Unassociated Document
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10QSB
(Mark
One)
x Quarterly
report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
quarterly period ended March 31, 2009.
o Transition
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from ____________ to ______________
For the
Period Ended March 31, 2009
Commission
file number 000-33415
CYBERLUX
CORPORATION
(Name of
Small Business Issuer in Its Charter)
|
Nevada
|
|
91-2048978 |
|
(State of
Incorporation)
|
|
(IRS Employer
Identification No.) |
4625
Creekstone Drive
Suite
130
Research
Triangle Park
Durham,
NC 27703
(Address
of Principal Executive Offices)
(919)
474-9700
Issuer's
Telephone Number
Indicate
by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
|
Large
accelerated Filer o
|
accelerated
filer o
|
non-accelerated
filer o
|
Smaller reporting
Company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
Number of
shares outstanding of the issuer’s Common Stock as of May 20,
2009: 999,955,532
CYBERLUX
CORPORATION
Quarterly
Report on Form 10-Q for the
Quarterly
Period Ending March 31, 2009
Table of
Contents
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PART
I. FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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Condensed
Consolidated Balance Sheets:
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March
31, 2009 (Unaudited) and December 31, 2008 (Audited)
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3
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Condensed
Consolidated Statements of Losses:
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Three
months ended March 31, 2009 and 2008 (Unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows:
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Three
months ended March 31, 2009 and 2008 (Unaudited)
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5
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Notes
to Unaudited Condensed Consolidated Financial Information:
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March
31, 2009
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6-36
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Item
2.
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Management
Discussion and Analysis
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37
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Item
3.
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Controls
and Procedures
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42
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PART
II. OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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43
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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43
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Item
3.
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Defaults
Upon Senior Securities
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44
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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44
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Item
5.
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Other
Information
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44
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Item
6.
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Exhibits
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44
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Signatures
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45
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CYBERLUX
CORPORATION
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|
CONDENSED CONSOLIDATED
BALANCE SHEETS
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|
March
31,
|
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|
December
31,
|
|
|
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|
2009
|
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|
2008
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|
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|
(unaudited)
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ASSETS
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|
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|
Current
assets:
|
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$ |
25,082 |
|
|
$ |
260 |
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$1,803
|
|
|
37,717 |
|
|
|
249,924 |
|
|
Inventories,
net of allowance of $43,333
|
|
|
48,377 |
|
|
|
53,202 |
|
|
Other
current assets
|
|
|
81,434 |
|
|
|
32,198 |
|
|
Total
current assets
|
|
|
192,610 |
|
|
|
335,584 |
|
|
|
|
|
|
|
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Property,
plant and equipment, net of accumulated depreciation of $199,647 and
$194,788, respectively
|
|
|
44,132 |
|
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|
48,990 |
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Other
assets
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Deposits
|
|
|
25,511 |
|
|
|
25,511 |
|
|
Patents
and development costs, net of accumulated amortization and write off of
$3,090,318 and $3,043,756, respectively
|
|
|
884,656 |
|
|
|
931,217 |
|
|
Total
other assets
|
|
|
910,167 |
|
|
|
956,728 |
|
|
|
|
|
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|
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Total
Assets
|
|
$ |
1,146,909 |
|
|
$ |
1,341,302 |
|
|
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LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
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|
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|
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Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
$ |
57,088 |
|
|
$ |
41,113 |
|
|
Accounts
payable
|
|
|
1,503,158 |
|
|
|
1,239,145 |
|
|
Accrued
liabilities
|
|
|
3,716,476 |
|
|
|
3,425,885 |
|
|
Short-term
notes payable - related parties
|
|
|
427,443 |
|
|
|
402,823 |
|
|
Short-term
notes payable
|
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|
12,101 |
|
|
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192,865 |
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Warrant
payable
|
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|
805,768 |
|
|
|
935,000 |
|
|
Short-term
convertible notes payable
|
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|
4,879,637 |
|
|
|
4,645,207 |
|
|
Total
current liabilities
|
|
|
11,401,671 |
|
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|
10,882,038 |
|
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Long-term
liabilities:
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|
|
|
|
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|
Derivative
liability relating to convertible debentures
|
|
|
29,423,238 |
|
|
|
24,384,586 |
|
|
Warrant
liability relating to convertible debentures
|
|
|
271,030 |
|
|
|
255,042 |
|
|
Total
long-term liabilities
|
|
|
29,694,268 |
|
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|
24,639,628 |
|
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|
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Total
liabilities
|
|
|
41,095,939 |
|
|
|
35,521,666 |
|
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|
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|
|
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Commitments
and Contingencies
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Redeemable
Series A convertible preferred stock, $0.001 par value; 200 shares
designated, 26.9806 issued and outstanding as of March 31, 2009 and
December 31, 2008; liquidation preference of $219,892 as of March 31, 2009
and December 31, 2008
|
|
|
134,900 |
|
|
|
134,900 |
|
|
|
|
|
|
|
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DEFICIENCY
IN STOCKHOLDERS' EQUITY
|
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|
Class
B convertible preferred stock, $0.001 par value, 4,650,000 shares
designated; 4,650,000 and 3,650,000 shares issued and outstanding as of
March 31, 2009 and December 31, 2008, respectively; liquidation preference
of $4,650,000 and $3,650,000 as of March 31, 2009 and December
31, 2008, respectively
|
|
|
4,650 |
|
|
|
3,650 |
|
|
Class
C convertible preferred stock, $0.001 par value, 700,000 shares
designated; 150,000 shares issued and outstanding as of March 31, 2009 and
December 31, 2008, liquidation preference of $4,034,374 and $3,992,333, as
of March 31, 2009 and December 31, 2008, respectively
|
|
|
150 |
|
|
|
150 |
|
|
Common
stock, $0.001 par value, 950,000,000 shares authorized; 944,955,532 and
814,426,120 shares issued and outstanding as of March 31, 2009 and
December 31, 2008, respectively
|
|
|
944,956 |
|
|
|
814,426 |
|
|
Additional
paid-in capital
|
|
|
17,394,433 |
|
|
|
17,277,230 |
|
|
Accumulated
deficit
|
|
|
(58,428,119 |
) |
|
|
(52,410,720 |
) |
|
Deficiency
in stockholders' equity
|
|
|
(40,083,930 |
) |
|
|
(34,315,264 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and (deficiency) in stockholders' equity
|
|
$ |
1,146,909 |
|
|
$ |
1,341,302 |
|
|
|
|
|
|
|
|
|
|
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|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
|
CYBERLUX
CORPORATION
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
|
|
Three
months ended
March
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
REVENUE:
|
|
$ |
44,316 |
|
|
$ |
186,839 |
|
|
Cost
of goods sold
|
|
|
(19,485 |
) |
|
|
(104,563 |
) |
|
Gross
margin
|
|
|
24,831 |
|
|
|
82,276 |
|
|
|
|
|
|
|
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|
|
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|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,858 |
|
|
|
6,979 |
|
|
Research
and development
|
|
|
79 |
|
|
|
152 |
|
|
General
and administrative expenses
|
|
|
573,263 |
|
|
|
715,078 |
|
|
Total
operating expenses
|
|
|
578,200 |
|
|
|
722,209 |
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM OPERATIONS
|
|
|
(553,369 |
) |
|
|
(639,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss relating to adjustment of derivative and warrant liability to fair
value of underlying securities
|
|
|
(5,054,640 |
) |
|
|
(255,988 |
) |
|
Interest
expense, net
|
|
|
(409,330 |
) |
|
|
(796,642 |
) |
|
Debt
acquisition costs
|
|
|
- |
|
|
|
(459,921 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(6,017,339 |
) |
|
|
(2,152,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income
taxes (benefit)
|
|
|
60 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
AVAILABLE TO COMMON STOCKHOLDERS
|
|
$ |
(6,017,399 |
) |
|
$ |
(2,152,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic and fully
diluted
|
|
|
643,052,619 |
|
|
|
557,490,415 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share-basic and fully diluted
|
|
$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
$ |
24,000 |
|
|
$ |
24,000 |
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
|
CYBERLUX
CORPORATION
|
|
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOW
|
|
(Unaudited)
|
|
|
|
Three
months ended
March
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income (loss) available to common stockholders
|
|
$ |
(6,017,399 |
) |
|
$ |
(2,152,484 |
) |
|
Adjustments
to reconcile net income (loss) to cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,858 |
|
|
|
6,979 |
|
|
Amortization
|
|
|
46,561 |
|
|
|
131,472 |
|
|
Common
stock issued in connection issuance of debt
|
|
|
- |
|
|
|
385,108 |
|
|
Common
stock issued in connection for services rendered
|
|
|
- |
|
|
|
2,300 |
|
|
Series
B preferred stock issued for services rendered
|
|
|
18,000 |
|
|
|
- |
|
|
Beneficial
conversion feature relating to convertible debenture
|
|
|
- |
|
|
|
184,736 |
|
|
Accretion
of convertible notes payable
|
|
|
234,430 |
|
|
|
454,925 |
|
|
Unrealized
(gain) loss on adjustment of derivative and warrant liability to fair
value of underlying securities
|
|
|
5,054,640 |
|
|
|
255,988 |
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
31,443 |
|
|
|
5,712 |
|
|
Inventories
|
|
|
4,825 |
|
|
|
14,106 |
|
|
Prepaid
expenses and other assets
|
|
|
(49,236 |
) |
|
|
(9,776 |
) |
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
|
15,975 |
|
|
|
(33,178 |
) |
|
Accounts
payable
|
|
|
264,013 |
|
|
|
117,712 |
|
|
Accrued
liabilities
|
|
|
316,841 |
|
|
|
222,789 |
|
|
Net
cash (used in) operating activities
|
|
|
(75,049 |
) |
|
|
(413,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of convertible debentures
|
|
|
- |
|
|
|
500,000 |
|
|
Proceeds
from sale of common stock
|
|
|
75,251 |
|
|
|
|
|
|
Net
proceeds (payments) from borrowing on long term basis
|
|
|
- |
|
|
|
(26,214 |
) |
|
Net
proceeds (payments) to notes payable, related parties
|
|
|
24,620 |
|
|
|
10,759 |
|
|
Net
cash provided by (used in)
financing activities:
|
|
|
99,871 |
|
|
|
484,545 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
24,822 |
|
|
|
484,545 |
|
|
Cash
and cash equivalents at beginning of period
|
|
|
260 |
|
|
|
626 |
|
|
Cash
and cash equivalents at end of period
|
|
$ |
25,082 |
|
|
$ |
485,171 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$ |
- |
|
|
$ |
- |
|
|
Income
Taxes Paid
|
|
$ |
60 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Unrealized
(gain) loss in adjustment of derivative and warrant liability to fair
value of underlying securities
|
|
$ |
5,054,640 |
|
|
$ |
255,988 |
|
|
Series
B preferred stock issued for services rendered
|
|
$ |
18,000 |
|
|
$ |
- |
|
|
Common
stock issued for services rendered
|
|
$ |
- |
|
|
$ |
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES
General
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.
In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Accordingly,
the results from operations for the three month period ended March 31, 2009, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2009. The unaudited condensed financial statements should be
read in conjunction with the December 31, 2008 financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 2008.
Business and Basis of
Presentation
Cyberlux
Corporation (the "Company") is incorporated on May 17, 2000 under the laws of
the State of Nevada. Until December 31, 2004, the Company was a development
state enterprise as defined under Statement on Financial Accounting Standards
No.7, Development Stage Enterprises ("SFAS No.7"). The Company develops,
manufactures and markets long-term portable lighting products for commercial and
industrial users. While the Company has generated revenues from its sale of
products, the Company has incurred expenses, and sustained losses. Consequently,
its operations are subject to all risks inherent in the establishment of a new
business enterprise. As of March 31, 2009, the Company has accumulated losses of
$58,428,119.
The
consolidated financial statements include the accounts of its wholly owned
subsidiaries, SPE Technologies, Inc. and Hybrid Lighting Technologies, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Revenue
Recognition
Revenues
are recognized in the period that products are provided. For revenue from
product sales, the Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which superseded
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
("SAB101"). SAB 101 requires that four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the selling price is fixed and determinable; and (4)
collectability is reasonably assured. Determination of criteria (3) and (4) are
based on management's judgments regarding the fixed nature of the selling prices
of the products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund will
be required. At September 30, 2008 and December 31, 2007, the Company did not
have any deferred revenue.
SAB 104
incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”), MULTIPLE
DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21 on
the Company’s financial position and results of operations was not
significant.
Reclassification
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE A-SUMMARY OF ACCOUNTING POLICIES
(continued)
Concentrations of Credit
Risk
Financial
instruments and related items which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess of
the FDIC insurance limit. The Company periodically reviews its trade receivables
in determining its allowance for doubtful accounts. At March 31, 2009 and
December 31, 2008, allowance for doubtful receivable was $1,803.
Stock based
compensation
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R (revised 2004), Share-Based Payment" which is a revision of
FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
approach in Statement 123R is similar to the approach described in Statement
123. However, Statement 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro-forma disclosure is no longer an
alternative. This statement does not change the accounting guidance for share
based payment transactions with parties other than employees provided in
Statement of Financial Accounting Standards No. 123(R). This statement does not
address the accounting for employee share ownership plans, which are subject to
AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock
Ownership Plans.” On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company had to comply with Statement 123R and use the Fair Value based
method of accounting no later than the first quarter of 2006. The Company
implemented SFAS No. 123(R) on January 1, 2006 using the modified
prospective method. The fair value of each option grant issued after January 1,
2006 was determined as of grant date, utilizing the Black-Scholes option pricing
model. The amortization of each option grant will be over the remainder of the
vesting period of each option grant.
As more
fully described in Note H, the Company granted stock options over the years to
employees of the Company under a non-qualified employee stock option plan. As of
March 31, 2009, 52,432,307 stock options were outstanding and
exercisable.
In prior
years, the Company applied the intrinsic-value method prescribed in Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees,” to account for the issuance of stock options to employees and
accordingly compensation expense related to employees’ stock options were
recognized in the prior year financial statements to the extent options granted
under stock incentive plans had an exercise price less than the market value of
the underlying common stock on the date of grant.
Net Income (loss) Per Common
Share
The
Company computes earnings per share under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (“SFAS 128”). Net earnings (losses) per
common share is computed by dividing net income (loss) by the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding during the period. Dilutive common stock equivalents consist of
shares issuable upon conversion of convertible preferred shares and the exercise
of the Company's stock options and warrants (calculated using the treasury stock
method). During the three month periods ended March 31, 2009 and 2008, common
stock equivalents are not considered in the calculation of the weighted average
number of common shares outstanding because they would be anti-dilutive, thereby
decreasing the net loss per common share.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE A-SUMMARY OF ACCOUNTING POLICIES
(continued)
Patents
The
Company acquired in December 2006, for $2,270,000, and January 2007, for
$1,387,000, patents in conjunction with the acquisitions of SPE Technologies,
Inc and Hybrid Lighting Technologies, Inc, respectively. The patents have an
estimated useful life of 7 years. Accordingly, the Company recorded an
amortization charge to current period earnings of $46,561 and $131,472 for the
three month periods ended March 31, 2009 and 2008. Patents are comprised of the
following:
|
Description
|
|
Cost
|
|
|
Accumulated amortization
and impairments
|
|
|
Net carrying value at
March
31, 2009
|
|
|
Development
costs
|
|
$ |
293,750 |
|
|
$ |
293,750 |
|
|
$ |
-0- |
|
|
Patents
|
|
|
2,294,224 |
|
|
|
1,409,568 |
|
|
|
884,656 |
|
|
Patents
|
|
|
1,387,000 |
|
|
|
1,387,000 |
|
|
|
-0- |
|
|
Total
|
|
$ |
3,974,974 |
|
|
$ |
3,090,318 |
|
|
$ |
884,656 |
|
During
the year ended December 31, 2008, 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). 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
Derivative Financial
Instruments
The
Company's derivative financial instruments consist of embedded derivatives
related to the 10% Secured Convertible Debentures (see Note B). 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 207%; and risk free interest rate from 0.57% to 1.15%. 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 $816,586 in liquidation
damages.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
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.
Fair Value of Financial
Instruments
SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of the fair value of certain financial instruments. The carrying
value of cash and cash equivalents, accounts payable and accrued liabilities,
and short-term borrowings, as reflected in the consolidated balance sheets,
approximate fair value because of the short-term maturity of these
instruments. All other significant financial assets, financial
liabilities and equity instruments of the Company are either recognized or
disclosed in the consolidated financial statements together with other
information relevant for making a reasonable assessment of future cash flows,
interest rate risk and credit risk. Where practicable the fair values of
financial assets and financial liabilities have been determined and disclosed;
otherwise only available information pertinent to fair value has been
disclosed.
Effective
January 1, 2008, we adopted SFAS No. 157, "Fair Value Measurements" ("SFAS No.
157") and SFAS No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities - Including an Amendment of FASB Statement No. 115" ("SFAS
No. 159"), which permits entities to choose to measure many financial
instruments and certain other items at fair value. Neither of these statements
had an impact on the Company’s consolidated financial position, results of
operations or cash flows.
Property, plant and
equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and
impairment losses. Depreciation is computed using the straight-line method over
the estimated useful lives of the respective assets.
The
estimated useful lives of property, plant and equipment are as
follows:
|
Furniture
and fixtures
|
|
7years
|
|
|
Office
equipment
|
|
3
to 5 years
|
|
|
Leasehold
improvements
|
|
5
years
|
|
|
Manufacturing
equipment
|
|
3
years
|
|
We
evaluate the carrying value of items of property, plant and equipment to be held
and used whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. The carrying value of an item of property, plant
and equipment is considered impaired when the projected undiscounted future cash
flows related to the asset are less than its carrying value. We measure
impairment based on the amount by which the carrying value of the respective
asset exceeds its fair value. Fair value is determined primarily using the
projected future cash flows discounted at a rate commensurate with the risk
involved.
Liquidity
As shown
in the accompanying consolidated financial statements, the Company incurred net
loss from operations of $6,017,399 for the three month period ended March 31,
2009. The Company's current liabilities exceeded its current assets by
$11,209,061 as of March 31, 2009.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE A-SUMMARY OF ACCOUNTING POLICIES
(continued)
New Accounting Pronouncements
Effective January 1, 2009
SFAS
No.161
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133”
(“SFAS No. 161”). The
new standard is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
results of operations and cash flows. The new standard also improves
transparency about how and why a company uses derivative instruments and how
derivative instruments and related hedged items are accounted for under
Statement No. 133. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. We adopted SFAS No. 161 effective January 1,
2009 and addressed the relevant disclosures accordingly.
SFAS
No. 160
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No.
160”). In SFAS No. 160, the FASB established accounting and reporting standards
that require non-controlling interests to be reported as a component of equity,
changes in a parent’s ownership interest while the parent retains its
controlling interest to be accounted for as equity transactions, and any
retained non-controlling equity investment upon the deconsolidation of a
subsidiary to be initially measured at fair value. SFAS No. 160 is effective for
annual periods beginning on or after December 15, 2008. Retroactive
application of SFAS No. 160 is prohibited. We adopted SFAS No. 160 effective
January 1, 2009 and the adoption had no material effect on our financial
position or results of operations.
EITF
No. 07-1
In
December 2007, the FASB issued EITF No. 07-1, “Accounting for Collaborative
Arrangements” (“EITF No. 07-1”). EITF No. 07-1 prescribes the accounting for
parties of a collaborative arrangement to present the results of activities for
the party acting as the principal on a gross basis and report any payments
received from (made to) other collaborators based on other applicable GAAP or,
in the absence of other applicable GAAP, based on analogy to authoritative
accounting literature or a reasonable, rational, and consistently applied
accounting policy election. Further, EITF No. 07-1 clarified the
determination of whether transactions within a collaborative arrangement are
part of a vendor-customer (or analogous) relationship subject to Issue No. 01-9,
“Accounting for Consideration Given by a Vendor to a Customer.” EITF No. 07-1 is
effective for collaborative arrangements that exist on January 1, 2009 and
application is retrospective. We adopted EITF No. 07-1 effective January 1,
2009 and the adoption had no material effect on our financial position or
results of operations.
EITF
No. 07-5
In June
2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No. 07-5”).
EITF No. 07-5 provides that an entity should use a two-step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF No. 07-5 is effective for fiscal years
beginning after December 15, 2008. We adopted EITF No. 07-5 effective
January 1, 2009 and the adoption resulted in our warrants with
anti-dilutive provisions being re-evaluated in determining the fair value in
accordance with FASB Statement No. 133.
Recently
Issued Accounting Standards
In April
2009, the Financial Accounting Standards Board (“FASB”) issued the following new
accounting standards:
FASB
Staff Position FAS No. 157-4, Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed, (“FSP FAS No. 157-4”)
provides guidelines for making fair value measurements more consistent with the
principles presented in SFAS No. 157. FSP FAS No. 157-4 provides
additional authoritative guidance in determining whether a market is active or
inactive and whether a transaction is distressed. It is applicable to all assets
and liabilities (i.e., financial and non-financial) and will require enhanced
disclosures.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE A-SUMMARY OF ACCOUNTING POLICIES
(continued)
Recently
Issued Accounting Standards (continued)
FASB
Staff Positions FAS No. 115-2, FAS 124-2, and EITF No. 99-20-2, Recognition and Presentation of
Other-Than-Temporary Impairments, (“FSP FAS No. 115-2, FAS No. 124-2, and
EITF No. 99-20-2”) provides additional guidance to provide greater clarity about
the credit and noncredit component of an other-than-temporary impairment event
and to more effectively communicate when an other-than-temporary impairment
event has occurred. This FSP applies to debt securities
FASB
Staff Position FAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value
of Financial Instruments, (“FSP FAS No. 107-1 and APB No. 28-1”) amends
FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments in interim as well as in annual financial statements. This
FSP also amends APB Opinion No. 28, Interim Financial Reporting,
to require those disclosures in all interim financial statements.
These
standards are effective for periods ending after June 15, 2009. We are
evaluating the impact that these standards will have on our 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.
NOTE
B-CONVERTIBLE DEBENTURES
Notes
payable at March 31, 2009 and December 31, 2008:
| |
|
March
31, 2009
|
|
|
December
31, 2008 |
|
| |
|
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 |
|
|
|
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 |
|
|
$ |
- |
|
|
$ |
1,094,091 |
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
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 |
|
|
$ |
- |
|
|
$ |
800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
- |
|
|
|
700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
- |
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
38,813 |
|
|
|
461,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
53,881 |
|
|
|
446,119 |
|
|
|
500,000 |
|
|
|
94,977 |
|
|
|
405,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
45,516 |
|
|
$ |
234,484 |
|
|
$ |
280,000 |
|
|
$ |
68,530 |
|
|
$ |
211,470 |
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
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 |
|
|
$ |
144,110 |
|
|
$ |
455,890 |
|
|
$ |
600,000 |
|
|
$ |
193,425 |
|
|
$ |
406,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
139,543 |
|
|
|
260,457 |
|
|
|
400,000 |
|
|
|
172,420 |
|
|
|
227,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
54,110 |
|
|
|
95,890 |
|
|
|
150,000 |
|
|
|
66,428 |
|
|
|
83,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
58,356 |
|
|
|
91,644 |
|
|
|
150,000 |
|
|
|
70,685 |
|
|
|
79,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
62,329 |
|
|
$ |
87,671 |
|
|
$ |
150,000 |
|
|
$ |
74,658 |
|
|
$ |
75,342 |
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
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 |
|
|
$ |
64,109 |
|
|
$ |
85,891 |
|
|
$ |
150,000 |
|
|
$ |
76,438 |
|
|
$ |
73,562 |
|
|
Total
|
|
|
5,501,591 |
|
|
|
621,954 |
|
|
|
4,879,637 |
|
|
|
5,501,591 |
|
|
|
856,384 |
|
|
|
4,645,207 |
|
|
Less:
current maturities:
|
|
|
5,501,591 |
|
|
|
621,954 |
|
|
|
4,879,637 |
|
|
|
5,501,591 |
|
|
|
856,384 |
|
|
|
4,645,207 |
|
|
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
March 31, 2009, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
March 31, 2009 and December 31, 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $-0- and $90,925,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on October 24, 2005 for the issuance of $800,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 800,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 10% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.06
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 142.28% per annum.
As of
March 31, 2009, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
|
|
|
·
|
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
March 31, 2009 and December 31, 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $-0- and $66,484,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on December 28, 2005 for the issuance of $700,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes were warrants to
purchase 700,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 158.81% per annum.
As of
March 31, 2009, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
|
|
|
·
|
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
March 31, 2009 and December 31, 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $-0- and $58,174,
respectively.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
March 31, 2009, 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
|
|
|
·
|
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
March 31, 2009 and December 31, 2008, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number of
shares of Common Stock issuable upon conversion of or otherwise pursuant to such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice, to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For the
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $-0- and $41,553,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on July 28, 2006 for the issuance of $500,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 15,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 6% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 10.00% per annum.
As of
March 31, 2009, 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
|
|
|
·
|
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.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
As of
March 31, 2009 and December 31, 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $41,096 and $41,553,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on September 26, 2006 for the issuance of $280,000 of convertible
notes (“Convertible Notes”) and attached to the Convertible Notes was warrants
to purchase 10,000,000 shares of the Company’s common stock. The Convertible
Note accrues interest at 6% per annum, payable quarterly, and are due three
years from the date of the note. The note holder has the option to convert any
unpaid note principal to the Company’s common stock at a rate of the lower of a)
$0.10 or b) 25% of the average of the three lowest intraday trading prices for
the common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 9.36% per annum.
As of
March 31, 2009, 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
|
|
|
·
|
Change
of control
|
| |
|
|
|
|
·
|
Trading
market limitations
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
March 31, 2009 and December 31 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $23,014 and $23,269,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on December 20, 2006 for the issuance of $600,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 20,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 6% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 15.00% per annum.
As of
March 31, 2009, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
March 31, 2009 and December 31, 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $49,315 and $49,863,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on April 18, 2007 for the issuance of $400,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 235.00% per annum.
As of
March 31, 2009, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
|
|
|
·
|
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
March 31, 2009 and December 31, 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $32,877 and $33,242,
respectively.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
March 31, 2009, 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
|
|
|
·
|
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
March 31, 2009 and December 31, 2008, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number of
shares of Common Stock issuable upon conversion of or otherwise pursuant to such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice, to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For the
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $12,318 and $12,466,
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
March 31, 2009, 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
|
|
|
·
|
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.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
As of
March 31, 2009 and December 31, 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $12,239 and $12,466.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 30, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 85.51% per annum.
As of
March 31, 2009, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
March 31, 2009 and December 31, 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $12,329 and $12,466,
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
March 31, 2009, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-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
March 31, 2009 and 2008, 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
three month periods ended March 31, 2009 and 2008, the Company amortized the
debt discount and charged to interest expense $12,329 and $12,466,
respectively.
As of
March 31, 2009, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
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 $4,879,637 and $4,645,207 as of March 31, 2009 and December
31, 2008.
|
NOTE
C – WARRANT PAYABLE
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. As of March 31, 2009 the
remaining Warrant Liability balance was $805,768.
NOTE
D-WARRANT LIABILITY
Total
warrant liability as of March 31, 2009 and December 31, 2008 is comprised of the
following:
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
Fair
value of warrants relating to convertible debentures
|
|
$ |
111,413 |
|
|
$ |
105,091 |
|
|
Fair
value of other outstanding warrants
|
|
|
159,617 |
|
|
|
149,951 |
|
|
Total
|
|
$ |
271,030 |
|
|
$ |
255,042 |
|
Warrants
were valued at the date of inception and at March 31, 2009 and December 31, 2008
using the Black Scholes Option Pricing Model.
The
assumptions used at December 31, 2008 and 2007 were as follows:
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
Expected
volatility
|
|
|
207
|
% |
|
|
362
|
% |
|
Expected
dividend yield
|
|
|
-0-
|
% |
|
|
-0-
|
% |
|
Average
risk free rate
|
|
0.57%
to 1.15 % |
|
|
0.37%
to 1.15 % |
|
|
Expected
life (a)
|
|
1.06 to 5.28 yrs
|
|
|
1.31
to 5.53 yrs
|
|
(a)The
expected option life is based on contractual expiration dates.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
E - NOTE PAYABLE
Note
payable as of March 31, 2009 and December 31, 2008, comprised of the
following:
|
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
Note
payable, 24% interest per annum; due in 90 days; secured by specific
accounts receivables
|
|
$ |
12,101 |
|
|
$ |
192,865 |
|
NOTE
F - NOTES AND CONVERTIBLE NOTES PAYABLE-RELATED PARTY
Notes
payable-related party is comprised of the following:
|
|
|
December
31,
2008
|
|
|
December
31,
2008
|
|
|
Notes
payable, 12% per annum; due on demand; unsecured
|
|
$ |
137,714 |
|
|
$ |
147,714 |
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable, 10% per annum, due on demand; unsecured
|
|
|
289,729 |
|
|
|
255,109 |
|
|
|
|
|
427,443 |
|
|
|
402,823 |
|
|
Less:
current maturities:
|
|
|
(427,443
|
) |
|
|
(402,823
|
) |
|
Long
term portion:
|
|
$ |
- |
|
|
$ |
- |
|
NOTE
G -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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
G -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
year ended December 31, 2008, 1 of the Series A Preferred shareholders exercised
the conversion right and exchanged 2 shares of Series A Preferred for 100,000
shares of the Company’s common stock
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
G -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 and 4,650,000 in 2009.
In
January, 2004, April 2007 and January 2009, the Company issued 800,000,
2,850,000, and 1,000,000 shares, respectively, of its Series B Preferred in lieu
of certain accrued management service fees payable and notes payable including
interest payable thereon. 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, $0.13
in 2007 and $0.018 in 2009, 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 4,650,000 shares of Series B Preferred shares issued and outstanding at
March 31, 2009.
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."
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 150,000 shares of Series C Preferred shares issued and outstanding at March
31, 2009.
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 March 31, 2009 and December 31, 2008, the Company has
944,955,532 and 814,426,120 shares issued and outstanding,
respectively.
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.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
G -STOCKHOLDER'S EQUITY (continued)
Common stock
(continued)
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.
NOTE
H -STOCK OPTIONS AND WARRANTS
Class A
Warrants
The
following table summarizes the changes in warrants outstanding and related
prices for the shares of the Company’s common stock issued to shareholders at
March 31, 2009:
|
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
|
|
|
3.52
|
|
$
|
0.001
|
|
|
50,000,000
|
|
|
0.001
|
|
|
0.02
|
|
|
40,000,000
|
|
|
3.16
|
|
|
0.02
|
|
|
40,000,000
|
|
|
0.02
|
|
|
0.03
|
|
|
25,000,000
|
|
|
1.13
|
|
|
0.03
|
|
|
25,000,000
|
|
|
0.03
|
|
|
0.10
|
|
|
900,000
|
|
|
.0.24
|
|
|
0.10
|
|
|
900,000
|
|
|
0.10
|
|
|
0.055
|
|
|
49,760,443
|
|
|
3.15
|
|
|
0.055
|
|
|
49,760,443
|
|
|
0.055
|
(a)
|
|
|
|
|
165,660,443
|
|
|
|
|
|
|
|
|
165,660,443
|
|
|
|
|
|
|
(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, 2007
|
|
|
175,960,443 |
|
|
$ |
0.016 |
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
Canceled
or expired
|
|
|
(350,000
|
) |
|
|
.75 |
|
|
Outstanding
at December 31, 2008
|
|
|
175,610,443 |
|
|
|
0.02 |
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
Canceled
or expired
|
|
|
(9,950,000
|
) |
|
|
0.02 |
|
|
Outstanding
at March 31, 2009
|
|
|
165,660,443 |
|
|
|
0.02 |
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
H -STOCK OPTIONS AND WARRANTS
Employee Stock
Options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to employees of the
Company under a non-qualified employee stock option plan at March 31,
2009:
| |
|
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
|
4.71
|
|
$
|
0.2125
|
|
2,000,000
|
|
$
|
0.2125
|
|
|
0.2125
|
|
2,000,000
|
5.12
|
|
|
0.2125
|
|
2,000,000
|
|
|
0.2125
|
|
|
0.022
|
|
20,500,000
|
7.62
|
|
|
0.022
|
|
20,500,000
|
|
|
0.022
|
|
|
0.0295
|
|
4,000,000
|
6.10
|
|
|
0.0295
|
|
4,000,000
|
|
|
0.0295
|
|
|
0.04
|
|
14,430,000
|
7.32
|
|
|
0.04
|
|
14,430,000
|
|
|
0.04
|
|
|
0.10
|
|
9,502,307
|
5.21
|
|
|
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, 2007
|
|
52,432,307
|
|
|
0.0562
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
Canceled
or expired
|
|
-
|
|
|
-
|
|
|
Outstanding
at December 31, 2008
|
|
52,432,307
|
|
|
0.0562
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
Canceled
or expired
|
|
-
|
|
|
-
|
|
|
Outstanding
at March 31, 2009
|
|
52,432,307
|
|
$
|
0.0562
|
|
The
Company did not grant employee stock options in the year ended December 31, 2008
or the three month period ended March 31, 2009.
NOTE
I -RELATED PARTY TRANSACTIONS
From time
to time, the Company's principal officers have advanced funds to the Company for
working capital purposes in the form of unsecured promissory notes, accruing
interest at 10% to 12% per annum. As of March 31, 2009 and December 31, 2008,
the balance due to the officers was $427,443 and $402,823,
respectively.
NOTE
J -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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE J -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 March
31, 2009, schedule of the future minimum lease payments is as
follows:
|
2009
|
|
|
66,015
|
|
|
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
K – 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 March 31,
2009:
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
NOTE
K – 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
|
|
$
|
(29,423,238
|
)
|
|
|
|
|
$
|
(29,423,238
|
)
|
|
Warrant
payable
|
|
|
(805,768
|
)
|
|
|
|
|
|
(805,768
|
)
|
|
Warrant
liability
|
|
|
(271,030
|
)
|
|
|
|
|
|
(271,030
|
)
|
|
Total
|
|
$
|
(30,500,036
|
)
|
|
|
|
|
$
|
(30,500,036 |
)
|
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
L - BUSINESS CONCENTRATION
Sales to
3 major customers approximated $39,644 or 89% of total sales for the three
months ended March 31, 2009 (3 major customers approximated $185,368 or 98% of
total sales for the three months ended March 31, 2008).
Purchases
from the Company's 3 major suppliers accounted for 64% of total purchases for
the three months ended March 31, 2009 (5 major suppliers accounted for 81% of
total purchases for the three months ended March 31, 2008).
NOTE
M- GOING CONCERN MATTERS
The
accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the accompanying consolidated
financial statements, as of March 31, 2009, the Company incurred accumulated
losses of $58,428,119. The Company’s current liabilities exceeded its current
assets by $11,209,061 as of March 31, 2009. 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
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. There are several important factors that could cause actual results
to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. The Company has sought to
identify the most significant risks to its business, but cannot predict whether
or to what extent any of such risks may be realized nor can there be any
assurance that the Company has identified all possible risks that might arise.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company's stock. The following
discussion and analysis should be read in conjunction with the financial
statements of the Company and notes thereto. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment from our Management.
Overview
We have
been 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 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 system products, our target
markets include all branches of the military and all government orgainzations
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. In the commercial markets, our task
and accent lighting products and emergency and security lighting products
address the lighting needs in restaurants, hotels, hospitals, nursing homes,
airports, shopping centers and multiple family complexes; long-term evacuation
solutions for theaters, office and public buildings; reduced maintenance cost
solutions for property managers as applied to walkway, corridor or landscape
lighting unit.
On March 27, 2009, we announced today
that the we had introduced two new categories of outdoor commercial-grade
lighting products, the Outdoor Area Lighting and the Outdoor Overhead Lighting,
that will expand our product offering to address large emerging commercial
opportunities. To capture these opportunities, we have incorporated the advanced
capabilities of our military-grade LED lighting technology into a general
purpose lighting product line for existing Department of Defense (DoD), Federal,
state and local governments and commercial customers.
Our Outdoor Area Lighting (OAL) and the
Outdoor Overhead Lighting (OOL) products deliver the most energy efficient white
LED lighting for outdoor area illumination and outdoor overhead illumination
commercially available. Designed to provide ideal light dispersion and
illumination for outdoor areas, We have designed the OAL and OOL configurations
to flexibly illuminate any outdoor area, including pathways, walkways and
parking lots, where DC solar power or AC power is available.
Our Outdoor Overhead Lighting is
available for general and solar street light and parking lot lighting
applications and has the following operational characteristics:
|
·
|
Each
OOL Lighthead illuminates a minimum 40’ x 40’ grid with directed
light
|
|
·
|
Performs
for over 50,000 hours without a lighting element
replacement
|
|
·
|
System
is more than 37% more energy efficiency compared to traditional
lighting
|
|
·
|
Provides
up to 3,000 lumens of illumination with 40 watts of 12 - 32 VDC
power
|
|
·
|
Solar
System Configuration: OOL Lighthead, Solar Panel Pole Set and
Batteries
|
|
·
|
Up
to 4 Lightheads per system (40, 80, 120, & 160
watts)
|
|
·
|
Mounting
hardware kit including DC control in an outdoor rated
box
|
Our Outdoor Area Lighting is designed
as a multi-use general lighting product for broad area lighting of buildings,
parking garages, outdoor easements and thruways and has the following
operational characteristics:
|
·
|
Each
OAL Lighthead illuminates a minimum 20’ x 20’ grid with directed
light
|
|
·
|
Performs
for over 50,000 hours without a lighting element
replacement
|
|
·
|
System
is more than 31% more energy efficiency compared to traditional
lighting
|
|
·
|
System
provides up to 4500 lumens of illumination from 69 watts of
power
|
|
·
|
System
operates on 120V / 69W
|
On March 31, 2009, we announced today
that the we had introduced two categories of outdoor lighting products, Outdoor
Area Lighting and Outdoor Overhead Lighting, that will expand our product
offerings to the Department of Defense (DoD) agencies and also address large
emerging commercial opportunities. To capture these opportunities, we along with
Sacred Power Corporation, a leading provider of renewable energy solutions, have
teamed to incorporate the advanced capabilities of our lighting with Sacred
Power’s product line for existing DoD, Federal government and commercial
customers. We have received an initial order from Sacred Power for both the
Overhead and Area lighting, which will be incorporated in the Sacred Power solar
solutions. Sacred Power, a Native American owned and operated 8(a) certified
company, specializes in solar power solutions and provides innovative renewable
energy technologies to the Department of Defense (DoD), Federal government and
commercial marketplace.
This joint initiative between Cyberlux
and Sacred Power is the next project under the scope of the companies’ prime
contractor/subcontractor partnering agreement for solid-state lighting and solar
power renewable energy opportunities. The first project the two companies have
delivered together is a portable, solar powered visible and covert LED security
lighting system for future deployment across the DoD agencies, which is now
being tested and evaluated by Sandia National Laboratories on behalf of the DoD.
The combination of solar power and advance lighting capabilities position both
companies as leaders in the Energy, Security and Power Surety market
segments.
Results
of Operations
Three
months ended March 31, 2009 compared to the three months ended March 31,
2008
REVENUES
Revenues
for the three months ended March 31, 2009 were $44,316 as compared to $186,839
for the same period last year.
OPERATING
EXPENSES
Operating
expenses for the three months ended March 31, 2009 were $578,200 as compared to
$722,209 for the same period ended March 31, 2008. Included in the three
months ended March 31, 2009 were $1,386 in expenses for research &
development. This compares to $121,951 for the three months ended March 31,
2008.
We
reported an unrealized loss for the change in fair value or warrants and debt
derivatives of $5,054,640as compared to a loss of $255,988 for the same period
last year. Although the change of $4,798,652 is unrelated to our operating
activities, the decrease is included in our reported net loss.
As a
result of limited capital resources and minimal revenues from operations from
its inception, we have relied on the issuance of equity securities to
non-employees in exchange for services. Our management enters into equity
compensation agreements with non-employees if it is in our best interest under
terms and conditions consistent with the requirements of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation. In order to conserve
our limited operating capital resources, we anticipate continuing to compensate
non-employees for services during the next twelve months. This policy may have a
material effect on our results of operations during the next twelve
months.
Liquidity and Capital
Resources
As of
March 31, 2009, we had a working capital deficit of $$11,209,061. This compares
to a working capital deficit of $10,546,454 as of December 31, 2008. Accrued
interest on notes payable was $2,569,325 compared to accrued interest of
$2,438,682 as December 31, 2008. Accounts payable as of March 31, 2009 were
$1,503,158 and compares to $1,239,145as compared to December 31, 2008. As a
result of our operating losses for the three months ended March 31, 2009, we
generated a cash flow deficit of $75,049 from operating activities. Cash flows
provided by investing activities was $0 for the three months ended March 31,
2009 Cash flows from financing activities provided $99,871 from the sale of
stock and loans from related parties.
While we
have raised capital to meet our working capital and financing needs in the past,
additional financing is required in order to meet our current and projected cash
flow deficits from operations and development.
By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits through the next twelve months. However, if thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
Our
independent certified public accountant has stated in their report included in
our December 31, 2008, Form 10-K that we have incurred operating losses in the
last two years, and that we are dependent upon management's ability to develop
profitable operations. These factors among others may raise substantial doubt
about our ability to continue as a going concern.
April
2007 Stock Purchase Agreement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on April 18, 2007, for the sale of (i)
$400,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on April 18, 2007.
The
proceeds received from the sale of the secured convertible notes were used for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date. The
full principal amount of the secured convertible notes is due upon default under
the terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors a
security interest in substantially all of our assets and intellectual property
and registration rights.
May 2007
Stock Purchase Agreement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on May 1, 2007, for the sale of (i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on May 1, 2007.
The
proceeds received from the sale of the secured convertible notes were used for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date. The
full principal amount of the secured convertible notes is due upon default under
the terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors a
security interest in substantially all of our assets and intellectual property
and registration rights.
We will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing
inventory.
June 6,
2007 Stock Purchase Agreement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on June 6, 2007, for the sale of (i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on June 6, 2007.
The
proceeds received from the sale of the secured convertible notes were used for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date. The
full principal amount of the secured convertible notes is due upon default under
the terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors a
security interest in substantially all of our assets and intellectual property
and registration rights.
We will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing
inventory.
June 20,
2007 Stock Purchase Agreement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on June 20, 2007, for the sale of (i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on June 20, 2007.
The
proceeds received from the sale of the secured convertible notes were used for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date. The
full principal amount of the secured convertible notes is due upon default under
the terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors a
security interest in substantially all of our assets and intellectual property
and registration rights.
We will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing
inventory.
Critical
Accounting Policies
In February 2006, the FASB issued SFAS
No. 155. “Accounting for certain Hybrid Financial Instruments an amendment of
FASB Statements No. 133 and 140,” or SFAS No. 155. SFAS No. 155 permits fair
value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of Statement No. 133, establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, clarifies that concentrations of
credit risk in the form of subordination are not embedded derivatives, and
amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS 155
is effective for all financial instruments acquired or issued after the
beginning of an entity’s first fiscal year that begins after September 15, 2006.
We do not expect the adoption of SFAS 155 to have a material impact on our
consolidated financial position, results of operations or cash
flows.
In March 2006, the FASB issued FASB
Statement No. 156, Accounting for Servicing of Financial Assets - an amendment
to FASB Statement No. 140. Statement 156 requires that an entity recognize a
servicing asset or servicing liability each time it undertakes an obligation to
service a financial asset by entering into a service contract under certain
situations. The new standard is effective for fiscal years beginning after
September 15, 2006. The adoption of SFAS No.156 did not have a material impact
on the Company's financial position and results of operations.
In July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for
uncertainty in Income Taxes”. FIN 48 clarifies the accounting for Income Taxes
by prescribing the minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. It also provides
guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition and clearly scopes
income taxes out of SFAS 5, “Accounting for Contingencies”. FIN 48 is effective
for fiscal years beginning after December 15, 2006. We have not yet evaluated
the impact of adopting FIN 48 on our consolidated financial position, results of
operations and cash flows.
In
September 2006 the Financial Account Standards Board (the “FASB”) issued its
Statement of Financial Accounting Standards 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. FAS 157 effective date is for fiscal
years beginning after November 15, 2007. The Company does not expect adoption of
this standard will have a material impact on its financial position, operations
or cash flows.
Non-GAAP
Financial Measures
The
financial statements appearing in this quarterly report on Form 10-Q do not
contain any financial measures which are not in accordance with generally
accepted accounting procedures.
Inflation
In the
opinion of management, inflation has not had a material effect on our financial
condition or results of its operations.
Off-Balance
Sheet Arrangements
We
do not maintain off-balance sheet arrangements nor do we participate in
non-exchange traded contracts requiring fair value accounting
treatment.
Product
Research and Development
We
anticipate incurring approximately $500,000 in research and development
expenditures in connection with the development of our military and Homeland
Security, portable illumination,system, lighting and our hybrid lighting
technnology that is based on the recently acquired patent rights from Renssealer
Polytechnic Institute and at the University of California Santa
Barbara.
These
projected expenditures are dependent upon our generating revenues and obtaining
sources of financing in excess of our existing capital resources. There is no
guarantee that we will be successful in raising the funds required or generating
revenues sufficient to fund the projected costs of research and development
during the next twelve months.
Acquisition
or Disposition of Plant and Equipment
We do not
anticipate the sale of any significant property, plant or equipment during the
next twelve months. We do not anticipate the acquisition of any significant
property, plant or equipment during the next 12 months.
ITEM 3.
CONTROLS AND PROCEDURES
|
(a)
|
Evaluation
of Disclosure Controls and
Procedures.
|
In
connection with the preparation of this Report and in accordance with Item 307
of Regulation S-K, we carried out an evaluation, under the supervision and with
the participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of March 31,
2009.
|
(b)
|
Changes
in Internal Control Over Financial
Reporting
|
During
the three month period ended March 31, 2009, there were no changes to our
internal control over financial reporting, other than the remediation of a
pre-existing material weakness identified above, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II -
OTHER INFORMATION
Item 1.
Legal Proceedings.
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.
On April
16, 2007, Casey Tool and Machine Co. filed a complaint against us in the Circuit
Court for the Fourth Judical District, Shelbyville, Illinois, alleging breach of
contract for failure to pay $14,222 on an account payable. We intend
to resolve this matter in a judious manner.
On September 5, 2007, we announced that
we had commenced an action against AJW Partners, LLC, AJW Offshore, LTD., AJW
Qualified Partners, LLC, and New Millennium Capital Partners II, LLC, (the
“Defendants”) in the United States District Court for the Southern District of
New York for violations of the anti-fraud provisions of the Securities Act of
1934, fraud, negligent misrepresentation, breach of fiduciary duty, breach of
contract, breach of implied covenant of good faith and fair dealing and
conversion. The complaint alleges that the Defendants utilized an illegal
trading scheme involving deceptive secured loan financings to convert shares of
Company’s common stock for the Defendants’ own use and benefit. The trading
scheme involved the Defendants manipulating the Company’s stock price downward
by short sales. In addition the complaint seeks declaratory, injunctive and
monetary relief. On September 17, 2007, AJW Partners, LLC, AJW Offshore, LTD.,
AJW Qualified Partners, LLC, New Millennium Capital Partners II, LLC
and AJW Master Fund, LTD, filed and action against us in the Supreme Court of
the State of New York, County of New York alleging breach of
contract. On September 26, 2007, we removed the state law complaint
to federal court to join the federal court complaint. On March 17,
2008, the federal court having determined that it lacked subject matter
jurisdiction over the state court complaint, remanded the case back to state
court. On May 1, 2008, we filed our answer and affirmative and
separate defenses and our counterclaims for declaratory, injunctive and monetary
relief. This litigstion 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. On March 12, 2009, the parties executed a mutual settlement and
release agreement.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
On January 8, 2008, we issued
23,529,412 shares of our common stock to St. George Investments, LLC pursuant to
a Warrant exercise valued at $20,000.
On January 8, 2008, we issued
32,000,000 shares of our common stock to St. George Investments, LLC pursuant to
a Warrant exercise valued at $20,000..
On january 20, 2009, we borrowed an
aggregate of $55,000. In conjunction with the borrowing, we issued a
total of 25,000,000 shares of our common stock.
On January 22, 2009, we reissued
1,000,000 shares of Series B Convertible Preferred shares (“Series B shares”) to
management.
On February 12, 2009, we borrowed an
aggregate of $30,000. In conjunction with the borrowing, we issued a
total of 25,000,000 shares of our common stock.
On March 31, 2009, we borrowed an
aggregate of $42,500 In conjunction with the borrowing, we issued a
total of 25,000,000 shares of our common stock.
Item 3.
Defaults Upon Senior Securities.
On August
21, 2007, we received a Notice of Default from AJW Partners, LLC, New Millennium
Capital Partners II, LLC, AJW Qualified Partners, LLC and AJW Offshore, LTD.
(collectively, the “Investors”), claiming that we were purportedly in default of
certain obligations under our notes issued to the Investors due to our refusal
to honor any further conversion of notes to common stock.
Item 4.
Submission of Matters to a Vote of Security Holders.
None.
Item 5.
Other Information.
None.
Item 6.
Exhibits
| 31.1 |
Certification of
Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended. |
| |
|
| 31.2 |
Certification of
Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended. |
| |
|
| 32.1 |
Certifications
pursuant to 18 U.S.C. Sectopm 1350 as adopted pursuant to Section 906 of
the Sarbanes Oxley Act of 2002. |
SIGNATURES
In
accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
| |
CYBERLUX
CORPORATION |
| |
|
|
|
Date: May
20, 2009
|
By: |
/s/ MARK D.
SCHMIDT
|
|
|
|
Mark
D. Schmidt
|
|
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
|
|
|
|
Date: May
20, 2009
|
By: |
/s/ DAVID D. DOWNING
|
|
|
|
David
D. Downing
|
|
|
|
Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|