U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10QSB
(Mark
One)
x Quarterly
report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for
the
quarterly period ended March 31, 2007.
o Transition
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
transition period from ____________ to ______________
For
the
Period Ended March 31, 2007
Commission
file number 000-33415
CYBERLUX
CORPORATION
(Name
of
Small Business Issuer in Its Charter)
Nevada
|
91-2048978
|
(State
of Incorporation)
|
(IRS
Employer Identification No.)
|
4625
Creekstone Drive
Suite
130
Research
Triangle Park
Durham,
NC 27703
(Address
of Principal Executive Offices)
(919)
474-9700
Issuer's
Telephone Number
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 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
As
of May 18, 2007, the Company had 276,844,639
shares of its par value $0.001 common stock issued and outstanding.
Transitional
Small Business Disclosure Format (check one):
Yes
o No
x
CYBERLUX
CORPORATION
Quarterly
Report on Form 10-QSB for the
Quarterly
Period Ending March 31, 2007
Table
of
Contents
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets:
|
|
|
March
31, 2007 (Unaudited) and December 31, 2006
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Losses:
|
|
|
Three
months Ended March 31, 2007 and 2006 (Unaudited)
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows:
|
|
|
Three
months Ended March 31, 2007 and 2006 (Unaudited)
|
5
|
|
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Information:
|
|
|
March
31, 2007
|
6-21
|
|
|
|
Item
2.
|
Management
Discussion and Analysis
|
22
|
|
|
|
Item
3.
|
Controls
and Procedures
|
16
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
17
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
|
|
|
Item
5.
|
Other
Information
|
19
|
|
|
|
Item
6.
|
Exhibits
|
19
|
|
|
|
Signatures
|
|
20
|
CYBERLUX
CORPORATION
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
(unaudited)
March
31,
2007
|
|
December
31,
2006
|
|
ASSETS
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
26,533
|
|
$
|
395,812
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$23,502
|
|
|
60,660
|
|
|
177,085
|
|
Inventories,
net of allowance of $102,660
|
|
|
206,574
|
|
|
197,771
|
|
Other
current assets
|
|
|
11,819
|
|
|
22,232
|
|
Total
current assets
|
|
|
305,586
|
|
|
792,900
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $147,399
and
$141,465, respectively
|
|
|
63,694
|
|
|
58,313
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Deposits
|
|
|
23,350
|
|
|
23,350
|
|
|
|
|
|
|
|
|
|
Patents
and development costs, net of accumulated amortization of $425,222
and
$293,750, respectively
|
|
|
3,549,752
|
|
|
2,294,224
|
|
Total
other assets
|
|
|
3,573,102
|
|
|
2,317,574
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,942,382
|
|
$
|
3,168,787
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
733,041
|
|
$
|
564,875
|
|
Accrued
liabilities
|
|
|
1,791,826
|
|
|
1,694,220
|
|
Short-term
notes payable - related parties
|
|
|
520,162
|
|
|
454,162
|
|
Short-term
notes payable
|
|
|
21,292
|
|
|
47,399
|
|
Short-term
convertible notes payable
|
|
|
55,857
|
|
|
604,187
|
|
Total
current liabilities
|
|
|
3,122,178
|
|
|
3,364,843
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
1,981,717
|
|
|
1,580,621
|
|
Derivative
liability relating to convertible debentures
|
|
|
6,448,614
|
|
|
8,201,086
|
|
Warrant
liability relating to convertible debentures
|
|
|
1,182,719
|
|
|
2,954,080
|
|
Total
long-term liabilities
|
|
|
9,613,050
|
|
|
12,735,787
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
12,735,228
|
|
|
16,100,630
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock, $0.001 par value; 200 shares designated,
28.9806 and 38.9806 issued and outstanding as of March 31, 2007
and
December 31, 2006, respectively
|
|
|
144,900
|
|
|
194,900
|
|
|
|
|
|
|
|
|
|
DEFICIENCY
IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B convertible preferred stock, $0.001 par value, 800,000 shares
designated; 800,000 shares issued and outstanding for March 31,
2007 and
December 31, 2006
|
|
|
800
|
|
|
800
|
|
|
|
|
|
|
|
|
|
Class
C convertible preferred stock, $0.001 par value, 700,000 shares
designated; 150,000 and 100,000 shares issued and outstanding for
March
31, 2007 and December 31, 2006, respectively
|
|
|
150
|
|
|
100
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 700,000,000 shares authorized; 223,274,757
and
128,279,157 shares issued and outstanding as of March 31, 2007
and
December 31, 2006, respectively
|
|
|
223,275
|
|
|
128,279
|
|
|
|
|
|
|
|
|
|
Subscription
received
|
|
|
-
|
|
|
25,000
|
|
Additional
paid-in capital
|
|
|
14,251,703
|
|
|
12,186,420
|
|
Accumulated
deficit
|
|
|
(23,413,674
|
)
|
|
(25,467,342
|
)
|
Deficiency
in stockholders' equity
|
|
|
(8,937,746
|
)
|
|
(13,126,743
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and (deficiency) in stockholders' equity
|
|
$
|
3,942,382
|
|
$
|
3,168,787
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements
CYBERLUX
CORPORATION
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(unaudited)
|
|
|
|
Three
months ended March 31,
|
|
|
|
2007
|
|
2006
|
|
REVENUE:
|
|
$
|
49,462
|
|
$
|
47,200
|
|
Cost
of goods sold
|
|
|
(40,320
|
)
|
|
(53,687
|
)
|
Gross
margin (loss)
|
|
|
9,141
|
|
|
(6,487
|
)
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
137,407
|
|
|
7,265
|
|
Research
and development
|
|
|
69,713
|
|
|
38,826
|
|
General
and administrative expenses
|
|
|
755,807
|
|
|
1,347,729
|
|
Total
operating expenses
|
|
|
962,927
|
|
|
1,393,820
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM OPERATIONS
|
|
|
(953,785
|
)
|
|
(1,400,307
|
)
|
|
|
|
|
|
|
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
Unrealized
gain (loss) relating to adjustment of derivative and warrant liability
to
fair value of underlying securities
|
|
|
3,523,832
|
|
|
2,323,186
|
|
Interest
expense
|
|
|
(527,800
|
)
|
|
(738,130
|
)
|
Debt
acquisition costs
|
|
|
11,420
|
|
|
(6,487
|
)
|
|
|
|
|
|
|
|
|
Net
income before provision for income taxes
|
|
|
2,053,667
|
|
|
178,262
|
|
|
|
|
|
|
|
|
|
Income
taxes (benefit)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
INCOME
AVAILABLE TO COMMON STOCKHOLDERS
|
|
$
|
2,053,667
|
|
$
|
178,262
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic
|
|
|
189,015,023
|
|
|
80,285,613
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-fully diluted
|
|
|
Note
A
|
|
|
Note
A
|
|
|
|
|
|
|
|
|
|
Income
per share-basic
|
|
$
|
0.01
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Loss
per share - fully diluted
|
|
|
Note
A
|
|
|
Note
A
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
$
|
24,000
|
|
$
|
24,000
|
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements
CYBERLUX,
INC
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
|
|
(unaudited)
|
|
|
|
Three
months ended March 31,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
available to common stockholders
|
|
$
|
2,053,667
|
|
$
|
178,262
|
|
Adjustments
to reconcile net income to cash used in operating
activities
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,934
|
|
|
7,265
|
|
Amortization
|
|
|
131,473
|
|
|
-
|
|
Common
stock issued in connection with services rendered
|
|
|
-
|
|
|
762,250
|
|
Common
stock issued in settlement of debt
|
|
|
-
|
|
|
31,655
|
|
Accretion
of convertible notes payable
|
|
|
401,096
|
|
|
367,196
|
|
Unrealized
(gain) loss on adjustment of derivative and warrant liability to
fair
value of underlying securities
|
|
|
(3,523,832
|
)
|
|
(2,323,186
|
)
|
Impairment
loss on patent
|
|
|
-
|
|
|
-
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
116,425
|
|
|
(41,018
|
)
|
Inventories
|
|
|
(8,803
|
)
|
|
161,039
|
|
Prepaid
expenses and other assets
|
|
|
10,413
|
|
|
9,402
|
|
Deposits
|
|
|
-
|
|
|
-
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
168,166
|
|
|
(306,071
|
)
|
Accrued
liabilities
|
|
|
97,604
|
|
|
279,829
|
|
Net
cash (used in) operating activities
|
|
|
(547,856
|
)
|
|
(873,377
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
cash acquired in connection with acquisition of Hybrid Lighting
Technologies, Inc
|
|
|
150,000
|
|
|
-
|
|
Payments
towards patent rights
|
|
|
-
|
|
|
-
|
|
Acquisition
of fixed assets
|
|
|
(11,316
|
)
|
|
(7,093
|
)
|
Net
cash provided by (used in) investing activities:
|
|
|
138,684
|
|
|
(7,093
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
proceeds from issuance of convertible debentures
|
|
|
-
|
|
|
460,000
|
|
Net
proceeds (payments) from borrowing on long term basis
|
|
|
(26,107
|
)
|
|
152,400
|
|
Net
proceeds (payments) to notes payable, related parties
|
|
|
66,000
|
|
|
500
|
|
Net
cash provided by (used in) financing activities:
|
|
|
39,893
|
|
|
612,900
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(369,279
|
)
|
|
(267,570
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
395,812
|
|
|
475,656
|
|
Cash
and cash equivalents at end of period
|
|
$
|
26,533
|
|
$
|
208,086
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
-
|
|
$
|
2,770
|
|
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
|
|
|
(3,523,832
|
)
|
|
(2,323,186
|
)
|
Common
stock issued for services rendered
|
|
|
-
|
|
|
762,250
|
|
Common
stock issued in settlement of debt
|
|
|
-
|
|
|
31,655
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES
General
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of
America for interim financial information and the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.
In
the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Accordingly,
the results from operations for the three month period ended March 31, 2007,
are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2007. The unaudited condensed financial statements should
be
read in conjunction with the December 31, 2006 financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
December 31, 2006.
Business
and Basis of Presentation
Cyberlux
Corporation (the "Company") is incorporated on May 17, 2000 under the laws
of
the State of Nevada. Until December 31, 2004, the Company was a development
state enterprise as defined under Statement on Financial Accounting Standards
No.7, Development Stage Enterprises ("SFAS No.7"). The Company develops,
manufactures and markets long-term portable lighting products for commercial
and
industrial users. While the Company has generated revenues from its sale of
products, the Company has incurred expenses, and sustained losses. Consequently,
its operations are subject to all risks inherent in the establishment of a
new
business enterprise. As of March 31, 2007, the Company has accumulated losses
of
$23,413,674.
The
consolidated financial statements include the accounts of its wholly owned
subsidiaries, SPE Technologies, Inc. and Hybrid Lighting Technologies, Inc.
All
significant intercompany balances and transactions have been eliminated in
consolidation.
Acquisitions
On
December 28, 2006, the Company acquired SPE Technologies, Inc, a Florida
corporation, as a wholly owned subsidiary. SPE Technologies, Inc. was acquired
by issuance 100,000 shares of Class C 5% convertible preferred stock valued
at
the time acquisition at $2,520,000.
The
total
consideration paid was $2,520,000 and the significant components of the
transaction are as follows:
Preferred
Stock issued:
|
|
$
|
2,520,000
|
|
|
|
|
|
|
Cash
received
|
|
$
|
250,000
|
|
Patents
received
|
|
|
2,270,000
|
|
Liabilities
assumed
|
|
|
(
-
|
)
|
|
|
|
|
|
Net:
|
|
$
|
2,520,000
|
|
On
January 11, 2007, the Company acquired Hybrid Lighting Technologies, Inc, a
Florida corporation, as a wholly owned subsidiary. Hybrid Lighting Technologies,
Inc was acquired by issuance of 26,500,000 shares of its common stock and 50,000
shares of Class C 5% convertible preferred stock. The total value assigned
at
the time of acquisition of $1,537,000.
The
total
consideration paid was $1,537,000 and the significant components of the
transaction are as follows:
Common
stock issued:
|
|
$
|
768,500
|
|
Preferred
stock issued:
|
|
|
768,500
|
|
Preferred
Stock issued:
|
|
$
|
1,537,000
|
|
|
|
|
|
|
Cash
received
|
|
$
|
150,000
|
|
Patents
received
|
|
|
1,387,000
|
|
Liabilities
assumed
|
|
|
(
-
|
)
|
|
|
|
|
|
Net:
|
|
$
|
1,537,000
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Revenue
Recognition
Revenues
are recognized in the period that products are provided. For revenue from
product sales, the Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which superseded
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
("SAB101"). SAB 101 requires that four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the selling price is fixed and determinable; and
(4)
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 3/31/07, the Company did not have any deferred
revenue.
SAB
104
incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”), MULTIPLE
DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21
on
the Company’s financial position and results of operations was not
significant.
Reclassification
Certain
reclassifications have been made to prior periods’ data to conform to the
current presentation. These reclassifications had no effect on reported
losses.
Concentrations
of Credit Risk
Financial
instruments and related items which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess
of
the FDIC insurance limit. The Company periodically reviews its trade receivables
in determining its allowance for doubtful accounts. At March 31, 2007 and
December 31, 2006, allowance for doubtful receivable was $23,502.
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 will be 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 the financial statements included in Form 10-KSB for the
year
ended December 31, 2006, the Company granted stock options over the years to
employees of the Company under a non-qualified employee stock option plan.
As of
March 31, 2007, 52,432,307 stock options were outstanding and exercisable.
In
prior
years, the Company applied the intrinsic-value method prescribed in Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees,” to account for the issuance of stock options to employees and
accordingly compensation expense related to employees’ stock options were
recognized in the prior year financial statements to the extent options granted
under stock incentive plans had an exercise price less than the market value
of
the underlying common stock on the date of grant.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Net
Income (loss) Per Common Share
The
following reconciliation of net income and share amounts used in the computation
of income (loss) per share for the three months ended March 31, 2007 and
2006:
|
|
Three
Months Ended
March
31, 2007
|
|
Three
Months Ended
March
31, 2006
|
|
Net
income used in computing basic net income per share
|
|
$
|
2,053,667
|
|
$
|
178,262
|
|
Impact
of assumed assumptions:
|
|
|
|
|
|
|
|
Accretion
of convertible debenture charged to interest expense
|
|
|
401,096
|
|
|
367,196
|
|
Impact
of equity classified as liability:
|
|
|
|
|
|
|
|
Gain
on warrant liability marked to fair value
|
|
|
(3,523,832
|
)
|
|
(2,323,186
|
)
|
Net
loss in computing diluted net loss per share:
|
|
$
|
(1,069,069
|
)
|
|
(1,777,728
|
)
|
The
weighted average shares outstanding used in the basic net income per share
computations for the three months ended March 31, 2007 and 2006 was 189,015,023
and 80,285,613, respectively. In determining the number of shares used in
computing diluted loss per share, the Company added approximately 1,201,705,941
and 132,636,364 potentially dilutive securities for the three months ended
March
31, 2007 and 2006, respectively. The potentially dilutive securities added
were
mostly attributable to the warrants, options and convertible debentures
outstanding. As a result, the diluted loss per share for the three months ended
March 31, 2007 and 2006 was $0.00.
Patents
The
Company acquired in December 2006, for $2,270,000, and January 2007, for
$1,387,000, patents in conjunction with the acquisitions of SPE Technologies,
Inc and Hybrid Lighting Technologies, Inc, respectively. The patents have an
estimated useful life of 7 years. Accordingly, the Company recorded an
amortization charge to current period earnings of $131,472 and $-0- for the
three months ended March 31, 2007 and 2006, respectively. Patents are comprised
of the following:
Description
|
|
Cost
|
|
Accumulated
amortization and
impairments
|
|
Net
carrying value at March
31, 2007
|
|
Development
costs
|
|
$
|
293,750
|
|
$
|
293,750
|
|
$
|
-0-
|
|
Patents
|
|
|
2,294,224
|
|
|
81,936
|
|
|
2,212,287
|
|
Patents
|
|
|
1,387,000
|
|
|
49,536
|
|
|
1,337,464
|
|
Total
|
|
$
|
3,974,974
|
|
$
|
425,222
|
|
$
|
3,549,752
|
|
Recent
pronouncements
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
B - NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes
payable at March 31, 2007 and December 31, 2006 are as follows:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
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
|
|
|
|
|
|
|
|
|
|
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% (See note L) 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)
|
|
|
53,357
|
|
|
601,687
|
|
|
|
|
|
|
|
|
|
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% (See
note L) 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)
|
|
|
923,106
|
|
|
799,817
|
|
|
|
|
|
|
|
|
|
10%
convertible debenture, due October 2008 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% (See note L) 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)
|
|
|
382,100
|
|
|
316,347
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due December 2008 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% (See note L0 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)
|
|
|
292,786
|
|
|
235,251
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
B - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (continued)
|
|
March
31, 2007
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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% (See note L)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)
|
|
$
|
168,493
|
|
$
|
127,397
|
|
|
|
|
|
|
|
|
|
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% (See note L)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)
|
|
|
112,329
|
|
|
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% (See note L) 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)
|
|
|
47,561
|
|
|
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% (See note L) 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)
|
|
|
55,342
|
|
|
6,028
|
|
|
|
|
2,037,574
|
|
|
2,184,808
|
|
Less:
current maturities
|
|
|
(55,857
|
)
|
|
(604,187
|
)
|
Notes
payable and convertible debentures-long term portion
|
|
$
|
1,981,717
|
|
$
|
1,580,621
|
|
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 l) 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
March 31, 2007, 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.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
B - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (continued)
The
Company entered into a Securities Purchase Agreement with four accredited
investors on April 23, 2005 for the issuance of an aggregate of $1,500,000
of
convertible notes (“Convertible Notes”) and attached to the Convertible Notes
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 L) 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
March 31, 2007, the Company issued to investors of the Convertible Notes a
total
amount of $1,500,000 in exchange for total proceeds of $1,352,067. The proceeds
that the Company received were net of prepaid interest of $72,933 representing
the first eight month’s interest and related fees and costs of
$75,000.
The
Company 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 L)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
March 31, 2007, 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% (see note L) 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
March 31, 2007, 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 L) 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
March 31, 2007, the Company issued to investors of the Convertible Notes a
total
amount of $500,000 in exchange for total proceeds of $460,000. The proceeds
that
the Company received were net of related fees and costs of $40,000.
The
Company 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 L) 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
March 31, 2007, the Company issued to investors of the Convertible Notes a
total
amount of $500,000 in exchange for total proceeds of $490,000. The proceeds
that
the Company received were net of related fees and costs of $10,000.
The
Company 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 L) 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.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
B -
NOTES PAYABLE AND CONVERTIBLE DEBENTURES (continued)
As
of
March 31, 2007, 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 $600,0000 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% 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
March 31, 2007, 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 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 March 31, 2007 and December 31,
2006,
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 $2,035,074 and $2,182,308 as of March 31, 2007 and December
31, 2006, respectively.
|
The
following table summarizes the various components of the convertible debentures
as of March 31, 2007 and December 31, 2006:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
Convertible
debentures
|
|
$
|
2,037,574
|
|
$
|
2,184,808
|
|
Warrant
liability
|
|
|
1,112,503
|
|
|
2,759,307
|
|
Derivative
liability
|
|
|
6,448,614
|
|
|
8,201,086
|
|
|
|
|
9,598,691
|
|
|
13,145,201
|
|
Cumulative
adjustment of derivative and warrant liability to fair
value
|
|
|
(1,181,117
|
)
|
|
(4,580,393
|
)
|
Cumulative
unrealized loss relating to conversion of convertible notes to common
shares charged to interest expense
|
|
|
(1,446,642
|
)
|
|
(898,313
|
)
|
Cumulative
accretion of principal related to convertible debentures
|
|
|
(2,035,074
|
)
|
|
(2,182,308
|
)
|
|
|
$
|
4,935,858
|
|
$
|
5,484,187
|
|
NOTE
C-WARRANT LIABILITY
Total
warrant liability as of March 31, 2007 and December 31, 2006 are comprised
of
the following:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
Fair
value of warrants relating to convertible debentures
|
|
$
|
1,112,503
|
|
$
|
2,759,305
|
|
Fair
value of other outstanding warrants
|
|
|
70,216
|
|
|
194,775
|
|
Total
|
|
$
|
1,182,719
|
|
$
|
2,954,080
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
D -
NOTE PAYABLE
Note
payable is comprised of the following:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
Note
payable, 24% interest per annum; due 90 days, secured by specific
accounts
receivables
|
|
$
|
21,292
|
|
$
|
47,399
|
|
NOTE
E - NOTES AND CONVERTIBLE NOTES PAYABLE-RELATED PARTY
Notes
payable-related party is comprised of the following:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
Notes
payable, 12% per annum; due on demand; unsecured
|
|
$
|
168,245
|
|
$
|
102,245
|
|
|
|
|
|
|
|
|
|
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
|
|
|
100,567
|
|
|
|
|
520,162
|
|
|
454,162
|
|
Less:
current maturities:
|
|
|
(520,162
|
)
|
|
(454,162
|
)
|
Long
term portion:
|
|
$
|
-
|
|
$
|
-
|
|
NOTE
F -STOCKHOLDER'S EQUITY
Series
A - Convertible Preferred stock
The
Company has also authorized 5,000,000 shares of Preferred Stock, with a par
value of $.001 per share.
On
December 30, 2003, the Company filed a Certificate of Designation creating
a
Series A Convertible Preferred Stock classification for 200 shares.
The
Series A Preferred stated conversion price of $.10 per shares is subject to
certain anti-dilution provisions in the event the Company issues shares of
its
common stock or common stock equivalents below the stated conversion price.
Changes to the conversion price are charged to operations and included in
unrealized gain (loss) relating to adjustment of derivative and warrant
liability to fair value of underlying securities.
In
December, 2003, the Company issued 155 shares of its Series A Preferred stock,
valued at $5,000 per share. The stock has a stated value of $5,000 per share
and
a conversion price of $0.10 per share and warrants to purchase an aggregate
of
15,500,000 shares of our common stock.
In
May,
2004, the Company issued 15.861 shares of its Series A Preferred stock, valued
at $5,000 per share. The stock has a stated value of $5,000 per share and a
conversion price of $0.10 per share and warrants to purchase an aggregate of
1,600,000 shares of our common stock.
In
the
year ended December 31, 2004, 7 of the Series A Preferred shareholders exercised
the conversion right and exchanged 19 shares of Series A Preferred for 950,000
shares of the Company's common stock.
In
the
year ended December 31, 2005, 20 of the Series A Preferred shareholders
exercised the conversion right and exchanged 92 shares of Series A Preferred
for
4,600,000 shares of the Company's common stock.
In
the
year ended December 31, 2006, 9 of the Series A Preferred shareholders exercised
the conversion right and exchanged 20.88 shares of Series A Preferred for
1,019,032 shares of the Company’s common stock.
In
the
three months ended March 31, 2007, 2 of the Series A Preferred shareholders
exercised the conversion right and exchanged 10 shares of Series A Preferred
for
500,000 shares of the Company’s common stock.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Series
A - Convertible Preferred stock (continued)
The
holders of the Series A Preferred shall have the right to vote, separately
as a
single class, at a meeting of the holders of the Series A Preferred or by such
holders' written consent or at any annual or special meeting of the stockholders
of the Corporation on any of the following matters: (i) the creation,
authorization, or issuance of any class or series of shares ranking on a parity
with or senior to the Series A Preferred with respect to dividends or upon
the
liquidation, dissolution, or winding up of the Corporation, and (ii) any
agreement or other corporate action which would adversely affect the powers,
rights, or preferences of the holders of the Series A Preferred.
The
holders of record of the Series A Preferred shall be entitled to receive
cumulative dividends at the rate of twelve percent per annum (12%) on the face
value ($5,000 per share) when, if and as declared by the Board of Directors,
if
ever. All dividends, when paid, shall be payable in cash, or at the option
of
the Company, in shares of the Company’s common stock. Dividends on shares of the
Series A Preferred that have not been redeemed shall be payable quarterly in
arrears, when, if and as declared by the Board of Directors, if ever, on a
semi-annual basis. No dividend or distribution other than a dividend or
distribution paid in Common Stock or in any other junior stock shall be declared
or paid or set aside for payment on the Common Stock or on any other junior
stock unless full cumulative dividends on all outstanding shares of the Series
A
Preferred shall have been declared and paid. These dividends are not recorded
until declared by the Company. As of the period ended March 31, 2007, $0 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 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.
Until
November 2006 (expiration of the warrants), the Company was required to record
a
liability relating to the detachable warrants as described in FAS 133, EITF
98-5
and 00-27, and APB 14. As such:
|
·
|
Subsequent
to the initial recording, the increase or decrease in the fair value
of
the detachable warrants, determined under the Black- Scholes option
pricing formula, were accrued as adjustments to the liabilities until
their expiration in November 2006.
|
|
·
|
The
expense relating to the increase or decrease in the fair value of
the
Company's stock reflected in the change in the fair value of the
warrants
(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
Company recorded an Unrealized Gain (Loss) on the change in fair value of these
detachable warrants of $-0- and $426,507 for the three months March 31, 2007
and
2006, respectively.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Series
B - Convertible Preferred stock
On
February 19, 2004, the Company filed a Certificate of Designation creating
a
Series B Convertible Preferred Stock classification for 800,000
shares.
In
January, 2004, the Company issued 800,000 shares of its Series B Preferred
in
lieu of certain accrued management service fees payable and notes payable
including interest payable thereon totaling $800,000 to officers of the company.
The shares of the Series B Preferred are non voting and convertible, at the
option of the holder, into common shares at $0.10 per share per share. The
shares issued were valued at $1.00 per share, which represented the fair value
of the common stock the shares are convertible into. In connection with the
transaction, the Company recorded a beneficial conversion discount of $800,000
-
preferred dividend relating to the issuance of the convertible preferred stock.
None of the Series B Preferred shareholders have exercised their conversion
right and there are 800,000 shares of Series B Preferred shares issued and
outstanding at March 31, 2007.
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.
In
December 2006, the Company issued 100,000 shares of its Series C Preferred
stock
in conjunction with the acquisition of SPE Technologies, Inc. The shares of
the
Series C Preferred are non voting and convertible, at the option of the holder,
into common shares one year from issuance. The number of common shares to be
issued per Series C share is adjusted based on the average closing bid price
of
the previous ten days prior to the date of conversion based on divided into
$25.20 The shares issued were valued at $25.20 per share, which represented
the
fair value of the common stock the shares are convertible into. None of the
Series C Preferred shareholders have exercised their conversion right and there
are 100,000 shares of Series C Preferred shares issued and outstanding at March
31, 2007.
In
January 2007, the Company issued 50,000 shares of its Series C Preferred stock
in conjunction with the acquisition of Hydrid Lighting 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 $15.37 The shares issued were valued at $15.37 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 50,000 shares of Series C Preferred shares issued and
outstanding at March 31, 2007.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Series
C - Convertible Preferred stock (continued)
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 and $15.37 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 March 31, 2007 $-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 March 31, 2007 and December 31, 2006 the Company has
223,274,757
and 128,279,157 shares issued and outstanding, respectively.
During
the three months ended March 31, 2007,
holders
converted 10 shares of preferred stock - Class A into 500,000 shares of common
stock. Each share of preferred stock is convertible into 50,000 shares of common
stock.
In
January 2007, the Company issued 25,564,000 shares of its common stock on
conversion of $247,496 of convertible debentures.
In
January 2007, the Company issued 26,500,000 shares of its common stock in
connection with the acquisition of Hybrid Lighting Technologies,
Inc.
In
February 2007, the Company issued 24,309,800 shares of its common stock on
conversion of $184,592 of convertible debentures.
In
March
2007, the Company issued 18,021,800 shares of its common stock on conversion
of
$116,242 of convertible debentures.
NOTE
G -STOCK OPTIONS AND WARRANTS
Class
A Warrants
The
following table summarizes the changes in warrants outstanding and related
prices for the shares of the Company’s common stock issued to shareholders at
March 31, 2007:
Exercise
Price
|
Number
Outstanding
|
Warrants
Outstanding
Weighted
Average
Remaining
Contractual
Life
(years)
|
Weighted
Average
Exercise
price
|
Number
Exercisable
|
Warrants
Exercisable
Weighted
Average
Exercise
Price
|
$0.01
|
100,000
|
1.75
|
$0.01
|
100,000
|
$0.01
|
0.03
|
26,500,000
|
3.17
|
0.03
|
26,500,000
|
0.03
|
0.06
|
45,000,000
|
6.53
|
0.06
|
45,000,000
|
0.03
|
0.10
|
20,641,500
|
5.67
|
0.10
|
20,641,500
|
0.10
|
0.20
|
1,845,000
|
0.50
|
0.20
|
1,845,000
|
0.20
|
0.25
|
1,758,500
|
1.75
|
0.25
|
1,758,500
|
0.25
|
0.50
|
2,300,000
|
2.15
|
0.50
|
2,300,000
|
0.50
|
1.05
|
1,750,000
|
1.75
|
1.05
|
1,750,000
|
1.05
|
Transactions
involving the Company’s warrant issuance are summarized as follows:
|
|
Number
of Shares
|
|
Weighted
Average
Price
Per Share
|
|
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
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at March 31, 2007
|
|
|
99,895,000
|
|
|
0.09
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
G -STOCK OPTIONS AND WARRANTS (continued)
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 March 31, 2007, following warrants were issued in connection with
services rendered:
Number
of warrants
|
|
purchase
price per share:
|
|
Term
(years)
|
1,000,000
|
|
$0.10
|
|
2.75
|
Employee
Stock Options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to employees of
the
Company under a non-qualified employee stock option plan at March 31, 2007:
Options
Outstanding
|
|
Options
Exercisable
|
|
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
$0.2125
|
|
|
2,000,000
|
|
|
6.71
|
|
|
|
|
|
2,000,000
|
|
|
$0.2125
|
|
0.2125
|
|
|
2,000,000
|
|
|
7.12
|
|
|
0.2125
|
|
|
2,000,000
|
|
|
0.2125
|
|
0.022
|
|
|
20,500,000
|
|
|
9.62
|
|
|
0.022
|
|
|
20,500,000
|
|
|
0.022
|
|
0.0295
|
|
|
4,000,000
|
|
|
8.10
|
|
|
0.0295
|
|
|
4,000,000
|
|
|
0.0295
|
|
0.04
|
|
|
14,430,000
|
|
|
9.32
|
|
|
0.04
|
|
|
14,430,000
|
|
|
0.04
|
|
0.10
|
|
|
9,502,307
|
|
|
7.01
|
|
|
0.10
|
|
|
9,502,307
|
|
|
0.10
|
|
Transactions
involving stock options issued to employees are summarized as
follows:
|
|
Number
of Shares
|
|
Weighted
Average
Price
Per Share
|
|
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
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
Outstanding
at March 31, 2007
|
|
|
52,432,307
|
|
$
|
0.0562
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
H -RELATED
PARTY TRANSACTIONS
From
time
to time, the Company's principal officers have advanced funds to the Company
for
working capital purposes in the form of unsecured promissory notes, accruing
interest at 10% to 12% per annum. As of March 31, 2007and December 31, 2006
,
the balance due to the officers was $520,162 and $454,162, respectively.
NOTE
I -COMMITMENTS
AND CONTINGENCIES
Consulting
Agreements
The
Company has consulting agreements with outside contractors, certain of whom
are
also Company stockholders. The Agreements are generally for a term of 12 months
from inception and renewable automatically from year to year unless either
the
Company or Consultant terminates such engagement by written notice.
Operating
Lease Commitments
The
Company leases office space in Durham, NC on a five year lease expiring April,
2008 for an annualized rent payment of $43,127. Additionally the Company leases
warehouse space on a month to month basis for $550 per month. At March 31,
2007,
schedule of the future minimum lease payments is as follows:
2007
|
|
|
$43,127
|
|
2008
|
|
|
14,376
|
|
2009
|
|
|
-
|
|
2010
|
|
|
-
|
|
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 financial position,
results of operations or liquidity. There was no outstanding litigation as
of
March 31, 2007.
NOTE
J - BUSINESS CONCENTRATION
Sales
to
3 major customers approximated $11,646 or 23% and 18,900 or 40% of total sales
for the three months ended March 31, 2007 and 2006, respectively.
Purchases
from the Company's 3 major suppliers accounted for 43% and 90% of total
purchases for the three months ended March 31, 2007 and 2006,
respectively.
NOTE
K- 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 financial
statements, as of March 31, 2007, the Company incurred accumulated losses of
$23,413,674. The Company’s current liabilities exceeded its current assets by
$2,816,592 as of March 31, 2007. 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.
The
Company's existence is dependent upon management's ability to develop profitable
operations and resolve its liquidity problems. Management anticipates the
Company will attain profitable status and improve its liquidity through the
continued developing, marketing and selling of its services and additional
equity investment in the Company. The accompanying financial statements do
not
include any adjustments that might result should the Company be unable to
continue as a going concern.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2007
(Unaudited)
NOTE
L - SUBSEQUENT EVENTS
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 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.
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
2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. There are several important factors that could cause actual results
to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. The Company has sought to
identify the most significant risks to its business, but cannot predict whether
or to what extent any of such risks may be realized nor can there be any
assurance that the Company has identified all possible risks that might arise.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company's stock. The following
discussion and analysis should be read in conjunction with the financial
statements of the Company and notes thereto. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment from our Management.
Overview
We
are in
the have been principally devoted to designing, developing and marketing
advanced lighting systems that utilize white (and other) light emitting diodes
as illumination elements.
We
are
developing and marketing new product applications of solid-state diodal
illumination (TM) that demonstrate added value over traditional lighting
systems. Using proprietary technology, we are creating a family of products
for
task and accent lighting, emergency and security lighting, and specialized
lighting systems for military and Homeland Security. Our solid-state lighting
technology offers extended light life and greater cost effectiveness than other
existing forms of illumination. We are expanding our marketing activity into
channels of retail, commercial, institutional and military sales.
With
our
task and accent lighting, the target markets include kitchen and bath cabinet
manufacturers, designer and installation contractors for the residential market.
In the commercial markets, our task and accent lighting products and emergency
and security lighting products address the lighting needs in hotels, hospitals,
nursing homes, airports, shopping centers and multiple family complexes;
long-term evacuation solutions for theaters, office and public buildings;
reduced maintenance cost solutions for property managers as applied to walkway,
corridor or landscape lighting. For our retail products, our target customers
include the home improvement and consumer goods retailers. For the military
and
Homeland Security products, our target markets include all branches of the
military and all government organizations proving homeland security services
such as border control and airport security.
On
January 16, 2007, we, along with UTEK Corporation, a specialty finance company
focused on technology transfer, announced that we had acquired Hybrid Lighting
Technologies, Inc., a wholly owned subsidiary of UTEK in a restricted stock
transaction. Hybrid Lighting Technologies, Inc. holds a worldwide exclusive
license for an inorganic light emitting source for LEDs developed at the
University of California-Santa Barbara. The technology provides for the method
and practice for creating a white or multiple colored lighting source by
combining the photoluminescence from polymer and/or organic films with emissions
from an electrically-powered, solid state, inorganic light source.
On
January 18, 2007, we announced today that we intend to introduce breakthrough
lighting products created through the combination of the hybrid organic /
inorganic white and multi-color lighting technology acquired from the University
of California-Santa Barbara with the Scattered Photon ExtractionTM
(SPE) technology acquired from Rensselaer Polytechnic Institute. Cyberlux 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.
Traditional
LED lighting sources produce light when a solid-state material emits a photon
through a phosphor downconversion material to create white and multi-color
light. With HWL and HML, the phosphor is replaced with a less costly, more
efficient polymer or organic film downconversion material. In addition, the
use
of the SPE technology further improves the light output and efficacy of the
resulting light source. Because of the fundamental difference in the nature
of
the HWL and HML technologies, We intend to broadly market the technology across
large lighting industry market segments through OEM licensing and our product
solutions for direct and indirect task and accent lighting applications,
indoor/outdoor down-lighting applications, residential and office lighting
applications, and military and Homeland Security applications.
We
acquired the worldwide exclusive rights to patent 5,966,393 “Hybrid
Light-Emitting Sources for Efficient and Cost Effective White Lighting and
for
Full-Color Applications” from the University of California - Santa Barbara
through a restricted stock transaction between Cyberlux Corporation, UTEK and
the University, which include capital for the acceleration of the technology
commercialization. The technology patent defines the method and practice for
creating a white or multi-colored lighting source by combining the
photoluminescence of polymers and/or organic films with photon emissions from
a
solid-state inorganic light source. The principle inventors include Nobel
Laureate Dr. Alan Heeger and Dr. Steven DenBaars, Professor of Materials and
Co-Director of the Solid-State Lighting Center at the University of
California-Santa Barbara, who will advise us on the hybrid organic/inorganic
lighting technology commercialization.
Earlier
in November 2006, we acquired the worldwide exclusive rights to the pending
patents for the Scattered Photon ExtractionTM
technology and methods developed at Rensselaer Polytechnic Institute. The SPE
technology enables light-emitting sources to operate at a higher luminous
efficacy where traditional phosphor, or downconversion materials such as
photoluminescence polymers and/or organic films as defined by patent 5,966,393,
are placed at locations remote from the photon-emitting solid-state inorganic
light source. Specifically, the use of the SPE methods result in a greater
than
60 % improvement in light output and efficacy compared to standard commercial
white LEDs.
On
January 25, 2007, we announced that we had completed development of the next
generation of our WatchDog Portable Covert Illumination System for the United
States Air Force and shipped the next order to the Air Mobility Battlelab.
The
Air
Mobility Battlelab explores high-payoff concepts, technologies, and tactics
to
advance the distinctive capabilities of Rapid Global Mobility and Agile Combat
Support. The next generation WatchDog advanced solid-state LED security lighting
system was developed by Cyberlux in conjunction with the Air Mobility Battlelab
for the United States Air Force. Upon completion of the new system capabilities,
the WatchDog system was shipped to Fort Dix Air Force Base for use within the
USAF Air Mobility Command.
The
second generation WatchDog system provides security lighting for an exterior
boundary of 600 x 600 feet with either visible light or covert infrared light
that is compatible with night-vision goggles (NVGs), more than double the first
generation system. It was designed to protect military assets on the ground,
such as an airplane, by creating a 'lightless' zone around the asset while
illuminating the surrounding protection boundary. In covert illumination mode,
the system increases the visibility of NVGs by almost 6- fold.
The
additional order for the second generation WatchDog system, which costs $15,112
on the GSA contract, was placed by the Air Mobility Battlelab for field
deployment within various USAF Commands.
As
part
of the procurement process, 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.
We
were
one of 26 competing companies to submit proposals to develop a lightweight,
portable lighting system for both visible lighting and infrared lighting
compatible with night vision goggles. Cyberlux was selected during the USAF
competitive review process to develop the Portable Covert Illumination System,
which weighs less than 50 pounds, including batteries. The system can easily
be
carried to remote locations and deployed quickly, and with highly efficient
LED
technology, the system can provide lighting for several days with a single
battery charge.
On
February 12, 2007, we announced that our unique BrightEye VaC™ System was now
fully operational and had been delivered to the United States Air Force (USAF).
The USAF Air Mobility Battlelab (AMB) selected Cyberlux and awarded the Company
a contract for the covert and visible lighting system. Our products meet the
important needs of the United States military defense initiatives of rapid
global mobility and agile combat readiness.
On
March
21, 2007, we had successfully completed the field testing of the new BrightEye
high-performance solid-state LED lighting system conducted by the United States
Air Force Air Mobility Battlelab at Fort Huachuca, AZ. The new BrightEye VaC
Portable Illumination System is the latest product developed by us to fulfill
the recent USAF contract for portable, battery-powered visible and covert
lighting systems.
As
part
of the new product introduction process, the USAF Air Mobility Battlelab
conducts rigorous field testing of new products in environments that simulate
actual usage. The BrightEye lighting system was tested in both visible and
covert lighting modes that demonstrated an advanced security lighting capability
for force protection or first responders; operated as an equipment maintenance
illumination system; and performed as a ground operations lighting source for
a
C-130 aircraft. All testing scenarios exceeded Air Mobility Battlelab
requirements, including operating surface illumination, system battery-power
runtime, deployment set-up times and system weight.
The
illumination capacity of the BrightEye was measured during the field test by
the
research unit of the USAF. The Air Force Research Laboratory determined that
two
BrightEye systems working in tandem will provide an equivalent level of
operational lighting as the currently specified FL-1D floodlights that are
used
across all Armed Services.
The
BrightEye VaC Portable Illumination System is designed as a portable visible
and
infrared night-vision compatible illumination system for first responders,
force
protection, aircraft maintenance, expeditionary airbase protection, general
mission lighting and other portable, high-intensity lighting applications.
Contained in an easily deployed wheeled carrying case and using advanced optics,
battery power and advanced solid-state lighting technology, the BrightEye system
is capable of eliminating the space-consuming bulk, noise and energy consumption
issues associated with the current generator-powered incandescent lighting
systems. Moreover, the BrightEye provides both standard white lighting and
covert night-vision compatible lighting which is not available in the
traditional FL-1D floodlight.
Results
of Operations
Three
months ended March 31, 2007 compared to the Three months ended March 31,
2006
REVENUES
Revenues
for the three months ended March 31, 2007 were $49,462 as compared to $47,200
for the same period last year.
Revenue
is basically unchanged from the prior year
OPERATING
EXPENSES
Operating
expenses for the three months ended March 31, 2007 were $962,927 as compared
to
$1,393,820 for the same period ended March 31, 2006. Included in the three
months ended March 31, 2007 are $69,713 in expenses for market development
and
literature. This compares to $38,826 for the three months ended March 31, 2006.
Additionally we incurred non cash expenses relating to the issuance of common
stock for services ( a non cash payment) $-0-compared to $762,250 for the same
period last year. We also begin the amortization of our recently acquired
patents with a $131,473 charge to operations as compared to $-0- the prior
year.
We
reported an unrealized gain for the change in fair value or warrants and debt
derivatives of $3,523,832 as compared to $2,323,186. Although the change of
$1,200,646 is unrelated to our operating activities, the increase is included
in
our reported quarterly net income.
As
a
result of limited capital resources and minimal revenues from operations from
its inception, we have relied on the issuance of equity securities to
non-employees in exchange for services. Our management enters into equity
compensation agreements with non-employees if it is in our best interest under
terms and conditions consistent with the requirements of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation. In order to conserve
our limited operating capital resources, we anticipate continuing to compensate
non-employees for services during the next twelve months. This policy may have
a
material effect on our results of operations during the next twelve
months.
Liquidity
and Capital Resources
As
of
March 31, 2007, we had a working capital deficit of $2,816,592. This compares
to
a working capital deficit of $2,571,943 as of December 31, 2006. As a result
of
our operating losses for the three months ended March 31, 2007, we generated
a
cash flow deficit of $547,856 from operating activities. Cash flows provided
by
investing activities was $138,684 for the three months ended March 31, 2007
primarily from the cash received with the acquisition of Hybrid Lighting
Technologies, Inc . Cash flows from financing activities provided $39,893 from
the borrowing on a long term basis of $66,000, net of repayments of $26,107
for
the three months ended March 31, 2007.
While
we
have raised capital to meet our working capital and financing needs in the
past,
additional financing is required in order to meet our current and projected
cash
flow deficits from operations and development.
By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits through the next twelve months. However, if thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
Our
independent certified public accountant has stated in their report included
in
our December 31, 2006, Form 10-KSB that we have incurred operating losses in
the
last two years, and that we are dependent upon management's ability to develop
profitable operations. These factors among others may raise substantial doubt
about our ability to continue as a going concern.
April
2007 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on April 18, 2007, for the sale of
(i)
$400,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on April 18, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
May
2007 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on May 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.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing inventory.
Critical
Accounting Policies
In
February 2006, the FASB issued SFAS No. 155. “Accounting
for certain Hybrid Financial Instruments an amendment of FASB Statements No.
133
and 140,”
or SFAS
No. 155. SFAS No. 155 permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips
are
not subject to the requirements of Statement No. 133, establishes a requirement
to evaluate interests in securitized financial assets to identify interests
that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. We do not expect the adoption of SFAS 155 to have a material
impact on our consolidated financial position, results of operations or cash
flows.
In
March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability
each
time it undertakes an obligation to service a financial asset by entering into
a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The adoption of SFAS No.156
did
not have a material impact on the Company's financial position and results
of
operations.
In
July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting
for uncertainty in Income Taxes”.
FIN 48
clarifies the accounting for Income Taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. It also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition and clearly scopes income taxes out of SFAS 5,
“Accounting
for Contingencies”. FIN
48 is
effective for fiscal years beginning after December 15, 2006. We have not yet
evaluated the impact of adopting FIN 48 on our consolidated financial position,
results of operations and cash flows.
In
September 2006 the Financial Account Standards Board (the “FASB”) issued its
Statement of Financial Accounting Standards 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application of
this
Statement will change current practice. FAS 157 effective date is for fiscal
years beginning after November 15, 2007. The Company does not expect adoption
of
this standard will have a material impact on its financial position, operations
or cash flows.
Non-GAAP
Financial Measures
The
financial statements appearing in this quarterly report on Form 10-QSB do not
contain any financial measures which are not in accordance with generally
accepted accounting procedures.
Inflation
In
the
opinion of management, inflation has not had a material effect on our financial
condition or results of its operations.
Off-Balance
Sheet Arrangements
We
do not
maintain off-balance sheet arrangements nor do we participate in non-exchange
traded contracts requiring fair value accounting treatment.
Product
Research and Development
We
anticipate incurring approximately $500,000 in research and development
expenditures in connection with the development of our portable boundary
lighting system, Aeon cabinet lighting and RelyOn Power Light Plant 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.
Acquisition
or Disposition of Plant and Equipment
We
do not
anticipate the sale of any significant property, plant or equipment during
the
next twelve months. We do not anticipate the acquisition of any significant
property, plant or equipment during the next 12 months.
ITEM
3.
CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as
of March 31, 2007. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.
Based
on our evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting.
We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes
may
include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-QSB that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
From
time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. 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
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During
the three months ended March 31, 2007,
we
issued 500,000 shares of common stock for the conversion of 10 shares of Class
A
preferred stock. The shares were issued pursuant to an exemption under Section
4(2) of the Securities Act of 1933.
In
January 2007, we issued 26,500,000 shares of common stock and 50,000 shares
of
Series C convertible preferred stock in connection with the acquisition of
Hybrid Lighting Technologies, Inc. The shares were issued pursuant to an
exemption under Section 4(2) of the Securities Act of 1933.
Item
3. Defaults Upon Senior Securities.
We
are
currently in default pursuant to secured convertible notes issued pursuant
to
securities purchase agreements dated September 23, 2004, April 22, 2005 and
October 24, 2005, as amended (the "SPAs"). Pursuant to the SPAs, we are
obligated to have two times the number of shares that the secured convertible
notes are convertible into registered pursuant to an effective registration
statement. We filed a registration statement on Form SB-2, as amended, that
was
declared effective by the Securities and Exchange Commission on November 12,
2004. As a result of the drop in our stock price, the shares of common stock
underlying the secured convertible notes that were registered on the SB-2 are
not sufficient to cover the conversion of the secured convertible notes issued
pursuant to the September 23, 2004 SPA.
In
addition, pursuant to the April 22, 2005 and October 24, 2005 SPA, we were
required to file a registration statement within 45 days of closing and have
the
registration statement effective within 105 days of closing. On May 20, 2005,
we
filed a registration statement on Form SB-2 registering shares underlying the
convertible notes. On September 16, 2006, we withdrew the registration
statement.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer)
|
SIGNATURES
In
accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
CYBERLUX
CORPORATION |
|
|
Date:
May 21, 2007
|
By: /s/
DONALD F. EVANS
|
|
Donald
F. Evans
|
|
Chief
Executive Officer (Principal Executive Officer) and Chairman of the
Board
of Directors
|
|
|
Date:
May 21, 2007
|
By:/s/
DAVID D. DOWNING
|
|
David
D. Downing
|
|
Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|