Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the
fiscal year ended: December 31, 2006
Commission
file number 000-33415
CYBERLUX
CORPORATION
(Exact
name of registrant as specified in its charter)
Nevada |
91-2048978
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S.
Employer
Identification
No.)
|
4625
Creekstone Drive, Suite 130
Research
Triangle Park
Durham,
North Carolina
|
27703
|
(Address of principal executive
offices)
|
(zip
code)
|
Issuer's
Telephone Number: (919)
474-9700
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.001 par value
(Title
if
Class)
Indicate
by check mark whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x
No o
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
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
Form 10-KSB.
Yes o
No x
Delinquent
filers are disclosed
herein.
Total
revenues for Fiscal Year 2006 were $484,988.
The
aggregate market value of the Common Stock held by non-affiliates (as affiliates
are defined in Rule 12b-2 of the Exchange Act) of the registrant, computed
by
reference to the average of the high and low price on May 18, 2007, was
approximately $1,983,525.
As
of May
18, 2007 there were 276,844,639 shares of issuer’s common stock
outstanding.
Transitional
Small Business Disclosure Format (check one): Yes o No x
CYBERLUX
CORPORATION
ANNUAL
REPORT ON FORM 10-KSB
For
the Fiscal Year Ended December 31, 2006
TABLE
OF CONTENTS
|
PART
I
|
|
Page
|
|
Item
1.
Item
2.
Item
3.
Item
4.
|
Business
Properties
Legal
Proceedings
Submission
of Matters to a Vote of Security Holders
|
1
9
9
9
|
PART
II
|
|
|
|
Item
5.
Item
6.
Item
7.
Item
8.
Item
8A.
Item
8B.
|
Market
for Registrant’s Common Equity and Related Stockholder
Matters
Management’s
Discussion and Analysis of Financial Condition and Results Of
Operations
Financial
Statements
Changes
in and Disagreements with Accountants on Auditing and Financial
Disclosure
Controls
and Procedures
Other
Information
|
10
22
34
35
35
35
|
PART
III
|
|
|
|
Item
9.
Item
10.
Item
11.
Item
12.
|
Directors
and Executive Officers of the Registrant
Executive
Compensation…
Security
Ownership of Certain Beneficial Owners and Management
Certain
Relationships and Related Transactions
|
36
39
41
42
|
PART
IV
|
|
|
|
Item
13.
Item
14.
|
Exhibits
Principal
Accountant Fees and Services
|
44
50
|
|
|
|
|
|
Signatures
|
52
|
This
Form
10-KSB contains forward-looking statements within the meaning of the federal
securities laws. These forward-looking statements are necessarily based on
certain assumptions and are subject to significant risks and uncertainties.
These forward-looking statements are based on management's expectations as
of
the date hereof, and the Company does not undertake any responsibility to update
any of these statements in the future. Actual future performance and results
could differ from that contained in or suggested by these forward-looking
statements as a result of factors set forth in this Form 10-KSB (including
those
sections hereof incorporated by reference from other filings with the Securities
and Exchange Commission), in particular as set forth in the "Management’s
Discussion and Analysis and Results of Operation" under Item 6.
In
this
form 10-KSB references to "Cyberlux", “the Company”, "we," "us," and "our" refer
to Cyberlux Corporation.
PART
I
ITEM
1. DESCRIPTION
OF BUSINESS
OVERVIEW
We
are a
Nevada corporation that was incorporated on May 17, 2000. We were founded to
design, develop, market and sell advanced lighting systems that utilize light
emitting diodes as illumination elements. White diodes are a relatively new
phenomenon that offer major advances in illumination technology. Our diodes
consume 92% less energy than incandescent counterparts to produce comparable
light output. In electrochemical (battery powered) applications, this diminution
of energy consumption positions our lighting solutions as more durable and
reliable than other interim lighting alternatives. In standard alternating
current electrical applications, the calculated life of LEDs as lighting
elements is over 20 years versus 750 hours for traditional incandescent light
bulbs. These exceptional performance characteristics, diminutive energy
consumption and extended life, have prompted diode implementation in traffic
lights and automotive brake lights, but have not yet significantly occurred
in
our area of focus, diodal illumination (tm). Diodal illumination is the
production of light through the use of white light emitting diodes. A light
emitting diode is a chemical compound that produces a visible light when an
electrical current is applied. This production of light through a diode is
contrasted with light from a typical light bulb, in which light is produced
as a
by-product of a burning filament contained within a vacuum globe. The diode
uses 92% less energy to produce comparable light to that of a traditional light
bulb.
To
address the tremendous opportunity in the $12 billion general lighting market,
we have developed a line of LED lighting products and fixtures for residential,
commercial, military and homeland security markets, including kitchen and closet
task lighting and emergency lighting products. We design and engineer products
that adapt technology advancements from semiconductor manufacturers, including
Cree, Inc., for use by the general public and military.
We
have
created breakthrough solid-state lighting technology that provides energy
efficient and cost effective lighting solutions. Several products are designed
to address emergencies, such as power outages and critical security lighting
needs. Other products bring “heatless” light into the home for closets,
cabinets, bookcases and counters. The solid-state semiconductors, trademarked
by
Cyberlux as diodal™ lighting elements, consume 92 percent less energy than
conventional incandescent lighting elements and perform for more than 10 years
in contrast to 750 hours for traditional light bulbs.
We
believe our solid-state lighting is superior to traditional lighting in several
ways:
|
1) |
Energy
Consumption -our lighting currently consume 75% less energy than
traditional incandescent bulbs and 30% less energy than most fluorescent
bulbs.
|
|
2) |
Virtually
Heatless - The lighting elements do not “burn” a filament or gas to create
light. Therefore, they do not have the extreme heat of incandescent
or gas
(xenon) bulbs.
|
|
3) |
Longevity
-Our lighting systems have been shown to last up to 20 years versus
hundreds of hours for incandescent bulbs. Properly conditioned units
can
tolerate endless oOn/off cycles.
|
|
4) |
Semiconductor
Based - Lighting element efficiencies have been increasing consistently
and industry experts believe the efficiency gains will continue (i.e.
follow Moore’s Law). Additionally, they can be incorporated into control
systems.
|
|
5) |
Nearly
Impervious to Vibration - Solid-state technology means not as many
moving
pieces, vacuums or glass.
|
|
6) |
Small
Footprint - Does not require the ballast like fluorescent bulbs or
large
receptacles like incandescent
bulbs.
|
These
efficiencies result in our lighting systems being less expensive than
conventional bulbs or tubes in total cost of ownership.
Our
target markets include retail; homeland security; long-term building and
industrial, commercial and institutional emergency lighting; military; intensive
outdoor maintenance; kitchen/bath task and accent lighting and landscape market.
We
are a
solid-state lighting technology and product development company that focuses
on
delivering unique lighting solutions to market with the most advanced
semiconductor, power and LED technology. Recently, through our strategic
partnership with UTEK, a specialty finance company focused on technology
transfer, we acquired the world-wide exclusive rights to two technologies that
when combined with our products, create a breakthrough in solid-state lighting
capability. Through the combination of the hybrid organic / inorganic white
and
multi-color lighting technology acquired from the University of California-Santa
Barbara and the Scattered Photon ExtractionTM
(SPE)
technology acquired from Rensselaer Polytechnic Institute, we will commercialize
the resulting proprietary lighting technology as “Hybrid White Light” (HWL) and
“Hybrid Multi-color Light” (HML). The resulting lighting technology will yield a
lower cost, more energy-efficient lighting source than currently available
in
solid-state light-emitting diode (LED) solutions.
With
today's best white LEDs operating at 75 lumens per watt range, the HWL
technology will produce up to 225 lumens per watt. While the best LED
performance today represents 5 times better energy efficiency than current
light
bulbs, our HWL technology will improve efficiency by an additional 300 percent.
The
Market
History
of LEDs
“Solid-state
Lighting” uses LEDs as the source of illumination. LEDs emit light directly from
an electrically charged semiconductor material. Photons are released at various
frequencies that create different colors of light. The first commercial LEDs
were only able to produce invisible, infra red light, but still quickly found
their way into sensing and photo-electric applications. The use of Gallium
Aluminum Arsenide Phosphide LEDs in the early to mid 1980s brought the first
generation of super bright LEDs, first in red, then yellow and finally green.
By
the early 1990's, ultra bright LEDs using Indium Gallium Aluminum Phosphide
to
produce orange-red, orange, yellow and green light had become available.
Eventually,
ultra-bright blue chips became the basis of white LEDs, in which the light
emitting chip is coated with fluorescent phosphors. These phosphors absorb
the
blue light from the chip and then re-emit it as white light. This same technique
has been used to produce virtually any color of visible light and today there
are LEDs on the market which can produce previously "exotic" colors, such as
aqua and pink.
LEDs
not
only have color characteristics, but also have intensity, or “brightness”. Like
semiconductors, LEDs are becoming roughly twice as powerful (bright) around
every eighteen months.
LEDs
are
currently in mass production by companies such as Cree, Nichia and LumiLeds,
all
of which supply to us. Although 50 lumens/watt (“lm/w”) is the current standard,
all three companies are increasing efficiency in their current production lines
up to 75 lm/w at 1w. With the HWL technology, we expect to produce up to 225
lumens per watt with the combined hybrid organic/inorganic polymer solid-state
lighting capability. We will license the HWL technology as both lighting element
packages and fixture reference designs in order to scale penetration into the
existing lighting market.
Industry
Overview
According
to industry research firms NanoMarkets and CIR, the market for high-brightness
LEDs (HB-LEDs) will enter a new phase of its evolution by 2010. They estimate
the combined market for standard HB-LEDs and the new ultra-high brightness
LEDs
(UHB-LEDs) will grow from $5.0 billion in 2006 to $10.8 billion in 2010 and
reach $ 17.4 billion in 2013.
HB-LEDs
and UHB-LEDs are mainly used in signage, traffic signals, home and commercial
interior lighting, displays and automotive lighting. The major market players
are Nichia (Japan), Hewlett-Packard, Cree, Agilent/LumiLEDs, Samsung (Korea),
Toyoda-Gyosei (Japan), Siemens/Osram (Europe).
By
2010,
industry experts believe that LEDs with an output greater than 250 lumens will
be commercialized, making HB-LEDs a practical solution for many lighting,
photographic and medical applications. In 2010, the market for UHB-LEDs alone
is
expected to total $3.6 billion. General illumination is expected to become
the
fastest growing application for HB-LEDs between now and 2010. By 2010 much
of
the $3.6 billion in UHB-LEDs sold will be for general illumination applications
in addition to $860 million in regular HB-LEDs. Based on market research we
participated in, we believe the current general illumination market is estimated
at over $12 billion.
In
addition to rapid increases in sales, new developments in materials and
production technologies will help drive cost points lower and quality higher.
These processes include silicon photonics, thin-film polymer technology as
used
in our HWL technology, nanotechnology and pure Gallium Nitride substrates,
as
well as the evolution of better packaging and fabrication
technologies.
Our
Products
Retail/OEM
Products
EverOn™
Our
original product Offering, the patented EverOn™ product line has gone through
many changes since the product launch in 2001. The EverOn™ is a multi-purpose
emergency light with over 500 hours of light from 4 standard AA batteries.
The
lighting unit has three settings: 1) Low, with amber Night Light (500 hours);
2)
Medium, for normal lighting situations (60 hours); and 3) High Intensity, for
emergency situations (30 hours). The unit uses 6 white LEDs and 2 amber LEDs.
The LEDs last 20 years without replacement and the sturdy outer case allows
for
outdoor use.
The
EverOn™ is typically sold in retail outlets through partnerships with large
retailers and distributor of household goods and home keys. We have recently
entered into an agreement with Wal-Mart and The Home Depot to offer the
EverOn™.
KeOn
The
patent-pending KeOn™
is
a
sturdy elastic surround that fits standard key heads and features an electronics
package that focuses a bright LED beam of light down the key shaft. When its
miniaturized button is depressed, the Keon™ directs light precisely into the
intended keyhole or other targeted surfaces. The Keon light source is an LED
lighting element that never requires a light bulb change. The result is a
product that is maintenance-free and offers long-lasting energy-efficiency
that
uses 90 percent less energy than traditional incandescent flashlight bulbs.
The
KeOn™
is
typically sold in retail outlets through partnerships with large retailers
and
manufacturer/distributor of household goods and home keys. We have licensed
our KeOn to Kaba Ilco and are in negotiations with several companies to license
official merchandise on the Keon™
(e.g.
NASCAR, NFL teams, etc.).
FocusOn™
Sign Lighting
FocusOn™
is a patent-pending solid-state lighting product designed to illuminate “For
Sale” signs at night so that home sales continue after dark. The FocusOn™
operates on 4 D-Cell batteries, lighting both sides of the sign for four hours
per night for more than 30 days on one set of batteries. The FocusOn™ features
two light heads that fold out to an optimum lighting distance to illuminate
the
sign and contain two super-bright energy-efficient solid-state LEDs that
illuminate the sign. The unit is encased in a water proof cylinder that is
secured to the horizontal sign support with a clamp channel and plastic tie
straps.
The
FocusOn™
products are sold
in
partnership with real estate brokerage firms directly to real estate retail
brokers. Recently, we signed a Supplier Agreement with Realogy Corporation,
the
world’s
largest real estate brokerage franchisor, to
supply
the FocusOn™ to it’s Century21, ERA, Caldwell Banker and Sotheby’s real estate
brokers, some 310,000 brokers in all.
RelyOn™
The
RelyOn™ is an ultra-bright light with power plant designed to provide homeowners
and professionals with a portable, long-lasting work and emergency light. The
units are powerful, water-resistant and portable and are designed to provide
a
lighting source during the most extreme conditions, including power grid
failures caused by natural or man-made disasters. The LED lighting elements
use
two 3-watt advanced, ultra-efficient solid-state LEDs that provide up to 200
lumens of light output and last for the life of the product (i.e. never have
to
be replaced). The portability of the unit allows for use as an emergency light,
work light or camping light.
The
product is marketed as the “Ultimate Utility Light” and has a rotating arm and
light head that operates as a table lamp, indirect reflective light, spot light
and flood light. Powered by 4 D-cell batteries, the RelyOn will operate for
up
to 60 hours.
The
RelyOn™ is typically sold in retail outlets through partnerships with large
retailers and manufacturers/distributors of household goods and utility
products. We are in discussions with Wal-Mart and The Home Depot to supply
RelyOn™ products to its stores. Additionally, we are pursuing various private
label agreements to sell the units through their channels.
The
technology embodied by the RelyOn™ is a subject of a pending U.S. patent
application and utilizes concepts from our other patents and
applications.
Task
and Accent Lighting
Aeon™
We
have
designed a complete line of task and accent lighting targeting commercial
builders, tract home builders and the do-it-yourself (“DIY”) market. They are
designed as architectural accent lighting to replace current in-home/commercial
under cabinet lighting. The lighting systems last longer than 20 times halogen
lights, 10 times as long as fluorescent lights and 6 times as long as Xenon
lights and are available in a variety of warm colors. Most importantly, they
provide light with virtually no heat.
The
Aeon™
product line is UL approved and has been engineered to be an energy efficient
solid-state lighting fixture, currently producing over 55 Lumens per watt.
The
energy efficiency of the units exceeds EnergyStar and California's Title 24
requirements. The Aeon™ units are highly configurable lighting strips typically
used in under cabinet lighting. They can be "Daisy Chained" from a single power
source reducing installation costs. Additionally, they can be installed in
difficult to reach areas as they require virtually no maintenance for the life
of the product.
The
products come in three packages to target three market niches:
|
a. |
Commercial
market and professional
homebuilders
|
|
b. |
Highest
quality - up to 560 L/Watt
|
|
c. |
Flexible
configurations for expandability
|
|
d. |
Adjustable
light output and variable light
colors
|
|
e. |
Direct
light with tilting installation
bracket
|
|
g. |
Sold
through specialty distributors and
direct
|
|
h. |
10
year guaranty to match home
guarantees
|
|
a. |
Smaller
contractor and “DIY” market
|
|
b. |
Standard
quality - up to 360 L/Watt
|
|
c. |
Flexible
configurations for expandability
|
|
d. |
White,
Black and Nickel finishes
|
|
e. |
Sold
through distributors and “DIY” retail (smaller
contractors)
|
|
a. |
Smaller
contractor and “DIY” market
|
|
b. |
Custom
cut for flexibility
|
|
e. |
Sold
through distributors and “DIY” retail (smaller
contractors)
|
Commercial
Products
ReliaBright™
Emergency Lighting System (“ELS”) / Emergency Lighting Unit
(ELU)
To
address chronic underperformance of current emergency lighting systems used
in
institutional buildings such as airports, schools and government buildings,
we
have developed patented ReliaBright™ Emergency Lighting Systems (“ELS”) and
Emergency Lighting Units (“ELU”). An “ELS” is composed of multiple light heads
and light detection units in an array while “ELUs” are self contained units.
They are both designed to provide emergency backup lighting systems used in
elevators, hallways, subways and other evacuation scenarios.
Oue
“ELU”
is the only residential and commercial power outage and emergency lighting
system that provides 60 hours or more or emergency and interim lighting. The
“ELS” systems are easy to install, are virtually maintenance free and surpass UL
and NFBA standards.
We
were
engaged by the City of Cleveland to provide a pilot program to install “ELS”
fixtures in the stairwells and restrooms on the 5th Floor of the Public Utility
Building. We estimate that there are at least 100 units that could be installed
per floor of each of the city’s 160 city buildings managed by the City of
Cleveland. Each of those buildings averages five stories and the lights could
be
installed in stairwells, restrooms, emergency situation rooms and as general
fluorescent replacements
Portable
Illumination (“PI”) Systems
We
have
developed PI Systems for the military and Homeland Security market, which are
designed to quickly illuminate remote areas in a portable format. The products
utilize a “Super
Bright White” solid-state light head system that can illuminate over 600 feet in
a setup that weighs less than 50 pounds and can be carried on a commercial
airplane. The system currently has over 10 hours of run time using standard
Li-Ion batteries and can be wirelessly controlled. A typical application would
include remote lighting in disaster scenarios.
As
an
extension to our PI Systems, we have also integrated infrared LED technology
into our latest product Offerings. These systems have the same operational
characteristics of their traditional PI System, with the added advantage of
the
ability to use the system at night using night vision goggles. We are in
discussion with the Armed Forces, Homeland Security and US Customs for border
patrol and base/boundary protection. We have been selected by Homeland Security
under the recently enacted Secure Border Initiative to provide Fixed-Position
Lighting Systems.
The
Raven Watchdog
In
response to on-the-ground threats in remote locations, the US Air Force Raven
Security Forces required an advanced covert and visible lighting system to
protect USAF assets. USAF Air Mobility Battlelab, with the mission to rapidly
deploy solutions within the Air Mobility Command, issued a Request for Proposals
to supply the covert lighting systems. Of the 26 companies that responded,
we
were selected to provide the Portable Covert Illumination System. The parameters
of the system include:
|
- |
350’
Perimeter Illumination Boundary
|
|
- |
Operates
on standard Li-Ion batteries
|
|
- |
Covert
(Night Vision) capable
|
|
- |
Commercial
airline compliant
|
|
- |
Wireless
control and operation
|
The
system, called The Raven Watchdog, is a highly specialized illumination unit
used by the Air Force Ravens to protect highly valuable equipment in the field
by illuminating the perimeter of the equipment with either IR or standard
illumination.
The
BrightEye VaC
The
BrightEye Visible and Covert (VaC) System is designed as a portable visible
and
infrared night-vision compatible illumination system for force protection,
aircraft maintenance, expeditionary airbase force protection, general mission
lighting and other high intensity lighting applications.
Using
advanced optics, battery power and solar battery recharging technology, and
contained in a wheeled carrying case, the objective of the new system is to
replace the space-consuming bulk, noise and energy consumption problems of
the
current generator powered incandescent lighting systems, for appropriate
missions, with an easily deployed wheeled case advanced solid-state lighting
system. In addition, the versatility of the BrightEye VaC system makes the
product uniquely capable for First Responder deployment across all armed
services.
We
have
been awarded a United States government contract for energy saving lighting
products through the General Services Administration (GSA) Federal Supply
Schedule 56. Under the terms of the Federal Supply Schedule contract, we can
sell our solid-state light-emitting diode (LED) lighting products as a primary
contractor to any U.S. Government purchasing organization. The GSA estimates
$10
million in purchasing activity for us in the energy savings task and accent
category, based on prior contractor sales reporting. The contract period is
March 2006 through March 2011.
Advertising,
Promotion and Marketing
We
are
focused on direct channel support with any advertising, promotion and marketing
plan. We invest in advertising in industry vertical publication, specific
marketing plans to support customers, and tradeshows and conferences to promote
the various products directly to customers. For example, we were participants
in
the Air Tanker Association tradeshow where most USAF General Officers attend
to
review the latest technology and to define the associated purchasing plans.
Similarly, we participate in the Realogy Corporation’s channel marketing
programs that include print media, tradeshow participation and electronic media
communication.
Intellectual
Property
We
are
the registered owner of the CYBERLUX® mark for lighting products, namely, diodal
illuminators. Trademark applications are pending for the CAMPLIGHT™,
FOCALBRIGHT™, RELIABRIGHT™, SENSORBRIGHT™, RELYON™, FOCUSON™, EVERON™, and KEON™
marks. The above marks are registered under International Goods and Services
Class 9 (Electrical and Scientific Apparatus), Class 11 (Environmental Control
Apparatus), or both.
We
have
the world-wide exclusive rights to U.S. Patent No. 5,966,393 from the University
of California-Santa Barbara. In addition, we have the world-wide exclusive
rights to a suite of pending patents that define Scattered Photon
ExtractionTM
(SPE)
technology, which were acquired from Rensselaer Polytechnic Institute. The
combination of these two technologies forms the patent foundation for the
resulting proprietary lighting technology known as “Hybrid White Light” (HWL)
and “Hybrid Multi-color Light” (HML). HWL
and
HML is expected to
yield a
lower cost, more energy-efficient lighting source than currently available
in
solid-state light-emitting diode (LED) solutions.
We
are
the owner of U.S. Patent No. 6,752,515, which issued June 22, 2004, and is
entitled Apparatus and Method for Providing Emergency Lighting. We also own
U.S.
Patent No. 6,986,589, which issued January 17, 2006, and is entitled Apparatus
and Method for Providing an Emergency Lighting Augmentation System. We are
the
owner of U.S. Patent No. 7,045,975, which issued May 16, 2006 and is entitled
Apparatus and Methods for Providing Emergency Safety Lighting. Six patent
applications are currently pending before the USPTO. Two additional patent
applications are currently being prepared but have not yet been filed with
the
USPTO. In November 2006, we were awarded 21 patent claims by the U.S. Patent
Office for our Emergency Safety Lighting which will accelerate our further
pursuit of providing long-term solutions for interim and emergency lighting
in
hotels, hospitals, elder care facilities, apartment complexes and residences.
The lighting device, designed as a replacement electrical wall outlet, simply
plugs into an existing outlet after removal of its cover plate. Although the
lighting device continues to operate as an electrical outlet, it also contains
a
constant charge battery; a motion sensor for initiating low levels of lighting
for gentle illumination of a darkened room or navigation of a corridor; a power
sensor for broadcasting a high level of light up the attendant wall surface
to
reflect off of the ceiling thereby illuminating a room or corridor; and a photo
cell that detects ambient light in the space which disables the system. The
lighting device is intended to provide long-term solutions for emergency and
interim lighting. The patent addresses an electrochemical lighting system
capable of providing prolonged illumination with the use of light emitting
diodes (LEDs) as the illumination source.
All
other
issued patents and presently filed United States patent applications are briefly
described below.
Pat.
No.
6,752,515 - The patent addresses an improved emergency or interim lighting
device and associated methods for providing emergency or temporal lighting.
The
device satisfies the need for an electrochemical lighting system capable of
providing prolonged illumination over the life of the power unit. The device
benefits from the use of light emitting diodes (“LEDs”) as the illumination
source, which provides optimum lumen output with considerably less power
consumption than conventional incandescent lighting devices. By providing a
unique diode/parabolic reflector arrangement the directional limitations of
conventional LED lighting devices are overcome and wide area illumination
coverage is possible. Additionally, the device provides multiple illumination
levels that may be triggered by a power outage condition.
Pat.
No.
6,986,589 - The patent addresses an emergency lighting device having at least
one LED, a local energy source such as a lithium ion battery, a control circuit
in electric communication with the at least one LED and further sensing a main
power supply, and a reflector for broadcasting light produced by the LED to
designated areas. The application describes an emergency lighting device that
transforms existing fluorescent, incandescent or halogen light fixtures into
emergency lighting systems for homes, hospitals, hotels, nursing homes and
businesses. The device includes a power sensor for triggering the control
circuit to engage the LEDs when electrical service is disrupted, thereby
broadcasting a wash of light over an otherwise darkened room or corridor.
Pat.
No.
7,045,975 - The patent application addresses a lighting device that transforms
existing electrical wall outlets into an emergency lighting system for homes,
hospitals, hotels, nursing homes and businesses. The lighting device, designed
as a replacement electrical wall outlet or receptacle, simply plugs into an
existing dual outlet after removal of its faceplate. The lighting device
continues to function as an electrical outlet, however, also comprises a local
power source such as a constant charge lithium ion battery; a motion sensor
for
initiating a low level of lighting for darkened room or corridor transit; a
power sensor for activating a high level of light when electrical service is
disrupted, thereby broadcasting a wash of light over an otherwise darkened
room
or corridor; and a photoelectric cell which detects daylight or otherwise
provided lighting of the room or corridor and thereby prevents unnecessary
power
usage.
Ser.
No.
11/392,428 - The patent application is a divisional of Pat. No. 7,045,975
described above and addresses subject matter that was restricted by the USPTO
during prosecution of the ‘975 patent.
Ser.
No.
11/336,562 - The patent application is directed to a portable light system
having a body, an arm pivotally attached to the body, and one or more lighting
elements disposed at one end of the arm. The portable light device further
includes a handle, one or more batteries, an on-off switch, and one or more
power cords for transmitting or receiving electrical energy. The portable light
device is adapted to operate in a spot light mode of illumination, a flood
light
mode of illumination, or a combination thereof. The device benefits from the
use
of LEDs as an illumination source. LEDs provide optimum lumen output with
considerably less power consumption than conventional lighting devices. Finally,
the device provides real-time battery life information to a user such that
the
performance of the device may be tailored to extend or shorten expected battery
life as needed.
Ser.
No.
11/089,073 - The patent application is directed to a key cap light assembly
that
produces an efficient beam of light and is adaptable to a variety of key types.
The key cap light has an elastomeric sleeve that is adapted to enclose a variety
of key heads having different sizes, shapes, and thicknesses. The elastomeric
sleeve binds an LED assembly to the key to provide an energy efficient,
operator-activated, light source proximate the key.
Ser.
No.
60/757,654 - The patent application is directed to a device for illuminating
a
yard sign that uses an efficient beam of light and that is adapted to cycle
on
and off. The illuminating device includes a main body portion configured to
attach to the yard sign, a switch, a control circuit, a power source, at least
one arm adjustably attached to the main body portion, and a light head disposed
proximate an end of the at least one arm that comprises at least one LED
assembly. The control circuit of the device is advantageously configured to
automatically cycle the LED assembly on and off at predetermined daily
illumination intervals.
Ser.
No.
60/757,654 - The patent application is directed to an improved apparatus, method
and system for providing multi-mode illumination. Specifically, exemplary
embodiments of the present invention include a lighting apparatus capable of
multiple modes of illumination and battery powered operation. The lighting
apparatus further includes a fuel gauge module that is capable of displaying
an
expected battery life based on a selected operating mode and a current state
of
charge of the battery. Lighting devices structured in accordance with various
embodiments of the invention may be light-weight and portable to improve ease
of
transport and deployment. Such lighting devices may also include a stable and
yet retractable mounting device.
Ser.
No.
60/793,541 - The patent application is directed to an improved tilt bracket
and
associated system for coupling an illumination device to a surface. For example,
in one embodiment, the improved tilt bracket and associated system may be
adapted to couple one or more LED arrays to the under-mount surface of a
cabinet. In this regard, such tilt brackets and associated systems may provide
enhanced LED array cooling and greater mounting flexibility.
Regulation
Our
advertising and sales practices concerning our products are regulated by the
Federal Trade Commission and state consumer protection laws. Such regulations
include restrictions on the manner that we promote the sale of our products.
We
believe we are in material compliance with such regulations. We believe that
we
will be able to comply in all material respects with laws and regulations
governing the conduct of business operations in general. We are not aware of
any
pending government regulations that may adversely affect our business.
Research
and Development Activities
We
anticipate continuing to incur research and development expenditures in
connection with the development of our Wireless Lighting System during the
next
twelve months.
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.
Competition
With
a
diversified product and technology portfolio, we have numerous competitors
in
each of the product channels. In the retail markets, most competitors are
smaller “first mover” technology startups in the LED retail market, particularly
focused on the LED flashlight product space, including Lighting Science Group
Corporation, LED Lighting Fixtures, Inc., and Intematix
Corporation.
In
the
Task & Accent lighting markets, Permlight and Hera Lighting are the primary
competitors for our Aeon products. While both competitors have been in the
market longer than us, the Aeon product has consistently replaced both Permlight
and Hera among the kitchen and bath dealers that comprise the our dealer
channel. Most recently, we have successfully displaced the Hera Lighting
products within the kitchen under-counter lighting business of Louis &
Company, a multi-billion dollar Kitchen & Bath industry distributor with 18
locations in the mid-west and west coast.
With
regard to the Military and Homeland Security markets, we are relatively without
immediate competition. For example, the USAF Air Mobility Battlelab conducted
a
Best Value Determination/Sole Source study that evaluated the WatchDog system
against any other available General Services Administration (GSA)
contract-approved product and confirmed that the WatchDog system is
one-of-a-kind in its capabilities and the only product that meets or exceeds
the
Battlelab’s portable covert illumination system requirements. Based on this, we
gained a Sole Source designation for the Raven WatchDog system.
Employees
We
currently have 11 full time employees. Our employees are primarily at the
executive level based upon our role in coordination of outsource contracts
for
manufacturing and other production considerations. Currently, there exist
no
organized labor agreements or union agreements between us and our employees.
We
have employment agreements with the following executive officers: Donald
F.
Evans, Chairman and CEO, Mark D. Schmidt, President and COO, Alan H. Ninneman,
Senior Vice President and John W. Ringo, Secretary and Corporate Counsel.
We
believe that our relations with our employees are good.
ITEM
2. DESCRIPTION
OF PROPERTY
We
maintain our principal office at 4625 Creekstone Drive, Suite 130, Research
Triangle Park, Durham, North Carolina 27703. Our telephone number at that office
is (919) 474-9700 and our facsimile number is (919) 474-9712. We lease 2,405
square feet of office space. The lease expires on December 31, 2008. The monthly
rent is $3,457, subject to an annual cost of living increase. We believe that
our current office space and facilities are sufficient to meet our present
needs
and do not anticipate any difficulty securing alternative or additional space,
as needed, on terms acceptable to us. We maintain websites at www.cyberlux.com
and www.luxSel.com. The information contained on those websites is not deemed
to
be a part of this annual report.
ITEM
3. LEGAL
PROCEEDINGS
From
time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse affect on our business, financial
condition or operating results.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART
II
ITEM
5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is quoted on the OTC Bulletin Board under the symbol "CYBL".
For
the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
|
|
High($)
|
|
Low
($)
|
|
|
|
------
|
|
--------
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
First
Quarter
|
|
|
0.07
|
|
|
0.02
|
|
Second
Quarter
|
|
|
0.20 |
|
|
0.05 |
|
Third
Quarter
|
|
|
0.15 |
|
|
0.05 |
|
Fourth
Quarter
|
|
|
0.15 |
|
|
0.06 |
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.12
|
|
|
0.06
|
|
Second
Quarter
|
|
|
0.08 |
|
|
0.06 |
|
Third
Quarter
|
|
|
0.07
|
|
|
0.04
|
|
Fourth
Quarter
|
|
|
0.05 |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.04
|
|
|
0.01
|
|
Second
Quarter (1)
|
|
|
0.02 |
|
|
0.01 |
|
(1)
As of
May 17, 2007
DESCRIPTION
OF SECURITIES
Common
Stock
We
are
authorized to issue up to 700,000,000 shares of common stock, par value $.001.
As of May 18, 2007, there were 276,844,639 shares of common stock outstanding.
Holders of the common stock are entitled to one vote per share on all matters
to
be voted upon by the stockholders. Holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefore. Upon the liquidation,
dissolution, or winding up of our company, the holders of common stock are
entitled to share ratably in all of our assets which are legally available
for
distribution after payment of all debts and other liabilities and liquidation
preference of any outstanding common stock. Holders of common stock have
no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are validly issued, fully paid and non-assessable.
Preferred
Stock
Our
Articles of Incorporation authorize the issuance of 5,000,000 shares of
preferred stock, $0.001 par value per share, the designation and rights of
which
are to be determined by our Board of Directors. Our Board of Directors has
authority, without action by the shareholders, to issue all or any portion
of
the authorized but unissued preferred stock in one or more series and to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights, and other rights of such series. We consider it desirable
to
have preferred stock available to provide increased flexibility in structuring
possible future acquisitions and financing and in meeting corporate needs which
may arise. If opportunities arise that would make desirable the issuance of
preferred stock through either public offering or private placements, the
provisions for preferred stock in our Articles of Incorporation would avoid
the
possible delay and expense of a shareholder's meeting, except as may be required
by law or regulatory authorities. Issuance of the preferred stock could result,
however, in a series of securities outstanding that will have certain
preferences with respect to dividends and liquidation over the common stock
which would result in dilution of the income per share and net book value of
the
common stock.
Issuance
of additional common stock pursuant to any conversion right which may be
attached to the terms of any series of preferred stock may also result in
dilution of the net income per share and the net book value of the common stock.
The specific terms of any series of preferred stock will depend primarily on
market conditions, terms of a proposed acquisition or financing, and other
factors existing at the time of issuance. Our Board of Directors may issue
additional preferred stock in future financing, but has no current plans to
do
so at this time. The issuance of Preferred Stock could have the effect of making
it more difficult for a third party to acquire a majority of our outstanding
voting stock.
As
of
March 31, 2007, we had 28.9806 shares of our Series A Convertible Preferred
Stock issued and outstanding. Each share is convertible into 50,000 shares
of
common stock. The Series A Convertible Preferred have the following designations
and rights:
Maturity:
|
Perpetual
Preferred
|
|
|
Dividend:
|
12%
per annum. The dividend shall be payable semi-annually in cash
or common
stock at our option.
|
|
|
Fixed
Conversion Price:
|
The
Series A Convertible Preferred shall be convertible into common
stock at
$0.10 per share.
|
|
|
Stated
Value:
|
$5,000
per share
|
|
|
Mandatory
Conversion:
|
Beginning
180 days from the effective date of a registration statement, if
the
closing bid price for our common stock exceeds $1.50 for a period
of 10
consecutive trading days, we have the right to force the holders
to
convert the Series A Convertible Preferred into common stock at
the
applicable conversion price.
|
|
|
Limitations
on Conversion.
|
Each
holder of the Series A Convertible Preferred shares shall not convert
the
shares into common stock such that the number of shares of common
stock
issued after the conversion would exceed, when aggregated with
all other
shares of common stock owned by such holder at such time, in excess
of
4.99% of our then issued and outstanding shares of common
stock.
|
|
|
No
Voting Rights.
|
The
holders of the Series A convertible shares have no voting rights
until
their shares are converted to common
shares.
|
The
Board
of Directors, pursuant to our Articles of Incorporation and By-Laws, authorized
Series B Convertible Preferred Stock which was issued to officers and directors
in order to convert accrued management fees and other liabilities into 800,000
shares of the Series B Preferred Stock. The Series B Convertible Preferred
Stock
has the following designations and rights:
Term:
|
Perpetual
Preferred
|
|
|
Dividend:
|
12%
per annum
|
|
|
Conversion:
|
Each
share of the Series B Convertible Preferred Stock may be converted
to 10
shares of our common stock at the option of the bearer.
|
|
|
Voting
Rights:
|
Except
with respect to transactions upon which the Series B Preferred
stock shall
be entitled to vote separately, the Series B Preferred Stock shall
have
superior voting rights equal to ten times the number of shares
of Common
Stock such holder of Series B Preferred Stock would receive upon
conversion of such holder's shares of Series B Preferred Stock.
The
conversion price is $0.10 per
share.
|
Series
C - Convertible Preferred stock
On
November 13, 2006, the Company filed a Certificate of Designation creating
a
Series C Convertible
Preferred Stock classification for 100,000 shares, which was subsequently
amended on January 11, 2007 to 700,000 shares.
Term:
|
Perpetual
Preferred
|
|
|
Dividend:
|
5%
per annum
|
|
|
Conversion:
|
The
shares of the Series C Preferred are convertible, at the option
of the
holder into common shares one year from issuance.
|
|
|
No
Voting Rights.
|
The
holders of the Series A convertible shares have no voting rights
until
their shares are converted to common
shares.
|
Options
There
are
currently options outstanding that have been issued to our officers and
directors to purchase 45,002,317 shares of our common stock.
Warrants
In
connection with a Securities Purchase Agreement dated September 23, 2004,
we
issued warrants to purchase 2,250,000 shares of common stock. The warrants
are
exercisable until five years from the date of issuance at a purchase price
of
$0.50 per share.
In
connection with a Securities Purchase Agreement dated April 22, 2005, we
issued
warrants to purchase 25,000,000 shares of common stock. The warrants are
exercisable until five years from the date of issuance at a purchase price
of
$0.03 per share.
In
connection with a Securities Purchase Agreement dated October 24, 2005, we
issued warrants to purchase 800,000 shares of common stock. The warrants
are
exercisable until five years from the date of issuance at a purchase price
of
$0.10 per share.
In
connection with a Securities Purchase Agreement dated December 28, 2005,
we
issued warrants to purchase 700,000 shares of common stock. The warrants
are
exercisable until five years from the date of issuance at a purchase price
of
$0.15 per share.
In
connection with a Securities Purchase Agreement dated March 27, 2006, we
issued
warrants to purchase 19,000,000 shares of common stock. The warrants are
exercisable until five years from the date of issuance at a purchase price
of
$0.10 per share.
In
connection with a Securities Purchase Agreement dated July 27, 2006, we issued
warrants to purchase 15,000,000 shares of common stock. The warrants are
exercisable until five years from the date of issuance at a purchase price
of
$0.06 per share.
In
connection with a Securities Purchase Agreement dated September 26, 2006,
we
issued warrants to purchase 10,000,000 shares of common stock. The warrants
are
exercisable until five years from the date of issuance at a purchase price
of
$0.06 per share.
In
connection with a Securities Purchase Agreement dated December 20, 2006,
we
issued warrants to purchase 700,000 shares of common stock. The warrants
are
exercisable until five years from the date of issuance at a purchase price
of
$0.06 per share.
In
connection with a Securities Purchase Agreement dated April 18, 2007, we
issued
warrants to purchase 10,000,000 shares of common stock. The warrants are
exercisable until five years from the date of issuance at a purchase price
of
$0.02 per share.
In
connection with a Securities Purchase Agreement dated May 3, 2007, we issued
warrants to purchase 10,000,000 shares of common stock. The warrants are
exercisable until five years from the date of issuance at a purchase price
of
$0.02 per share.
In
addition, we have 58,500 warrants outstanding exercisable at $0.25 per share,
which expire in 2008. We have 91,500 warrants outstanding exercisable at
$0.10
per share, which expire in 2008.
Convertible
Securities
Not
including approximately 83,010,628 shares of common stock issuable upon exercise
of outstanding options and warrants, approximately 25,939,462 shares of common
stock are issuable, based on current market prices, upon conversion of
outstanding secured convertible notes issued pursuant to the Securities Purchase
Agreement dated September 23, 2004, approximately 50,000,000 shares of common
stock are issuable, based on current market prices, upon conversion of
outstanding secured convertible notes issued pursuant to the Securities Purchase
Agreement dated April 22, 2005. approximately 22,857,143 shares of common stock
are issuable, based on current market prices, upon conversion of outstanding
secured convertible notes issued pursuant to the Securities Purchase Agreement
dated October 24, 2005 and approximately 22,222,222 shares of common stock
are
issuable, based on current market prices, upon conversion of outstanding secured
convertible notes issued pursuant to the Securities Purchase Agreement dated
December 28, 2005.
APRIL
2005 SECURITIES PURCHASE AGREEMENT
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on April 22, 2005 for the sale of
(i)
$1,500,000 in secured convertible notes, and (ii) warrants to purchase
25,000,000 shares of our common stock. As of May 18, 2007, $163,837.72 of the
second convertible notes has been converted and $1,336,162.28 remains
outstanding.
The
investors provided us with an aggregate of $1,500,000 as follows:
|
· |
$600,000
was disbursed on April 22, 2005;
|
|
· |
$500,000
was disbursed on May 24, 2005; and
|
|
· |
$400,000
was disbursed on July 19, 2005.
|
The
notes
bear interest at 10%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
· |
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.
|
On
April
18, 2007, the variable conversion price of the secured convertible debentures
was amended to 25%. We have a call option under the terms of the secured
convertible notes. The call option provides us with the right to prepay all
of
the outstanding secured convertible notes at any time, provided we are not
in
default and our stock is trading at or below $.03 per share. Prepayment of
the
notes is to be made in cash equal to either (i) 125% of the outstanding
principal and accrued interest for prepayments occurring within 30 days
following the issue date of the secured convertible notes; (ii) 135% of the
outstanding principal and accrued interest for prepayments occurring between
31
and 60 days following the issue date of the secured convertible notes; and
(iii)
150% of the outstanding principal and accrued interest for prepayments occurring
after the 60th day following the issue date of the secured convertible
notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.03. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.03 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration rights.
OCTOBER
2005 STOCK PURCHASE AGREEMENT
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on October 24, 2005, for the sale
of
(i) $800,000 in secured convertible notes, and (ii) warrants to purchase 800,000
shares of our common stock.
The
notes
bear interest at 10%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
· |
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.
|
On
April
18, 2007, the variable conversion price of the secured convertible debentures
was amended to 25%. We have a call option under the terms of the secured
convertible notes. The call option provides us with the right to prepay all
of
the outstanding secured convertible notes at any time, provided we are not
in
default and our stock is trading at or below $.03 per share. Prepayment of
the
notes is to be made in cash equal to either (i) 125% of the outstanding
principal and accrued interest for prepayments occurring within 30 days
following the issue date of the secured convertible notes; (ii) 135% of the
outstanding principal and accrued interest for prepayments occurring between
31
and 60 days following the issue date of the secured convertible notes; and
(iii)
150% of the outstanding principal and accrued interest for prepayments occurring
after the 60th day following the issue date of the secured convertible
notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.10. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.10 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration rights.
DECEMBER
2005 STOCK PURCHASE AGREEMENT
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on December 28, 2005, for the sale
of
(i) $700,000 in secured convertible notes, and (ii) warrants to purchase 700,000
shares of our common stock.
The
notes
bear interest at 8%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
· |
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.
|
On
April
18, 2007, the variable conversion price of the secured convertible debentures
was amended to 25%. We have a call option under the terms of the secured
convertible notes. The call option provides us with the right to prepay all
of
the outstanding secured convertible notes at any time, provided we are not
in
default and our stock is trading at or below $.09 per share. Prepayment of
the
notes is to be made in cash equal to either (i) 125% of the outstanding
principal and accrued interest for prepayments occurring within 30 days
following the issue date of the secured convertible notes; (ii) 135% of the
outstanding principal and accrued interest for prepayments occurring between
31
and 60 days following the issue date of the secured convertible notes; and
(iii)
150% of the outstanding principal and accrued interest for prepayments occurring
after the 60th day following the issue date of the secured convertible
notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.15 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration rights.
MARCH
2006 STOCK PURCHASE AGREEMENT
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on March 27, 2006, for the sale of
(i)
$500,000 in secured convertible notes, and (ii) warrants to purchase 19,000,000
shares of our common stock.
The
notes
bear interest at 8%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
· |
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.
|
On
April
18, 2007, the variable conversion price of the secured convertible debentures
was amended to 25%. We have a call option under the terms of the secured
convertible notes. The call option provides us with the right to prepay all
of
the outstanding secured convertible notes at any time, provided we are not
in
default and our stock is trading at or below $.13 per share. Prepayment of
the
notes is to be made in cash equal to either (i) 125% of the outstanding
principal and accrued interest for prepayments occurring within 30 days
following the issue date of the secured convertible notes; (ii) 135% of the
outstanding principal and accrued interest for prepayments occurring between
31
and 60 days following the issue date of the secured convertible notes; and
(iii)
150% of the outstanding principal and accrued interest for prepayments occurring
after the 60th day following the issue date of the secured convertible
notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.10 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration rights.
JULY
2006 STOCK PURCHASE AGREEMENT
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on July 28, 2006, for the sale of
(i)
$500,000 in secured convertible notes, and (ii) warrants to purchase 15,000,000
shares of our common stock.
The
notes
bear interest at 6%, mature three years from the date of issuance, and
are
convertible into our common stock, at the investors' option, at the lower
of:
|
· |
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.
|
On
April
18, 2007, the variable conversion price of the secured convertible debentures
was amended to 25%. We have a call option under the terms of the secured
convertible notes. The call option provides us with the right to prepay all
of
the outstanding secured convertible notes at any time, provided we are not
in
default and our stock is trading at or below $.13 per share. Prepayment of
the
notes is to be made in cash equal to either (i) 125% of the outstanding
principal and accrued interest for prepayments occurring within 30 days
following the issue date of the secured convertible notes; (ii) 135% of the
outstanding principal and accrued interest for prepayments occurring between
31
and 60 days following the issue date of the secured convertible notes; and
(iii)
150% of the outstanding principal and accrued interest for prepayments occurring
after the 60th day following the issue date of the secured convertible
notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.10 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration rights.
SEPTEMBER
2006 STOCK PURCHASE AGREEMENT
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on September 26, 2006, for the sale
of
(i) $280,000 in secured convertible notes, and (ii) warrants to purchase
10,000,000 shares of our common stock.
The
notes
bear interest at 6%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
· |
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.
|
On
April
18, 2007, the variable conversion price of the secured convertible debentures
was amended to 25%. We have a call option under the terms of the secured
convertible notes. The call option provides us with the right to prepay all
of
the outstanding secured convertible notes at any time, provided we are not
in
default and our stock is trading at or below $.13 per share. Prepayment of
the
notes is to be made in cash equal to either (i) 125% of the outstanding
principal and accrued interest for prepayments occurring within 30 days
following the issue date of the secured convertible notes; (ii) 135% of the
outstanding principal and accrued interest for prepayments occurring between
31
and 60 days following the issue date of the secured convertible notes; and
(iii)
150% of the outstanding principal and accrued interest for prepayments occurring
after the 60th day following the issue date of the secured convertible
notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.13. Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.10 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration rights.
DECEMBER
2006 STOCK PURCHASE AGREEMENT
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on December 20, 2006, for the sale
of
(i) $600,000 in secured convertible notes, and (ii) warrants to purchase
20,000,000 shares of our common stock.
The
notes
bear interest at 6%, mature three years from the date of issuance, and are
convertible into our common stock, at the investors' option, at the lower
of:
|
· |
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.
|
On
April
18, 2007, the variable conversion price of the secured convertible debentures
was amended to 25%. We have a call option under the terms of the secured
convertible notes. The call option provides us with the right to prepay all
of
the outstanding secured convertible notes at any time, provided we are not
in
default and our stock is trading at or below $.13 per share. Prepayment of
the
notes is to be made in cash equal to either (i) 125% of the outstanding
principal and accrued interest for prepayments occurring within 30 days
following the issue date of the secured convertible notes; (ii) 135% of the
outstanding principal and accrued interest for prepayments occurring between
31
and 60 days following the issue date of the secured convertible notes; and
(iii)
150% of the outstanding principal and accrued interest for prepayments occurring
after the 60th day following the issue date of the secured convertible
notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.13.
Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.10 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration rights.
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
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:
|
· |
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.
|
We
have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading
at or
below $.13 per share. Prepayment of the notes is to be made in cash equal
to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date
of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.13.
Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.10 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration rights.
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 3, 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
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:
|
· |
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.
|
We
have a
call option under the terms of the secured convertible notes. The call option
provides us with the right to prepay all of the outstanding secured convertible
notes at any time, provided we are not in default and our stock is trading
at or
below $.13 per share. Prepayment of the notes is to be made in cash equal
to
either (i) 125% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the secured
convertible notes; (ii) 135% of the outstanding principal and accrued interest
for prepayments occurring between 31 and 60 days following the issue date
of the
secured convertible notes; and (iii) 150% of the outstanding principal and
accrued interest for prepayments occurring after the 60th day following the
issue date of the secured convertible notes.
Our
right
to repay the notes is exercisable on not less than ten trading days prior
written notice to the holders of the secured convertible notes. For notice
purposes, a trading day is any day on which our common stock is traded for
any
period on the OTC Bulletin Board. Notwithstanding the notice of prepayment,
the
holders of the secured convertible notes have the right at all times to convert
all or any portion of the secured convertible notes prior to payment of the
prepayment amount.
We
also
have a partial call option under the terms of the secured convertible notes
in
any month in which the current price of our common stock is below $0.13.
Under
the terms of the partial call option, we have the right to pay the outstanding
principal amount of the secured convertible notes plus one-month's interest
for
that month, which will stay any conversions of the secured convertible notes
by
the holders for that month. The principal amount of the secured convertible
notes to be repaid is determined by dividing the then outstanding principal
amount of the notes by the maturity of the notes in months, or 36.
The
full
principal amount of the secured convertible notes are due upon default under
the
terms of secured convertible notes. The warrants are exercisable until seven
years from the date of issuance at a purchase price of $0.10 per share. In
addition, we have granted the investors a security interest in substantially
all
of our assets and intellectual property and registration
rights.
Penny
Stock Regulation.
Shares
of
our common stock are subject to rules adopted by the Securities and Exchange
Commission that regulate broker-dealer practices in connection with transactions
in “penny stocks.” Penny stocks are generally equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in those securities is provided by
the
exchange or system). The penny stock rules require a broker-dealer, prior to
a
transaction in a penny stock not otherwise exempt from those rules, deliver
a
standardized risk disclosure prepared by the Securities and Exchange Commission,
which contains the following:
|
· |
A
description of the nature and level of risk in the market for penny
stocks
in both public offerings and secondary
trading;
|
|
· |
A
description of the broker’s or dealer’s duties to the customer and of the
rights and remedies available to the customer with respect to violation
to
such duties or other requirements of securities’
laws;
|
|
· |
A
brief, clear, narrative description of a dealer market, including
“bid”
and “ask” prices for penny stocks and the significance of the spread
between the “bid” and “ask” price;
|
|
· |
A
toll-free telephone number for inquiries on disciplinary
actions;
|
|
· |
Definitions
of significant terms in the disclosure document or in the conduct
of
trading in penny stocks; and
|
|
· |
Such
other information and in such form (including language, type, size
and
format), as the Securities and Exchange Commission shall require
by rule
or regulation.
|
Prior
to
effecting any transaction in a penny stock, the broker-dealer also must provide
the customer the following:
|
· |
The
bid and offer quotations for the penny
stock;
|
|
· |
The
compensation of the broker-dealer and its salesperson in the
transaction;
|
|
· |
The
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market
for such stock; and
|
|
· |
Monthly
account statements showing the market value of each penny stock held
in
the customer’s account.
|
In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment
for
the purchaser and receive the purchaser’s written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably
statement.
These
disclosure requirements may have the effect of reducing the trading activity
in
the secondary market for a stock that becomes subject to the penny stock rules.
Holders of shares of our common stock may have difficulty selling those shares
because our common stock will probably be subject to the penny stock rules
for
an indeterminate period of time.
Recent
Sales of Unregistered Securities
During
the three months ended December 31, 2006, we issued 25,000 shares of common
stock upon conversion of 0.5 shares of Class A preferred stock.
In
October 2006, we issued 500,000 shares of common stock at $0.045 per share
in
exchange for services rendered.
In
November 2006, we issued 98,000 shares and 2,000 shares of Series C Convertible
Preferred stock to UTEK Corporation and Rensselaer Polytechnic Institute for
patent acquisitions.
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd., and New Millennium Partners II, LLC on December 20, 2006 for the sale
of
(i) $600,000 in secured convertible notes and (ii) warrants to buy 20,000,000
shares of our common stock.
The
secured convertible notes bear interest at 6%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 40% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes are due upon default
under the terms of secured convertible notes. In addition, we have granted
the
investors a security interest in substantially all of our assets and
intellectual property and registration rights. The warrants are exercisable
until five years from the date of issuance at a purchase price of $0.10 per
share. In addition the warrants exercise price gets adjusted in the event we
issue common stock at a price below market, with the exception of any securities
issued as of the date of this warrant.
ITEM
6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULT OF
OPERATIONS.
This
report contains forward-looking statements. Actual results and events could
differ materially from those projected, anticipated, or implicit, in the
forward-looking statements as a result of the risk factors set forth below
and
elsewhere in this report.
With
the
exception of historical matters, the matters discussed herein are
forward-looking statements that involve risks and uncertainties. Forward-looking
statements include, but are not limited to, statements concerning anticipated
trends in revenues and net income, projections concerning operations and
available cash flow. Our actual results could differ materially from the results
discussed in such forward-looking statements. The following discussion of our
financial condition and results of operations should be read in conjunction
with
our financial statements and the related notes thereto appearing elsewhere
herein.
Overview
We
are a
Nevada corporation that was incorporated on May 17, 2000. We were founded to
design, develop, market and sell advanced lighting systems that utilize light
emitting diodes as illumination elements. White diodes are a relatively new
phenomenon that offer major advances in illumination technology. Our diodes
consume 92% less energy than incandescent counterparts to produce comparable
light output. In electrochemical (battery powered) applications, this diminution
of energy consumption positions our lighting solutions as more durable and
reliable than other interim lighting alternatives. In standard alternating
current electrical applications, the calculated life of LEDs as lighting
elements is over 20 years versus 750 hours for traditional incandescent light
bulbs. These exceptional performance characteristics, diminutive energy
consumption and extended life, have prompted diode implementation in traffic
lights and automotive brake lights, but have not yet significantly occurred
in
our area of focus, diodal illumination (tm). Diodal illumination is the
production of light through the use of white light emitting diodes. A light
emitting diode is a chemical compound that produces a visible light when an
electrical current is applied. This production of light through a diode is
contrasted with light from a typical light bulb, in which light is produced
as a
by-product of a burning filament contained within a vacuum globe. The diode
uses
92% less energy to produce comparable light to that of a traditional light
bulb.
To
address the tremendous opportunity in the $12 billion general lighting market,
we have developed a line of LED lighting products and fixtures for residential,
commercial, military and homeland security markets, including kitchen and closet
task lighting and emergency lighting products. We design and engineer products
that adapt technology advancements from semiconductor manufacturers, including
Cree, Inc., for use by the general public and military.
We
have
created breakthrough solid-state lighting technology that provides energy
efficient and cost effective lighting solutions. Several products are designed
to address emergencies, such as power outages and critical security lighting
needs. Other products bring "heatless" light into the home for closets,
cabinets, bookcases and counters. The solid-state semiconductors, trademarked
by
Cyberlux as diodal(TM) lighting elements, consume 92 percent less energy than
conventional incandescent lighting elements and perform for more than 10 years
in contrast to 750 hours for traditional light bulbs.
With
the
exception of our initial Home Safety Light product (the first generation of
our
current EverOn(TM) product), 2005 marked the first year for all of our current
products and the first year of significant revenues. With established and
developing sales channels and a robust range of products now available for
the
market, we believe that we are poised to seize significant opportunities in
the
growing solid-state lighting market in 2006 and beyond.
Growth
Strategy
Our
growth strategy is defined by the following five specific initiatives that
we
hope will lead to a greater position within the industry:
(1)
Increase existing product sales to existing customers - we will attempt to
increase revenue from our existing customer base, specifically The Home Depot,
Wal-Mart and the USAF, by increasing the frequency of purchase and maintaining
profitable customer relationships.
(2)
Expand existing product sales to new customers - we will attempt to increase
revenue by expanding the existing product sales to new customers. With our
existing products, the objective is to expand our distribution to new customers,
including warehouse retailers, retail grocery chains, additional branches of
the
military, and additional commercial customers.
(3)
Introduce new solid-state lighting products - within our expanding distribution
channels, we will attempt to increase revenue by developing new solid-state
lighting products for our new and existing customers. Specifically, we will
deliver the latest portable illumination systems to the military, introduce
the
RelyOn to our retailers and launch new Aeon products to our commercial
customers.
(4)
Expand to new geographies - for us, we believe that geographical expansion
will
be one of the most powerful opportunities for revenue growth. Currently we
are
pursuing retail expansion in Puerto Rico, Mexico and Canada, with expansion
in
Europe and the Far East as future objectives.
(5)
Pursue new competitive arenas - we have recently acquired the world-wide
exclusive rights to two proprietary technologies. We intend to develop this
proprietary technology into a series of product and licensing revenue streams
as
a source of long-term competitive advantage.
Recent
Accomplishments
The
following is a summary of some of our most recent accomplishments:
February
12, 2007 - Delivers on USAF Contract For Unique Covert Lighting
System
January
25, 2007 - Delivers
Next Generation WatchDog Advanced Security Lighting System to U.S. Air
Force
January
18, 2007 - Obtains Exclusive Rights to Hybrid Lighting Technology from
University of California-Santa Barbara and Scattered Photon Extraction
Technology from Rensselaer Polytechnic Institute Creates Foundation for
Sustainable Competitive Advantage
December
13, 2006 -Begins Shipments to Home Depot - 287 Store Rollout
November
1, 2006 - Awarded U.S. Patent Claims for Emergency Lighting Technology - The
U.S. Patent Office has allowed 21 patent claims covering our Power Outage
Adapter
October
17, 2006 - Enters Into Distribution Agreement With Studio Becker for our Aeon
Product Line
September
29, 2006 -Begins Shipment to Wal-Mart - 504 Store Rollout
September
28, 2006 - Aeon ProHB LED Lighting Featured in two houses in the 2006 Parade
of
Homes
September
27, 2006 - Awarded Contract by United States Air Force to Deliver Force
Protection and Aircraft Maintenance Lighting System
Critical
Accounting Policies
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments:
o
stock-based compensation; and
o
revenue
recognition.
Stock-Based
Compensation
In
December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
Compensation - Transition and Disclosure. This statement amends SFAS No. 123
-
Accounting for Stock-Based Compensation, providing alternative methods of
voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. FAS 148 also requires disclosure of
the
method used to account for stock-based employee compensation and the effect
of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2002.
The
Company elected to continue to account for stock-based compensation plans using
the intrinsic value-based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
the provisions of APB No. 25, compensation expense is measured at the grant
date
for the difference between the fair value of the stock and the exercise price.
Revenue
Recognition
For
revenue from product sales, the Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). 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) collectibility 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 collectibility
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.
RESULTS
OF OPERATIONS
Results
of Operations for the Years Ended December 31, 2006 and 2005
Compared.
Revenues
for the year ended December 31, 2006 were $484,988. This compares to revenues
of
$54,523 for the year ended December 31, 2005. The increase of $430,465 or 790%
is attributable our efforts to expand and grow our market.
Cost
of
goods sold were $377,524 or 77.9 % of sales for 2006 compared with $235,768
or
432.4% for 2005. In 2005, we recorded a charge for obsolete inventory of
approximately $144,000. Additionally, our sales in 2005 were not sufficient
to
achieve a positive gross profit margin.
Operating
expenses for the year ended December 31, 2006 were $5,276,890 compared with
$2,911,761 for the year ended December 31, 2005, an increase of $2,365,129
or
81.2% Included in expenses for 2006 was $1,432,539 in common stock issued for
services rendered to employees and consultants in 2006 as a non cash transaction
as compared to $184,333 in 2005. Additionally the Company issued stock options
to employees valued at $1,131,500 in 2006 as compared to $-0- in 2005.
We
realized an unrealized gain in change in fair value of warrants and debt
derivatives of $953,719 in 2006 as compared with a loss of $4,485,654 in 2005.
Interest
expense for 2006 was $2,585,800 compared to $1,623,781 for 2005. The increase
in
interest expense represents our cost of additional borrowing in 2006.
Liquidity
and Capital Resources
As
of
December 31, 2006, we had a working capital deficit of $2,542,474. As a result
of our operating losses for the year ended December 31, 2006, we generated
a
cash flow deficit of $2,627,021 from operating activities. Cash flows generated
through investing activities was $225,775 during the year ended December 31,
2006. We met our cash requirements during this period through the issuance
of
$1,830,000 in convertible notes payable and 479,402 borrowing on a long term
basis.
While
we
have raised capital to meet our working capital and financing needs in the
past,
additional financing is required in order to meet our current and projected
cash
flow deficits from operations and development.
By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits through the next twelve months. However, if thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
Our
independent certified public accountant has stated in their report, dated as
of
April 26 2007, that we have incurred operating losses, and that we are dependent
upon management's ability to develop profitable operations. These factors among
others may raise substantial doubt about our ability to continue as a going
concern.
September
2006 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on September 26, 2006, for the sale
of
(i) $280,000 in secured convertible notes, and (ii) warrants to purchase
10,000,000 shares of our common stock. The investors purchased all of the
secured convertible notes on September 26, 2006.
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 6%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.06 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 $0.10 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.
December
2006 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on December 20, 2006, for the sale
of
(i) $600,000 in secured convertible notes, and (ii) warrants to purchase
20,000,000 shares of our common stock. The investors purchased all of the
secured convertible notes on December 20, 2006.
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 6%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.06 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 $0.10 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.
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 3, 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 3, 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.
Recent
Accounting Pronouncements
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 did not 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.
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”. This Statement improves financial reporting by requiring an employer
to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that
funded
status in the year in which the changes occur through comprehensive income
of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring
an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective
date for
an employer with publicly traded equity securities is as of the end of
the
fiscal year ending after December 15, 2006. The Company does not expect
adoption
of this standard will have a material impact on its financial position,
operations or cash flows.
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP 00-19-2") which addresses accounting for registration
payment arrangements. FSP 00-19-2 specifies that the contingent obligation
to
make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included
as a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with FASB Statement No. 5, Accounting
for
Contingencies. FSP 00-19-2 further clarifies that a financial instrument
subject
to a registration payment arrangement should be accounted for in accordance
with
other applicable generally accepted accounting principles without regard
to the
contingent obligation to transfer consideration pursuant to the registration
payment arrangement. For registration payment arrangements and financial
instruments subject to those arrangements that were entered into prior
to the
issuance of EITF 00-19-2, this guidance shall be effective for financial
statements issued for fiscal years beginning after December 15, 2006 and
interim
periods within those fiscal years. The Company has not yet determined the
impact
that the adoption of FSP 00-19-2 will have on its financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair
value.
SFAS 159 applies to reporting periods beginning after November 15, 2007.
The
adoption of SFAS 157 is not expected to have a material impact on the Company’s
financial condition or results of operations.
Product
Research and Development
We
anticipate continuing to incur research and development expenditures in
connection with the development of our Advanced Illumination Systems during
the
next twelve months. We anticipate that we will expend approximately $800,000
in
this endeavor.
These
projected expenditures are dependent upon our generating revenues and obtaining
sources of financing in excess of our existing capital resources. There
is no
guarantee that we will be successful in raising the funds required or generating
revenues sufficient to fund the projected costs of research and development
during the next twelve months.
Acquisition
or Disposition of Plant and Equipment
We
do not
anticipate the sale of any significant property, plant or equipment during
the
next twelve months. We do not anticipate the acquisition of any significant
property, plant or equipment during the next 12 months.
Risk
Factors
Much
of
the information included in this annual report includes or is based upon
estimates, projections or other "forward-looking statements". Such
forward-looking statements include any projections or estimates made by us
and
our management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based,
are
made in good faith and reflect our current judgment regarding the direction
of
our business, actual results will almost always vary, sometimes materially,
from
any estimates, predictions, projections, assumptions or other future performance
suggested herein.
Such
estimates, projections or other "forward-looking statements" involve various
risks and uncertainties as outlined below. We caution the reader that important
factors in some cases have affected and, in the future, could materially affect
actual results and cause actual results to differ materially from the results
expressed in any such estimates, projections or other "forward-looking
statements".
Our
common shares are considered speculative. Prospective investors should consider
carefully the risk factors set out below.
Risks
Relating to Our Business:
We
Have a History Of Losses Which May Continue, Which May Negatively Impact Our
Ability to Achieve Our Business Objectives.
We
incurred a net loss of $6,775,400 for the year ended December 31, 2006 compared
to a net loss of $9,410,657 for the year ended December 31, 2005. We cannot
assure you that we can achieve or sustain profitability on a quarterly or annual
basis in the future. Our operations are subject to the risks and competition
inherent in the establishment of a business enterprise. There can be no
assurance that future operations will be profitable. Revenues and profits,
if
any, will depend upon various factors, including whether we will be able to
continue expansion of our revenue. We may not achieve our business objectives
and the failure to achieve such goals would have an adverse impact on
us.
If
We Are Unable to Obtain Additional Funding Our Business Operations Will be
Harmed and If We Do Obtain Additional Financing Our Then Existing Shareholders
May Suffer Substantial Dilution.
We
will
require additional funds to sustain and expand our sales and marketing
activities. We anticipate that we will require up to approximately $4 million
to
fund our continued operations for the next twelve months, depending on revenue
from operations.
We need
additional funding for research and development, increasing inventory, marketing
and general and administrative expenses. Although this amount is less than
our
net losses in the past, we expect to decrease our general and administrative
expenses by eliminating most of our consulting fees. In the event that we cannot
significantly reduce our consulting fees, we will need to raise additional
funds
to continue our operations. Additional
capital will be required to effectively support the operations and to otherwise
implement our overall business strategy. There can be no assurance that
financing will be available in amounts or on terms acceptable to us, if at
all.
The inability to obtain additional capital will restrict our ability to grow
and
may reduce our ability to continue to conduct business operations. If we are
unable to obtain additional financing, we will likely be required to curtail
our
marketing and development plans and possibly cease our operations. Any
additional equity financing may involve substantial dilution to our then
existing shareholders.
Our
Independent Auditors Have Expressed Substantial Doubt About Our Ability to
Continue As a Going Concern, Which May Hinder Our Ability to Obtain Future
Financing.
In
their
report dated April 26, 2007, our independent auditors stated that our financial
statements for the year ended December 31, 2006 were prepared assuming that
we
would continue as a going concern. Our ability to continue as a going concern
is
an issue raised as a result of losses for the year ended December 31, 2006
in
the amount of $6,775,400. We continue to experience net operating losses. Our
ability to continue as a going concern is subject to our ability to generate
a
profit and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans and grants from various financial institutions where possible.
Our continued net operating losses increase the difficulty in meeting such
goals
and there can be no assurances that such methods will prove successful.
If
We Are Unable to Retain the Services of Messrs. Evans, Schmidt or Ringo, or
If
We Are Unable to Successfully Recruit Qualified Managerial and Sales Personnel
Having Experience in Business, We May Not Be Able to Continue Our Operations.
Our
success depends to a significant extent upon the continued service of Mr. Donald
F. Evans, our Chief Executive Officer, Mr. Mark D. Schmidt, our President and
Mr. John Ringo, our Secretary and Corporate Counsel. Loss of the services of
Messrs. Evans, Schmidt or Ringo could have a material adverse effect on our
growth, revenues, and prospective business. We do not maintain key-man insurance
on the life of Messrs. Evans or Ringo. In addition, in order to successfully
implement and manage our business plan, we will be dependent upon, among other
things, successfully recruiting qualified managerial and sales personnel having
experience in business. Competition for qualified individuals is intense. There
can be no assurance that we will be able to find, attract and retain existing
employees or that we will be able to find, attract and retain qualified
personnel on acceptable terms.
Many
Of Our Competitors Are Larger and Have Greater Financial and Other Resources
Than We Do and Those Advantages Could Make It Difficult For Us to Compete With
Them.
The
lighting and illumination industry is extremely competitive and includes several
companies that have achieved substantially greater market shares than we have,
and have longer operating histories, have larger customer bases, and have
substantially greater financial, development and marketing resources than we
do.
If overall demand for our products should decrease it could have a materially
adverse affect on our operating results.
Our
Trademark and Other Intellectual Property Rights May Not be Adequately Protected
Outside the United States, Resulting in Loss of Revenue.
We
believe that our trademarks, whether licensed or owned by us, and other
proprietary rights are important to our success and our competitive position.
In
the course of our international expansion, we may, however, experience conflict
with various third parties who acquire or claim ownership rights in certain
trademarks. We cannot assure that the actions we have taken to establish
and
protect these trademarks and other proprietary rights will be adequate to
prevent imitation of our products by others or to prevent others from seeking
to
block sales of our products as a violation of the trademarks and proprietary
rights of others. Also, we cannot assure you that others will not assert
rights
in, or ownership of, trademarks and other proprietary rights of ours or that
we
will be able to successfully resolve these types of conflicts to our
satisfaction. In addition, the laws of certain foreign countries may not
protect
proprietary rights to the same extent, as do the laws of the United
States.
Risks
Relating to Our Current Financing Arrangement:
There
Are a Large Number of Shares Underlying Our Secured Convertible Notes and
Warrants That May be Available for Future Sale and the Sale of These Shares
May
Depress the Market Price of Our Common Stock.
As
of May
18, 2007, we had 276,844,639 shares of common stock issued and outstanding,
secured convertible notes outstanding pursuant to our securities purchase
agreements dated April 22, 2005, October 24, 2005, December 28, 2005, March
27,
2006, July 27, 2006, September 26, 2006, December 20, 2006, April 18, 2007
and
May 3, 2007 that may be converted into an estimated 763,521,303, 457,142,858,
400,000,000, 285,714,286, 285,714,286, 160,000,000, 342,857,143, 228,571,429
and
85,714,286 shares of common stock at current market prices, respectively,
and
outstanding warrants pursuant to our securities purchase agreements dated
April
22, 2005, October 24, 2005, December 28, 2005, March 27, 2006, July 27, 2006,
September 26, 2006, December 20, 2006, April 18, 2007 and May 3, 2007, to
purchase 2,250,000, 25,000,000, 800,000, 700,000, 19,000,000, 15,000,000,
10,000,000, 700,000, 10,000,000 and 10,000,000 shares of common stock,
respectively. In addition, the number of shares of common stock issuable
upon
conversion of the outstanding secured convertible notes issued pursuant to
the
securities purchase agreements dated September 23, 2004, April 22, 2005,
October
24, 2005, December 28, 2005, March 27, 2006, July 27, 2006, September 26,
2006,
December 20, 2006, April 18, 2007 and May 3, 2007 may increase if the market
price of our stock declines. All of the shares, including all of the shares
issuable upon conversion of the secured convertible notes and upon exercise
of
our warrants, may be sold without restriction. The sale of these shares may
adversely affect the market price of our common stock.
The
Continuously Adjustable Conversion Price Feature of Our Secured Convertible
Notes Could Require Us to Issue a Substantially Greater Number of Shares,
Which
Will Cause Dilution to Our Existing Stockholders.
Our
obligation to issue shares upon conversion of our secured convertible notes
is
essentially limitless. The following is an example of the amount of shares
of
our common stock that are issuable, upon conversion of our secured convertible
notes (excluding accrued interest), based on market prices 25%, 50% and 75%
below the market price, as of May 17, 2007 of $0.008.
|
|
|
|
|
|
Number
|
|
%
of
|
|
%
Below
|
|
Price
Per
|
|
With
Discount
|
|
of
Shares
|
|
Outstanding
|
|
Market
|
|
Share
|
|
at
75%
|
|
Issuable
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
25%
|
|
$
|
.006
|
|
$
|
.0015
|
|
|
3,510,774,854
|
|
|
92.69
|
%
|
50%
|
|
$
|
.004
|
|
$
|
.001
|
|
|
5,266,162,280
|
|
|
95.01
|
%
|
75%
|
|
$
|
.002
|
|
$
|
.0005
|
|
|
10,532,324,560
|
|
|
97.44
|
%
|
As
illustrated, the number of shares of common stock issuable upon conversion
of
our secured convertible notes will increase if the market price of our
stock
declines, which will cause dilution to our existing stockholders.
The
Continuously Adjustable Conversion Price Feature of our Secured Convertible
Notes May Have a Depressive Effect on the Price of Our Common Stock.
The
secured convertible notes issued in April 22, 2005, October 24, 2005,
December
28, 2005, March 27, 2006, July 27, 2006, September 26, 2006, December
20, 2006,
April 18, 2007 and May 3, 2007 are convertible into shares of our common
stock
at a 75% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common
stock
as the selling stockholders convert and sell material amounts of common
stock
could have an adverse effect on our stock price. In addition, not only
the sale
of shares issued upon conversion or exercise of secured convertible notes,
series B convertible preferred stock and warrants, but also the mere
perception
that these sales could occur, may adversely affect the market price of
the
common stock.
The
Issuance of Shares Upon Conversion of the Secured Convertible Notes and
Exercise
of Outstanding Warrants May Cause Immediate and Substantial Dilution
to Our
Existing Stockholders.
The
issuance of shares upon conversion of the secured convertible notes and
exercise
of warrants may result in substantial dilution to the interests of other
stockholders since the selling stockholders may ultimately convert and
sell the
full amount issuable on conversion. Although AJW Partners, LLC, AJW Qualified
Partners, LLC, AJW Offshore, Ltd., and New Millennium Partners II, LLC
may not
convert their secured convertible notes and/or exercise their warrants
if such
conversion or exercise would cause them to own more than 4.9% of our
outstanding
common stock, this restriction does not prevent AJW Partners, LLC, AJW
Qualified
Partners, LLC, AJW Offshore, Ltd., and New Millennium Partners II, LLC
from
converting and/or exercising some of their holdings and then converting
the rest
of their holdings. In this way, AJW Partners, LLC, AJW Qualified Partners,
LLC,
AJW Offshore, Ltd., and New Millennium Partners II, LLC could sell more
than
this limit while never holding more than this limit. There is no upper
limit on
the number of shares that may be issued which will have the effect of
further
diluting the proportionate equity interest and voting power of holders
of our
common stock, including investors in this offering.
If
We Are Required for any Reason to Repay Our Outstanding Secured Convertible
Notes, We Would Be Required to Deplete Our Working Capital, If Available,
Or
Raise Additional Funds. Our Failure to Repay the Secured Convertible
Notes, If
Required, Could Result in Legal Action Against Us, Which Could Require
the Sale
of Substantial Assets.
Between
2004 and 2007, we entered into Securities Purchase Agreements for the
sale of an
aggregate of $6,930,000 principal amount of secured convertible notes,
of which
$5,266,162.28 remains outstanding. The secured convertible notes are
due and
payable, with interest, between two and three years from the date of
issuance
(or the date from which we are in compliance with the terms of the securities
purchase agreements), unless sooner converted into shares of our common
stock.
In addition, any event of default such as our failure to repay the principal
or
interest when due, our failure to issue shares of common stock upon conversion
by the holder, our failure to timely file a registration statement or
have such
registration statement declared effective, breach of any covenant,
representation or warranty in the Securities Purchase Agreements or related
convertible note, the assignment or appointment of a receiver to control
a
substantial part of our property or business, the filing of a money judgment,
writ or similar process against our company in excess of $50,000, the
commencement of a bankruptcy, insolvency, reorganization or liquidation
proceeding against our company and the delisting of our common stock
could
require the early repayment of the secured convertible notes, including
a
default interest rate of 15% on the outstanding principal balance of
the notes
if the default is not cured with the specified grace period. We anticipate
that
the full amount of the secured convertible notes will be converted into
shares
of our common stock, in accordance with the terms of the secured convertible
notes. If we are required to repay the secured convertible notes, we
would be
required to use our limited working capital and raise additional funds.
If we
were unable to repay the notes when required, the note holders could
commence
legal action against us and foreclose on all of our assets to recover
the
amounts due. Any such action would require us to curtail or cease operations.
Risks
Relating to Our Common Stock:
We
Have Issued a Large Amount of Stock in Lieu of Cash for Payment of Expenses
and
Expect to Continue this Practice in the Future. Such Issuances of Stock Will
Cause Dilution to Our Existing Stockholders.
Due
to
our limited economic resources, we try to issue stock in lieu of cash for
payment of expenses and services provided for us. In 2006, we issued 14,063,216
shares of common stock in exchange for expenses and services rendered. We
anticipate issuing shares of common stock whenever possible in lieu of cash
to
conserve our financial position. The number of shares of common stock issued
is
directly related to our stock price at the time of issuance. In the event that
our stock price drops, we will be required to issue larger amounts of shares
for
expenses and services rendered, if the other party is willing to accept stock
at
all. The issuance of shares of common stock will have the effect of diluting
the
proportionate equity interest and voting power of holders of our common stock,
including investors in this offering.
If
We Fail to Remain Current on Our Reporting Requirements, We Could be Removed
From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers
to
Sell Our Securities and the Ability of Stockholders to Sell Their Securities
in
the Secondary Market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As
a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
Our
Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading
Market in Our Securities is Limited, Which Makes Transactions in Our Stock
Cumbersome and May Reduce the Value of an Investment in Our Stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
For
any transaction involving a penny stock, unless exempt, the rules require:
|
· |
that
a broker or dealer approve a person's account for transactions in
penny
stocks; and
|
|
· |
the
broker or dealer receive from the investor a written agreement to
the
transaction, setting forth the identity and quantity of the penny
stock to
be purchased.
|
In
order
to approve a person's account for transactions in penny stocks, the broker
or
dealer must:
|
· |
obtain
financial information and investment experience objectives of the
person;
and
|
|
· |
make
a reasonable determination that the transactions in penny stocks
are
suitable for that person and the person has sufficient knowledge
and
experience in financial matters to be capable of evaluating the risks
of
transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
|
· |
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
|
· |
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to
the
"penny stock" rules. This may make it more difficult for investors to dispose
of
our common stock and cause a decline in the market value of our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks.
Trends,
Risks and Uncertainties
We
have
sought to identify what we believe to be the most significant risks to our
business, but we cannot predict whether, or to what extent, any of such risks
may be realized nor can we guarantee that we have identified all possible risks
that might arise. Investors should carefully consider all of such risk factors
before making an investment decision with respect to our Common
Stock.
ITEM
7. FINANCIAL
STATEMENTS
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FINANCIAL
STATEMENTS
DECEMBER
31, 2006 AND 2005
FORMING
A PART OF ANNUAL REPORT
PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934
CYBERLUX
CORPORATION
INDEX
TO FINANCIAL STATEMENTS
|
Page |
Report
of Independent Registered Certified Public Accounting
Firm |
F-1
|
Consolidated
Balance Sheets at December 31, 2006 and 2005 |
F-2
|
Consolidated
Statements of Operations for the Years ended
December 31, 2006 and 2005 |
F-3
|
Consolidated
Statement of Deficiency in Stockholders' Equity for
the Years ended December 31,2006 and 2005 |
F-4
- F-12
|
Consolidated
Statements of Cash Flows for the Years ended December
31, 2006 and 2005 |
F-13
|
Notes
to Consolidated Financial Statements |
F-14
-
F-39
|
REPORT
OF
INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Cyberlux
Corporation
Durham,
North Carolina
We
have
audited the accompanying consolidated balance sheets of Cyberlux Corporation
(the "Company"), as of December 31, 2006 and 2005 and the related consolidated
statements of losses, deficiency in stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 2006. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
upon
our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as
of December 31, 2006 and 2005, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2006, in
conformity with accounting principles generally accepted in the United States
of
America.
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern. As discussed in Note L to the
consolidated financial statements, the Company has suffered recurring losses
from operations. This raises substantial doubt about its ability to continue
as
a going concern. Management's plans in regard to these matters are also
described in Note L. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ RUSSELL
BEDFORD
STEFANOU MIRCHANDANI LLP
Russell
Bedford Stefanou
Mirchandani LLP
Certified
Public Accountants
New
York,
NY
April
26,
2007
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
DECEMBER
31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
ASSETS
|
|
Current
assets:
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
395,812
|
|
$
|
475,656
|
|
Accounts
receivable, net of allowance for doubtful accounts of $23,502 and
$ -0-,
respectively
|
|
|
177,085
|
|
|
9,424
|
|
Inventories,
net of allowance of $102,660 and $110,821, respectively
|
|
|
197,771
|
|
|
338,097
|
|
Other
current assets
|
|
|
22,232
|
|
|
42,814
|
|
Total
current assets
|
|
|
792,900
|
|
|
865,991
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $141,465
and
$118,105, respectively
|
|
|
58,313
|
|
|
63,133
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Deposits
|
|
|
23,350
|
|
|
-
|
|
Patents
and development costs, net of accumulated amortization of
$293,750
|
|
|
2,294,224
|
|
|
-
|
|
Total
other assets
|
|
|
2,317,574
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,168,787
|
|
$
|
929,124
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
564,875
|
|
$
|
657,930
|
|
Accrued
liabilities
|
|
|
1,694,220
|
|
|
782,586
|
|
Short-term
notes payable - related parties
|
|
|
454,162
|
|
|
366,594
|
|
Short-term
notes payable
|
|
|
47,399
|
|
|
-
|
|
Short-term
convertible notes payable
|
|
|
604,187
|
|
|
542,783
|
|
Total
current liabilities
|
|
|
3,364,843
|
|
|
2,349,893
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
1,580,621
|
|
|
351,419
|
|
Derivative
liability relating to convertible debentures
|
|
|
8,201,086
|
|
|
6,809,449
|
|
Warrant
liability relating to convertible debentures
|
|
|
2,954,080
|
|
|
3,352,025
|
|
Total
long-term liabilities
|
|
|
12,735,787
|
|
|
10,512,893
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
16,100,630
|
|
|
12,862,786
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $0.001 par value; 200 shares designated,
38.9806 and 59.8606 issued and outstanding as of December 31, 2006
and
2005, respectively
|
|
|
194,900
|
|
|
299,303
|
|
|
|
|
|
|
|
|
|
DEFICIENCY
IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Class
B convertible preferred stock, $0.001 par value, 800,000 shares
designated; 800,000 shares issued and outstanding for December 31,
2006
and 2005
|
|
|
800
|
|
|
800
|
|
Class
C convertible preferred stock, $0.001 par value, 700,000 shares
designated; 100,000 and -0- shares issued and outstanding for December
31,
2006 and 2005, respectively
|
|
|
100
|
|
|
-
|
|
Common
stock, $0.001 par value, 700,000,000 shares authorized; 128,279,157
and
75,608,334 shares issued and outstanding as of December 31, 2006
and 2005,
respectively
|
|
|
128,279
|
|
|
75,607
|
|
Subscription
received
|
|
|
25,000
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
12,186,420
|
|
|
6,382,569
|
|
Accumulated
deficit
|
|
|
(25,467,342
|
)
|
|
(18,691,941
|
)
|
Deficiency
in stockholders' equity
|
|
|
(13,126,743
|
)
|
|
(12,232,965
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and (deficiency) in stockholders' equity
|
|
$
|
3,168,787
|
|
$
|
929,124
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
YEARS
ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Net
Sales
|
|
$
|
484,988
|
|
$
|
54,523
|
|
Cost
of goods sold
|
|
|
(377,524
|
)
|
|
(235,768
|
)
|
Gross
margin (loss)
|
|
|
107,464
|
|
|
(181,245
|
)
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Impairment
Loss
|
|
|
-
|
|
|
30,544
|
|
Depreciation
and amortization
|
|
|
23,360
|
|
|
25,769
|
|
Research
and development
|
|
|
225,770
|
|
|
499,618
|
|
General
and administrative expenses
|
|
|
5,027,760
|
|
|
2,355,830
|
|
Total
operating expenses
|
|
|
5,276,890
|
|
|
2,911,761
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM OPERATIONS
|
|
|
(5,169,426
|
)
|
|
(3,093,006
|
)
|
|
|
|
|
|
|
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
Unrealized
gain (loss) relating to adjustment of derivative and warrant liability
to
fair value of underlying securities
|
|
|
953,719
|
|
|
(4,485,654
|
)
|
Interest
income
|
|
|
92
|
|
|
349
|
|
Debt
forgiveness
|
|
|
36,799
|
|
|
-
|
|
Interest
expense
|
|
|
(2,585,800
|
)
|
|
(1,623,781
|
)
|
Debt
acquisition costs
|
|
|
(10,784
|
)
|
|
(208,565
|
)
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(6,775,400
|
)
|
|
(9,410,657
|
)
|
|
|
|
|
|
|
|
|
Income
taxes (benefit)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
LOSS
AVAILABLE TO COMMON STOCKHOLDERS
|
|
$
|
(6,775,400
|
)
|
$
|
(9,410,657
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic and assuming fully
diluted
|
|
|
94,515,133
|
|
|
54,490,102
|
|
|
|
|
|
|
|
|
|
Loss
per share - basic and assuming fully diluted
|
|
$
|
(0.07
|
)
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
$
|
96,000
|
|
$
|
96,000
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Balance
December 31, 2004
|
|
|
800,000
|
|
|
800
|
|
|
-
|
|
|
-
|
|
|
23,770,233
|
|
|
23,770
|
|
|
-
|
|
|
5,369,466
|
|
|
(9,281,284
|
)
|
|
(3,887,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in January 2005 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,675,000
|
|
|
1,675
|
|
|
-
|
|
|
165,825
|
|
|
-
|
|
|
167,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in January 2005 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,070,442
|
|
|
2,070
|
|
|
-
|
|
|
37,578
|
|
|
-
|
|
|
39,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in February 2005 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,000
|
|
|
250
|
|
|
-
|
|
|
24,750
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in February 2005 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,035,221
|
|
|
1,035
|
|
|
-
|
|
|
8,106
|
|
|
-
|
|
|
9,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in March 2005 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,070,442
|
|
|
2,071
|
|
|
-
|
|
|
22,165
|
|
|
-
|
|
|
24,236
|
|
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Common
stock issued in April 2005 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,000
|
|
|
250
|
|
|
-
|
|
|
24,750
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in April 2005 for services rendered at $0.3 per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
800,000
|
|
|
800
|
|
|
-
|
|
|
23,200
|
|
|
-
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in April 2005 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,070,442
|
|
|
2,070
|
|
|
-
|
|
|
21,533
|
|
|
-
|
|
|
23,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in May 2005 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,535,221
|
|
|
10,535
|
|
|
-
|
|
|
86,405
|
|
|
-
|
|
|
96,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in May 2005 in connection with conversion of preferred
stock,
Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,075,000
|
|
|
1,075
|
|
|
-
|
|
|
106,425
|
|
|
-
|
|
|
107,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in June 2005 in exchange for services rendered at $0.02
per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,000
|
|
|
250
|
|
|
-
|
|
|
4,750
|
|
|
-
|
|
|
5,000
|
|
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Common
stock issued in June 2005 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,100,000
|
|
|
17,100
|
|
|
-
|
|
|
128,570
|
|
|
-
|
|
|
145,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in July 2005 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,573,000
|
|
|
9,573
|
|
|
-
|
|
|
71,798
|
|
|
-
|
|
|
81,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in July 2005 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
775,000
|
|
|
775
|
|
|
-
|
|
|
76,725
|
|
|
-
|
|
|
77,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in August 2005 in exchange for services rendered at
$0.097
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,000,000
|
|
|
1,000
|
|
|
-
|
|
|
96,000
|
|
|
-
|
|
|
97,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in September 2005 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,000
|
|
|
250
|
|
|
-
|
|
|
24,750
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in October 2005 in exchange for services rendered at
$0.07
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
400,000
|
|
|
400
|
|
|
-
|
|
|
27,600
|
|
|
-
|
|
|
28,000
|
|
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Common
stock issued in October 2005 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
125,000
|
|
|
125
|
|
|
-
|
|
|
12,375
|
|
|
-
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in November 2005 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
200
|
|
|
-
|
|
|
19,800
|
|
|
-
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in December 2005 in exchange for services rendered at
$0.091
per share
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
333,333
|
|
|
333
|
|
|
-
|
|
|
30,000
|
|
|
|
|
|
30,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,410,657
|
)
|
|
(9,410,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2005
|
|
|
800,000
|
|
$
|
800
|
|
|
-
|
|
|
-
|
|
|
75,608,334
|
|
$
|
75,607
|
|
$
|
-
|
|
$
|
6,382,570
|
|
$
|
(18,691,941
|
)
|
$
|
(12,232,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in January 2006 in exchange for services rendered at
$0.084
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,000,000
|
|
|
3,000
|
|
|
-
|
|
|
249,000
|
|
|
-
|
|
|
252,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in January 2006 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
190,000
|
|
|
190
|
|
|
-
|
|
|
18,810
|
|
|
-
|
|
|
19,000
|
|
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Common
stock issued in January 2006 in exchange for services rendered at
$0.113
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
100
|
|
|
-
|
|
|
11,200
|
|
|
-
|
|
|
11,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in February 2006 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
229,032
|
|
|
230
|
|
|
-
|
|
|
22,674
|
|
|
-
|
|
|
22,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in February 2006 in exchange for services rendered at
$0.095
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
|
10
|
|
|
-
|
|
|
940
|
|
|
-
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in February 2006 in exchange for services rendered at
$0.092
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,500,000
|
|
|
1,500
|
|
|
-
|
|
|
136,500
|
|
|
-
|
|
|
138,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in March 2006 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
791,369
|
|
|
792
|
|
|
-
|
|
|
30,863
|
|
|
-
|
|
|
31,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with options exercised at $0.085 per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,000,000
|
|
|
4,000
|
|
|
-
|
|
|
336,000
|
|
|
-
|
|
|
340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in April 2006 in exchange for services rendered at $0.073
per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
492,752
|
|
|
493
|
|
|
-
|
|
|
35,478
|
|
|
-
|
|
|
35,971
|
|
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Common
stock issued in connection with options exercised at $0.081 per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,772,206
|
|
|
2,772
|
|
|
-
|
|
|
221,777
|
|
|
-
|
|
|
224,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in May 2006 in exchange for services rendered at $0.08
per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,081,484
|
|
|
2,081
|
|
|
-
|
|
|
164,437
|
|
|
|
|
|
166,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with options exercised at $0.056 per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,000,000
|
|
|
6,000
|
|
|
(335,406
|
)
|
|
329,406
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in July 2006 in exchange for services rendered at $.042
per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
50
|
|
|
-
|
|
|
2,050
|
|
|
-
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of 14,430,000 options granted to employees in July
2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
721,500
|
|
|
-
|
|
|
721,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in August 2006 in exchange for services rendered at
$0.06 per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41,667
|
|
|
42
|
|
|
-
|
|
|
2,458
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in August 2006 in exchange for services rendered at
$0.051
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
|
500
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in August 2006 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
125,000
|
|
|
125
|
|
|
-
|
|
|
12,375
|
|
|
|
|
|
12,500
|
|
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Common
stock issued in September 2006 in exchange for services rendered
at $0.067
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
37,313
|
|
|
37
|
|
|
-
|
|
|
2,463
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in September 2006 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
475,000
|
|
|
475
|
|
|
-
|
|
|
47,025
|
|
|
|
|
|
47,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in October 2006 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,000,000
|
|
|
4,000
|
|
|
-
|
|
|
79,539
|
|
|
|
|
|
83,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in October 2006 in exchange for services rendered at
$0.045
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
|
500
|
|
|
-
|
|
|
22,000
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in October 2006 in connection with conversion of preferred
stock, Class A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
25
|
|
|
-
|
|
|
2,475
|
|
|
-
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in October 2006 in exchange for services rendered at
$0.037
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,600,000
|
|
|
2,600
|
|
|
-
|
|
|
93,600
|
|
|
-
|
|
|
96,200
|
|
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Debt
assumption in settlement of stock subscription in October
2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
335,406
|
|
|
-
|
|
|
-
|
|
|
335,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in November 2006 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12,000,000
|
|
|
12,000
|
|
|
-
|
|
|
126,300
|
|
|
-
|
|
|
138,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in November 2006 in exchange for services rendered at
$0.036
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,700,000
|
|
|
1,700
|
|
|
-
|
|
|
59,500
|
|
|
-
|
|
|
61,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of 20,500,000 options granted to employees in November
2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
410,000
|
|
|
-
|
|
|
410,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in December 2006 as payment towards convertible
debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,000,000
|
|
|
8,000
|
|
|
-
|
|
|
71,280
|
|
|
-
|
|
|
79,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in December 2006 in exchange for services rendered at
$0.035
per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,450,000
|
|
|
1,450
|
|
|
-
|
|
|
49,300
|
|
|
-
|
|
|
50,750
|
|
CYBERLUX
CORPORATION
|
|
CONSOLIDATED
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B Preferred
|
|
Class
C Preferred
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Stock
|
|
Common
|
|
Stock
|
|
Subscription
|
|
Paid
in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Warrants
exercised at $0.25 per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Class C stock issued in connection with the acquisition of SPE
Technologies, Inc.
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
100
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,519,900
|
|
|
-
|
|
|
2,520,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,775,400
|
)
|
|
(6,775,400
|
)
|
Balance
as of December 31, 2006
|
|
|
800,000
|
|
$
|
800
|
|
|
100,000
|
|
$
|
100
|
|
|
128,279,157
|
|
$
|
128,279
|
|
$
|
25,000
|
|
$
|
12,186,420
|
|
$
|
(25,467,342
|
)
|
$
|
(13,126,743
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX,
INC
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOW
|
|
YEARS
ENDED DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
(loss) available to common stockholders
|
|
$
|
(6,775,400
|
)
|
$
|
(9,410,657
|
)
|
Adjustments
to reconcile net (loss) to cash used in operating
activities
|
|
|
|
|
|
|
|
Depreciation
|
|
|
23,360
|
|
|
25,769
|
|
Fair
value of options issued to officers and employees
|
|
|
1,131,500
|
|
|
-
|
|
Common
stock issued in connection with services rendered
|
|
|
1,432,539
|
|
|
184,333
|
|
Common
stock issued in settlement of debt
|
|
|
332,774
|
|
|
420,608
|
|
Warrants
issued for services rendered
|
|
|
67,410
|
|
|
-
|
|
Accretion
of convertible notes payable
|
|
|
1,315,610
|
|
|
785,879
|
|
Unrealized
(gain) loss on adjustment of derivative and warrant liability to
fair
value of underlying securities
|
|
|
(953,719
|
)
|
|
4,485,654
|
|
Impairment
loss on patent
|
|
|
-
|
|
|
30,544
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(167,661
|
)
|
|
(9,424
|
)
|
Inventories
|
|
|
140,326
|
|
|
(338,097
|
)
|
Prepaid
expenses and other assets
|
|
|
60,582
|
|
|
25,590
|
|
Deposits
|
|
|
(23,350
|
)
|
|
-
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(93,055
|
)
|
|
307,433
|
|
Accrued
liabilities
|
|
|
882,063
|
|
|
347,115
|
|
Other
accounts payable
|
|
|
-
|
|
|
481,836
|
|
Net
cash (used in) operating activities
|
|
|
(2,627,021
|
)
|
|
(2,663,417
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
cash acquired in connection with acquisition of SPE
Technologies
|
|
|
250,000
|
|
|
-
|
|
Payments
towards patent rights
|
|
|
(5,685
|
)
|
|
-
|
|
Acquisition
of fixed assets
|
|
|
(18,540
|
)
|
|
(45,884
|
)
|
Net
cash provided by (used in) investing activities:
|
|
|
225,775
|
|
|
(45,884
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
proceeds from issuance of convertible debentures
|
|
|
1,830,000
|
|
|
2,802,067
|
|
Net
proceeds received from exercise of warrants
|
|
|
25,000
|
|
|
-
|
|
Net
proceeds from borrowing on long term basis
|
|
|
479,402
|
|
|
-
|
|
Net
proceeds (payments) to notes payable, related parties
|
|
|
(13,000
|
)
|
|
(32,485
|
)
|
Net
cash provided by financing activities:
|
|
|
2,321,402
|
|
|
2,769,582
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(79,844
|
)
|
|
60,281
|
|
Cash
and cash equivalents at beginning of period
|
|
|
475,656
|
|
|
415,375
|
|
Cash
and cash equivalents at end of period
|
|
$
|
395,812
|
|
$
|
475,656
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
47,139
|
|
$
|
87,044
|
|
Income
Taxes Paid
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Unrealized
(gain) loss in adjustment of derivative and warrant liability to
fair
value of underlying securities
|
|
|
(953,719
|
)
|
|
4,485,654
|
|
Fair
value of options issued to officers and employees
|
|
|
1,131,500
|
|
|
-
|
|
Common
stock issued for services rendered
|
|
|
1,432,539
|
|
|
184,333
|
|
Common
stock issued in settlement of debt
|
|
|
332,774
|
|
|
420,608
|
|
Warrants
issued in connection with financing
|
|
|
-
|
|
|
757,366
|
|
Warrants
issued for services rendered
|
|
|
67,410
|
|
|
14,160
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
A-SUMMARY OF ACCOUNTING POLICIES
General
A
summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows:
Business
and Basis of Presentation
Cyberlux
Corporation (the "Company") is incorporated on May 17, 2000 under the laws
of
the State of Nevada. Until December 31, 2004, the Company was a development
state enterprise as defined under Statement on Financial Accounting Standards
No.7, Development Stage Enterprises ("SFAS No.7"). The Company develops,
manufactures and markets long-term portable lighting products for commercial
and
industrial users. While the Company has generated revenues from its sale of
products, the Company has incurred expenses, and sustained losses. Consequently,
its operations are subject to all risks inherent in the establishment of a
new
business enterprise. As of December 31, 2006, the Company has accumulated losses
of $25,467,342.
The
consolidated financial statements include the accounts of its wholly owned
subsidiary, SPE Technologies, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
Acquisition
On
December 28, 2006, the Company acquired SPE Technologies, Inc, a Florida
corporation, as a wholly owned subsidiary. SPE Technologies, Inc. was acquired
by issuance 100,000 shares of Class C 5% convertible preferred stock valued
at
the time acquisition at $2,520,000.
The
total
consideration paid was $2,520,000 and the significant components of the
transaction are as follows:
Preferred
stock issued
|
|
$
|
2,520,000
|
|
|
|
|
|
|
Cash
received
|
|
$
|
250,000
|
|
Patents
received
|
|
|
2,270,000
|
|
Liabilities
assumed
|
|
|
-
|
|
Net
|
|
$
|
2,520,000
|
|
The
Company has adopted SFAS No. 142, “Goodwill and Other Intangible Assets”,
whereby the Company periodically tests its intangible assets for impairment.
On
an annual basis, and when there is reason to suspect that their values have
been
diminished or impaired, these assets are tested for impairment, and write-downs
will be included in results from operations.
Revenue
Recognition
For
revenue from product/contract sales, the Company recognizes revenue in
accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB
104"), which superseded Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements (“SAB 101"). 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) collectibility 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 collectibility
of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time
that
the company and the customer jointly determine that the product has been
delivered or no refund will be required. At December 31, 2006 and 2005; the
Company did not have any deferred revenues. 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 consolidated financial position and results of operations was not
significant.
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
the price to the customer is fixed, collectibility is reasonable assured and
title and risk of ownership is passed to the customer, which is usually upon
shipment. However, certain customers may request to take title and risk of
ownership prior to shipment. Revenue for these transactions is recognized only
when:
1.
Title
and risk of ownership have passed to the customer;
2.
The
Company has obtained a written fixed purchase commitment;
3.
The
customer has requested the transaction be on a bill and hold basis;
4.
The
customer has provided a delivery schedule;
5.
All
performance obligations related to the sale have been completed;
6.
The
product has been processed to the customer’s specifications, accepted by the
customer and made ready for shipment;
7.
The
product is segregated and is not available to fill other orders.
The
remittance terms for these “bill and hold” transactions are consistent with all
other sale by the company. There were no bill and hold transactions at December
31, 2006 and 2005.
Currently,
there are no warranties provided with the purchase of the Company‘s products.
The cost of replacing defective products and product returns have been
immaterial and within management’s expectations. In the future, when the Company
deems warranty reserves are appropriate that such costs will be accrued to
reflect anticipated warranty costs.
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash
and
cash equivalents
For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
Foreign
Currency Translation
The
Company translates the foreign currency financial statements in accordance
with
the requirements of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities are translated at current exchange
rates, and related revenue and expenses are translated at average exchange
rates
in effect during the period. Resulting translation adjustments are recorded
as a
separate component in stockholders' equity. Foreign currency translation gains
and losses are included in the statement of operations.
Inventories
Inventories
are stated at the lower of cost or market determined by the average cost method.
The Company provides inventory allowances based on estimates of obsolete
inventories. Inventories consist of products available for sale to distributors
and customers as well as raw material.
Components
of inventories as of December 31, 2006 and 2005 are as follows:
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
|
|
|
2006
|
|
|
2005
|
|
Component
parts
|
|
$
|
239,441
|
|
$
|
223,299
|
|
Finished
goods
|
|
|
60,990
|
|
|
225,619
|
|
|
|
|
300,431
|
|
|
448,918
|
|
Less:
allowance for obsolete inventory
|
|
|
(102,660
|
)
|
|
(110,821
|
)
|
|
|
$
|
197,771
|
|
$
|
338,097
|
|
Property
and Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives as follows:
Furniture
and fixtures 7
years
Office
equipment 3
to 5
years
Manufacturing
equipment 3
years
Advertising
costs
The
Company expenses all costs of marketing and advertising as incurred. Marketing
and advertising costs totaled $143,010 and $276,714 for the year ended December
31, 2006 and 2005, respectively.
Research
and Development
The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs".
Under SFAS 2, all research and development costs must be charged to expense
as
incurred. Accordingly, internal research and development costs are expensed
as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. The Company expenditures
were $225,770 and $499,618 on research and product development for the year
ended December 31, 2006 and 2005, respectively.
Reclassification
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
Impairment
of long lived assets
The
Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
144). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or
a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based
upon
forecasted undercounted cash flows. Should impairment in value be indicated,
the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition
of
the asset. SF AS No. 144 also requires assets to be disposed of be reported
at
the lower of the carrying amount or the fair value less costs to sell.
Fair
value of financial instruments
Fair
value estimates discussed herein are based upon certain market assumptions
and
pertinent information available to management as of December 31, 2006 and 2005.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
accounts payable. Fair values were assumed to approximate carrying values for
cash and payables because they are short term in nature and their carrying
amounts approximate fair values or they are payable on demand.
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 December 31, 2006 and
2005, allowance for doubtful receivable was $23,502 and $0,
respectively.
Stock
based compensation
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R (revised 2004), Share-Based Payment" which is a revision
of
FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
approach in Statement 123R is similar to the approach described in Statement
123. However, Statement 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro-forma disclosure is no longer an
alternative. This statement does not change the accounting guidance for share
based payment transactions with parties other than employees provided in
Statement of Financial Accounting Standards No. 123(R). This statement does
not
address the accounting for employee share ownership plans, which are subject
to
AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock
Ownership Plans.” On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company had to comply with Statement 123R and use the Fair Value based
method of accounting no later than the first quarter of 2006. The Company
implemented SFAS No. 123(R) on January 1, 2006 using the modified
prospective method. The fair value of each option grant issued after January
1,
2006 was determined as of grant date, utilizing the Black-Scholes option pricing
model. The amortization of each option grant will be over the remainder of
the
vesting period of each option grant.
As
more
fully described in Note I below, the Company granted stock options over the
years to employees of the Company under a non-qualified employee stock option
plan. As of December 31, 2005, 34,000,000 stock options were outstanding and
exercisable.
In
prior
years, the Company applied the intrinsic-value method prescribed in Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees,” to account for the issuance of stock options to employees and
accordingly compensation expense related to employees’ stock options were
recognized in the prior year financial statements to the extent options granted
under stock incentive plans had an exercise price less than the market value
of
the underlying common stock on the date of grant.
Had
compensation for the Company’s stock options been determined based on the fair
value at the grant dates for the awards, the Company’s net loss and loss per
share would be as follows:
|
|
For
the year ended December 31, 2005
|
|
Net
loss attributable to common stockholders -as reported
|
|
$
|
(9,410,657
|
)
|
Add.
Total stock based employee compensation expense as
Reported
under intrinsic value method (APB No. 25)
|
|
|
-
|
|
Deduct
Total stock based employee compensation expense
as
reported under fair value based method (SFAS No. 123)
|
|
|
(830,400
|
)
|
Net
loss -Pro Forma
|
|
$
|
(10,241,057
|
)
|
Net
loss attributable to common stockholders - Pro forma
|
|
$
|
(10,241,057
|
)
|
Basic
(and assuming dilution) loss per share -as reported
|
|
$
|
(0.17
|
)
|
Basic
(and assuming dilution) loss per share - Pro forma
|
|
$
|
(0.19
|
)
|
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
In
determining the compensation cost of stock options granted to employees during
the year ended December 31, 2005, as specified by SFAS No. 123, the fair value
of each option grant has been estimated on the date of grant using the
Black-Scholes option pricing model and the weighted average assumptions used
in
these calculations are summarized as follows:
|
|
Year
Ended
December
31, 2005
|
|
Risk-free
interest rate
|
|
2
|
%
|
Expected
life of options Granted
|
|
6
yrs
|
|
Expected
Volatility
|
|
250
|
%
|
Expected
dividend yield
|
|
0
|
%
|
(a)
The
expected option life is based on contractual expiration dates.
For
the
year ended December 31, 2006, the Company granted 34,930,000 stock options
to
employees with exercise prices of $0.022 to $0.04 per share expiring ten years
from date of issuance. The fair value of the options was determined using the
Black-Scholes option pricing model with the following assumptions: expected
dividend yield: 0%; volatility from 364% to 373%; risk free interest rate from
4.57% to 5.04%. The fair value of $1,131,500 was recorded as a current period
charge to earnings.
Segment
reporting
The
Company follows Statement of Financial Accounting Standards No.130, Disclosures
About Segments of an Enterprise and Related Information. The Company operates
as
a single segment and will evaluate additional segment disclosure requirements
as
it expands its operations.
Income
taxes
The
Company follows Statement of Financial Accounting Standard No.109, Accounting
for Income Taxes (SFAS No.109) for recording the provision for income taxes.
Deferred tax assets and liabilities are computed based upon the difference
between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate applicable when the related asset or
liability is expected to be realized or settled. Deferred income tax expenses
or
benefits are based on the changes in the asset or liability during each period.
If available evidence suggests that it is more likely than not that some portion
or all of the deferred tax assets will not be realized, a valuation allowance
is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future changes in such valuation allowance are included
in the provision for deferred income taxes in the period of change. Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending
on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods
in
which the temporary differences are expected to reverse
At
December 31, 2006, the Company has available for federal income tax purposes
a
net operating loss carryforward of approximately $25,000,000, expiring in the
year 2023, that may be used to offset future taxable income. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earnings history
of
the Company; it is more likely than not that the benefits will not be realized.
Due to significant changes in the Company's ownership, the future use of its
existing net operating losses may be limited. Components of deferred tax assets
as of December 31, 2006 are as follows:
Non
current:
|
|
|
|
Net
operating loss carryforward
|
|
$
|
7,500,000
|
|
Valuation
allowance
|
|
|
(7,500,000
|
)
|
Net
deferred tax asset
|
|
$
|
—
|
|
Patents
During
the years ended December 31, 2006 and 2005, the Company management preformed
an
evaluation of its intangble assets (Patents) for purposes of determining the
implied fair value of the assets at December 31, 2006 and 2005. The test
indicated that the recorded remaining book value of its patens exceeded its
fair
value, as determined by discounted cash flows. As a result, upon completion
of
the assessment, management recorded a non-cash impairment charge of $30,544,
net
of tax, or $0.00 per share during the year ended December 31, 2005 to reduce
the
carrying value of the certain patents to $ 0. Considerable management judgement
is necessary to estimate the fair value. Accordingly, actual results could
vary
significantly from management’s estimates.
The
intangible assets at December 31, 2006 are:
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Residual
Value
|
|
Weighted
Average Amortization Period (Years)
|
|
Amortizable
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
2,587,974
|
|
$
|
293,750
|
|
$
|
2,294,224
|
|
$
|
-
|
|
|
7.0
|
|
Total
amortization expense charged to operations for the year ended December 31,
2006
and 2005 was $0. Estimated amortization expense as of December 31, 2006 is
as
follows:
2007
|
|
$
|
327,746
|
|
2008
|
|
|
327,746
|
|
2009
|
|
|
327,746
|
|
2010
|
|
|
327,746
|
|
2011
and thereafter
|
|
|
983,240
|
|
Total
|
|
$
|
2294,224
|
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Comprehensive
Income (Loss)
The
Company adopted Statement of Financial Accounting Standards No. 130; “Reporting
Comprehensive Income” (SFAS) No. 130 establishes standards for the reporting and
displaying of comprehensive income and its components. Comprehensive income
is
defined as the change in equity of a business during a period from transactions
and other events and circumstances from non-owners sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 requires other comprehensive
income (loss) to include foreign currency translation adjustments and unrealized
gains and losses on available for sale securities.
Liquidity
As
shown
in the accompanying consolidated financial statements, the Company incurred
net
loss from operations of $6,775,400 for the year ended December 31, 2006. The
Company's current liabilities exceeded its current assets by $2,571,943 as
of
December 31, 2006.
Recent
accounting pronouncements
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 did not 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 consolidated 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
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 consolidated financial
position, operations or cash flows.
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”. This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income
of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring
an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date
for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. The Company does not expect adoption
of this standard will have a material impact on its consolidated financial
position, operations or cash flows.
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP 00-19-2") which addresses accounting for registration
payment arrangements. FSP 00-19-2 specifies that the contingent obligation
to
make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as
a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with FASB Statement No. 5, Accounting
for
Contingencies. FSP 00-19-2 further clarifies that a financial instrument subject
to a registration payment arrangement should be accounted for in accordance
with
other applicable generally accepted accounting principles without regard to
the
contingent obligation to transfer consideration pursuant to the registration
payment arrangement. For registration payment arrangements and financial
instruments subject to those arrangements that were entered into prior to the
issuance of EITF 00-19-2, this guidance shall be effective for financial
statements issued for fiscal years beginning after December 15, 2006 and interim
periods within those fiscal years. The Company has not yet determined the impact
that the adoption of FSP 00-19-2 will have on its consolidated financial
statements.
NOTE
B - PROPERTY, PLANT, AND EQUIPMENT
Property,
plant and equipment at December 31, 2006 and 2005 are as follows:
|
|
|
2006
|
|
|
2005
|
|
Furniture
and fixtures
|
|
$
|
61,855
|
|
$
|
43,974
|
|
Office
and computer equipment
|
|
|
34,543
|
|
|
33,884
|
|
Manufacturing
equipment
|
|
|
103,380
|
|
|
103,380
|
|
|
|
|
199,778
|
|
|
181,238
|
|
Less:
accumulated depreciation
|
|
|
(141,465
|
)
|
|
(118,105
|
)
|
|
|
$
|
58,313
|
|
$
|
63,133
|
|
During
the years ended December 31, 2006 and 2005, depreciation expense charged to
operations was $23,360 and $25,769, respectively.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
C - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2006 and 2005 are as
follows:
|
|
|
2006
|
|
|
2005
|
|
Accounts
payable
|
|
$
|
564,875
|
|
$
|
657,929
|
|
Accrued
interest
|
|
|
1,274,371
|
|
|
389,569
|
|
Accrued
payroll and payroll taxes
|
|
|
122,669
|
|
|
22,642
|
|
Other
accrued liabilities
|
|
|
297,180
|
|
|
370,376
|
|
Total
|
|
$
|
2,259,095
|
|
$
|
1,440,516
|
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
D-CONVERTIBLE DEBENTURES
Notes
payable at December 31, 2006 and 2005 are as follows:
|
2006
|
2005
|
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
|
|
|
|
10%
convertible notes payable, unsecured and due March, 2003; accrued
and
unpaid interest due at maturity; Note holder has the option to convert
unpaid 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
|
|
|
|
10%
convertible debenture, due two years from the 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) $0.72 or b)
50% 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)
|
601,687
|
515,283
|
|
|
|
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) 50% 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)
|
799,817
|
299,820
|
|
|
|
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) 50% 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 covenents
(see below)
|
316,347
|
49,680
|
|
|
|
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) 35% 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)
|
235,251
|
1,919
|
|
|
|
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) 55% 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)
|
$127,397
|
-
|
|
|
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
D-CONVERTIBLE DEBENTURES(continued)
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) 40% 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)
|
71,233
|
-
|
|
|
|
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) 40% 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)
|
24,548
|
-
|
|
|
|
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) 40% 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)
|
6,028
|
-
|
|
2,184,808
|
894,202
|
Less:
current maturities:
|
(604,187)
|
(542,783)
|
Long
term portion
|
$1,580,621
|
$351,419
|
The
Company entered into a Securities Purchase Agreement with four accredited
investors on September 23, 2004 for the issuance of an aggregate of $1,500,000
of convertible notes (“Convertible Notes”) and attached to the Convertible Notes
were warrants to purchase 2,250,000 shares of the Company’s common stock. The
Convertible Notes accrue interest at 10% per annum, payable quarterly, and
are
due two 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) $0.72 or b) 50% (see Note M) 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.
As
of
December 31, 2006, the Company issued to investors of the Convertible Notes
a
total amount of $1,500,000 in exchange for net proceeds of $1,186,281. The
proceeds that the Company received were net of prepaid interest of $50,000
and
related fees and costs of $263,719.
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
were 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) 50% (see Note M) 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.
As
of
December 31, 2006, 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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 were 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) 50% (see Note M) 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.
As
of
December 31, 2006, 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 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) 35% 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.
As
of
December 31, 2006, the Company issued to investors of the Convertible Notes
a
total amount of $700,000 in exchange for total proceeds of $675,000. The
proceeds that the Company received were net of related fees and costs of
$25,000.
The
Company 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 were 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) 55% (see Note M) 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.
As
of
December 31, 2006, 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 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 were 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) 40% (see Note M) 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.
As
of
December 31, 2006, 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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
D-CONVERTIBLE DEBENTURES (continued)
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 were 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) 40% (see Note M) 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.
As
of
December 31, 2006, 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 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 were 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) 40% (see Note M) 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.
As
of
December 31, 2006, 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.
These
transactions, to the extent that it is to be satisfied with common stock of
the
Company would normally be included as equity obligations. However, in the
instant case, due to the indeterminate number of shares which might be issued
under the embedded convertible host debt conversion feature, the Company is
required to record a liability relating to both the detachable warrants and
embedded convertible feature of the notes payable (included in the liabilities
as a “derivative liability”).
The
accompanying consolidated 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.
|
· |
Subsequent
to the initial recording, the increase in the fair value of the detachable
warrants, determined under the Black-Scholes option pricing formula
and
the increase in the intrinsic value of the embedded derivative in
the
conversion feature of the convertible debentures are accrued as
adjustments to the liabilities at December 31, 2006 and 2005,
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 and derivatives
(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.
|
· |
Accreted
principal of $2,182,308 and $866,698 as of December 31, 2006 and
2005,
respectively.
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
D-CONVERTIBLE DEBENTURES (continued)
The
following table summarizes the various components of the convertible debentures
as of December 31, 2006 and 2005:
|
|
|
2006
|
|
|
2005
|
|
Convertible
debentures
|
|
$
|
2,184,808
|
|
$
|
894,202
|
|
Warrant
liability
|
|
|
2,759,307
|
|
|
2,013,188
|
|
Derivative
liability
|
|
|
8,201,086
|
|
|
6,809,449
|
|
|
|
|
13,145,201
|
|
|
9,716,838
|
|
Cumulative
adjustment of derivative and warrant liability to fair
value
|
|
|
(4,580,393
|
)
|
|
(4,322,637
|
)
|
Cumulative
unrealized loss related to conversion of convertible note to common
shares
charged to interest expense
|
|
|
(898,313
|
)
|
|
(565,539
|
)
|
Cumulative
accretion of principal related to convertible debentures
|
|
|
(2,182,308
|
)
|
|
(866,701
|
)
|
Total
convertible debentures:
|
|
$
|
5,484,187
|
|
$
|
3,961,961
|
|
NOTE
E-WARRANT LIABILITY
Total
warrant liability as of December 31, 2006 and 2005 is comprised of the
following:
|
|
|
2006
|
|
|
2005
|
|
Fair
value of warrants relating to convertible debentures
|
|
$
|
2,759,305
|
|
$
|
2,013,188
|
|
Fair
value of warrants relating to preferred stock-class A
|
|
|
-
|
|
|
1,147,334
|
|
Fair
value of other outstanding warrants
|
|
|
194,775
|
|
|
191,504
|
|
Total
|
|
$
|
2,954,080
|
|
$
|
3,352,026
|
|
NOTE
F - NOTE PAYABLE
Note
payable as of December 31, 2006 and 2005, comprised of the
following:
|
2006
|
2005
|
Note
payable, 24% interest per annum; due in 90 days; secured by specific
accounts receivables
|
$47,399
|
$
-
|
NOTE
G - NOTES AND CONVERTIBLE NOTES PAYABLE-RELATED PARTY
Notes
payable-related party is comprised of the following:
|
|
|
2006
|
|
|
2005
|
|
Notes
payable, 12% per annum; due on demand; unsecured
|
|
$
|
102,245
|
|
$
|
115,244
|
|
|
|
|
|
|
|
|
|
Notes
payable, 10% per annum, due on demand; unsecured
|
|
|
251,350
|
|
|
251,350
|
|
|
|
|
|
|
|
|
|
Notes
payable, 10% per annum, due on demand, convertible into the Company’s
common stock after March 2007 at a conversion rate of $0.02 per share,
unsecured
|
|
|
100,567
|
|
|
-
|
|
|
|
|
454,162
|
|
|
366,594
|
|
Less:
current maturities:
|
|
|
(454,162
|
)
|
|
(366,594
|
)
|
Long
term portion:
|
|
$
|
-
|
|
$
|
-
|
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
H -STOCKHOLDER'S EQUITY
Series
A - Convertible Preferred stock
The
Company has also authorized 5,000,000 shares of Preferred Stock, with a par
value of $.001 per share.
On
December 30, 2003, the Company filed a Certificate of Designation creating
a
Series A Convertible Preferred Stock classification for 200 shares.
The
Series A Preferred stated conversion price of $.10 per shares is subject to
certain anti-dilution provisions in the event the Company issues shares of
its
common stock or common stock equivalents below the stated conversion price.
Changes to the conversion price are charged to operations and included in
unrealized gain (loss) relating to adjustment of derivative and warrant
liability to fair value of underlying securities.
In
December, 2003, the Company issued 155 shares of its Series A Preferred stock,
valued at $5,000 per share. The stock has a stated value of $5,000 per share
and
a conversion price of $0.10 per share and warrants to purchase an aggregate
of
15,500,000 shares of our common stock.
In
May,
2004, the Company issued 15.861 shares of its Series A Preferred stock, valued
at $5,000 per share. The stock has a stated value of $5,000 per share and a
conversion price of $0.10 per share and warrants to purchase an aggregate of
1,600,000 shares of our common stock.
In
the
year ended December 31, 2004, 7 of the Series A Preferred shareholders exercised
the conversion right and exchanged 19 shares of Series A Preferred for 950,000
shares of the Company's common stock.
In
the
year ended December 31, 2005, 20 of the Series A Preferred shareholders
exercised the conversion right and exchanged 92 shares of Series A Preferred
for
4,600,000 shares of the Company's common stock.
In
the
year ended December 31, 2006, 9 of the Series A Preferred shareholders exercised
the conversion right and exchanged 20.88 shares of Series A Preferred for
1,019,032 shares of the Company’s common stock
The
holders of the Series A Preferred shall have the right to vote, separately
as a
single class, at a meeting of the holders of the Series A Preferred or by such
holders' written consent or at any annual or special meeting of the stockholders
of the Corporation on any of the following matters: (i) the creation,
authorization, or issuance of any class or series of shares ranking on a parity
with or senior to the Series A Preferred with respect to dividends or upon
the
liquidation, dissolution, or winding up of the Corporation, and (ii) any
agreement or other corporate action which would adversely affect the powers,
rights, or preferences of the holders of the Series A Preferred.
The
holders of record of the Series A Preferred shall be entitled to receive
cumulative dividends at the rate of twelve percent per annum (12%) on the face
value ($5,000 per share) when, if and as declared by the Board of Directors,
if
ever. All dividends, when paid, shall be payable in cash, or at the option
of
the Company, in shares of the Company’s common stock. Dividends on shares of the
Series A Preferred that have not been redeemed shall be payable quarterly in
arrears, when, if and as declared by the Board of Directors, if ever, on a
semi-annual basis. No dividend or distribution other than a dividend or
distribution paid in Common Stock or in any other junior stock shall be declared
or paid or set aside for payment on the Common Stock or on any other junior
stock unless full cumulative dividends on all outstanding shares of the Series
A
Preferred shall have been declared and paid. These dividends are not recorded
until declared by the Company. As of the period ended December 31, 2006, $0
in
dividends were accumulated.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
H -STOCKHOLDER'S EQUITY (continued)
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 is required to record a liability relating to the detachable warrants
as
described in FAS 133, EITF 98-5 and 00-27, and APB 14. As such:
· |
Subsequent
to the initial recording, the increase in the fair value of the detachable
warrants, determined under the Black- Scholes option pricing formula,
are
accrued as adjustments to the liabilities at December 31, 2006 and
2005,
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
fair
value of the detachable warrants as of December 31, 2006 and 2005 were as
follows:
|
|
2006
|
|
2005
|
|
Fair
value of warrants relating to issuance of convertible preferred
stock:
|
|
$
|
-0-
|
|
$
|
1,147,334
|
|
The
Company recorded an Unrealized Gain (Loss) on the change in fair value of these
detachable warrants of $1,147,334 and $(240,915) for the year ended December
31,
2006 and 2005, respectively.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
H -STOCKHOLDER'S EQUITY (continued)
Series
B - Convertible Preferred stock
On
February 19, 2004, the Company filed a Certificate of Designation creating
a
Series B Convertible Preferred Stock classification for 800,000
shares.
In
January, 2004, the Company issued 800,000 shares of its Series B Preferred
in
lieu of certain accrued management service fees payable and notes payable
including interest payable thereon totaling $800,000 to officers of the company.
The shares of the Series B Preferred are non voting and convertible, at the
option of the holder, into common shares at $0.10 per share per share. The
shares issued were valued at $1.00 per share, which represented the fair value
of the common stock the shares are convertible into. In connection with the
transaction, the Company recorded a beneficial conversion discount of $800,000
-
preferred dividend relating to the issuance of the convertible preferred stock.
None of the Series B Preferred shareholders have exercised their conversion
right and there are 800,000 shares of Series B Preferred shares issued and
outstanding at December 31, 2006.
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. For the year ended December 31, 2006 $ 288,000
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.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
H -STOCKHOLDER'S EQUITY (continued)
In
December 2006, the Company issued 100,000 shares of its Series C Preferred
stock
in conjunction with the acquisition of SPE Technologies, Inc. The shares of
the
Series C Preferred are non voting and convertible, at the option of the holder,
into common shares one year from issuance. The number of common shares to be
issued per Series C share is adjusted based on the average closing bid price
of
the previous ten days prior to the date of conversion based on divided into
$25.20 The shares issued were valued at $25.20 per share, which represented
the
fair value of the common stock the shares are convertible into. None of the
Series C Preferred shareholders have exercised their conversion right and there
are 100,000 shares of Series C Preferred shares issued and outstanding at
December 31, 2006.
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. For the year ended December 31, 2006 $-0- in
dividends were accumulated.
Common
stock
The
Company has authorized 700,000,000 shares of common stock, with a par value
of
$.001 per share. As of December 31, 2006 and 2005, the Company has
128,279,157
and
75,608,334 shares issued and outstanding, respectively.
During
the year ended December 31, 2006,
holders
converted 20.88 shares of preferred stock - Class A into 1,044,032 shares of
common stock. Each share of preferred stock is convertible into 50,000 shares
of
common stock.
In
January, 2006, the Company issued 3,000,000 shares of its common stock at $0.084
per share in exchange for services.
In
January, 2006, the Company issued 100,000 shares of its common stock at $0.113
per share in exchange for services.
In
February, 2006, the Company issued 10,000 shares of its common stock at $0.095
per share in exchange for services.
In
February, 2006, the Company issued 1,500,000 shares of its common stock at
$0.092 per share in exchange for services.
In
February, 2006, the Company issued 791,369 shares of its common stock at $0.04
per share on conversion of notes payable.
In
March,
2006, the Company issued 4,000,000 shares in conjunction with the exercise
of
employee stock options at $0.09 per share.
In
April
2006, the Company issued 492,752 shares of its common stock at $0.073 per share
in exchange for services.
In
May
2006, the Company issued 2,772,206 shares in conjunction with the exercise
of
employee stock options at $0.081 per share
In
May
2006, the Company issued 600,000 shares of its common stock at $0.08 per share
in exchange for services.
In
June
2006, the Company issued 1,481,484 shares of its common stock at $0.08 per
share
in exchange for services.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
In
June
2006, the Company issued 6,000,000 shares of its common stock in conjunction
with the exercise of employee stock options at $0.056 per share.
NOTE
H -STOCKHOLDER'S EQUITY (continued)
In
July
2006, the Company issued 50,000 shares of its common stock at $0.042 per share
in exchange for services.
In
August
2006, the Company issued 541,667 shares of its common stock for approximately
$0.05 per share in exchange for services.
In
September 2006, the Company issued 37,313 shares of its common stock at $0.067
per share in exchange for services.
In
October 2006, the Company issued 4,000,000 shares of its common stock at $0.021
per share on conversion of notes payable
In
October 2006, the Company issued 500,000 shares of its common stock at $0.045
per share in exchange for services.
In
October 2006, the Company issued 2,600,000 shares of its common stock at $0.037
per share in exchange for services.
In
November 2006, the Company issued 12,000,000 shares of its common stock at
$0.011 per share on conversion of notes payable.
In
November 2006, the Company issued 1,700,000 shares of its common stock at $0.036
per share in exchange for services.
In
December 2006, the Company issued 8,000,000 shares of its common stock at $0.01
per share on conversion of notes payable.
In
December 2006, the Company issued 1,450,000 shares of its common stock at $0.035
per share in exchange for services.
NOTE
I -STOCK OPTIONS AND WARRANTS
Class
A Warrants
The
following table summarizes the changes in warrants outstanding and related
prices for the shares of the Company’s common stock issued to shareholders at
December 31, 2006:
|
|
|
|
|
Warrants
Outstanding
|
|
|
|
|
|
|
|
Warrants
Exercisable
|
|
|
|
|
|
|
Weighted
Average
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
Remaining
Contractual
|
|
Average
|
|
Number
|
|
Average
|
|
Exercise
Price
|
|
Outstanding
|
|
Life
(years)
|
|
Exercise
price
|
|
Exercisable
|
|
Exercise
Price
|
|
$0.01
|
|
|
100,000
|
|
|
2.00
|
|
$
|
0.01
|
|
|
100,000
|
|
$
|
0.01
|
|
0.03
|
|
|
26,500,000
|
|
|
3.42
|
|
|
0.03
|
|
|
26,500,000
|
|
|
0.03
|
|
0.06
|
|
|
45,000,000
|
|
|
6.78
|
|
|
0.06
|
|
|
45,000,000
|
|
|
0.03
|
|
0.10
|
|
|
20,641,500
|
|
|
5.92
|
|
|
0.10
|
|
|
20,641,500
|
|
|
0.10
|
|
0.20
|
|
|
1,845,000
|
|
|
0.75
|
|
|
0.20
|
|
|
1,845,000
|
|
|
0.20
|
|
0.25
|
|
|
1,758,500
|
|
|
2.00
|
|
|
0.25
|
|
|
1,758,500
|
|
|
0.25
|
|
0.50
|
|
|
2,300,000
|
|
|
2.40
|
|
|
0.50
|
|
|
2,300,000
|
|
|
0.50
|
|
1.05
|
|
|
1,750,000
|
|
|
2.00
|
|
|
1.05
|
|
|
1,750,000
|
|
|
1.05
|
|
|
|
|
99,895,000
|
|
|
|
|
|
|
|
|
99,895,000
|
|
|
|
|
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
I -STOCK OPTIONS AND WARRANTS (continued)
Transactions
involving the Company’s warrant issuance are summarized as follows:
|
|
Number
of Shares |
|
Weighted
AveragePrice
|
|
|
|
|
|
Per
Share
|
|
Outstanding
at December 31, 2004
|
|
|
21,931,128
|
|
$
|
0.90
|
|
Granted
|
|
|
26,500,000
|
|
|
0.03
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at December 31, 2005
|
|
|
48,431,128
|
|
|
0.42
|
|
Granted
|
|
|
68,750,000
|
|
|
0.07
|
|
Exercised
|
|
|
(100,000
|
)
|
|
(0.25)
|
|
Canceled
or expired
|
|
|
(17,186,128
|
)
|
|
(0.64)
|
|
Outstanding
at December 31, 2006
|
|
|
99,895,000
|
|
|
0.09)
|
|
Warrants
granted during the period ended December 31, 2005 totaling 26,499,500 were
issued in connection with debt financing. The warrants are exercisable until
five years after the date of issuance at a purchase price of $0.03 per share
on
25,000,000 warrants, $0.10 per share on 800,000 warrants and $0.15 per share
on
699,500 warrants.
For
the
year ended December 31, 2006, warrants totally 64,000,000 were issued in
connection with debt financing. The warrants are exercisable until seven years
after date of issuance with 19,000,000 at a purchase price of $0.10 per share,
45,000,000 at $0.06 per share. The 19,000,000 warrants have a reset provision
should the Company issue shares below $0.10 per share excluding conversion
of
related debt.
For
the
year ended December 31, 2006, following warrants were issued in connection
with
services rendered:
Number
of warrants
|
|
purchase
price per share:
|
|
Term
(years)
|
|
1,000,000
|
|
$
|
0.10
|
|
|
3.00
|
|
Employee
Stock Options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to employees of
the
Company under a non-qualified employee stock option plan at December 31, 2006:
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
|
Average
|
|
Exercise
|
|
|
Number
|
|
Contractual
Life
|
|
Exercise
|
|
Number
|
|
Exercise
|
|
Prices
|
|
|
Outstanding
|
|
(Years)
|
|
Price
|
|
Exercisable
|
|
Price
|
|
$0.2125
|
|
|
2,000,000
|
|
|
6.96
|
|
$
|
0.2125
|
|
|
2,000,000
|
|
$
|
0.2125
|
|
0.2125
|
|
|
2,000,000
|
|
|
7.37
|
|
|
0.2125
|
|
|
2,000,000
|
|
|
0.2125
|
|
0.022
|
|
|
20,500,000
|
|
|
9.87
|
|
|
0.022
|
|
|
20,500,000
|
|
|
0.022
|
|
0.0295
|
|
|
4,000,000
|
|
|
8.35
|
|
|
0.0295
|
|
|
4,000,000
|
|
|
0.0295
|
|
0.04
|
|
|
14,430,000
|
|
|
9.57
|
|
|
0.04
|
|
|
14,430,000
|
|
|
0.04
|
|
0.10
|
|
|
9,502,307
|
|
|
7.26
|
|
|
0.10
|
|
|
9,502,307
|
|
|
0.10
|
|
Transactions
involving stock options issued to employees are summarized as
follows:
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
I -STOCK OPTIONS AND WARRANTS (continued)
|
|
|
|
|
Weighted
Average |
|
|
|
Number
of Shares |
|
Price
Per Share |
|
Outstanding
at December 31, 2004:
|
|
|
16,000,000
|
|
$
|
0.2125
|
|
Granted
|
|
|
18,000,000
|
|
|
0.058
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at December 31, 2005:
|
|
|
34,000,000
|
|
$
|
0.076
|
|
Granted
|
|
|
34,930,000
|
|
$
|
0.029
|
|
Exercised
|
|
|
(16,497,693
|
)
|
|
0.037
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at December 31, 2006:
|
|
|
52,432,307
|
|
$
|
0.0562
|
|
During
the year ended December 31, 2006, the Board of Directors voted to exercised
16,497,693 of their options cashlessly to provide 12,772,206 share of the
Company’s common stock to be used as collateral in support of short-term
financing.
The
weighted-average fair value of stock options granted to employees during the
year ended December 31, 2005 and the weighted-average significant assumptions
used to determine those fair values, using a Black-Scholes option pricing model
are as follows:
For
the year ended December 31, 2005:
|
|
|
|
|
Significant
assumptions (weighted-average):
|
|
|
|
|
Risk-free
interest rate at grant date
|
|
|
2
|
%
|
Expected
stock price volatility
|
|
|
255
|
%
|
Expected
dividend payout
|
|
|
-
|
|
Expected
option life-years (a)
|
|
|
7
|
|
(a)
The
expected option life is based on contractual expiration dates.
During
the year ended December 31, 2006, the Company granted 14,430,000 employee stock
options with an exercise price of $0.04 expiring ten years from issuance. The
fair value (determined as described below) of $721,500 was charged to current
period earnings.
The
weighted-average fair value of these stock options granted to employees and
the
weighted-average significant assumptions used to determine those fair values,
using a Black-Scholes option pricing model are as follows:
For
the year ended December 31, 2006:
|
|
|
|
|
Significant
assumptions (weighted-average):
|
|
|
|
|
Risk-free
interest rate at grant date
|
|
|
5.04
|
%
|
Expected
stock price volatility
|
|
|
364
|
%
|
Expected
dividend payout
|
|
|
-
|
|
Expected
option life-years (a)
|
|
|
10
|
|
(a)The
expected option life is based on contractual expiration dates.
During
the year ended December 31, 2006, the Company granted 20,500,000 employee stock
options with an exercise price of $0.022 expiring ten years from issuance.
The
fair value (determined as described below) of $410,000 was charged to current
period earnings.
The
weighted-average fair value of these stock options granted to employees and
the
weighted-average significant assumptions used to determine those fair values,
using a Black-Scholes option pricing model are as follows:
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
I -STOCK OPTIONS AND WARRANTS (continued)
For
the year ended December 31,2006:
|
|
|
|
|
|
|
|
|
|
Significant
assumptions (weighted-average):
|
|
|
|
|
Risk-free
interest rate at grant date
|
|
|
4.37
|
%
|
Expected
stock price volatility
|
|
|
373
|
%
|
Expected
dividend payout
|
|
|
-
|
|
Expected
option life-years (a)
|
|
|
10
|
|
(a)The
expected option life is based on contractual expiration dates.
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.
Operating
Lease Commitments
The
Company leases office space in Durham, NC on a six year lease expiring December
31, 2012, for an annualized rent payment of $88,020. Additionally the Company
leases warehouse space on a month to month basis for $550 per month. At December
31, 2006, schedule of the future minimum lease payments is as
follows:
2007
|
$88,020
|
2008
|
132,030
|
2009
|
170,586
|
2010
|
175,069
|
2011
|
179,627
|
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, 2006.
Loss
Per Share
The
following table presents the computation of basic and diluted loss per
share:
|
|
For
the year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
Net
(loss) available to common stockholders
|
|
$
|
(6,775,400
|
)
|
$
|
(9,410,657
|
)
|
Basic
and diluted (loss) per share
|
|
|
(0.07
|
)
|
|
(0.17
|
)
|
Weighted
average common shares outstanding
|
|
|
94,515,133
|
|
|
54,490,102
|
|
As
of
December 31, 2006 and 2005, 608,419,719 and 156,865,137 potential shares
were excluded from the shares used to calculate loss per share as their
inclusion would reduce net loss per share.
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
NOTE
K - BUSINESS CONCENTRATION
Sales
to
5 major customers approximated $189,968 or 39% of total sales for the year
ended
December 31, 2006 (5 major customers approximated $20,006 or 37% of total sales
for the year ended December 31, 2005).
Purchases
from the Company's 5 major suppliers accounted for 87.6% of total purchases
for
the year ended December 31, 2006 (5 major suppliers accounted for 81% of total
purchases for the year ended December 31, 2005).
NOTE
L- GOING CONCERN MATTERS
The
accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities
in
the normal course of business. As shown in the accompanying consolidated
financial statements, as of December 31, 2006, the Company incurred accumulated
losses of $25,467,342. The Company’s current liabilities exceeded its current
assets by $2,571,943 as of December 31, 2006. These factors among others may
indicate that the Company will be unable to continue as a going concern for
a
reasonable period of time.
The
Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance the
Company will be successful in its effort to secure additional equity financing.
If
operations and cash flows continue to improve through these efforts, management
believes that the Company can continue to operate. However, no assurance can
be
given that management's actions will result in profitable operations or the
resolution of its liquidity problems.
NOTE
M- SUBSEQUENT EVENTS
As
described in Note H - Stockholders’ Equity, the Company increased the number of
authorized Class C Convertible Preferred Stock on January 11, 2007 from 100,000
to 700,000 shares.
On
January 11, 2007, the Company entered into an agreement to acquire Hybrid
Lighting Technologies, Inc, (“HLTI”) a wholly owned subsidiary of UTEK
Corporation (“UTEK”) whereby the Company acquired 100% of the outstanding shares
of HLTI in exchange for a total of $1,537,000 comprised of the
following:
1. |
26,500,000
shares of the Company’s common
stock
|
2. |
50,000
shares of the Company’s Class D convertible preferred
stock
|
The
Class
D convertible preferred stock is convertible, at the holders option, twelve
(12)
months from the date of closing into the Company’s common stock whereby the
number of total shares to be issued is determined by dividing $768,500 ($15.37
per share) by the previous 10 day average closing bid price prior to conversion.
The Class D preferred stock shall provide a 5% return yield, compounded
quarterly , to be paid in cash or in-kind, and will be required to be paid
at
the time of the conversion.
The
agreement includes certain anti-dilutive provisions in effect for one year
from
the effective date.
The
Company acquired intellectual property and license agreements in conjunction
with the acquisition of HLTI.
As
of
March 2, 2007, the Company has issued approximately 58,884,700 shares of common
stock in exchange for convertible notes totally $494,174.
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 were 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) $0.02
or b) 25% of
CYBERLUX
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2006 AND 2005
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
Company issued a total of 94,995,600 shares of its common stock from January
1,
2007 through March 31, 2007 comprised of 26,500,000 shares for the acquisition
of Hybrid Lighting Technologies, Inc as described above, 67,895,600 shares
in
exchange for $548,330, 500,000 shares in conversion of 10 shares of convertible
preferred stock and 100,000 in warrants at $0.25 per share
exercised.
On
April
18, 2007, the Company modified the existing terms of their convertible
debentures dated September 23, 2004, April 23, 2005, October 24, 2005, December
28, 2005, March 31, 2006, July 28, 2006, September 26, 2006 and December
20,
2006 from the existing applicable discount to 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
ITEM
8. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
8A - CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as
of December 31, 2006. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance
of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.
Based
on our evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting.
We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes
may
include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Annual Report on Form 10-KSB that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM
8B. OTHER
INFORMATION
None.
PART
III
ITEM
9 DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
11. Directors
and Executive Officers
Set
forth
below are the directors and executive officers of the Company, their ages and
positions held with the Company, as follows
Name
|
Age
|
Position
|
Donald
F. Evans
|
72
|
Chief
Executive Officer and Chairman of the Board of
Directors
|
Mark
D. Schmidt
|
42
|
President,
Chief Operating Officer and Director
|
John
W. Ringo
|
62
|
Secretary,
Corporate Counsel and Director
|
Alan
H. Ninneman
|
63
|
Senior
Vice President and Director
|
David
D. Downing
|
57
|
Chief
Financial Officer and Treasurer
|
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. Currently there are three seats
on
our board of directors.
Currently,
our Directors are not compensated for their services. Officers are elected
by
the Board of Directors and serve until their successors are appointed by the
Board of Directors. Biographical resumes of each officer and director are set
forth below.
DONALD
F. EVANS.
Mr.
Evans has been our Chief Executive Officer and Chairman of the Board since
May
2000. Between 1979 and May 2000, Mr. Evans was the Managing Partner of Research
Econometrics, a North Carolina based corporation, where Mr. Evans began an
investigative research study into the feasibility of a long-term electrochemical
interim lighting system. From June 1996 until March 1999, Mr. Evans represented
the investment interest of Research Econometrics in Waste Reduction Products
Corporation, a privately held North Carolina corporation Mr. Evans also served
on the Board of Directors of Waste Reduction Products Corporation. Mr. Evans
graduated from the University of North Carolina, Chapel Hill, NC with a BS
Degree in Economics.
MARK
D. SCHMIDT.
Mr.
Schmidt has been our President, Chief Operating Officer and Director since
May
2003. From December 1999 until December 2002, Mr. Schmidt was a founder and
executive of Home Director, Inc., the IBM Home Networking Division spin-off
company and a public company. Mr. Schmidt is a former IBM executive with over
15
years of consumer marketing, business management and venture startup experience.
Mr. Schmidt graduated Summa Cum Laude with a Bachelor of Science Degree in
Engineering from North Carolina State University and earned an MBA Degree from
the Fuqua School of Business at Duke University.
JOHN
W. RINGO.
Mr.
Ringo has been our Secretary, Corporate Counsel and a Director since May 2000.
Since 1990, Mr. Ringo has been in private practice in Marietta, GA specializing
in corporate and securities law. He is a former Staff Attorney with the U.
S.
Securities and Exchange Commission, a member of the Bar of the Supreme Court
of
the United States, the Kentucky Bar Association and the Georgia Bar Association.
Mr. Ringo graduated from the University of Kentucky in Lexington, KY with a
BA
Degree in Journalism. Subsequently, he received a Juris Doctor Degree from
the
University of Kentucky College of Law.
ALAN
H. NINNEMAN.
Mr.
Ninneman has been our Senior Vice President and a Director since May 2000.
From
1992 until April 2000, Mr. Ninneman was a Chief Executive Officer of City
Software, Inc. based in Albuquerque, New Mexico. He was a senior support analyst
for Tandem Computer, San Jose, California from 1982 to 1985; senior business
analyst at Apple Computer, Cupertino, California from 1985 to 1987; and Director
of Operations at Scorpion Technologies, Inc., San Jose, California. Mr. Ninneman
attended Elgin Community College, Elgin, IL and subsequently majored in business
administration at Southern Illinois University, Carbondale, IL.
DAVID
D. DOWNING.
Mr.
Downing has been our Chief Financial Officer and Treasurer since May 2000.
Mr.
Downing joined Marietta Industrial Enterprises, Inc., Marietta, Ohio in November
1991 as its Chief
Financial
Officer. He was elected to the Board of Directors of that Company in January
1994. He has been a Director of American Business Parks, Inc., Belpre, Ohio
since January 1998 and served as a director of Agri-Cycle Products, Inc. from
May 1998 until April 2001. Mr. Downing graduated from Grove City College, Grove
City, PA with a BA Degree in Accounting.
Limitation
of Liability of Directors
Our
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Nevada law, our directors or officers shall not be personally liable to
us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended, is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation,
as
amended, are necessary to attract and retain qualified persons as directors
and
officers.
Election
of Directors and Officers.
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors have been elected and qualified. Officers are appointed to
serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.
No
Executive Officer or Director of the Company has been the subject of any order,
judgment, or decree of any Court of competent jurisdiction, or any regulatory
agency permanently or temporarily enjoining, barring suspending or otherwise
limiting him from acting as an investment advisor, underwriter, broker or dealer
in the securities industry, or as an affiliated person, director or employee
of
an investment company, bank, savings and loan association, or insurance company
or from engaging in or continuing any conduct or practice in connection with
any
such activity or in connection with the purchase or sale of any
securities.
No
Executive Officer or Director of the Company has been convicted in any criminal
proceeding (excluding traffic violations) or is the subject of a criminal
proceeding which is currently pending.
No
Executive Officer or Director of the Company is the subject of any pending
legal
proceedings.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires Cyberlux Corporation executive officers and directors, and persons
who
beneficially own more than ten percent of the Company’s common stock, to file
initial reports of ownership and reports of changes in ownership with the SEC.
Executive officers, directors and greater than ten percent beneficial owners
are
required by SEC regulations to furnish Cyberlux Corporation with copies of
all
Section 16(a) forms they file. Based upon a review of the copies of such forms
furnished to the Company and written representations from Company executive
officers and directors, the Company believes that during the year ended 2006,
the officers and directors filed all of their respective Section 16(a) reports
on a timely basis.
Audit
Committee
We
do not
have an Audit Committee, our board of directors during 2006, performed some
of
the same functions of an Audit Committee, such as: recommending a firm of
independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration
of
the system of internal accounting controls. We do not currently have a written
audit committee charter or similar document.
Nominating
Committee
We
do not
have a Nominating Committee or Nominating Committee Charter. Our board of
directors performed some of the functions associated with a Nominating
Committee. We have elected not to have a Nominating Committee at this time,
however, our Board of Directors intend to continually evaluate the need for
a
Nominating Committee.
Code
of Conduct
On
March
4, 2005, we adopted a written code of conduct that governs all of our officers,
directors, employees and contractors. The code of conduct relates to written
standards that are reasonably designed to deter wrongdoing and to promote:
|
(1) |
Honest
and ethical conduct, including the ethical handling of actual or
apparent
conflicts of interest between personal and professional
relationships;
|
|
(2)
|
Full,
fair, accurate, timely and understandable disclosure in reports
and
documents that are filed with, or submitted to, the Commission
and in
other public communications made by an
issuer;
|
|
(3)
|
Compliance
with applicable governmental laws, rules and
regulations;
|
|
(4)
|
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code;
and
|
|
(5)
|
Accountability
for adherence to the code.
|
Compensation
Committee
We
currently do not have a compensation committee of the board of directors. Until
a formal committee is established, if at all, our entire board of directors
will
review all forms of compensation provided to our executive officers, directors,
consultants and employees including stock compensation and loans.
ITEM
10. EXECUTIVE
COMPENSATION
Termination
of Employment
There
are
no compensatory plans or arrangements, including payments to be received from
the Company, with respect to any person associated with the Company which would
in any way result in payments to any such person because of his resignation,
retirement, or other termination of such person’s employment with the Company or
its subsidiaries, or any change in control of the Company, or a change in the
person’s responsibilities following a change in control of the
Company.
Executive
Compensation
The
following table sets forth the cash compensation of the Company’s newly elected
executive officers and directors during of the years 2006, 2005 and 2004. The
remuneration described in the table represents compensation received from
Cyberlux Corporation and does not include the cost to the Company of benefits
furnished to the named executive officers, including premiums for health
insurance and other benefits provided to such individual that are extended
in
connection with the conduct of the Company’s business. The value of such
benefits cannot be precisely determined, but the executive officers named below
did not receive other compensation in excess of the lesser of $50,000 or 10%
of
such officer’s cash compensation.
Summary
Compensation Table
|
|
|
|
ANNUAL
COMOPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
Name
& Principal
|
|
Salary
|
Bonus
|
Compensation
|
Restricted
Stock
|
Options
SARs
|
LTIP
Payouts
|
All
Other
|
Position
|
Year
|
($)
|
($)
|
($)
|
Awards($)
|
(#)
|
($)
|
Compensation
|
Donald
F. Evans
|
2006
|
180,000
|
0
|
0
|
|
5,500,000
|
|
|
CEO
& Chairman
|
2005
|
180,000
|
0
|
0
|
-
|
4,250,000
|
-
|
-
|
|
2004
|
180,000
|
0
|
0
|
-
|
550,000
|
-
|
-
|
|
|
|
|
|
|
|
|
|
John
W. Ringo
|
2006
|
42,000
|
0
|
0
|
-
|
1,000,000
|
|
|
Secretary
and
|
2005
|
76,000
|
0
|
0
|
-
|
1,500,000
|
-
|
-
|
Corporate
Counsel
|
2004
|
70,500
|
0
|
0
|
-
|
400,000
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Alan
H. Ninneman
|
2006
|
42,000
|
0
|
0
|
|
|
|
|
Senior
Vice President
|
2005
|
76,000
|
0
|
0
|
-
|
1,000,000
|
-
|
-
|
|
2004
|
70,500
|
0
|
0
|
-
|
400,000
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Mark
D. Schmidt
|
2006
|
180,000
|
0
|
0
|
-
|
3,500,000
|
|
|
President
& COO
|
2005
|
180,000
|
0
|
0
|
-
|
4,000,000
|
-
|
-
|
|
|
120,000
|
0
|
0
|
-
|
650,000
|
|
-
|
Annual
compensation began accruing in the form of management fees as of July 2000.
The
compensation indicated in the table is the annualized amount of salary to be
paid the respective officers in accordance with their employment agreements.
Option/SAR
Grants in Last Fiscal Year
|
|
|
|
|
|
NUMBER
OF
|
%
OF TOTAL
|
|
|
|
SECURITIES
|
OPTIONS/SARS
|
|
|
|
UNDERLYING
|
GRANTED
TO
|
|
|
|
OPTIONS/SARS
|
EMPLOYEES
IN
|
EXERCISE
OR BASE
|
EXPIRATION
|
NAME
|
GRANTED
(#)
|
FISCAL
YEAR
|
($/SH)
|
DATE
|
Donald
F. Evans
|
5,500,000
|
45.83%
|
$0.04
/Sh
|
2012
|
John
W. Ringo
|
1,000,000
|
8.33%
|
$0.04
/Sh
|
2012
|
|
|
|
|
|
Alan
H. Ninneman
|
1,000,000
|
8.33%
|
$0.04
/Sh
|
2012
|
Mark
D. Schmidt
|
3,500,000
|
29.16%
|
$0.04
/Sh
|
2012
|
Stock
Option Plans
We
have
created an Employee Stock Option Plan for incentive/retention of current key
employees and as an inducement to employment of new employees. The 2003 plan,
which sets aside 2,000,000 shares of common stock for purchase by employees,
was
made effective by the Board of Directors.
On
September 2, 2003, our Board approved a 2004 Incentive Stock Option Plan, which
will provide 2,000,000 shares to underwrite options.
On
April
8, 2004 our Board approved the 2005 Incentive Stock Option Plan that provides
for 12,000,000 shares to underwrite options and on January 10, 2005, the Board
approved the 2006 Plan that provides for 18,000,000 shares to underwrite
options. On May 11, 2006, our Board approved the 2007 Plan that provides for
12,000,000 shares to underwrite options. On February 16, 2007, our Board
approved the 2008 Plan that provides for 20,000,000 shares to underwrite
options.
The
stock
option plans are administered directly by our board of directors.
Subject
to the provisions of the stock option plans, the board will determine who shall
receive stock options, the number of shares of common stock that may be
purchased under the options, the time and manner of exercise of options and
exercise prices.
As
of
March 31, 2007, there were 27,513,237 stock options granted under the plans
that
were outstanding.
12. Employment
Agreements
Donald
F. Evans
On
July
1, 2000, we entered into an eight-year employment contract with Donald F. Evans
to serve as Chief Executive Officer, which was amended on January 1, 2003.
The
base salary under the agreement is $180,000 per annum, plus
benefits.
Alan
H. Ninneman
On
July
1, 2000, we entered into an eight-year employment contract with Alan H. Ninneman
to serve as Senior Vice President, which was amended on January 1, 2003. The
base salary under the agreement is $102,000 per annum, plus
benefits.
John
W. Ringo
On
July
1, 2000, we entered into an eight-year employment contract with John W. Ringo
to
serve as Secretary and Corporate Counsel, which was amended on January 1, 2003.
The base salary under the agreement is $102,000 per annum, plus
benefits.
Mark
D. Schmidt
On
May 1, 2003, we entered into an employment contract with Mark D. Schmidt to
serve as Executive Vice President and Chief Operating Officer until June 30,
2008. The base salary under the agreement is $180,000 per annum, plus
benefits.
ITEM
11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table presents information,
to the
best of the Company’s knowledge, about
the
beneficial ownership of its common stock on May 18, 2007 relating
to the beneficial ownership of the Company’s common stock by those persons known
to beneficially own more than 5% of the Company’s capital stock and by its
directors and executive officers. The
percentage of beneficial ownership for the following table is based on
276,844,639
shares
of common stock outstanding.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and does not necessarily indicate beneficial ownership
for
any other purpose. Under these rules, beneficial ownership includes those shares
of common stock over which the stockholder has sole or shared voting or
investment power. It also includes shares of common stock that the stockholder
has a right to acquire within 60 days through the exercise of any option,
warrant or other right. The percentage ownership of the outstanding common
stock, however, is based on the assumption, expressly required by the rules
of
the Securities and Exchange Commission, that only the person or entity whose
ownership is being reported has converted options or warrants into shares of
our
common stock.
NAME
AND ADDRESS
|
|
NUMBER
OF
|
PERCENTAGE
OF
|
OF
OWNER
|
TITLE
OF CLASS
|
SHARES
OWNED(1)
|
CLASS
(2)
|
Donald
F. Evans
|
Common
Stock
|
16,422,784
(3)
|
5.48%
|
4625
Creekstone Drive
|
|
|
|
Suite
130
|
|
|
|
Research
Triangle Park
|
|
|
|
Durham,
NC 27703
|
|
|
|
|
|
|
|
Mark
D. Schmidt
|
Common
Stock
|
11,240,977
(4)
|
3.90%
|
4625
Creekstone Drive
|
|
|
|
Suite
130
|
|
|
|
Research
Triangle Park
|
|
|
|
Durham,
NC 27703
|
|
|
|
|
|
|
|
Alan
H. Ninneman
|
Common
Stock
|
4,516,773
(5)
|
1.61%
|
4625
Creekstone Drive
|
|
|
|
Suite
130
|
|
|
|
Research
Triangle Park
|
|
|
|
Durham,
NC 27703
|
|
|
|
|
|
|
|
John
W. Ringo
|
Common
Stock
|
4,574,403
(6)
|
1.63%
|
4625
Creekstone Drive
|
|
|
|
Suite
130
|
|
|
|
Research
Triangle Park
|
|
|
|
Durham,
NC 27703
|
|
|
|
|
|
|
|
David
Downing
|
Common
Stock
|
2,013,300
(7)
|
*
|
4625
Creekstone Drive
|
|
|
|
Suite
130
|
|
|
|
Research
Triangle Park
|
|
|
|
Durham,
NC 27703
|
|
|
|
|
|
|
|
All
Officers and Directors
|
Common
Stock
|
38,768,237
(8)
|
12.41%
|
As
a
Group (5 persons)
|
|
|
|
|
|
|
|
|
|
|
|
Donald
F. Evans
|
Preferred
B
|
275,103
|
34.38%
|
|
|
|
|
Mark
D. Schmidt
|
Preferred
B
|
101,000
|
12.62%
|
|
|
|
|
Alan
H. Ninneman
|
Preferred
B
|
180,652
|
22.58%
|
|
|
|
|
John
W. Ringo
|
Preferred
B
|
166,915
|
20.86%
|
|
|
|
|
David
Downing
|
Preferred
B
|
76,330
|
9.54%
|
*
Less
than 1%.
(1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options
or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of May 18, 2007 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2)
Based
upon 276,844,639 shares issued and outstanding on May 18, 2007.
(3)
Includes currently exercisable options to purchase 20,132,915 shares of common
stock and 275,103 shares of Series B convertible preferred stock convertible
into 2,751,030 shares of common stock and entitled to cast 27,510,300 votes
at
any meeting of shareholders.
(4)
Includes currently exercisable options to purchase 10,030,977 shares of common
stock and 101,000 shares of Series B convertible preferred stock convertible
into 1,010,000 shares of common stock and entitled to cast 10,100,000 votes
at
any meeting of shareholders.
(5)
Includes currently exercisable options to purchase 2,060,253 shares of common
stock and 180,652 shares of Series B convertible preferred stock convertible
into 1,806,520 shares of common stock and entitled to cast 18,065,200 votes
at
any meeting of shareholders.
(6)
Includes currently exercisable options to purchase 2,455,253 shares of common
stock and 166,915 shares of Series B convertible preferred stock convertible
into 1,669,150 shares of common stock and entitled to cast 16,691,500 votes
at
any meeting of shareholders.
(7)
Includes currently exercisable options to purchase 750,000 shares of common
stock and 76,330 shares of Series B convertible preferred stock convertible
into
763,300 shares of common stock and entitled to cast 7,633,000 votes at any
meeting of shareholders.
(8)
Includes currently exercisable options to purchase 27,513,237 shares of common
stock and 800,000 shares of Series B convertible preferred stock convertible
into 8,000,000 shares of common stock and entitled to cast 80,000,000 votes
at
any meeting of shareholders.
ITEM
12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
We
owed
certain management fees, which were for accrued salaries for Messrs. Evans,
Ninneman, Ringo and Schmidt consistent with employment agreements. These fees
were as follows: $400,505 to Don Evans, $243,000 to John Ringo, $263,000 to
Alan
Ninneman and $101,000 to Mark Schmidt for a total of $1,007,505. In addition,
certain officers loaned funds to us in exchange for promissory notes. The
promissory notes included $3,000 to Don Evans, $3,745 to Al Ninneman and
$184,830 to Dave Downing.
In
2004,
we issued 800,000 shares of Series B Convertible Preferred Stock to officers
and
directors in exchange for $723,670 of these management fees and $76,330 of
the
loan from Dave Downing, on a basis of 1 share of Series B Convertible Preferred
Stock for $1 of debt owned. The management fees converted include $275,103
by
Don Evans, $166,915 by John Ringo, $180,652 to Alan Ninneman and $101,000 to
Mark Schmidt. These shares of Series B Convertible Preferred Stock have certain
conversion rights and superior voting privileges as further described in the
“Description of Securities” section herein. The Board of Directors, exercising
their business judgment, determined that it was in the Company’s best interest
to issue shares of Series B convertible preferred stock in lieu of accrued
management fees. The Board of Directors determined that the terms of the
transaction were as fair to the Company as any transactions that could have
been
made with unaffiliated parties.
Currently,
there are still outstanding promissory notes totaling 366,595, which include
$249,350 in unpaid management fees and promissory notes to officers totaling
$117,245. The unpaid management fees include $90,916 owed to Don Evans; $82,348
to Al Ninneman and $76,085 to John Ringo. The outstanding promissory notes
to
officers
include $3,745 to Al Ninneman, $3,000 to Don Evans, $2,000 to Mark Schmidt
and
$108,500 to Dave Downing. The promissory notes were issued to officers who
lent
us funds for working capital purposes. The promissory notes are payable on
demand and accrue interest at an annual rate of 12%.
We
have
consulting agreements with outside contractors, certain of whom are also our
stockholders. The agreements are generally for a term of 12 months from
inception and renewable automatically from year to year unless either we or
the
consultant terminates such engagement by written notice. None of the consultants
who are shareholders own 5% or more of our issued and outstanding shares of
common stock.
Promissory
notes were issued to certain officers for loans to the Company for working
capital. These Notes are listed as payable upon demand and accrue interest
at
12% per annum. Don F. Evans, David D. Downing, Mark Schmidt and Alan H. Ninneman
loaned $3,000, $108,500, $2,000 and $3,745, respectively. The terms of
transactions in this section are as fair to the Company as any transactions
that
could have been made with unaffiliated parties.
We
have
no policy regarding entering into transactions with affiliated
parties.
PART
IV
ITEM
13.
|
EXHIBITS
|
|
|
Exhibit
No.
|
Description
|
|
|
3.1
|
Articles
of Incorporation, dated as of May 17, 2000, filed as an exhibit
to the
registration statement on Form 10-SB filed with the Commission
on December
17, 2001 and incorporated herein by reference.
|
|
|
3.2
|
Certificate
of Amendment to the Articles of Incorporation, dated as of April
3, 2003,
filed as an exhibit to the registration statement on Form SB-2
filed with
the Commission on April 30, 2003 and incorporated herein by
reference.
|
|
|
3.3
|
Bylaws
of Cyberlux Corporation, filed as an exhibit to the registration
statement
on Form 10-SB filed with the Commission on December 17, 2001 and
incorporated herein by reference.
|
|
|
3.4
|
Certificate
of Designation of Series A Preferred Stock, filed as an exhibit
to the
current report on Form 8-K filed with the Commission on January
8, 2004
and incorporated herein by reference.
|
|
|
4.1
|
Securities
Purchase Agreement, dated as of September 23, 2004, by and among
Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit
4.1 to
the current report on Form 8-K filed with the Commission on September
29,
2004 and incorporated herein by reference.
|
|
|
4.2
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated September
23, 2004,
filed as Exhibit 4.2 to the current report on Form 8-K filed with
the
Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
4.3
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated September
23, 2004, filed as Exhibit 4.3 to the current report on Form 8-K
filed
with the Commission on September 29, 2004 and incorporated herein
by
reference.
|
|
|
4.4
|
Secured
Convertible Note issued to AJW Partners, LLC, dated September 23,
2004,
filed as Exhibit 4.4 to the current report on Form 8-K filed with
the
Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
4.5
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC, dated
September 23, 2004, filed as Exhibit 4.5 to the current report
on Form 8-K
filed with the Commission on September 29, 2004 and incorporated
herein by
reference.
|
|
|
4.6
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated September
23,
2004, filed as Exhibit 4.6 to the current report on Form 8-K filed
with
the Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
4.7
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated
September
23, 2004, filed as Exhibit 4.7 to the current report on Form 8-K
filed
with the Commission on September 29, 2004 and incorporated herein
by
reference.
|
|
|
4.8
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated September
23, 2004,
filed as Exhibit 4.8 to the current report on Form 8-K filed with
the
Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
4.9
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II,
LLC, dated
September 23, 2004, filed as Exhibit 4.9 to the current report
on Form 8-K
filed with the Commission on September 29, 2004 and incorporated
herein by
reference.
|
|
|
4.10
|
Registration
Rights Agreement, dated as of September 23, 2004, by and among
Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit
4.10 to
the current report on Form 8-K filed with the Commission on September
29,
2004 and incorporated herein by reference.
|
|
|
4.11
|
Security
Agreement, dated as of September 23, 2004, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit
4.11 to
the current report on Form 8-K filed with the Commission on September
29,
2004 and incorporated herein by reference.
|
|
|
4.12
|
Intellectual
Property Security Agreement, dated as of September 23, 2004, by
and among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
as
Exhibit 4.12 to the current report on Form 8-K filed with the Commission
on September 29, 2004 and incorporated herein by
reference.
|
|
|
4.13
|
Guaranty
and Pledge Agreement, dated as of September 23, 2004, by and among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd., New Millennium Capital Partners II, LLC and Donald
F.
Evans, filed as Exhibit 4.13 to the current report on Form 8-K
filed with
the Commission on September 29, 2004 and incorporated herein by
reference.
|
|
|
4.14
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated October 20,
2004.
|
|
|
4.15
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated October
20,
2004.
|
|
|
4.16
|
Secured
Convertible Note issued to AJW Partners, LLC, dated October 20,
2004.
|
|
|
4.17
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC, dated
October 20, 2004.
|
|
|
4.18
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated October
20,
2004.
|
|
|
4.19
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated
October 20,
2004.
|
|
|
4.20
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated October 20,
2004.
|
|
|
4.21
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II,
LLC, dated
October 20, 2004.
|
|
|
4.22
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated November 18,
2004.
|
|
|
4.23
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated November
18,
2004.
|
|
|
4.24
|
Secured
Convertible Note issued to AJW Partners, LLC, dated November 18,
2004.
|
|
|
4.25
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC, dated
November 18, 2004.
|
|
|
4.26
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated November
18,
2004.
|
|
|
4.27
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated
November
18, 2004.
|
|
|
4.28
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated November 18,
2004.
|
|
|
4.29
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II,
LLC, dated
|
|
|
|
November
18,
2004. |
|
|
4.30
|
Securities
Purchase Agreement, dated as of April 22, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as an exhibit
to
the current report on Form 8-K filed with the Commission on April
28, 2005
and incorporated herein by reference.
|
|
|
4.31
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated April 22,
2005, filed
as an exhibit to the current report on Form 8-K filed with the
Commission
on April 28, 2005 and incorporated herein by reference.
|
|
|
4.32
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated April
22,
2005, filed as an exhibit to the current report on Form 8-K filed
with the
Commission on April 28, 2005 and incorporated herein by
reference.
|
|
|
4.33
|
Secured
Convertible Note issued to AJW Partners, LLC, dated April 22, 2005,
filed
as an exhibit to the current report on Form 8-K filed with the
Commission
on April 28, 2005 and incorporated herein by reference.
|
|
|
4.34
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC, dated
April 22, 2005, filed as an exhibit to the current report on Form
8-K
filed with the Commission on April 28, 2005 and incorporated herein
by
reference.
|
|
|
4.35
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated April
22, 2005,
filed as an exhibit to the current report on Form 8-K filed with
the
Commission on April 28, 2005 and incorporated herein by
reference.
|
|
|
4.36
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated
April 22,
2005, filed as an exhibit to the current report on Form 8-K filed
with the
Commission on April 28, 2005 and incorporated herein by
reference.
|
|
|
4.37
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated April 22,
2005, filed
as an exhibit to the current report on Form 8-K filed with the
Commission
on April 28, 2005 and incorporated herein by reference.
|
|
|
4.38
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II,
LLC, dated
April 22, 2005, filed as an exhibit to the current report on Form
8-K
filed with the Commission on April 28, 2005 and incorporated herein
by
reference.
|
|
|
4.39
|
Registration
Rights Agreement, dated as of April 22, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC, filed as an exhibit
to
the current report on Form 8-K filed with the Commission on April
28, 2005
and incorporated herein by reference.
|
|
|
4.40
|
Security
Agreement, dated as of April 22, 2005, by and among Cyberlux Corporation,
AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd.
and New
Millennium Capital Partners II, LLC, filed as an exhibit to the
current
report on Form 8-K filed with the Commission on April 28, 2005
and
incorporated herein by reference.
|
|
|
4.41
|
Intellectual
Property Security Agreement, dated as of April 22, 2005, by and
among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed
as an
exhibit to the current report on Form 8-K filed with the Commission
on
April 28, 2005 and incorporated herein by reference.
|
|
|
4.42
|
Guaranty
and Pledge Agreement, dated as of April 22, 2005, by and among
Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd., New Millennium Capital
|
|
Partners
II, LLC and
Donald F. Evans, filed as an exhibit to the current report on Form
8-K
filed with the Commission on April 28, 2005 and incorporated herein
by
reference. |
|
|
4.43
|
Securities
Purchase Agreement, dated as of October 23, 2005, by and among
Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.44
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated October 23,
2005.
|
|
|
4.45
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated October
23,
2005.
|
|
|
4.46
|
Secured
Convertible Note issued to AJW Partners, LLC, dated October 23,
2005.
|
|
|
4.47
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC.
|
|
|
4.48
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated October
23,
2005.
|
|
|
4.49
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated
October 23,
2005.
|
|
|
4.50
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated October 23,
2005.
|
|
|
4.51
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II,
LLC, dated
October 23, 2005.
|
|
|
4.52
|
Registration
Rights Agreement, dated as of October 23, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.53
|
Security
Agreement, dated as of October 23, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.54
|
Intellectual
Property Security Agreement, dated as of October 23, 2005, by and
among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II,
LLC.
|
|
|
4.55
|
Securities
Purchase Agreement, dated as of December 28, 2005, by and among
Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.56
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated December 28,
2005.
|
|
|
4.57
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated December
28,
2005.
|
|
|
4.58
|
Secured
Convertible Note issued to AJW Partners, LLC, dated December 28,
2005.
|
|
|
4.59
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC.
|
|
|
4.60
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated December
28,
2005.
|
|
|
4.61
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated
December
28, 2005.
|
|
|
4.62
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated December 28,
2005.
|
|
|
4.63
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II,
LLC, dated
December 28, 2005.
|
4.64
|
Registration
Rights Agreement, dated as of December 28, 2005, by and among
Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC,
AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.65
|
Security
Agreement, dated as of December 28, 2005, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC,
AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.66
|
Intellectual
Property Security Agreement, dated as of December 28, 2005, by
and among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II,
LLC.
|
|
|
4.67
|
Securities
Purchase Agreement, dated as of March 27, 2006, by and among
Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC,
AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.68
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated March 27,
2006.
|
|
|
4.69
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated
March 27,
2006.
|
|
|
4.70
|
Secured
Convertible Note issued to AJW Partners, LLC, dated March 27,
2006.
|
|
|
4.71
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC.
|
|
|
4.72
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated March
27,
2006.
|
|
|
4.73
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated
March 27,
2006.
|
|
|
4.74
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated March 27,
2006.
|
|
|
4.75
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II,
LLC, dated
March 27, 2006.
|
|
|
4.76
|
Registration
Rights Agreement, dated as of March 27, 2006, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC,
AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.77
|
Security
Agreement, dated as of March 27, 2006, by and among Cyberlux
Corporation,
AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New
Millennium Capital Partners II, LLC.
|
|
|
4.78
|
Intellectual
Property Security Agreement, dated as of March 27, 2006, by and
among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II,
LLC.
|
|
|
4.79
|
Securities
Purchase Agreement, dated as of July 27, 2006, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC,
AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.80
|
Secured
Convertible Note issued to AJW Offshore, Ltd., dated July 27,
2006.
|
|
|
4.81
|
Secured
Convertible Note issued to AJW Qualified Partners, LLC, dated
July 27,
2006.
|
|
|
4.82
|
Secured
Convertible Note issued to AJW Partners, LLC, dated July 27,
2006.
|
4.83
|
Secured
Convertible Note issued to New Millennium Capital Partners II,
LLC.
|
|
|
4.84
|
Common
Stock Purchase Warrant issued to AJW Offshore, Ltd., dated July
27,
2006.
|
|
|
4.85
|
Common
Stock Purchase Warrant with AJW Qualified Partners, LLC, dated
July 27,
2006.
|
|
|
4.86
|
Common
Stock Purchase Warrant with AJW Partners, LLC, dated July 27,
2006.
|
|
|
4.87
|
Common
Stock Purchase Warrant with New Millennium Capital Partners II,
LLC, dated
July 27, 2006.
|
|
|
4.88
|
Registration
Rights Agreement, dated as of July 27, 2006, by and among Cyberlux
Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC,
AJW Offshore,
Ltd. and New Millennium Capital Partners II, LLC.
|
|
|
4.89
|
Security
Agreement, dated as of July 27, 2006, by and among Cyberlux Corporation,
AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and New
Millennium Capital Partners II, LLC.
|
|
|
4.90
|
Intellectual
Property Security Agreement, dated as of July 27, 2006, by and
among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and New Millennium Capital Partners II,
LLC.
|
|
|
10.1
|
Donald
F. Evans Employment Agreement, dated as of July 1, 2000, filed
as an
exhibit to the registration statement on Form 10-SB filed with
the
Commission on December 17, 2001 and incorporated herein by
reference.
|
|
|
10.2
|
Alan
H. Ninneman Employment Agreement, dated as of July 1, 2000, filed
as an
exhibit to the registration statement on Form 10-SB filed with
the
Commission on December 17, 2001 and incorporated herein by
reference.
|
|
|
10.3
|
John
W. Ringo Employment Agreement, dated as of July 1, 2000, filed
as an
exhibit to the registration statement on Form 10-SB filed with
the
Commission on December 17, 2001 and incorporated herein by
reference.
|
|
|
10.4
|
Donald
F. Evans Amended Employment Agreement, dated as of January 1,
2003, filed
as an exhibit to the registration statement on Form SB-2 filed
with the
Commission on April 30, 2003 and incorporated herein by
reference.
|
|
|
10.5
|
Alan
H. Ninneman Amended Employment Agreement, dated as of January
1, 2003,
filed as an exhibit to the registration statement on Form SB-2
filed with
the Commission on April 30, 2003 and incorporated herein by
reference.
|
|
|
10.6
|
John
W. Ringo Amended Employment Agreement, dated as of January 1,
2003, filed
as an exhibit to the registration statement on Form SB-2 filed
with the
Commission on April 30, 2003 and incorporated herein by
reference.
|
|
|
10.7
|
Mark
D. Schmidt Employment Agreement, dated as of May 1, 2003, filed
as an
exhibit to the quarterly report on Form 10-QSB filed with the
Commission
on August 19, 2003 and incorporated herein by
reference.
|
|
|
10.8
|
Proprietary
Product Manufacturing Agreement, dated as April 24, 2001, by
and between
Cyberlux Corporation and Shelby County Community Services, Inc.,
filed as
an exhibit to the registration statement on Form 10-SB filed
with the
Commission on December 17, 2001 and incorporated herein by
reference.
|
10.9
|
Design
Agreement, dated as of March 2, 2001, by and between Cyberlux
Corporation
and ROBRADY Design, filed as an exhibit to the registration statement
on
Form 10-SB/A filed with the Commission on February 4, 2001 and
incorporated herein by reference.
|
|
|
10.10
|
Series
A Convertible Preferred Stock Purchase Agreement, dated as of
December 31,
2003, by and among Cyberlux Corporation and the purchasers set
forth
therein, filed as an exhibit to the current report on Form 8-K
filed with
the Commission on January 8, 2004 and incorporated herein by
reference.
|
|
|
10.11
|
Registration
Rights Agreement, dated as of December 31, 2003, by and among
Cyberlux
Corporation and the purchasers of Series A Convertible Preferred
Stock set
forth therein, filed as an exhibit to the current report on Form
8-K filed
with the Commission on January 8, 2004 and incorporated herein
by
reference.
|
|
|
10.12
|
Form
of Series A Warrant issued in connection with the sale of Series
A
Convertible Preferred Stock, filed as an exhibit to the current
report on
Form 8-K filed with the Commission on January 8, 2004 and incorporated
herein by reference.
|
|
|
10.13
|
Form
of Series B Warrant issued in connection with the sale of Series
A
Convertible Preferred Stock, filed as an exhibit to the current
report on
Form 8-K filed with the Commission on January 8, 2004 and incorporated
herein by reference.
|
|
|
10.14
|
Lock-up
Agreement, dated as of December 31, 2003, by and among Cyberlux
Corporation and certain officers and directors of Cyberlux Corporation,
filed as an exhibit to the current report on Form 8-K filed with
the
Commission on January 8, 2004 and incorporated herein by
reference.
|
|
|
14.1
|
Code
of Conduct, filed as an exhibit to the annual report on Form
10-KSB filed
with the Commission on April 15, 2005 and incorporated herein
by
reference.
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d
14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
|
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)
|
|
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer)
|
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Audit
Fees
The
aggregate fees billed for professional services rendered by Russell Bedford
Stefanou Mirchandani LLP for the audit of the registrant's annual financial
statements and review of the financial statements included in the registrant's
Form 10-QSB or services that are normally provided by the accountant
in
connection with statutory and regulatory filings or engagements for fiscal
years
2006 and 2005 were $92,186 and $146,900, respectively.
Audit-Related
Fees
None.
Tax
Fees
None.
All
Other Fees
None.
Policy
On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services
Of
Independent Auditors
We
currently do not have a designated Audit Committee, and accordingly, our
Board
of Directors' policy is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. These services may include
audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed
as to
the particular service or category of services and is generally subject
to a
specific budget. The independent auditors and management are required to
periodically report to our Board of Directors regarding the extent of services
provided by the independent auditors in accordance with this pre-approval,
and
the fees for the services performed to date. The Board of Directors may
also
pre-approve particular services on a case-by-case basis.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of
1934, the registrant has duly caused this report to be signed on our behalf
by
the undersigned, thereunto duly authorized.
|
|
|
|
CYBERLUX
CORPORATION
|
|
|
|
Dated:
May 21, 2007 |
|
By:
/s/ DONALD F. EVANS |
|
|
|
Donald
F. Evans
|
|
|
Chief
Executive Officer (Principal Executive
Officer)
|
|
|
|
|
|
Dated:
May 21, 2007 |
|
By: /s/ DAVID
D. DOWNING |
|
|
|
David
D.
Downing
Chief
Financial Officer (Principal Financial
Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report
has been
signed below by the following persons on behalf of the registrant and
in the
capacities and on the dates indicated.
SIGNATURE
|
TITLE
|
DATE
|
|
|
|
/s/
DONALD F. EVANS
|
Chief
Executive Officer and
|
May
21, 2007
|
--------------------------------
|
Chairman
of the Board of Directors
|
|
Donald
F. Evans
|
|
|
|
|
|
/s/
MARK D. SCHMIDT
|
President,
Chief Operating Officer
|
May
21, 2007
|
--------------------------------
|
and
Director
|
|
Mark
D. Schmidt
|
|
|
|
|
|
/s/
JOHN W. RINGO
|
Secretary,
Corporate Counsel
|
May
21, 2007
|
--------------------------------
|
and
Director
|
|
John
W. Ringo
|
|
|
|
|
|
/s/
ALAN H. NINNEMAN
|
Senior
Vice President and Director
|
May
21, 2007
|
--------------------------------
|
|
|
Alan
H. Ninneman
|
|
|