31, 2008 and 2007, comprised of the
following:
|
|
December
31,
2008
|
|
|
December 31, 2007
|
|
Note
payable, 24% interest per annum; due in 90 days; secured by specific
accounts receivables
|
|
$ |
192,865 |
|
|
$ |
196,067 |
|
NOTE
H - NOTES AND CONVERTIBLE NOTES PAYABLE-RELATED PARTY
Notes
payable-related party is comprised of the following:
|
|
December 31,
2008
|
|
|
December 31,
2007
|
|
Notes
payable, 12% per annum; due on demand; unsecured
|
|
$ |
147,714 |
|
|
$ |
147,714 |
|
|
|
|
|
|
|
|
|
|
Notes
payable, 10% per annum, due on demand; unsecured
|
|
|
255,109 |
|
|
|
249,350 |
|
|
|
|
402,823 |
|
|
|
397,064 |
|
Less:
current maturities:
|
|
|
(402,823
|
) |
|
|
(397,064
|
) |
Long
term portion:
|
|
$ |
- |
|
|
$ |
- |
|
NOTE
I -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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
I -STOCKHOLDER'S EQUITY (continued)
Series A - Convertible
Preferred stock (continued)
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
nine months ended September 30, 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
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 nine month period ended September 30,
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:
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
I -STOCKHOLDER'S EQUITY (continued)
Series A - Convertible
Preferred stock (continued)
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 September 30, 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.
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,
increased subsequently to 3,650,000 in 2007.
In
January, 2004 and April 2007, the Company issued 800,000 and 2,850,000 shares,
respectively, of its Series B Preferred in lieu of certain accrued management
service fees payable and notes payable including interest payable thereon
totaling $1,170,500 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 in 2004 and $0.13 in 2007, 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
in 2004. None of the Series B Preferred shareholders have exercised their
conversion right and there are 3,650,000 shares of Series B Preferred shares
issued and outstanding at September 30, 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 September 30, 2008 $1,201,000 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."
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
I -STOCKHOLDER'S EQUITY (continued)
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
September 30, 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 September 30, 2008 $-0- in dividends were
accumulated.
Common
stock
The
Company has authorized 950,000,000 shares of common stock, with a par value of
$.001 per share. As of December 31, 2008 and 2007, the Company has
814,426,120 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
I -STOCKHOLDER'S EQUITY (continued)
Common stock
(continued)
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.
In June
2008, the Company issued 5,000,000 shares of its common stock in exchange for
services rendered. The Company valued the shares issued at $70,000, which
approximated the fair value of the shares issued during the periods the services
were rendered.
In July
2008, the Company issued 36,000,000 shares of its common stock in exchange for
services rendered. The Company valued the shares issued at $356,400, which
approximated the fair value of the shares issued during the periods the services
were rendered
In August
2008, the Company issued 35,736,700 shares of its common stock in exchange for
penalties incurred. The Company valued the shares issued at $428,840, which
approximated the fair value of the shares issued during the periods the services
were rendered
In August
2008, the Company issued 6,971,116 shares of its common stock in exchange for
accounts payable and other services. The Company valued the shares issued at
$62,740, which approximated the fair value of the shares issued during the
periods the services were rendered.
In
September 2008, the Company issued 2,200,000 shares of its common stock in
exchange for services rendered. The Company valued the shares issued at $14,520,
which approximated the fair value of the shares issued during the periods the
services were rendered.
In
October 2008, the Company issued 10,000,000 shares of its common stock in
exchange for services rendered. The Company valued the shares issued at $29,000,
which approximated the fair value of the shares issued during the periods the
services were rendered.
In
December 2008, the Company issued 25,500,000 shares of its common stock in
exchange for services rendered. The Company valued the shares issued at $33,200,
which approximated the fair value of the shares issued during the periods the
services were rendered.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
J -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
December 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
|
|
3.76
|
|
$
|
0.001
|
|
50,000,000
|
|
|
0.001
|
|
|
0.02
|
|
|
50,000,000
|
|
3.43
|
|
|
0.02
|
|
50,000,000
|
|
|
0.02
|
|
|
0.03
|
|
|
25,000,000
|
|
1.38
|
|
|
0.03
|
|
25,000,000
|
|
|
0.03
|
|
|
0.10
|
|
|
850,000
|
|
.0.49
|
|
|
0.10
|
|
850,000
|
|
|
0.10
|
|
|
0.055
|
|
|
49,760,443
|
|
3.39
|
|
|
0.055
|
|
49,760,443
|
|
|
0.055
|
(a)
|
|
|
|
|
175,610,443
|
|
|
|
|
|
|
175,610,443
|
|
|
|
|
|
(a)
|
See
terms of warrants issued below
|
Transactions
involving the Company’s warrant issuance are summarized as follows:
|
|
Number of Shares
|
|
|
Weighted Average
Price
Per Share
|
|
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
|
|
|
(350,000
|
) |
|
|
.75 |
|
Outstanding
at December 31, 2008
|
|
|
175,610,443 |
|
|
|
0.02 |
|
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.
In the
year ended December 31, 2007, the Company sold 50,000,000 five year warrants
with an exercise price of $0.001.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
J -STOCK OPTIONS AND WARRANTS (continued)
The
Company completed an equity financing with St. George Investments, LLC (SGI), an
Illinois limited liability company, on March 21, 2008 for $1,500,000. The
equity financing is structured as a 25% discount to market Warrant transaction
that provides $500,000 in capital at closing, followed by four traunches of
$250,000 each. Each $250,000 traunch is staggered at 60-day intervals
commencing in six months on September 22, 2008, which is the date that shares
are salable pursuant to Rule 144 upon exercise of the Warrant. The Company
issued 7,500,000 shares of Common Stock to SGI in order to induce the SGI to
purchase the $1,500,000 Warrant. In addition, 6,763,300 additional shares of
Common
Stock were issued as Performance Stock in the name of SGI to remain in their
original certificated form and remain in escrow with the law firm of Anslow
& Jaclin, LLP acting as escrow agent. As a provision of the Warrant
Purchase Agreement, we pledged 35,736,700 shares of “Pledge Stock” to be held in
escrow as a potential remedy in the event of the occurrence of certain
identified “trigger events”. On June 23rd, 2008,
one trigger event, the closing price of our stock, went below the identified
market price of $0.012 per share, triggering the release from escrow of the
6,763,300 shares of Performance Stock and the 35,736,700 shares of “Pledge
Stock”. This trigger event, as defined in the Warrant Purchase Agreement, also
increased the Warrant Account by 25% of the balance, or $375,000, in exchange
for the elimination of the 25% discount to market.
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 December 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
|
|
4.96
|
|
$ |
0.2125
|
|
2,000,000
|
|
$ |
0.2125
|
|
0.2125
|
|
|
2,000,000
|
|
5.37
|
|
|
0.2125
|
|
2,000,000
|
|
|
0.2125
|
|
0.022
|
|
|
20,500,000
|
|
7.87
|
|
|
0.022
|
|
20,500,000
|
|
|
0.022
|
|
0.0295
|
|
|
4,000,000
|
|
6.35
|
|
|
0.0295
|
|
4,000,000
|
|
|
0.0295
|
|
0.04
|
|
|
14,430,000
|
|
7.57
|
|
|
0.04
|
|
14,430,000
|
|
|
0.04
|
|
0.10
|
|
|
9,502,307
|
|
5.26
|
|
|
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 December 31, 2008
|
|
52,432,307
|
|
$
|
0.0562
|
|
The
Company did not grant employee stock options in the years ended December 31,
2008 and 2007.
NOTE
K -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 December 31, 2008 and 2007, the balance
due to the officers was $402,823 and $397,064, respectively.
NOTE
L -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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE L -COMMITMENTS AND
CONTINGENCIES (continued)
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 December
31, 2008, schedule of the future minimum lease payments is as
follows:
2009
|
|
|
88,020
|
|
2010
|
|
|
88,020
|
|
2011
|
|
|
88,020
|
|
2012
|
|
|
88,020
|
|
2013
|
|
|
-
|
|
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 December 31, 2008.
NOTE
M – FAIR VALUES
SFAS
No. 157 defines fair value as the price that would be received from selling
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and considers assumptions that market participants would
use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. SFAS No. 157 establishes a fair
value hierarchy that requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. SFAS
No. 157 establishes three levels of inputs that may be used to measure fair
value:
Level 1 -
Quoted prices in active markets for identical assets or
liabilities.
Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3 -
Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement is disclosed is determined based on the lowest level input that is
significant to the fair value measurement.
Items
recorded or measured at fair value on a recurring basis in the accompanying
financial statements consisted of the following items as of December 31,
2008:
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
M – FAIR VALUES (continued)
|
|
Total
|
|
Quoted
Prices in
Active
Markets for
Identical
Instruments
Level 1
|
|
Significant
Other
Observable
Inputs
Level 2
|
|
Significant
Unobservable
Inputs
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
$ |
(24,384,586 |
) |
|
|
|
|
$ |
(24,384,586 |
) |
Warrant
payable
|
|
|
(935,000 |
) |
|
|
|
|
|
(935,000 |
) |
Warrant
liability
|
|
|
(255,042 |
) |
|
|
|
|
|
(255,042 |
) |
Total
|
|
$ |
(25,574,628 |
|
|
|
|
|
$ |
(
25,574,628 |
) |
With the
exception of assets and liabilities included within the scope of FSP FAS No.
157-2, the Company adopted the provisions of SFAS No. 157 prospectively
effective as of the beginning of Fiscal 2008. For financial assets
and liabilities included within the scope of FSP FAS No. 157-2, the Company will
be required to adopt the provisions of SFAS No. 157 prospectively as of the
beginning of Fiscal 2009. The adoption of SFAS No. 157 did not have a
material impact on our financial position or results of operations, and the
Company do not believe that the adoption of FSP FAS No. 157-2 will have a
material impact on our financial position or results of operations.
NOTE
N- 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 December 31, 2008, the Company incurred accumulated
losses of $52,360,720. The Company’s current liabilities exceeded its current
assets by $10,496,454 as of December 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.
ITEM
8.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
ITEM
8A(T) – CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company’s management, under the supervision of the Company’s Chief Executive
Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. Disclosure controls and procedures mean our controls and other
procedures that are designed to ensure that information required to be disclosed
in the reports that we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms. Disclosure controls and procedures are
also designed to provide reasonable assurance that such information is
accumulated and communicated to our management, including the chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure. Our quarterly evaluation of disclosure
controls and procedures includes an evaluation of some components of our
internal control over financial reporting, and internal control over financial
reporting is also separately evaluated on an annual basis for purposes of
providing the management report that is set forth below. At the same time our
disclosure controls and procedures can identify weaknesses in our financial
reporting and control systems that require remediative action.
The
evaluation conducted included the design, as well as the implementation, of the
disclosure controls and procedures, and how the output produced was used in the
preparation of this Form 10-K. In the course of performing this
evaluation, particular attention was paid to identifying past, present and
potential occurrences of data errors, problems of control, and the potential for
fraud.
Our Chief
Executive Officer and Chief Financial Officer have concluded, based on the
evaluation of the effectiveness of the disclosure controls and procedures by our
management, that as of December 31, 2008, our disclosure controls and procedures
were not effective due to the material weakness described below, and because we
didn’t provide Management’s Report on Internal Control over Financial Reporting
as required by Item 308T(a) of regulation S-B
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for the establishment and maintenance of an adequate
system of internal controls over financial reporting pursuant to the Securities
and Exchange Act Rules 13a – 15(f) and 15d – 15(f). Internal control over
financial reporting is a process designed by, or under the supervision of, our
principal executive officer and principal financial officers, and affected by
our board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. Internal control over financial reporting
includes those policies and procedures that:
|
1.)
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of
assets.
|
|
2.)
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made
only in accordance with authorizations of management and the board of
directors.
|
|
3.)
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of assets that could have a
material effect on the financial
statements.
|
Our
evaluation addressed every activity performed within the Company including, but
not limited to, the collection, recording, storing, control and reporting of
financial data.
Because
of their inherent limitations, any system of internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may be come inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Our
management, including the Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our internal control over financial reporting as
of December 31, 2008, based on the framework defined in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Material
Weakness
Based on
our evaluation under COSO, management concluded that our internal control over
financial reporting was not effective as of December 31, 2008, due to a control
deficiency that we believe should be considered a material weakness. A material
weakness is defined within the Public Company Accounting Oversight Board’s
Auditing Standard No. 5 as a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company’s annual or interim
financial statements will not be prevented or detected on a timely
basis.
The
present accounting system does not provide for the efficient recording of raw
materials/work-in-process movements in and out of inventory. While our
evaluation process found no irregularities, the additional intervention on the
part of accounting department personnel to verify the transactions was
determined to be both cumbersome, but also presented the opportunity for
misstatement.
This
deficiency was resolved during the 1st Quarter
of 2008 with the acquisition and implementation of new accounting software. The
attention paid to inventory transaction work flow during the evaluation and
acquisition stage of software review, verified the correctness of data capture,
recording, storage, reporting and control of both the financial as well as
non-financial aspects of the transactions. Subsequent periodic testing of the
transactions has determined the accuracy and reliability of the
information.
Limitations
on Effectiveness of Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints and the
benefits of the controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. These inherent
limitations include the reality that judgments in decision making can be faulty,
and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, control may be come inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate.
This annual report does not include an
attestation report of our registered public accountants regarding internal
control over financial reporting, pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.
ITEM
8B.
|
OTHER
INFORMATION
|
None.
PART
III
ITEM
9
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE
REGISTRANT
|
Directors
and Executive Officers
Set forth
below are the directors and executive officers of the Company, their ages and
positions held with the Company, as follows
Name
|
|
Age
|
|
Position
|
Mark
D. Schmidt
|
|
44
|
|
President,
Chief Executive Officer and Director
|
John
W. Ringo
|
|
64
|
|
Chairman
of the Board of Directors, Secretary and Corporate
Counsel
|
Alan
H. Ninneman
|
|
65
|
|
Senior
Vice President and Director
|
David
D. Downing
|
|
58
|
|
Chief
Financial Officer Treasurer and
Director.
|
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. Currently there are three seats on
our board of directors.
Currently,
our Directors are not compensated for their services. Officers are
elected by the Board of Directors and serve until their successors are appointed
by the Board of Directors. Biographical resumes of each officer and director are
set forth below.
MARK D.
SCHMIDT. Mr. Schmidt became our Chief Executive Officer on
July 1, 2008. Mr. Schmidt was been our President, Chief Operating Officer and
Director since May 2003. From December 1999 until December 2002, Mr.
Schmidt was a founder and executive of Home Director, Inc., the IBM Home
Networking Division spin-off company and a public company. Mr.
Schmidt is a former IBM executive with over 15 years of consumer marketing,
business management and venture startup experience. Mr. Schmidt
graduated Summa Cum Laude with a Bachelor of Science Degree in Engineering from
North Carolina State University and earned an MBA Degree from the Fuqua School
of Business at Duke University.
JOHN W. RINGO. Mr.
Ringo became our Chairman of the Board on July 1, 2008. Mr. Ringo has been our
Secretary, Corporate Counsel and a Director since May 2000. Since
1990, Mr. Ringo has been in private practice in Marietta, GA specializing in
corporate and securities law. He is a former Staff Attorney with the
U. S. Securities and Exchange Commission, a member of the Bar of the Supreme
Court of the United States, the Kentucky Bar Association and the Georgia Bar
Association. Mr. Ringo graduated from the University of Kentucky in
Lexington, KY with a BA Degree in Journalism. Subsequently, he received a Juris
Doctor Degree from the University of Kentucky College of Law.
ALAN H.
NINNEMAN. Mr. Ninneman has been our Senior Vice President and
a Director since May 2000. From 1992 until April 2000, Mr. Ninneman
was a Chief Executive Officer of City Software, Inc. based in Albuquerque, New
Mexico. He was a senior support analyst for Tandem Computer, San
Jose, California from 1982 to 1985; senior business analyst at Apple Computer,
Cupertino, California from 1985 to 1987; and Director of Operations at Scorpion
Technologies, Inc., San Jose, California. Mr. Ninneman attended Elgin
Community College, Elgin, IL and subsequently majored in business administration
at Southern Illinois University, Carbondale, IL.
DAVID D.
DOWNING. Mr. Downing has been our Chief Financial Officer and
Treasurer since May 2000. He became a director in December 2008.Mr. Downing
joined Marietta Industrial Enterprises, Inc., Marietta, Ohio in November 1991 as
its Chief Financial Officer. He was elected to the Board of Directors of that
Company in January 1994. He has been a Director of American Business Parks,
Inc., Belpre, Ohio since January 1998 and served as a director of Agri-Cycle
Products, Inc. from May 1998 until April 2001. Mr. Downing graduated from Grove
City College, Grove City, PA with a BA Degree in Accounting.
Limitation
of Liability of Directors
Our
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Nevada law, our directors or officers shall not be personally liable to us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended, is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Election
of Directors and Officers.
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors have been elected and qualified. Officers are appointed to
serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.
No
Executive Officer or Director of the Company has been the subject of any order,
judgment, or decree of any Court of competent jurisdiction, or any regulatory
agency permanently or temporarily enjoining, barring suspending or otherwise
limiting him from acting as an investment advisor, underwriter, broker or dealer
in the securities industry, or as an affiliated person, director or employee of
an investment company, bank, savings and loan association, or insurance company
or from engaging in or continuing any conduct or practice in connection with any
such activity or in connection with the purchase or sale of any
securities.
No
Executive Officer or Director of the Company has been convicted in any criminal
proceeding (excluding traffic violations) or is the subject of a criminal
proceeding which is currently pending.
No
Executive Officer or Director of the Company is the subject of any pending legal
proceedings.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires Cyberlux Corporation executive officers and directors, and persons who
beneficially own more than ten percent of the Company’s common stock, to file
initial reports of ownership and reports of changes in ownership with the SEC.
Executive officers, directors and greater than ten percent beneficial owners are
required by SEC regulations to furnish Cyberlux Corporation with copies of all
Section 16(a) forms they file. Based upon a review of the copies of such forms
furnished to the Company and written representations from Company executive
officers and directors, the Company believes that during the year ended 2005,
the officers and directors filed all of their respective Section 16(a) reports
on a timely basis.
Audit
Committee
We do not
have an Audit Committee, our board of directors during 2007, performed some of
the same functions of an Audit Committee, such as: recommending a firm of
independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration of
the system of internal accounting controls. We do not currently have a written
audit committee charter or similar document.
Nominating
Committee
We do not have a Nominating Committee
or Nominating Committee Charter. Our board of directors performed some of the
functions associated with a Nominating Committee. We have elected not to have a
Nominating Committee at this time, however, our Board of Directors intend to
continually evaluate the need for a Nominating Committee.
Code
of Conduct
On March
4, 2005, we adopted a written code of conduct that governs all of our officers,
directors, employees and contractors. The code of conduct relates to
written standards that are reasonably designed to deter wrongdoing and to
promote:
|
(1)
|
Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
|
|
(2)
|
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that are filed with, or submitted to, the Commission and in
other public communications made by an
issuer;
|
|
(3)
|
Compliance
with applicable governmental laws, rules and
regulations;
|
|
(4)
|
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code;
and
|
|
(5)
|
Accountability
for adherence to the code.
|
Compensation
Committee
We
currently do not have a compensation committee of the board of directors. Until
a formal committee is established, if at all, our entire board of directors will
review all forms of compensation provided to our executive officers, directors,
consultants and employees including stock compensation and
loans.
ITEM
10.
|
EXECUTIVE
COMPENSATION
|
Termination
of Employment
There are
no compensatory plans or arrangements, including payments to be received from
the Company, with respect to any person associated with the Company which would
in any way result in payments to any such person because of his resignation,
retirement, or other termination of such person’s employment with the Company or
its subsidiaries, or any change in control of the Company, or a change in the
person’s responsibilities following a change in control of the
Company.
Executive
Compensation
The
following table sets forth the cash compensation of the Company’s newly elected
executive officers and directors during of the years 2008, 2007, 2006, 2005,
2004 and 2003. The remuneration described in the table represents compensation
received from Cyberlux Corporation and does not include the cost to the Company
of benefits furnished to the named executive officers, including premiums for
health insurance and other benefits provided to such individual that are
extended in connection with the conduct of the Company’s business. The value of
such benefits cannot be precisely determined, but the executive officers named
below did not receive other compensation in excess of the lesser of $50,000 or
10% of such officer’s cash compensation.
Summary
Compensation Table
Name & Principal Position
|
|
Year
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Other
Annual
Compen-
sation ($)
|
|
|
Restricted
Stock
Awards
($)
|
|
|
Options
SARs (#)
|
|
|
LTIP
Payouts
($)
|
|
All Other
Compensation
($)
|
Mark
D. Schmidt
|
|
2008
|
|
|
120,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
67,000,000 |
|
|
|
- |
|
|
CEO
& President
|
|
2007
|
|
|
180,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,000,000 |
|
|
|
- |
|
|
|
|
2006
|
|
|
180,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,500,000 |
|
|
|
- |
|
|
|
|
2005
|
|
|
180,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,000,000 |
|
|
|
- |
|
|
|
|
2004
|
|
|
120,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
650,000 |
|
|
|
- |
|
|
|
|
2003
|
|
|
120,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
550,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
W. Ringo
|
|
2008
|
|
|
36,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
48,000,000 |
|
|
|
- |
|
|
Secretary
& Corporate
|
|
2007
|
|
|
69,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,500,000 |
|
|
|
- |
|
|
Counsel
|
|
2006
|
|
|
42,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,000,000 |
|
|
|
- |
|
|
|
|
2005
|
|
|
76,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,500,000 |
|
|
|
- |
|
|
|
|
2004
|
|
|
70,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
400,000 |
|
|
|
- |
|
|
|
|
2003
|
|
|
102,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
250,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
H. Ninneman
|
|
2008
|
|
|
36,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
45,000,000 |
|
|
|
- |
|
|
Senior
Vice President
|
|
2007
|
|
|
69,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,500,000 |
|
|
|
- |
|
|
|
|
2006
|
|
|
42,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,000,000 |
|
|
|
- |
|
|
|
|
2005
|
|
|
76,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
- |
|
|
|
|
2004
|
|
|
70,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
400,000 |
|
|
|
- |
|
|
|
|
2003
|
|
|
102,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
250,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
D. Downing
|
|
2008
|
|
|
7,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,000,000 |
|
|
|
- |
|
|
CFO
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400,000 |
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,150,000 |
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
Annual
compensation began accruing in the form of management fees as of July 2000. The
compensation indicated in the table is the annualized amount of salary to be
paid the respective officers in accordance with their employment
agreements.
Name
|
|
Number of Securities
Underlying
Options/SARs Granted
(#)
|
|
|
% of Total
Options/SARs Granted
To Employees in Fiscal
Year
|
|
|
Exercise Price per
Share ($)
|
|
Base Expiration Date
|
Mark
D. Schmidt
|
|
|
57,000,000 |
|
|
|
17.98 |
% |
|
$ |
0.01 |
|
05/31/2017
|
|
|
|
10,000,000 |
|
|
|
14.29 |
% |
|
$ |
0.001 |
|
08/15/2018
|
John
W. Ringo
|
|
|
38,000,000 |
|
|
|
11.99 |
% |
|
$ |
0.01 |
|
05/31/2017
|
|
|
|
10,000,000 |
|
|
|
14.29 |
% |
|
$ |
.0001 |
|
08/15/2018
|
Alan
H. Ninneman
|
|
|
35,000,000 |
|
|
|
11.04 |
% |
|
$ |
0.01 |
|
05/31/2017
|
|
|
|
10,000,000 |
|
|
|
14.29 |
% |
|
|
.001 |
|
08/31/2018
|
David
D. Downing
|
|
|
10,000,000 |
|
|
|
3.15 |
% |
|
$ |
0.01 |
|
08/15/2018
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Stock
Option Plans
We have
created an Employee Stock Option Plan for incentive/retention of current key
employees and as an inducement to employment of new employees. The 2003 plan,
which sets aside 2,000,000 shares of common stock for purchase by employees, was
made effective by the Board of Directors.
On
September 2, 2003, our Board approved a 2004 Incentive Stock Option Plan, which
will provide 2,000,000 shares to underwrite options.
On April
8, 2004 our Board approved the 2005 Incentive Stock Option Plan that provides
for 12,000,000 shares to underwrite options and on January 10, 2005, the Board
approved the 2006 Plan that provides for 18,000,000 shares to underwrite
options. On October 31, our Board approved the 2007 Plan that
provides for 25,000,000 shares to underwrite options. On October 31,
2007, our Board approved the 2008 Plan that provides for 30,000,000 shares to
underwrite options.
The stock
option plans are administered directly by our board of directors.
Subject
to the provisions of the stock option plans, the board will determine who shall
receive stock options, the number of shares of common stock that may be
purchased under the options, the time and manner of exercise of options and
exercise prices.
As of
March 31, 2007, there were 27,513,237 stock options granted under the plans that
were outstanding.
On September 12, 2007, we
issued 26,650,000 shares of our common stock to our employees pursuant to an
Incentive Stock Grant Plan.
ITEM
11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
The
following table presents information, to the best of the Company’s knowledge,
about the beneficial ownership of its common stock on May 15 ,
2009, relating to the beneficial ownership of the Company’s common stock by
those persons known to beneficially own more than 5% of the Company’s capital
stock and by its directors and executive officers. The percentage of beneficial
ownership for the following table is based on 999,955,532
shares of common stock outstanding.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and does not necessarily indicate beneficial ownership for
any other purpose. Under these rules, beneficial ownership includes those shares
of common stock over which the stockholder has sole or shared voting or
investment power. It also includes shares of common stock that the stockholder
has a right to acquire within 60 days through the exercise of any option,
warrant or other right. The percentage ownership of the outstanding common
stock, however, is based on the assumption, expressly required by the rules of
the Securities and Exchange Commission, that only the person or entity whose
ownership is being reported has converted options or warrants into shares of our
common stock.
Name & Address of Owner
|
|
Title of Class
|
|
Number of Shares
Beneficially Owned
(1)
|
|
|
Percentage of
Class (2)
|
|
|
Total Votes Entitled
to be Cast on
Shareholder Matters
(3)
|
|
|
Percentage of
Total Votes on
Shareholder
Matters (4)
|
|
Mark
D. Schmidt
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Common Stock
|
|
|
16,128,280 |
(5) |
|
|
1.98 |
% |
|
|
178,864,180 |
(5) |
|
|
21.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
H. Ninneman
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Common Stock
|
|
|
9,892,986 |
(6) |
|
|
1.21 |
% |
|
|
85,646,686 |
(6) |
|
|
10.52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
W. Ringo
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Common Stock
|
|
|
9,752,986 |
(7) |
|
|
1.20 |
% |
|
|
113,054,886 |
(7) |
|
|
13.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
D. Downing
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Common Stock
|
|
|
8,500,000 |
(8) |
|
|
1.04 |
% |
|
|
56,707,500 |
(8) |
|
|
6.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
P. Brown
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Common Stock
|
|
|
11,628,980 |
|
|
|
1.43 |
% |
|
|
11,628,980 |
|
|
|
1.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larson
J. Isely
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Common Stock
|
|
|
8,250,000 |
|
|
|
1.01 |
% |
|
|
8,250,000 |
|
|
|
1.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Officers,Directors and Employees and Shareholders
As a
Group (6 persons)
|
|
Common Stock
|
|
|
64,153,232 |
|
|
|
7.88 |
% |
|
|
454,152,232 |
|
|
|
55.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
D. Schmidt
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Preferred B
|
|
|
1,377,359 |
|
|
|
37.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
H. Ninneman
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Preferred B
|
|
|
757,547 |
|
|
|
20.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
W. Ringo
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Preferred B
|
|
|
1,033,019 |
|
|
|
28.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
D. Downing
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
NC 27703
|
|
Preferred B
|
|
|
482,075 |
|
|
|
13.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Preferred B
|
|
|
3,650,000 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of May 15, 2009 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) For
purposes of calculating the percentage beneficially owned, the number of shares
of each class of stock deemed outstanding include 944,955,532 common shares and
4,650,000 Preferred "B" Shares outstanding as of May 15,
2009.
(3) This
column represents the total number of votes each named shareholder is entitled
to vote upon matters presented to the shareholders for a
vote.
(4) For
purposes of calculating the percentage of total votes on shareholder matters,
the total number of votes entitled to vote on matters submitted to shareholders
is 1,234,955,412, which includes: one vote for each share of common stock
currently outstanding (944,955,532); and 100 votes for each share of Series B
preferred stock outstanding (4,650,000 shares of Series B stock * 100
=.465,000,000).
(5)
Includes 1,627,359 shares of Series B convertible preferred stock convertible
into 16,275,590 shares of common stock and the right to cast 162,765,900
votes.
(6)
Includes 1,007,547shares of Series B convertible preferred stock convertible
into 10,075,470 shares of common stock and the right to cast
100,754,700 votes.
(7)
Includes 1,283,019 shares of Series B convertible preferred stock convertible
into 12,830,190 shares of common stock and the right to cast 128,301,900
votes.
(8)
Includes 732,075 shares of Series B convertible preferred stock convertible into
7,320,750 shares of common stock and the right to cast 73,207,500
votes.
(9)
Includes 4,650,000 shares of Series B convertible preferred stock convertible
into 46,500,000 shares of common stock and the right to cast 465,000,000
votes.
ITEM
12.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
We owed
certain management fees, which were for accrued salaries for Messrs. Evans,
Ninneman, Ringo and Schmidt consistent with employment agreements. These fees
were as follows: $400,505 to Don Evans, $243,000 to John Ringo, $263,000 to Alan
Ninneman and $101,000 to Mark Schmidt for a total of $1,007,505. In
addition, certain officers loaned funds to us in exchange for promissory notes.
The promissory notes included $3,745 to Al Ninneman and $184,830 to Dave
Downing.
In 2004,
we issued 800,000 shares of Series B Convertible Preferred Stock to officers and
directors in exchange for $723,670 of these management fees and $76,330 of the
loan from Dave Downing, on a basis of 1 share of Series B Convertible Preferred
Stock for $1 of debt owned. The management fees converted include $275,103 by
Don Evans, $166,915 by John Ringo, $180,652 to Alan Ninneman and $101,000 to
Mark Schmidt. These shares of Series B Convertible Preferred Stock have certain
conversion rights and superior voting privileges as further described in the
“Description of Securities” section herein. The Board of Directors,
exercising their business judgment, determined that it was in the Company’s best
interest to issue shares of Series B convertible preferred stock in lieu of
accrued management fees. The Board of Directors determined that the terms of the
transaction were as fair to the Company as any transactions that could have been
made with unaffiliated parties. . On June 17, 2007, the Board of
Directors amended the Certificate of Designation for the Series B Convertible
Preferred Stock and increased the number of shares to be issued to officers and
directors to 3, 650,000 shares. On January 22, 2009, the Board of Directors
amended the Certificate of Designation for the Series B Convertible Stock and
increased the number of shares to be issued to officers and directors to
4,650,000.
Currently,
there are still outstanding promissory notes totaling 397,064, which include
$249,350 in unpaid management fees and promissory notes to officers totaling
$147,714. The unpaid management fees include $90,916 owed to Don
Evans; $82,348 to Al Ninneman and $76,086 to John Ringo. The
outstanding promissory notes to officers include $17,745 to Al Ninneman, and
$113,969 to Dave Downing. The promissory notes were issued to
officers who lent us funds for working capital purposes. The
promissory notes are payable on demand and accrue interest at an annual rate of
12%.
We have
consulting agreements with outside contractors, certain of whom are also our
stockholders. The agreements are generally for a term of 12 months from
inception and renewable automatically from year to year unless either we or the
consultant terminates such engagement by written notice. None
of the consultants who are shareholders own 5% or more of our issued and
outstanding shares of common stock.
The terms
of transactions in this section are as fair to the Company as any transactions
that could have been made with unaffiliated parties.
We have
no policy regarding entering into transactions with affiliated
parties.
Exhibit No.
|
|
Description
|
|
|
|
3.1
|
|
Articles
of Incorporation, dated as of May 17, 2000, filed as an exhibit to the
registration statement on Form 10-SB filed with the Commission on December
17, 2001 and incorporated herein by reference.
|
|
|
|
3.2
|
|
Certificate
of Amendment to the Articles of Incorporation, dated as of April 3, 2003,
filed as an exhibit to the registration statement on Form SB-2 filed with
the Commission on April 30, 2003 and incorporated herein by
reference.
|
|
|
|
3.3
|
|
Bylaws
of Cyberlux Corporation, filed as an exhibit to the registration statement
on Form 10-SB filed with the Commission on December 17, 2001 and
incorporated herein by reference.
|
|
|
|
3.4
|
|
Certificate
of Designation of Series A Preferred Stock, filed as an exhibit to the
current report on Form 8-K filed with the Commission on January 8, 2004
and incorporated herein by reference.
|
|
|
|
4.1
|
|
Securities
Purchase Agreement, dated as of September 23, 2004, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit 4.1 to
the current report on Form 8-K filed with the Commission on September 29,
2004 and incorporated herein by reference.
|
|
|
|
4.2
|
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated September 23, 2004,
filed as Exhibit 4.2 to the current report on Form 8-K filed with the
Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.3
|
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated September
23, 2004, filed as Exhibit 4.3 to the current report on Form 8-K filed
with the Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.4
|
|
Secured
Convertible Note issued to AJW Partners, LLC, dated September 23, 2004,
filed as Exhibit 4.4 to the current report on Form 8-K filed with the
Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.5
|
|
Secured
Convertible Note issued to New Millennium Capital Partners II, LLC, dated
September 23, 2004, filed as Exhibit 4.5 to the current report on Form 8-K
filed with the Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.6
|
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated September 23,
2004, filed as Exhibit 4.6 to the current report on Form 8-K filed with
the Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.7
|
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated September
23, 2004, filed as Exhibit 4.7 to the current report on Form 8-K filed
with the Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.8
|
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated September 23, 2004,
filed as Exhibit 4.8 to the current report on Form 8-K filed with the
Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.9
|
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
September 23, 2004, filed as Exhibit 4.9 to the current report on Form 8-K
filed with the Commission on September 29, 2004 and incorporated herein by
reference.
|
4.10
|
|
Registration
Rights Agreement, dated as of September 23, 2004, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit 4.10 to
the current report on Form 8-K filed with the Commission on September 29,
2004 and incorporated herein by reference.
|
|
|
|
4.11
|
|
Security
Agreement, dated as of September 23, 2004, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit 4.11 to
the current report on Form 8-K filed with the Commission on September 29,
2004 and incorporated herein by reference.
|
|
|
|
4.12
|
|
Intellectual
Property Security Agreement, dated as of September 23, 2004, by and among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as
Exhibit 4.12 to the current report on Form 8-K filed with the Commission
on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.13
|
|
Guaranty
and Pledge Agreement, dated as of September 23, 2004, by and among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd., New Millennium Capital Partners II, LLC and Donald F.
Evans, filed as Exhibit 4.13 to the current report on Form 8-K filed with
the Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
|
4.14
|
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated October 20,
2004.
|
|
|
|
4.15
|
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated October 20,
2004.
|
|
|
|
4.16
|
|
Secured
Convertible Note issued to AJW Partners, LLC, dated October 20,
2004.
|
|
|
|
4.17
|
|
Secured
Convertible Note issued to New Millennium Capital Partners II, LLC, dated
October 20, 2004.
|
|
|
|
4.18
|
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated October 20,
2004.
|
|
|
|
4.19
|
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated October 20,
2004.
|
|
|
|
4.20
|
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated October 20,
2004.
|
|
|
|
4.21
|
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
October 20, 2004.
|
|
|
|
4.22
|
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated November 18,
2004.
|
|
|
|
4.23
|
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated November 18,
2004.
|
|
|
|
4.24
|
|
Secured
Convertible Note issued to AJW Partners, LLC, dated November 18,
2004.
|
|
|
|
4.25
|
|
Secured
Convertible Note issued to New Millennium Capital Partners II, LLC, dated
November 18, 2004.
|
|
|
|
4.26
|
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated November 18,
2004.
|
|
|
|
4.27
|
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated November
18, 2004.
|
|
|
|
4.28
|
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated November 18,
2004.
|
|
|
|
4.29
|
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
November 18, 2004.
|
4.30
|
|
Securities
Purchase Agreement, dated as of April 22, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as an exhibit to
the current report on Form 8-K filed with the Commission on April 28, 2005
and incorporated herein by reference.
|
|
|
|
4.31
|
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated April 22, 2005, filed
as an exhibit to the current report on Form 8-K filed with the Commission
on April 28, 2005 and incorporated herein by reference.
|
|
|
|
4.32
|
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated April 22,
2005, filed as an exhibit to the current report on Form 8-K filed with the
Commission on April 28, 2005 and incorporated herein by
reference.
|
|
|
|
4.33
|
|
Secured
Convertible Note issued to AJW Partners, LLC, dated April 22, 2005, filed
as an exhibit to the current report on Form 8-K filed with the Commission
on April 28, 2005 and incorporated herein by reference.
|
|
|
|
4.34
|
|
Secured
Convertible Note issued to New Millennium Capital Partners II, LLC, dated
April 22, 2005, filed as an exhibit to the current report on Form 8-K
filed with the Commission on April 28, 2005 and incorporated herein by
reference.
|
|
|
|
4.35
|
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated April 22, 2005,
filed as an exhibit to the current report on Form 8-K filed with the
Commission on April 28, 2005 and incorporated herein by
reference.
|
|
|
|
4.36
|
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated April 22,
2005, filed as an exhibit to the current report on Form 8-K filed with the
Commission on April 28, 2005 and incorporated herein by
reference.
|
|
|
|
4.37
|
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated April 22, 2005, filed
as an exhibit to the current report on Form 8-K filed with the Commission
on April 28, 2005 and incorporated herein by reference.
|
|
|
|
4.38
|
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
April 22, 2005, filed as an exhibit to the current report on Form 8-K
filed with the Commission on April 28, 2005 and incorporated herein by
reference.
|
|
|
|
4.39
|
|
Registration
Rights Agreement, dated as of April 22, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as an exhibit to
the current report on Form 8-K filed with the Commission on April 28, 2005
and incorporated herein by reference.
|
|
|
|
4.40
|
|
Security
Agreement, dated as of April 22, 2005, by and among Cyberlux Corporation,
AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New
Millennium Capital Partners II, LLC, filed as an exhibit to the current
report on Form 8-K filed with the Commission on April 28, 2005 and
incorporated herein by reference.
|
|
|
|
4.41
|
|
Intellectual
Property Security Agreement, dated as of April 22, 2005, by and among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as an
exhibit to the current report on Form 8-K filed with the Commission on
April 28, 2005 and incorporated herein by reference.
|
|
|
|
4.42
|
|
Guaranty
and Pledge Agreement, dated as of April 22, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd., New Millennium Capital Partners II, LLC and Donald F. Evans, filed
as an exhibit to the current report on Form 8-K filed with the Commission
on April 28, 2005 and incorporated herein by
reference.
|
4.1
|
|
Securities
Purchase Agreement, dated as of October 23, 2005, by and
among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified
Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital
Partners II, LLC.
|
|
|
|
4.2
|
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated October 23,
2005.
|
|
|
|
4.3
|
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated October 23,
2005.
|
|
|
|
4.4
|
|
Secured
Convertible Note issued to AJW Partners, LLC, dated October 23,
2005.
|
|
|
|
4.5
|
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC.
|
|
|
|
4.6
|
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated October 23,
2005.
|
|
|
|
4.7
|
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated October 23,
2005.
|
|
|
|
4.8
|
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated October 23,
2005.
|
|
|
|
4.9
|
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated
October 23, 2005.
|
|
|
|
4.10
|
|
Registration
Rights Agreement, dated as of October 23, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
|
4.11
|
|
Security
Agreement, dated as of October 23, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
|
4.12
|
|
Intellectual
Property Security Agreement, dated as of October 23, 2005, by and among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II,
LLC.
|
|
|
|
|
|
|
5.1
|
|
Sichenzia
Ross Friedman Ference LLP Opinion and Consent, filed as an exhibit to the
registration statement on Form SB-2 filed with the Commission on May 20,
2005 and incorporated herein by reference.
|
|
|
|
10.1
|
|
Donald
F. Evans Employment Agreement, dated as of July 1, 2000, filed as an
exhibit to the registration statement on Form 10-SB filed with the
Commission on December 17, 2001 and incorporated herein by
reference.
|
|
|
|
10.2
|
|
Alan
H. Ninneman Employment Agreement, dated as of July 1, 2000, filed as an
exhibit to the registration statement on Form 10-SB filed with the
Commission on December 17, 2001 and incorporated herein by
reference.
|
|
|
|
10.3
|
|
John
W. Ringo Employment Agreement, dated as of July 1, 2000, filed as an
exhibit to the registration statement on Form 10-SB filed with the
Commission on December 17, 2001 and incorporated herein by
reference.
|
|
|
|
10.4
|
|
Donald
F. Evans Amended Employment Agreement, dated as of January 1, 2003, filed
as an exhibit to the registration statement on Form SB-2 filed with the
Commission on April 30, 2003 and incorporated herein by
reference.
|
10.5
|
|
Alan
H. Ninneman Amended Employment Agreement, dated as of January 1, 2003,
filed as an exhibit to the registration statement on Form SB-2 filed with
the Commission on April 30, 2003 and incorporated herein by
reference.
|
|
|
|
10.6
|
|
John
W. Ringo Amended Employment Agreement, dated as of January 1, 2003, filed
as an exhibit to the registration statement on Form SB-2 filed with the
Commission on April 30, 2003 and incorporated herein by
reference.
|
|
|
|
10.7
|
|
Mark
D. Schmidt Employment Agreement, dated as of May 1, 2003, filed as an
exhibit to the quarterly report on Form 10-QSB filed with the Commission
on August 19, 2003 and incorporated herein by
reference.
|
|
|
|
10.8
|
|
Proprietary
Product Manufacturing Agreement, dated as April 24, 2001, by and between
Cyberlux Corporation and Shelby County Community Services, Inc., filed as
an exhibit to the registration statement on Form 10-SB filed with the
Commission on December 17, 2001 and incorporated herein by
reference.
|
|
|
|
10.9
|
|
Design
Agreement, dated as of March 2, 2001, by and between Cyberlux Corporation
and ROBRADY Design, filed as an exhibit to the registration statement on
Form 10-SB/A filed with the Commission on February 4, 2001 and
incorporated herein by reference.
|
|
|
|
10.10
|
|
Series
A Convertible Preferred Stock Purchase Agreement, dated as of December 31,
2003, by and among Cyberlux Corporation and the purchasers set forth
therein, filed as an exhibit to the current report on Form 8-K filed with
the Commission on January 8, 2004 and incorporated herein by
reference.
|
|
|
|
10.11
|
|
Registration
Rights Agreement, dated as of December 31, 2003, by and among Cyberlux
Corporation and the purchasers of Series A Convertible Preferred Stock set
forth therein, filed as an exhibit to the current report on Form 8-K filed
with the Commission on January 8, 2004 and incorporated herein by
reference.
|
|
|
|
10.12
|
|
Form
of Series A Warrant issued in connection with the sale of Series A
Convertible Preferred Stock, filed as an exhibit to the current report on
Form 8-K filed with the Commission on January 8, 2004 and incorporated
herein by reference.
|
|
|
|
10.13
|
|
Form
of Series B Warrant issued in connection with the sale of Series A
Convertible Preferred Stock, filed as an exhibit to the current report on
Form 8-K filed with the Commission on January 8, 2004 and incorporated
herein by reference.
|
|
|
|
10.14
|
|
Lock-up
Agreement, dated as of December 31, 2003, by and among Cyberlux
Corporation and certain officers and directors of Cyberlux Corporation,
filed as an exhibit to the current report on Form 8-K filed with the
Commission on January 8, 2004 and incorporated herein by
reference.
|
|
|
|
14.1
|
|
Code
of Conduct, filed as an exhibit to the annual report on Form 10-K filed
with the Commission on April 15, 2005 and incorporated herein
by reference.
|
|
|
|
23.1
|
|
Consent
of Turner Jones & Associates, PLLC
|
|
|
|
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 and Chief
Financial Officer)
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Audit
Fees
The
aggregate fees billed for professional services rendered by Turner Jones &
Associates, PLLC for the audit of the registrant's annual financial
statements and review of the financial statements included in the registrant's
Form 10-QSB or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for fiscal years
2008 and 2007 were $65.000 and $65,000 respectively.
Audit-Related
Fees
None.
Tax
Fees
None.
All
Other Fees
None.
Policy
On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services Of
Independent Auditors
We
currently do not have a designated Audit Committee, and accordingly, our Board
of Directors' policy is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a
specific budget. The independent auditors and management are required to
periodically report to our Board of Directors regarding the extent of services
provided by the independent auditors in accordance with this pre-approval, and
the fees for the services performed to date. The Board of Directors may also
pre-approve particular services on a case-by-case basis.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on our behalf by the undersigned, thereunto duly
authorized.
|
CYBERLUX
CORPORATION
|
|
|
|
|
Dated: May
15, 2009
|
By:
|
/s/ MARK D. SCHMIDT
|
|
|
Mark
D. Schmidt
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
|
|
|
Dated: May
15, 2009
|
By:
|
/s/ DAVID D. DOWNING
|
|
|
David
D. Downing
|
|
Chief
Financial Officer (Principal Financial
Officer)
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/ MARK D. SCHMIDT
|
|
President,
Chief Executive Officer and Director
|
|
May
15, 2009
|
Mark D. Schmidt
|
|
|
|
|
|
|
|
|
|
/s/ JOHN W. RINGO
|
|
Secretary,
Corporate Counsel and Chairman of the Board
|
|
May
15 2009
|
John
W. Ringo
|
|
|
|
|
|
|
|
|
|
/s/ ALAN H. NINNEMAN
|
|
Senior
Vice President and Director
|
|
May
15, 2009
|
|
|
|
|
|