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 September 30,
2008.
|
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 September 30, 2008
Commission
file number 000-33415
CYBERLUX
CORPORATION
(Name
of
Small Business Issuer in Its Charter)
Nevada
|
91-2048978
|
(State
of Incorporation)
|
(IRS
Employer Identification No.)
|
4625
Creekstone Drive
Suite
130
Research
Triangle Park
Durham,
NC 27703
(Address
of Principal Executive Offices)
(919)
474-9700
Issuer's
Telephone Number
Indicate
by check mark whether the issuer (1) filed all reports required to be filed
by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past
90 days.
Yes
x
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated Filer o accelerated
filer o non-accelerated
filer o Smaller
reporting Company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No
x
Number
of
shares outstanding of the issuer’s Common Stock as of November 14, 2008:
766,426,120
CYBERLUX
CORPORATION
Quarterly
Report on Form 10-Q for the
Quarterly
Period Ending September 30, 2008
Table
of
Contents
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
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Condensed
Consolidated Balance Sheets:
|
|
|
|
|
September
30, 2008 (Unaudited) and December 31, 2007 (Audited)
|
3
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Losses:
|
|
|
|
|
Three
and Nine months Ended September 30, 2008 and 2007
(Unaudited)
|
4
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows:
|
|
|
|
|
Nine
months Ended September 30, 2008 and 2007 (Unaudited)
|
5
|
|
|
|
|
|
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Information:
|
|
|
|
|
September
30, 2008
|
6-36
|
|
|
|
|
|
|
Item
2.
|
|
Management
Discussion and Analysis
|
37
|
|
|
|
|
Item
3.
|
|
Controls
and Procedures
|
43
|
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
44
|
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
44
|
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
45
|
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
45
|
|
|
|
|
|
|
Item
5.
|
Other
Information
|
45
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
45
|
|
|
|
|
|
Signatures
|
|
|
46
|
CYBERLUX
CORPORATION
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
290
|
|
$
|
626
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$1,803
|
|
|
53,927
|
|
|
77,815
|
|
Inventories,
net of allowance of $43,333
|
|
|
54,251
|
|
|
157,379
|
|
Other
current assets
|
|
|
17,500
|
|
|
10,000
|
|
Total
current assets
|
|
|
125,968
|
|
|
245,820
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $189,338
and
$169,171, respectively
|
|
|
54,440
|
|
|
74,607
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Deposits
|
|
|
24,400
|
|
|
24,400
|
|
Patents
and development costs, net of accumulated amortization of $1,214,056
and
$819,639, respectively
|
|
|
2,760,918
|
|
|
3,155,335
|
|
Total
other assets
|
|
|
2,785,318
|
|
|
3,179,735
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,965,726
|
|
$
|
3,500,162
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
$
|
7,137
|
|
$
|
33,178
|
|
Accounts
payable
|
|
|
1,050,295
|
|
|
733,538
|
|
Accrued
liabilities
|
|
|
2,978,209
|
|
|
2,345,133
|
|
Short-term
notes payable - related parties
|
|
|
418,823
|
|
|
397,064
|
|
Short-term
notes payable
|
|
|
39,804
|
|
|
196,067
|
|
Short-term
convertible notes payable
|
|
|
4,805,175
|
|
|
3,050,510
|
|
Total
current liabilities
|
|
|
9,299,443
|
|
|
6,755,490
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Derivative
liability relating to convertible debentures
|
|
|
23,899,079
|
|
|
17,334,621
|
|
Warrant
liability relating to convertible debentures
|
|
|
977,938
|
|
|
4,509,538
|
|
Total
long-term liabilities
|
|
|
24,877,017
|
|
|
21,844,159
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
34,176,460
|
|
|
28,599,649
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Series A convertible preferred stock, $0.001 par value; 200 shares
designated, 26.9806 and 28.9806 issued and outstanding as of September
30,
2008 and December 31, 2007; liquidation preference of $219,892 and
$231,845 as of September 30, 2008 and December 31, 2007,
respectively
|
|
|
134,900
|
|
|
144,900
|
|
|
|
|
|
|
|
|
|
DEFICIENCY
IN STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Class
B convertible preferred stock, $0.001 par value, 3,650,000 shares
designated; 3,650,000 shares issued and outstanding for September
30, 2008
and December 31, 2007; liquidation preference of $3,650,000 as of
September 30, 2008 and December 31, 2007
|
|
|
3,650
|
|
|
3,650
|
|
Class
C convertible preferred stock, $0.001 par value, 700,000 shares
designated; 150,000 shares issued and outstanding for September 30,
2008
and December 31, 2007, liquidation preference of $3,910,490 and
$3,823,230, as of September 30, 2008 and December 31, 2007,
respectively
|
|
|
150
|
|
|
150
|
|
Common
stock, $0.001 par value, 900,000,000 shares authorized; 717,713,999and
552,342,881 shares issued and outstanding as of September 30, 2008
and
December 31, 2007
|
|
|
717,714
|
|
|
552,343
|
|
Additional
paid-in capital
|
|
|
17,162,032
|
|
|
15,286,709
|
|
Accumulated
deficit
|
|
|
(49,229,180
|
)
|
|
(41,087,239
|
)
|
Deficiency
in stockholders' equity
|
|
|
(31,345,634
|
)
|
|
(25,244,387
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and (deficiency) in stockholders' equity
|
|
$
|
2,965,726
|
|
$
|
3,500,162
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
|
|
|
CYBERLUX
CORPORATION
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
Nine
months ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
REVENUE:
|
|
$
|
69,256
|
|
$
|
298,459
|
|
$
|
401,162
|
|
$
|
521,814
|
|
Cost
of goods sold
|
|
|
(47,295
|
)
|
|
(227,932
|
)
|
|
(267,815
|
)
|
|
(402,608
|
)
|
Gross
margin (loss)
|
|
|
21,961
|
|
|
70,527
|
|
|
133,347
|
|
|
119,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,209
|
|
|
5,332
|
|
|
20,167
|
|
|
16,981
|
|
Research
and development
|
|
|
—
|
|
|
42,466
|
|
|
1,386
|
|
|
121,951
|
|
General
and administrative expenses
|
|
|
1,351,634
|
|
|
629,606
|
|
|
2,890,873
|
|
|
2,865,387
|
|
Total
operating expenses
|
|
|
1,357,843
|
|
|
677,404
|
|
|
2,912,426
|
|
|
3,004,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM OPERATIONS
|
|
|
(1,335,882
|
)
|
|
(606,877
|
)
|
|
(2,779,079
|
)
|
|
(2,885,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
forgiveness
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
381,652
|
|
Unrealized
gain (loss) relating to adjustment of derivative and warrant liability
to
fair value of underlying securities
|
|
|
2,754,714
|
|
|
(56,164,992
|
)
|
|
(3,032,859
|
)
|
|
(65,227,499
|
)
|
Interest
expense, net
|
|
|
(517,553
|
)
|
|
(631,731
|
)
|
|
(1,887,066
|
)
|
|
(1,829,729
|
)
|
Debt
acquisition costs
|
|
|
9,289
|
|
|
(34,381
|
)
|
|
(442,423
|
)
|
|
(77,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) before provision for income taxes
|
|
|
910,568
|
|
|
(57,437,981
|
)
|
|
(8,141,427
|
)
|
|
(69,638,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes (benefit)
|
|
|
—
|
|
|
—
|
|
|
515
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) AVAILABLE TO COMMON STOCKHOLDERS
|
|
$
|
910,568
|
|
$
|
(57,437,981
|
)
|
$
|
(8,141,942
|
)
|
$
|
(69,638,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-basic
|
|
|
667,942,486
|
|
|
494,297,678
|
|
|
602,506,202
|
|
|
327,087,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding-fully diluted
|
|
|
Note
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share-basic
|
|
$
|
0.00
|
|
$
|
(0.12
|
)
|
$
|
(0.01
|
)
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share-fully diluted
|
|
|
Note
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
$
|
24,000
|
|
$
|
24,000
|
|
$
|
72,000
|
|
$
|
72,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
|
|
|
|
|
|
CYBERLUX
CORPORATION
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30,
|
|
|
|
2008
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income (loss) available to common stockholders
|
|
$
|
(8,141,942
|
)
|
$
|
(69,638,440
|
)
|
Adjustments
to reconcile net income (loss) to cash used in operating
activities
|
|
|
|
|
|
|
|
Depreciation
|
|
|
20,167
|
|
|
16,981
|
|
Amortization
|
|
|
394,417
|
|
|
394,417
|
|
Common
stock issued in connection issuance of debt
|
|
|
385,108
|
|
|
—
|
|
Common
stock issued in connection with services rendered
|
|
|
878,800
|
|
|
118,110
|
|
Preferred
stock issued as compensation
|
|
|
—
|
|
|
370,500
|
|
Gain
on repurchase and cancellation of warrants
|
|
|
|
|
|
(381,652
|
)
|
Beneficial
conversion feature relating to convertible debenture
|
|
|
184,736
|
|
|
—
|
|
Accretion
of convertible notes payable
|
|
|
1,254,665
|
|
|
1,408,058
|
|
Unrealized
(gain) loss on adjustment of derivative and warrant liability to
fair
value of underlying securities
|
|
|
3,032,858
|
|
|
65,227,499
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
23,888
|
|
|
85,272
|
|
Inventories
|
|
|
103,128
|
|
|
88,393
|
|
Prepaid
expenses and other assets
|
|
|
(7,500
|
)
|
|
12,543
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Cash
overdraft
|
|
|
(26,041
|
)
|
|
68,350
|
|
Accounts
payable
|
|
|
372,758
|
|
|
92,929
|
|
Accrued
liabilities
|
|
|
633,076
|
|
|
343,689
|
|
Net
cash (used in) operating activities
|
|
|
(891,882
|
)
|
|
(1,793,351
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
cash acquired in connection with acquisition of Hybrid Lighting
Technologies, Inc
|
|
|
—
|
|
|
150,000
|
|
Acquisition
of fixed assets
|
|
|
—
|
|
|
(11,314
|
)
|
Net
cash provided by (used in) investing activities:
|
|
|
—
|
|
|
138,686
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
proceeds from issuance of convertible debentures
|
|
|
500,000
|
|
|
1,000,000
|
|
Proceeds
from sale of common stock
|
|
|
526,050
|
|
|
|
|
Proceeds
from exercise of warrants
|
|
|
—
|
|
|
—
|
|
Proceeds
from sale of warrants
|
|
|
—
|
|
|
158,723
|
|
Net
proceeds (payments) from borrowing on long term basis
|
|
|
(156,263
|
)
|
|
20,290
|
|
Net
proceeds (payments) to notes payable, related parties
|
|
|
21,759
|
|
|
81,470
|
|
Net
cash provided by (used in) financing activities:
|
|
|
891,546
|
|
|
1,260,483
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(336
|
)
|
|
(394,182
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
626
|
|
|
395,812
|
|
Cash
and cash equivalents at end of period
|
|
$
|
290
|
|
$
|
1,630
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
—
|
|
$
|
—
|
|
Income
Taxes Paid
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Unrealized
(gain) loss in adjustment of derivative and warrant liability to
fair
value of underlying securities
|
|
$
|
3,032,858
|
|
$
|
65,227,499
|
|
Common
stock issued for services rendered
|
|
$
|
878,800
|
|
$
|
118,110
|
|
Preferred
stock issued as compensation
|
|
$
|
—
|
|
$
|
370,500
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
|
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES
General
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of
America for interim financial information and the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.
In
the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Accordingly,
the results from operations for the three and nine month periods ended September
30, 2008, are not necessarily indicative of the results that may be expected
for
the year ended December 31, 2008. The unaudited condensed financial statements
should be read in conjunction with the December 31, 2007 financial statements
and footnotes thereto included in the Company's Form 10-KSB for the year ended
December 31, 2007.
Business
and Basis of Presentation
Cyberlux
Corporation (the "Company") is incorporated on May 17, 2000 under the laws
of
the State of Nevada. Until December 31, 2004, the Company was a development
state enterprise as defined under Statement on Financial Accounting Standards
No.7, Development Stage Enterprises ("SFAS No.7"). The Company develops,
manufactures and markets long-term portable lighting products for commercial
and
industrial users. While the Company has generated revenues from its sale of
products, the Company has incurred expenses, and sustained losses. Consequently,
its operations are subject to all risks inherent in the establishment of a
new
business enterprise. As of September 30, 2008, the Company has accumulated
losses of $49,229,180.
The
consolidated financial statements include the accounts of its wholly owned
subsidiaries, SPE Technologies, Inc. and Hybrid Lighting Technologies, Inc.
All
significant intercompany balances and transactions have been eliminated in
consolidation.
Revenue
Recognition
Revenues
are recognized in the period that products are provided. For revenue from
product sales, the Company recognizes revenue in accordance with Staff
Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which superseded
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
("SAB101"). SAB 101 requires that four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the selling price is fixed and determinable; and
(4)
collectability is reasonably assured. Determination of criteria (3) and (4)
are
based on management's judgments regarding the fixed nature of the selling prices
of the products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund
will
be required. At September 30, 2008 and December 31, 2007, the Company did not
have any deferred revenue.
SAB
104
incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”), MULTIPLE
DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21
on
the Company’s financial position and results of operations was not
significant.
Reclassification
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
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 September 30, 2008 and
December 31, 2007, allowance for doubtful receivable was $1,803 and $8,646,
respectively.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Stock
based compensation
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R (revised 2004), Share-Based Payment" which is a revision
of
FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
approach in Statement 123R is similar to the approach described in Statement
123. However, Statement 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro-forma disclosure is no longer an
alternative. This statement does not change the accounting guidance for share
based payment transactions with parties other than employees provided in
Statement of Financial Accounting Standards No. 123(R). This statement does
not
address the accounting for employee share ownership plans, which are subject
to
AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock
Ownership Plans.” On April 14, 2005, the SEC amended the effective date of the
provisions of this statement. The effect of this amendment by the SEC is that
the Company had to comply with Statement 123R and use the Fair Value based
method of accounting no later than the first quarter of 2006. The Company
implemented SFAS No. 123(R) on January 1, 2006 using the modified
prospective method. The fair value of each option grant issued after January
1,
2006 was determined as of grant date, utilizing the Black-Scholes option pricing
model. The amortization of each option grant will be over the remainder of
the
vesting period of each option grant.
As
more
fully described in Note G, the Company granted stock options over the years
to
employees of the Company under a non-qualified employee stock option plan.
As of
September 30, 2008, 52,432,307 stock options were outstanding and exercisable.
In
prior
years, the Company applied the intrinsic-value method prescribed in Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees,” to account for the issuance of stock options to employees and
accordingly compensation expense related to employees’ stock options were
recognized in the prior year financial statements to the extent options granted
under stock incentive plans had an exercise price less than the market value
of
the underlying common stock on the date of grant.
Net
Income (loss) Per Common Share
The
Company computes earnings per share under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (“SFAS 128”). Net earnings (losses) per
common share is computed by dividing net income (loss) by the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding during the period. Dilutive common stock equivalents consist of
shares issuable upon conversion of convertible preferred shares and the exercise
of the Company's stock options and warrants (calculated using the treasury
stock
method). During the three and nine months ended September 30, 2008 and 2007,
common stock equivalents are not considered in the calculation of the weighted
average number of common shares outstanding because they would be anti-dilutive,
thereby decreasing the net loss per common share.
The
following reconciliation of net income and share amounts used in the computation
of income (loss) per share for the three months ended September 30,
2008:
|
|
Three
Months Ended
September
30, 2008
|
|
Net
income used in computing basic net income per share
|
|
$
|
910,568
|
|
Impact
of assumed assumptions:
|
|
|
|
|
Accretion
of convertible debenture charged to interest expense
|
|
|
374,575
|
|
Impact
of equity classified as liability:
|
|
|
|
|
Gain
on warrant liability marked to fair value
|
|
|
(2,754,714
|
)
|
Net
loss in computing diluted net loss per share:
|
|
$
|
(1,469,571
|
)
|
The
weighted average shares outstanding used in the basic net income per share
computations for the three months ended September 30, 2008 was 667,942,486.
In
determining the number of shares used in computing diluted loss per share,
the
Company did not add approximately 5,340,576,417 potentially dilutive securities
for the three months ended September 30, 2008 because the effect would be
anti-dilutive. 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 September 30,
2008 was $0.00.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Patents
The
Company acquired in December 2006, for $2,270,000, and January 2007, for
$1,387,000, patents in conjunction with the acquisitions of SPE Technologies,
Inc and Hybrid Lighting Technologies, Inc, respectively. The patents have an
estimated useful life of 7 years. Accordingly, the Company recorded an
amortization charge to current period earnings of $394,417 for the nine months
ended September 30, 2008 and 2007. Patents are comprised of the
following:
Description
|
|
Cost
|
|
Accumulated amortization
and impairments
|
|
Net carrying value at
September
30, 2008
|
|
Development
costs
|
|
$
|
293,750
|
|
$
|
293,750
|
|
$
|
-0-
|
|
Patents
|
|
|
2,294,224
|
|
|
573,556
|
|
|
1,720,668
|
|
Patents
|
|
|
1,387,000
|
|
|
346,750
|
|
|
1,040,250
|
|
Total
|
|
$
|
3,974,974
|
|
$
|
1,214,056
|
|
$
|
2,760,918
|
|
Derivative
Financial Instruments
The
Company's derivative financial instruments consist of embedded derivatives
related to the 10% Secured Convertible Debentures (see Note D). These embedded
derivatives include certain conversion features, variable interest features,
call options and default provisions. The accounting treatment of derivative
financial instruments requires that the Company record the derivatives and
related warrants at their fair values as of the inception date of the Note
Agreement and at fair value as of each subsequent balance sheet date. In
addition, under the provisions of EITF Issue No. 00-19, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock," as a result of entering into the Notes, the Company is
required to classify all other non-employee stock options and warrants as
derivative liabilities and mark them to market at each reporting date. Any
change in fair value inclusive of modifications of terms will be recorded as
non-operating, non-cash income or expense at each reporting date. If the fair
value of the derivatives is higher at the subsequent balance sheet date, the
Company will record a non-operating, non-cash charge. If the fair value of
the
derivatives is lower at the subsequent balance sheet date, the Company will
record non-operating, non-cash income. Conversion-related derivatives were
valued using the intrinsic method and the warrants using the Black Scholes
Option Pricing Model with the following assumptions: dividend yield of 0%;
annual volatility of 591%; and risk free interest rate from 0.98% to 2.98%.
The
derivatives are classified as long-term liabilities.
Registration
rights
In
with
raising capital through the issuance of Convertible Notes, the Company has
issued convertible debentures and warrants in that have registration rights
with
liquidated damages for the underlying shares. As the contract must be
settled by the delivery of registered shares and the delivery of the registered
shares is not controlled by the Company, pursuant to EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock”, the net value of the of the underlying embedded derivative
and warrants at the date of issuance was recorded as liabilities on the balance
sheet. Liquidated damages are estimated and accrued as a liability at each
reporting date. The Company has accrued an estimated $816,586 in liquidation
damages.
Recent
accounting pronouncements
In
February 2007, the FASB issued SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
Amendment of FASB Statement No. 115”
(“SFAS
No. 159”). SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Most of
the provisions of SFAS No. 159 apply only to entities that elect the fair value
option. However, the amendment to SFAS No. 115 “Accounting
for Certain Investments in Debt and Equity Securities”
applies
to all entities with available-for-sale and trading securities. SFAS
No. 159 is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the
beginning of a fiscal year that begins on or before November 15, 2007, provided
the entity also elects to apply the provision of SFAS No. 157, “Fair
Value Measurements”. The
adoption of SFAS No. 159 is not expected to have a material impact on our
consolidated financial position, results of operations or cash
flows.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements (continued)
In
December 2007, the FASB issued SFAS No. 141(R), "Business
Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in
an
acquiree, including the recognition and measurement of goodwill acquired in
a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. Earlier adoption
is prohibited and the Company is currently evaluating the effect, if any that
the adoption will have on its consolidated financial position results of
operations or cash flows.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interest in Consolidated Financial Statements, an amendment of ARB
No. 51”
(“SFAS
No. 160”), which will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity within the consolidated balance sheets.
SFAS
No. 160 is effective as of the beginning of the first fiscal year beginning
on
or after December 15, 2008. Earlier adoption is prohibited and the Company
is currently evaluating the effect, if any that the adoption will have on its
consolidated financial position results of operations or cash
flows.
In
June 2007, the Accounting Standards Executive Committee issued Statement of
Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide
Investment Companies and Accounting by Parent Companies and Equity Method
Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1
provides guidance for determining whether an entity is within the scope of
the
AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP
07-1 was originally determined to be effective for fiscal years beginning on
or
after December 15, 2007, however, on February 6, 2008, FASB issued a
final Staff Position indefinitely deferring the effective date and prohibiting
early adoption of SOP 07-1 while addressing implementation issues.
In
June
2007, the FASB ratified the consensus in EITF Issue No. 07-3, “Accounting
for Nonrefundable Advance Payments for Goods or Services to be Used in Future
Research and Development Activities” (EITF 07-3), which requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development (R&D) activities be deferred
and amortized over the period that the goods are delivered or the related
services are performed, subject to an assessment of recoverability.
EITF 07-3 will be effective for fiscal years beginning after
December 15, 2007. The Company does not expect that the adoption of
EITF 07-3 will have a material impact on our consolidated financial
position, results of operations or cash flows.
In
December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1
defines collaborative arrangements and requires collaborators to present the
result of activities for which they act as the principal on a gross basis and
report any payments received from (made to) the other collaborators based on
other applicable authoritative accounting literature, and in the absence of
other applicable authoritative literature, on a reasonable, rational and
consistent accounting policy is to be elected. EITF 07-1 also provides for
disclosures regarding the nature and purpose of the arrangement, the entity’s
rights and obligations, the accounting policy for the arrangement and the income
statement classification and amounts arising from the agreement. EITF 07-1
will be effective for fiscal years beginning after December 15, 2008, which
will be the Company’s fiscal year 2009, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date. The Company has not yet evaluated the potential impact
of adopting EITF 07-1 on our consolidated financial position, results of
operations or cash flows.
In
March
2008, the FASB” issued SFAS No. 161, “Disclosures
about Derivative Instruments and Hedging Activities - an amendment to FASB
Statement No. 133”
(“SFAS
No. 161”). SFAS
No. 161 is intended to improve financial standards for derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors
to
better understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged. We are currently evaluating the
impact of SFAS No. 161, if any, will have on our consolidated financial
position, results of operations or cash flows.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
A-SUMMARY OF ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements (continued)
In
April
2008, the FASB issued FSP No. FAS 142-3,“Determination
of the Useful Life of Intangible Assets”.
This FSP
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142,“Goodwill
and Other Intangible Assets”. We
are required to adopt FSP 142-3 on September 1, 2009, earlier adoption is
prohibited. The guidance in FSP 142-3 for determining the useful life
of a recognized intangible asset shall be applied prospectively to intangible
assets acquired after adoption, and the disclosure requirements shall be applied
prospectively to all intangible assets recognized as of, and subsequent to,
adoption. We are currently evaluating the impact of FSP 142-3 on our
consolidated financial position, results of operations or cash
flows.
In
May
2008, the FASB issued SFAS No. 162, "The
Hierarchy of Generally Accepted Accounting Principles"
("SFAS No. 162"). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in
the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS No. 162 will become effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles." We do not
expect the adoption of SFAS No. 162 will have a material effect on our
consolidated financial position, results of operations or cash
flows.
In
May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)
" ("FSP
APB 14-1"). FSP APB 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets)
on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer's
non-convertible debt borrowing rate. FSP APB 14-1 is effective
for fiscal years beginning after December 15, 2008 on a retroactive
basis. We are currently evaluating the potential impact, if any, of
the adoption of FSP APB 14-1 on our consolidated financial position,
results of operations or cash flows.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
NOTE
B-CONVERTIBLE DEBENTURES
Notes
payable at September 30, 2008 and December 31, 2007:
|
|
September
30, 2008
|
|
December
31, 2007
|
|
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
10%
convertible note payable, unsecured and due September, 2003; accrued
and
unpaid interest due at maturity; Note holder has the option to convert
note principal together with accrued and unpaid interest to the Company’s
common stock at a rate of $0.50 per share. The Company is in violation
of
the loan covenants
|
|
$
|
2,500
|
|
|
—
|
|
$
|
2,500
|
|
$
|
2,500
|
|
|
—
|
|
$
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
convertible debenture, due three years from date of the note with
interest
payable quarterly during the life of the note. The note is convertible
into the Company’s common stock at the lower of a) $0.03 or b) 25% of the
average of the three lowest intraday trading prices for the common
stock
on a principal market for twenty days before, but not including,
conversion date. The Company granted the note holder a security interest
in substantially all of the Company’s assets and intellectual property and
registration rights. The Company is in violation of the loan covenants
(see below)
|
|
$
|
1,094,091
|
|
|
—
|
|
$
|
1,094,091
|
|
$
|
1,094,091
|
|
$
|
158,665
|
|
$
|
935,426
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
|
September
30, 2008
|
|
December
31, 2007
|
|
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
10%
convertible debenture, due three years from date of the note with
interest
payable quarterly during the life of the note. The note is convertible
into the Company’s common stock at the lower of a) $0.6 or b) 25% of the
average of the three lowest intraday trading prices for the common
stock
on a principal market for twenty days before, but not including,
conversion date. The Company granted the note holder a security interest
in substantially all of the Company’s assets and intellectual property and
registration rights. The Company is in violation of the loan covenants
(see below)
|
|
$
|
800,000
|
|
$
|
16,804
|
|
$
|
783,196
|
|
$
|
800,000
|
|
$
|
216,986
|
|
$
|
583,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due three years from date of the note with
interest
payable quarterly during the life of the note. The note is convertible
into the Company’s common stock at the lower of a) $0.10 or b) 25% of the
average of the three lowest intraday trading prices for the common
stock
on a principal market for twenty days before, but not including,
conversion date. The Company granted the note holder a security interest
in substantially all of the Company’s assets and intellectual property and
registration rights (see below)
|
|
|
700,000
|
|
|
56,256
|
|
|
643,744
|
|
|
700,000
|
|
|
231,416
|
|
|
468,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due March 2009 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
500,000
|
|
|
80,822
|
|
|
419,178
|
|
|
500,000
|
|
|
205,936
|
|
|
294,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
convertible debenture, due July 2009 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
500,000
|
|
|
136,986
|
|
|
363,014
|
|
|
500,000
|
|
|
262,100
|
|
|
237,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
convertible debenture, due September 2009 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
$
|
280,000
|
|
$
|
92,055
|
|
$
|
187,945
|
|
$
|
280,000
|
|
$
|
162,119
|
|
$
|
117,881
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
|
September
30, 2008
|
|
December
31, 2007
|
|
|
|
Gross Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
6%
convertible debenture, due December 2009 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
$
|
600,000
|
|
$
|
243,836
|
|
$
|
356,164
|
|
$
|
600,000
|
|
$
|
393,973
|
|
$
|
206,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due April 2010 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
400,000
|
|
|
206,027
|
|
|
193,973
|
|
|
400,000
|
|
|
306,119
|
|
|
93,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due May 2010 with interest payable quarterly
during
the life of the note. The note is convertible into the Company’s common
stock at the lower of a)$0.10 or b) 25% of the average of the three
lowest
intraday trading prices for the common stock on a principal market
for
twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
150,000
|
|
|
79,041
|
|
|
70,959
|
|
|
150,000
|
|
|
116,575
|
|
|
33,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due June 2010 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
|
150,000
|
|
|
83,288
|
|
|
66,712
|
|
|
150,000
|
|
|
120,822
|
|
|
29,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
convertible debenture, due June 2010 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
$
|
150,000
|
|
$
|
87,260
|
|
$
|
62,740
|
|
$
|
150,000
|
|
$
|
124,795
|
|
$
|
25,205
|
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
|
September
30, 2008
|
|
December
31, 2007
|
|
|
|
Gross Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
Gross
Principal
Amount
|
|
Less:
Unamortized
Discount
|
|
Net
|
|
8%
convertible debenture, due July 2010 with interest payable quarterly
during the life of the note. The note is convertible into the Company’s
common stock at the lower of a)$0.10 or b) 25% of the average of
the three
lowest intraday trading prices for the common stock on a principal
market
for twenty days before, but not including, conversion date. The Company
granted the note holder a security interest in substantially all
of the
Company’s assets and intellectual property and registration rights. (See
below)
|
|
$
|
150,000
|
|
$
|
89,041
|
|
$
|
60,959
|
|
$
|
150,000
|
|
$
|
126,575
|
|
$
|
23,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6%
convertible debenture (warrant), maturing March 2015 with interest
accruing until conversion. The warrant is exercisable at the greater
of a)
$0.012 or b) 75% of the average of three lowest intraday trading
prices
for the common stock on a principal market for twenty days before,
but
including, conversion date. The Company issued 6,763,300 shares of
its
common stock as security.
|
|
$
|
500,000
|
|
|
—
|
|
|
500,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Total
|
|
|
5,976,591
|
|
|
(1,171,416
|
)
|
|
4,805,175
|
|
|
5,476,591
|
|
|
(2,426,081
|
)
|
|
3,050,510
|
|
Less:
current maturities:
|
|
|
5,976,591
|
|
|
(1,171,416
|
)
|
|
4,805,175
|
|
|
5,476,591
|
|
|
(2,426,081
|
)
|
|
3,050,510
|
|
Long
term portion
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
The
Company entered into a Securities Purchase Agreement with four accredited
investors on April 23, 2005 for the issuance of an aggregate of $1,500,000
of
convertible notes (“Convertible Notes”) and attached to the Convertible Notes
was warrants to purchase 25,000,000 shares of the Company’s common stock. The
Convertible Notes accrue interest at 10% per annum, payable quarterly, and
are
due three years from the date of the note. The note holder has the option to
convert any unpaid note principal to the Company’s common stock at a rate of the
lower of a) $0.03 or b) 25% of the average of the three lowest intraday trading
prices for the common stock on a principal market for the 20 trading days
before, but not including, conversion date. The effective interest rate at
the
date of inception was 270.43% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $1,500,000 in exchange for total proceeds of $1,352,067. The
proceeds that the Company received were net of prepaid interest of $72,933
representing the first eight month’s interest and related fees and costs of
$75,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on April 23, 2005. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $945,313 and $554,687 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine months ended September 30, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $158,665 and $75,669,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on October 24, 2005 for the issuance of $800,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 800,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 10% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.06
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 142.28% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $800,000 in exchange for total proceeds of $775,000. The
proceeds that the Company received were net of related fees and costs of
$25,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on October 24, 2005. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $743,770 and $56,230 to the embedded derivatives and related
warrants, respectively.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine months ended September 30, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $200,183 and $200,183,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on December 28, 2005 for the issuance of $700,000 of convertible
notes
(“Convertible Notes”) and attached to the Convertible Notes were warrants to
purchase 700,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 158.81% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $700,000 in exchange for total proceeds of $675,000. The
proceeds that the Company received were net of related fees and costs of
$25,000.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on December 28, 2005. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $655,921 and $44,079 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine month period ended September 30, 2008 and 2007, the Company amortized
the
debt discount and charged to interest expense $175,160 and $174,521,
respectively.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Company entered into a Securities Purchase Agreement with four accredited
investors on March 31, 2006 for the issuance of $500,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 19,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 11.01% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $500,000 in exchange for total proceeds of $460,000. The
proceeds that the Company received were net of related fees and costs of
$40,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on March 31, 2006. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $136,612 and $363,388 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
nine month period ended September 30, 2008 and 2007, the Company amortized
the
debt discount and charged to interest expense $125,114 and $124,657,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on July 28, 2006 for the issuance of $500,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 15,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 6% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 10.00% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $500,000 in exchange for total proceeds of $490,000. The
proceeds that the Company received were net of related fees and costs of
$10,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on July 28, 2006. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $200,000 and $300,000 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine month period ended September 30, 2008 and 2007, the Company amortized
the
debt discount and charged to interest expense $125,114 and $124,657,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on September 26, 2006 for the issuance of $280,000 of convertible
notes (“Convertible Notes”) and attached to the Convertible Notes was warrants
to purchase 10,000,000 shares of the Company’s common stock. The Convertible
Note accrues interest at 6% per annum, payable quarterly, and are due three
years from the date of the note. The note holder has the option to convert
any
unpaid note principal to the Company’s common stock at a rate of the lower of a)
$0.10 or b) 25% of the average of the three lowest intraday trading prices
for
the common stock on a principal market for the 20 trading days before, but
not
including, conversion date. The effective interest rate at the date of inception
was 9.36% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $280,000 in exchange for total proceeds of $259,858. The
proceeds that the Company received were net of related fees and costs of
$20,142.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on September 26, 2006. These embedded derivatives
included certain conversion features, variable interest features, call options
and default provisions. The accounting treatment of derivative financial
instruments requires that the Company allocate the relative fair values of
the
derivatives and related warrants as of the inception date of the Securities
Purchase Agreement up to the proceeds amount and to fair value as of each
subsequent balance sheet date. At the inception of the Securities Purchase
Agreement, the Company allocated $100,513 and $179,487 to the embedded
derivatives and related warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine months period ended September 30, 2008 and 2007, the Company amortized
the
debt discount and charged to interest expense $70,064 and $69,808,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on December 20, 2006 for the issuance of $600,000 of convertible
notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 20,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 6% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 15.00% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $600,000 in exchange for total proceeds of $590,000. The
proceeds that the Company received were net of related fees and costs of
$10,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on December 20, 2006. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $360,000 and $240,000 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine months ended September 30, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $150,137 and $149,589,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on April 18, 2007 for the issuance of $400,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 235.00% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $400,000 in exchange for total proceeds of $360,000. The
proceeds that the Company received were net of related fees and costs of
$40,000.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on April 18, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $386,378 and $13,622 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine months ended September 30, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $100,091 and $60,274,
respectively.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Company entered into a Securities Purchase Agreement with four accredited
investors on May 1, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 80.83% per annum.
As
of
September 30 2008, the Company issued to investors of the Convertible Notes
a
total amount of $150,000 in exchange for total proceeds of
$150,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on May 1, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $135,154 and $14,846 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
For
the
nine months ended September 30, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $37,535 and $20,822,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 1, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 91.87% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $150,000 in exchange for total proceeds of
$150,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on June 1, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $136,938 and $13,062 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine months ended September 30, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $37,535 and $16,576.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on June 30, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 85.51% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $150,000 in exchange for total proceeds of
$150,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on June 30, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $135,966 and $14,034 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal
fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine months ended September 30, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $37,535 and $12,603,
respectively.
The
Company entered into a Securities Purchase Agreement with four accredited
investors on July 13, 2007 for the issuance of $150,000 of convertible notes
(“Convertible Notes”) and attached to the Convertible Notes was warrants to
purchase 10,000,000 shares of the Company’s common stock. The Convertible Note
accrues interest at 8% per annum, payable quarterly, and are due three years
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of the lower of a) $0.10
or b) 25% of the average of the three lowest intraday trading prices for the
common stock on a principal market for the 20 trading days before, but not
including, conversion date. The effective interest rate at the date of inception
was 85.13% per annum.
As
of
September 30, 2008, the Company issued to investors of the Convertible Notes
a
total amount of $150,000 in exchange for total proceeds of
$150,000.
The
Company's identified embedded derivatives related to the Securities Purchase
Agreement entered into on July 13, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement,
the
Company allocated $135,903 and $14,097 to the embedded derivatives and related
warrants, respectively.
The
Securities Purchase Agreement contains the following covenants:
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
|
·
|
Requirement
to pay principal and interest when due
|
|
|
|
|
·
|
Provide
shares of the Company’s common stock to the Holder(s) upon exercise by the
Holder(s)
|
|
·
|
Timely
file a registration statement with the SEC and obtain effectiveness
and
maintain effectiveness
|
|
|
|
|
·
|
Maintain
sufficient number of authorized shares, subject to Stockholder approval
for full conversion of any remaining Security Purchase
Agreement
|
|
·
|
Change
of control
|
|
|
|
|
·
|
Trading
market limitations
|
The
Company agreed to file a registration statement with the SEC to affect the
registration of the shares of its common stock underlying the Security Purchase
Agreement and the warrants within 30 days from the date of receipt of written
demand of the Investors. The Company also agreed to use its reasonable best
efforts to cause the registration statement to be declared effective no later
than 90 days after the date of the Securities Purchase Agreement. If the
Registration Statement is not filed and/or not declared effective as described
above, the Company will be required to pay liquidated damages in the form of
cash or the Company’s common stock, at the Company’s discretion, in an amount
equal to 2% of the unpaid principal balance per month to the date on which
the
Registrable Securities (in the opinion of counsel to the Initial Investors)
may
be immediately sold to the public without registration or restriction
(including, without limitation, as to volume by each holder thereof) under
the
1933 Act.
As
of
September 30, 2008 and December 31, 2007, the Company has not maintained an
effective registration statement and therefore is in default of the Security
Purchase agreement. As such, at the option of the Holders of a majority of
the
aggregate principal amount of the outstanding Notes issued pursuant to the
Purchase Agreement and through the delivery of written notice to the Company
by
such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due
and
payable and the Company shall pay to the Holder an amount equal to the greater
of (i) 130% times the sum of (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the unpaid principal amount of
this
Note to the date of payment plus (y) Default Interest (at 15% per annum), if
any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights
Agreement. The then outstanding principal amount of the Note to the date of
payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number
of
shares of Common Stock issuable upon conversion of or otherwise pursuant to
such
Default Sum, treating the Trading Day immediately preceding the Mandatory
Prepayment Date as the "Conversion Date" for purposes of determining the lowest
applicable Conversion Price, unless the Default Event arises as a result of
a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
for the Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory Prepayment
Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall
immediately become due and payable, together with all costs including legal fees
and expenses of collection. If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount is due and
payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice,
to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
For
the
nine months ended September 30, 2008 and 2007, the Company amortized the debt
discount and charged to interest expense $37,535 and $10,822,
respectively.
As
of
September 30, 2008, the Company has accrued $816,586 in default provision
liabilities and liquidated damages relating to the above described Securities
Purchase Agreements.
On
March
10, 2008, the Company sold a warrant to purchase 20,833,333 shares of its common
stock at the greater of a) $0.012 or b) 75% of the average of three lowest
intraday trading prices for the common stock on a principal market for twenty
days before, but including, conversion date. The warrant exercise amount accrues
interest at 0.5% per month until exercised.
Although
described as a warrant, the instrument was considered a convertible debenture
for accounting purposes.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
B-CONVERTIBLE DEBENTURES (continued)
In
accordance with EITF 98-5, the Company recognized an imbedded beneficial
conversion feature present in the convertible note. The Company allocated a
portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital. The Company recognized and measured an aggregate
of
$184,736 of the proceeds, which is equal to the intrinsic value of the imbedded
beneficial conversion feature, to additional paid in capital and a discount
against the convertible note payable. The debt discount attributed to the
beneficial conversion feature charged to current period earnings as interest
expense.
Additionally,
in conjunction with the issuance of the above described debenture, the Company
issued an aggregate of 6,763,300 and 7,500,000 shares of its common stock to
be
held as security and as a financing cost of the transaction, respectively.
The
charged a total of $385,109 of debt acquisition costs to current period
earnings.
The
accompanying financial statements comply with current requirements relating
to
warrants and embedded derivatives as described in FAS 133, EITF 98-5 and 00-27,
and APB 14 as follows:
|
·
|
The
Company allocated the proceeds received between convertible debt
and
detachable warrants based upon the relative fair market values on
the
dates the proceeds were received. The fair values of the detachable
warrants and the embedded derivatives were determined under the
Black-Scholes option pricing formula and the intrinsic method,
respectively
|
|
|
|
|
·
|
Subsequent
to the initial recording, the increase (or decease) in the fair value
of
the detachable warrants, determined under the Black-Scholes option
pricing
formula and the increase (or decrease) in the intrinsic value of
the
embedded derivatives of the convertible debentures are recorded as
adjustments to the liabilities at September 30, 2008 and December
31,
2007, respectively.
|
|
·
|
The
expense relating to the increase (or decrease) in the fair value
of the
Company’s stock reflected in the change in the fair value of the warrants
and derivatives is included as other income item as a gain or loss
arising
from convertible financing on the Company’s balance
sheet.
|
|
|
|
|
·
|
Accreted
principal of $4,805,175 and $3,048,010 as of September 30, 2008 and
December 31, 2007.
|
NOTE
C-WARRANT LIABILITY
Total
warrant liability as of September 30, 2008 and December 31, 2007 is comprised
of
the following:
|
|
September
30,
2008
|
|
December 31,
2007
|
|
Fair
value of warrants relating to convertible debentures
|
|
$
|
412,451
|
|
$
|
1,874,970
|
|
Fair
value of other outstanding warrants
|
|
|
565,487
|
|
|
2,634,568
|
|
Total
|
|
$
|
977,938
|
|
$
|
4,509,538
|
|
Warrants
were valued at the date of inception and at September 30, 2008 and December
31,
2007 using the Black Scholes Option Pricing Model.
The
assumptions used at September 30, 2008 and December 31, 2007 were as
follows:
|
|
September
30,
2008
|
|
December 31,
2007
|
|
Expected
volatility
|
|
|
591
|
%
|
|
528
|
%
|
Expected
dividend yield
|
|
|
-0-
|
%
|
|
-0-
|
%
|
Average
risk free rate
|
|
|
0.92%
to 3.61
|
%
|
|
3.45
|
%
|
Expected
life (a)
|
|
|
0.50
to 5.78 yrs
|
|
|
1.01
to 6.53 yrs
|
|
(a)
The
expected option life is based on contractual expiration dates.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
D - NOTE PAYABLE
Note
payable as of September 30, 2008 and December 31, 2007, comprised of the
following:
|
|
September
30,
2008
|
|
December 31, 2007
|
|
Note
payable, 24% interest per annum; due in 90 days; secured by specific
accounts receivables
|
|
$
|
39,804
|
|
$
|
196,067
|
|
NOTE
E - NOTES AND CONVERTIBLE NOTES PAYABLE-RELATED PARTY
Notes
payable-related party is comprised of the following:
|
|
September
30,
2008
|
|
December
31,
2007
|
|
Notes
payable, 12% per annum; due on demand; unsecured
|
|
$
|
158,473
|
|
$
|
147,714
|
|
|
|
|
|
|
|
|
|
Notes
payable, 10% per annum, due on demand; unsecured
|
|
|
260,350
|
|
|
249,350
|
|
|
|
|
418,823
|
|
|
397,064
|
|
Less:
current maturities:
|
|
|
(418,823
|
)
|
|
(397,064
|
)
|
Long
term portion:
|
|
$
|
—
|
|
$
|
—
|
|
NOTE
F -STOCKHOLDER'S EQUITY
Series
A - Convertible Preferred stock
The
Company has also authorized 5,000,000 shares of Preferred Stock, with a par
value of $.001 per share.
On
December 30, 2003, the Company filed a Certificate of Designation creating
a
Series A Convertible Preferred Stock classification for 200 shares.
The
Series A Preferred stated conversion price of $.10 per shares is subject to
certain anti-dilution provisions in the event the Company issues shares of
its
common stock or common stock equivalents below the stated conversion price.
Changes to the conversion price are charged to operations and included in
unrealized gain (loss) relating to adjustment of derivative and warrant
liability to fair value of underlying securities.
In
December, 2003, the Company issued 155 shares of its Series A Preferred stock,
valued at $5,000 per share. The stock has a stated value of $5,000 per share
and
a conversion price of $0.10 per share and warrants to purchase an aggregate
of
15,500,000 shares of our common stock.
In
May,
2004, the Company issued 15.861 shares of its Series A Preferred stock, valued
at $5,000 per share. The stock has a stated value of $5,000 per share and a
conversion price of $0.10 per share and warrants to purchase an aggregate of
1,600,000 shares of our common stock.
In
the
year ended December 31, 2004, 7 of the Series A Preferred shareholders exercised
the conversion right and exchanged 19 shares of Series A Preferred for 950,000
shares of the Company's common stock.
In
the
year ended December 31, 2005, 20 of the Series A Preferred shareholders
exercised the conversion right and exchanged 92 shares of Series A Preferred
for
4,600,000 shares of the Company's common stock.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Series
A - Convertible Preferred stock (continued)
In
the
year ended December 31, 2006, 9 of the Series A Preferred shareholders exercised
the conversion right and exchanged 20.88 shares of Series A Preferred for
1,019,032 shares of the Company’s common stock
In
the
nine months ended September 30, 2008, 1 of the Series A Preferred shareholders
exercised the conversion right and exchanged 2 shares of Series A Preferred
for
100,000 shares of the Company’s common stock
The
holders of the Series A Preferred shall have the right to vote, separately
as a
single class, at a meeting of the holders of the Series A Preferred or by such
holders' written consent or at any annual or special meeting of the stockholders
of the Corporation on any of the following matters: (i) the creation,
authorization, or issuance of any class or series of shares ranking on a parity
with or senior to the Series A Preferred with respect to dividends or upon
the
liquidation, dissolution, or winding up of the Corporation, and (ii) any
agreement or other corporate action which would adversely affect the powers,
rights, or preferences of the holders of the Series A Preferred.
The
holders of record of the Series A Preferred shall be entitled to receive
cumulative dividends at the rate of twelve percent per annum (12%) on the face
value ($5,000 per share) when, if and as declared by the Board of Directors,
if
ever. All dividends, when paid, shall be payable in cash, or at the option
of
the Company, in shares of the Company’s common stock. Dividends on shares of the
Series A Preferred that have not been redeemed shall be payable quarterly in
arrears, when, if and as declared by the Board of Directors, if ever, on a
semi-annual basis. No dividend or distribution other than a dividend or
distribution paid in Common Stock or in any other junior stock shall be declared
or paid or set aside for payment on the Common Stock or on any other junior
stock unless full cumulative dividends on all outstanding shares of the Series
A
Preferred shall have been declared and paid. These dividends are not recorded
until declared by the Company. As of the nine month period ended September
30,
2008, $0 in dividends was accumulated.
Upon
any
liquidation, dissolution or winding up of the Corporation, whether voluntary
or
involuntary, and after payment of any senior liquidation preferences of any
series of Preferred Stock and before any distribution or payment is made with
respect to any Common Stock, holders of each share of the Series A Preferred
shall be entitled to be paid an amount equal in the greater of (a) the face
value denominated thereon subject to adjustment for stock splits, stock
dividends, reorganizations, reclassification or other similar events (the
"Adjusted Face Value") plus, in the case of each share, an amount equal to
all
dividends accrued or declared but unpaid thereon, computed to the date payment
thereof is made available, or (b) such amount per share of the Series A
Preferred immediately prior to such liquidation, dissolution or winding up,
or
(c) the liquidation preference of $5,000.00 per share, and the holders of the
Series A Preferred shall not be entitled to any further payment, such amount
payable with respect to the Series A Preferred being sometimes referred to
as
the "Liquidation Payments."
Because
the Series A Shares include a redemption feature that is outside of the control
of the Company and the stated conversion price is subject to reset, the Company
has classified the Series A Shares outside of stockholders' equity in accordance
with Emerging Issues Task Force ("EITF") Topic D-98, "Classification and
Measurement of Redeemable Securities." In accordance with EITF Topic D-98,
the
fair value at date of issuance was recorded outside of stockholders’ equity in
the accompanying balance sheet. Dividends on the Series A Shares are reflected
as a reduction of net income (loss) attributable to common
stockholders.
In
connection with the issuance of the Series A Preferred and related warrants,
the
holders were granted certain registration rights in which the Company agreed
to
timely file a registration statement to register the common shares and the
shares underlying the warrants, obtain effectiveness of the registration
statement by the SEC within ninety-five (95) days of December 31, 2003, and
maintain the effectiveness of this registration statement for a preset time
thereafter. In the event the Company fails to timely perform under the
registration rights agreement, the Company agrees to pay the holders of the
Series A Preferred liquidated damages in an amount equal to 1.5% of the
aggregate amount invested by the holders for each 30-day period or pro rata
for
any portion thereof following the date by which the registration statement
should have been effective. The initial registration statement was filed and
declared effective by the SEC within the allowed time , however the Company
has
not maintained the effectiveness of the registration statement to date.
Accordingly, the Company issued 203,867 shares of common stock as liquidated
damages on December 10, 2004. The Company has not been required to pay any
further liquidated damages in connection with the filing or on-going
effectiveness of the registration statement.
The
Company was required to record a liability relating to the detachable warrants
as described in FAS 133, EITF 98-5 and 00-27, and APB 14. As such:
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Series
A - Convertible Preferred stock (continued)
|
Subsequent
to the initial recording, the increase in the fair value of the detachable
warrants, determined under the Black- Scholes option pricing formula,
are
accrued as adjustments to the liabilities at September 30, 2008 and
December 31, 2007, respectively.
|
|
The
expense relating to the increase in the fair value of the Company's
stock
reflected in the change in the fair value of the warrants (noted
above) is
included as an other comprehensive income item of an unrealized gain
or
loss arising from convertible financing on the Company's balance
sheet.
|
The
warrants expired unexercised in the year ended December 31, 2006.
Series
B - Convertible Preferred stock
On
February 19, 2004, the Company filed a Certificate of Designation creating
a
Series B Convertible Preferred Stock classification for 800,000 shares,
increased subsequently to 3,650,000 in 2007.
In
January, 2004 and April 2007, the Company issued 800,000 and 2,850,000 shares,
respectively, of its Series B Preferred in lieu of certain accrued management
service fees payable and notes payable including interest payable thereon
totaling $1,170,500 to officers of the company. The shares of the Series B
Preferred are non voting and convertible, at the option of the holder, into
common shares at $0.10 per share per share. The shares issued were valued at
$1.00 per share in 2004 and $0.13 in 2007, which represented the fair value
of
the common stock the shares are convertible into. In connection with the
transaction, the Company recorded a beneficial conversion discount of $800,000
-
preferred dividend relating to the issuance of the convertible preferred stock
in 2004. None of the Series B Preferred shareholders have exercised their
conversion right and there are 3,650,000 shares of Series B Preferred shares
issued and outstanding at September 30, 2008.
The
holders of the Series B Preferred shall have the right to vote, separately
as a
single class, at a meeting of the holders of the Series B Preferred or by such
holders' written consent or at any annual or special meeting of the stockholders
of the Corporation on any of the following matters: (i) the creation,
authorization, or issuance of any class or series of shares ranking on a parity
with or senior to the Series B Preferred with respect to dividends or upon
the
liquidation, dissolution, or winding up of the Corporation, and (ii) any
agreement or other corporate action which would adversely affect the powers,
rights, or preferences of the holders of the Series B Preferred.
The
holders of record of the Series B Preferred shall be entitled to receive
cumulative dividends at the rate of twelve percent per annum (12%) on the face
value ($1.00 per share) when, if and as declared by the Board of Directors,
if
ever. All dividends, when paid, shall be payable in cash, or at the option
of
the Company, in shares of the Company’s common stock. Dividends on shares of the
Series B Preferred that have not been redeemed shall be payable quarterly in
arrears, when, if and as declared by the Board of Directors, if ever, on a
semi-annual basis. No dividend or distribution other than a dividend or
distribution paid in Common Stock or in any other junior stock shall be declared
or paid or set aside for payment on the Common Stock or on any other junior
stock unless full cumulative dividends on all outstanding shares of the Series
B
Preferred shall have been declared and paid. These dividends are not recorded
until declared by the Company. As of September 30, 2008 $1,201,000 in dividends
were accumulated.
Upon
any
liquidation, dissolution or winding up of the Corporation, whether voluntary
or
involuntary, and after payment of any senior liquidation preferences of any
series of Preferred Stock and before any distribution or payment is made with
respect to any Common Stock, holders of each share of the Series B Preferred
shall be entitled to be paid an amount equal in the greater of (a) the face
value denominated thereon subject to adjustment for stock splits, stock
dividends, reorganizations, reclassification or other similar events (the
"Adjusted Face Value") plus, in the case of each share, an amount equal to
all
dividends accrued or declared but unpaid thereon, computed to the date payment
thereof is made available, or (b) such amount per share of the Series B
Preferred immediately prior to such liquidation, dissolution or winding up,
or
(c) the liquidation preference of $1.00 per share, and the holders of the Series
B Preferred shall not be entitled to any further payment, such amount payable
with respect to the Series B Preferred being sometimes referred to as the
"Liquidation Payments."
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Series
C - Convertible Preferred stock
On
November 13, 2006, the Company filed a Certificate of Designation creating
a
Series C Convertible Preferred Stock classification for 100,000 shares.
Subsequently amended on January 11, 2007 to 700,000 shares.
In
December 2006, the Company issued 100,000 shares of its Series C Preferred
stock
in conjunction with the acquisition of SPE Technologies, Inc. The shares of
the
Series C Preferred are non voting and convertible, at the option of the holder,
into common shares one year from issuance. The number of common shares to be
issued per Series C share is adjusted based on the average closing bid price
of
the previous ten days prior to the date of conversion based on divided into
$25.20 The shares issued were valued at $25.20 per share, which represented
the
fair value of the common stock the shares are convertible into. None of the
Series C Preferred shareholders have exercised their conversion right and there
are 100,000 shares of Series C Preferred shares issued and outstanding at
September 30, 2008.
The
holders of record of the Series C Preferred shall be entitled to receive
cumulative dividends at the rate of five percent per annum (5%), compounded
quarterly, on the face value ($25.00 per share) when, if and as declared by
the
Board of Directors, if ever. All dividends, when paid, shall be payable in
cash,
or at the option of the Company, in shares of the Company’s common stock.
Dividends on shares of the Series C Preferred that have not been redeemed shall
be payable quarterly in arrears, when, if and as declared by the Board of
Directors, if ever, at the time of conversion. These dividends are not recorded
until declared by the Company. As of September 30, 2008 $-0- in dividends were
accumulated.
Common
stock
The
Company has authorized 950,000,000 shares of common stock, with a par value
of
$.001 per share. As of September 30, 2008 and December 31, 2007, the Company
has
717,713,999 and 552,142,881 shares issued and outstanding,
respectively.
During
the year ended December 31, 2007, holders converted 10 shares of preferred
stock - Class A into 500,000 shares of common stock. Each share of
preferred stock is convertible into 50,000 shares of common stock.
In
January 2007, the Company issued 25,564,000 shares of its common stock on
conversion of $247,496 of convertible debentures.
In
January 2007, the Company issued 26,500,000 shares of its common stock in
connection with the acquisition of Hybrid Lighting Technologies,
Inc.
In
February 2007, the Company issued 24,309,800 shares of its common stock on
conversion of $184,592 of convertible debentures.
In
March
2007, the Company issued 18,021,800 shares of its common stock on conversion
of
$116,242 of convertible debentures.
In
April
2007, the Company issued 33,357,000 shares of its common stock on conversion
of
$154,554 of convertible debentures
In
April
2007, the Company issued 2,500,000 shares of its common stock in exchange for
services rendered. The Company valued the shares issued at $27,500, which
approximated the fair value of the shares issued during the periods the services
were rendered.
In
April
2007, the Company issued 5,226,182 shares of its common stock on conversion
of
$104,524 of related party convertible debentures and related
interest.
In
May
2007, the Company issued 48,579,100 shares of its common stock on conversion
of
$106,345 of convertible debentures
In
June
2007, the Company issued 60,418,910 shares of its common stock on conversion
of
$86,128 of convertible debentures.
In
July
2007, the Company issued 90,328,573 shares of its common stock on conversion
of
$101,827 of convertible debentures.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
F -STOCKHOLDER'S EQUITY (continued)
Common
stock (continued)
In
August
2007, the Company issued 11,568,802 shares of its common stock on conversion
of
$10,412 of convertible debentures.
In
September 2007, the Company issued 26,650,000 shares of its common stock in
exchange for services rendered. The Company valued the shares issued at $90,610
which approximated the fair value of the shares issued during the periods the
services were rendered.
In
January 2008, holders converted 2 shares of preferred stock - Class A into
100,000 shares of common stock. Each share of preferred stock is convertible
into 50,000 shares of common stock.
In
January 2008, the Company issued 100,000 shares of its common stock in exchange
for services rendered. The Company valued the shares issued at $2,300, which
approximated the fair value of the shares issued during the periods the services
were rendered.
In
February 2008, the Company issued 6,763,300 shares of its common stock as
security in conjunction with the sale of a warrant (see Note B above). The
Company valued the shares issued at $183,609, which approximated the fair value
of the shares issued at the date of issuance, and charged current period
earnings.
In
February 2008, the Company issued 7,500,000 shares of its common stock in
conjunction with the sale of a warrant (see Note B above). The Company valued
the shares issued at $202,500, which approximated the fair value of the shares
issued at the date of issuance, and charged current period earnings.
In
June
2008, the Company issued 5,000,000 shares of its common stock in exchange for
services rendered. The Company valued the shares issued at $70,000, which
approximated the fair value of the shares issued during the periods the services
were rendered.
In
July
2008, the Company issued 36,000,000 shares of its common stock in exchange
for
services rendered. The Company valued the shares issued at $356,400, which
approximated the fair value of the shares issued during the periods the services
were rendered
In
August
2008, the Company issued 35,736,700 shares of its common stock in exchange
for
penalties incurred. The Company valued the shares issued at $428,840, which
approximated the fair value of the shares issued during the periods the services
were rendered
In
August
2008, the Company issued 6,971,116 shares of its common stock in exchange for
accounts payable and other services. The Company valued the shares issued at
$62,740, which approximated the fair value of the shares issued during the
periods the services were rendered.
In
September 2008, the Company issued 2,200,000 shares of its common stock in
exchange for services rendered. The Company valued the shares issued at $14,520,
which approximated the fair value of the shares issued during the periods the
services were rendered.
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
September 30, 2008:
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
G -STOCK OPTIONS AND WARRANTS (continued)
Class
A Warrants (continued)
Exercise Price
|
|
Number
Outstanding
|
|
Warrants
Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
|
|
Weighted
Average
Exercise price
|
|
Number
Exercisable
|
|
Warrants
Exercisable
Weighted
Average
Exercise Price
|
|
$
|
0.001
|
|
|
50,000,000
|
|
|
4.02
|
|
$
|
0.001
|
|
|
50,000,000
|
|
|
0.001
|
|
0.02
|
|
|
50,000,000
|
|
|
3.68
|
|
|
0.02
|
|
|
50,000,000
|
|
|
0.02
|
|
0.03
|
|
|
25,000,000
|
|
|
1.63
|
|
|
0.03
|
|
|
25,000,000
|
|
|
0.03
|
|
0.10
|
|
|
991,500
|
|
|
0.68
|
|
|
0.10
|
|
|
991,500
|
|
|
0.10
|
|
0.25
|
|
|
58,500
|
|
|
0.25
|
|
|
0.25
|
|
|
58,500
|
|
|
0.25
|
|
0.50
|
|
|
50,000
|
|
|
0.03
|
|
|
0.50
|
|
|
50,000
|
|
|
0.50
|
|
1.05
|
|
|
100,000
|
|
|
0.25
|
|
|
1.05
|
|
|
100,000
|
|
|
1.05
|
|
0.06775
|
|
|
49,760,443
|
|
|
3.65
|
|
|
0.06775
|
|
|
49,760,443
|
|
|
0.03075
|
(a)
|
|
|
|
175,960,443
|
|
|
|
|
|
|
|
|
175,960,443
|
|
|
|
|
|
(a)
|
See
terms of warrants issued below
|
Transactions
involving the Company’s warrant issuance are summarized as follows:
|
|
Number of Shares
|
|
Weighted Average
Price
Per Share
|
|
Outstanding
at December 31, 2006
|
|
|
99,895,000
|
|
$
|
0.09
|
|
Granted
|
|
|
200,000,000
|
|
|
0.01525
|
|
Exercised
|
|
|
(50,239,557
|
)
|
|
(0.03
|
)
|
Canceled
or expired
|
|
|
(73,695,000
|
)
|
|
(0.07
|
|
Outstanding
at December 31, 2007
|
|
|
175,960,443
|
|
|
0.016
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Canceled
or expired
|
|
|
—
|
|
|
—
|
|
Outstanding
at September 30, 2008
|
|
|
175,960,443
|
|
|
0.016
|
|
Warrants
granted during the year ended December 31, 2007 totaling 50,000,000 were issued
in connection with debt financing. The warrants are exercisable until five
years
after the date of issuance at a purchase price of $0.02 per share.
In
the
year ended December 31, 2007, the Company sold 100,000,000 five year warrants
with an exercise price of 50% of the average closing price of the twenty trading
days prior to warrant execution. The transaction, to the extent that it is
to be
satisfied with common stock of the Company would normally be included as equity
obligations. However, in the instant case, due to the indeterminate number
of
shares which might be issued under the embedded convertible host conversion
feature, the Company is required to record a liability relating to warrants
and
as such has recorded the fair value of the embedded conversion feature, using
the Black-Scholes option pricing method, as a liability for the current
period.
In
the
year ended December 31, 2007, the Company sold 50,000,000 five year warrants
with an exercise price of $0.001.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
G -STOCK OPTIONS AND WARRANTS (continued)
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 September 30, 2008:
|
|
Options
Outstanding
|
|
|
|
Options
Exercisable
|
|
|
|
|
|
Weighted Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
Contractual Life
|
|
Exercise
|
|
Number
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
(Years)
|
|
Price
|
|
Exercisable
|
|
Price
|
|
$
|
0.2125
|
|
|
2,000,000
|
|
|
5.21
|
|
$
|
0.2125
|
|
|
2,000,000
|
|
$
|
0.2125
|
|
0.2125
|
|
|
2,000,000
|
|
|
5.62
|
|
|
0.2125
|
|
|
2,000,000
|
|
|
0.2125
|
|
0.022
|
|
|
20,500,000
|
|
|
8.12
|
|
|
0.022
|
|
|
20,500,000
|
|
|
0.022
|
|
0.0295
|
|
|
4,000,000
|
|
|
6.60
|
|
|
0.0295
|
|
|
4,000,000
|
|
|
0.0295
|
|
0.04
|
|
|
14,430,000
|
|
|
7.82
|
|
|
0.04
|
|
|
14,430,000
|
|
|
0.04
|
|
0.10
|
|
|
9,502,307
|
|
|
5.51
|
|
|
0.10
|
|
|
9,502,307
|
|
|
0.10
|
|
Transactions
involving stock options issued to employees are summarized as
follows:
|
|
|
|
Weighted Average
|
|
|
|
Number of Shares
|
|
Price Per Share
|
|
Outstanding
at December 31, 2006
|
|
|
52,432,307
|
|
|
0.0562
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Canceled
or expired
|
|
|
—
|
|
|
—
|
|
Outstanding
at December 31, 2007
|
|
|
52,432,307
|
|
|
0.0562
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Canceled
or expired
|
|
|
—
|
|
|
—
|
|
Outstanding
at September 30, 2008
|
|
|
52,432,307
|
|
$
|
0.0562
|
|
The
Company did not grant employee stock options in the nine month period ended
September 30, 2008 and 2007.
NOTE
H -RELATED PARTY TRANSACTIONS
From
time
to time, the Company's principal officers have advanced funds to the Company
for
working capital purposes in the form of unsecured promissory notes, accruing
interest at 10% to 12% per annum. As of September 30, 2008 and December 31,
2007, the balance due to the officers was $418,823 and $397,064, respectively.
NOTE
I -COMMITMENTS AND CONTINGENCIES
Consulting
Agreements
The
Company has consulting agreements with outside contractors, certain of whom
are
also Company stockholders. The Agreements are generally for a term of 12 months
from inception and renewable automatically from year to year unless either
the
Company or Consultant terminates such engagement by written notice.
CYBERLUX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(Unaudited)
NOTE
I -COMMITMENTS AND CONTINGENCIES (continued)
Operating
Lease Commitments
The
Company leases office space in Durham, NC on a six year lease expiring December
31, 2012, for an annualized rent payment of $88,020. Additionally the Company
leases warehouse space on a month to month basis for $550 per month. At
September 30, 2008, schedule of the future minimum lease payments is as
follows:
2008
|
|
|
88,020
|
|
2009
|
|
|
88,020
|
|
2010
|
|
|
88,020
|
|
2011
|
|
|
88,020
|
|
2012
|
|
|
88,020
|
|
Litigation
The
Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity. There was no outstanding
litigation as of September 30, 2008.
NOTE
J- GOING CONCERN MATTERS
The
accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities
in
the normal course of business. As shown in the accompanying consolidated
financial statements, as of September 30, 2008, the Company incurred accumulated
losses of $49,229,180. The Company’s current liabilities exceeded its current
assets by $9,173,475 as of September 30, 2008. These factors among others may
indicate that the Company will be unable to continue as a going concern for
a
reasonable period of time.
The
Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance the
Company will be successful in its effort to secure additional equity financing.
If
operations and cash flows continue to improve through these efforts, management
believes that the Company can continue to operate. However, no assurance can
be
given that management's actions will result in profitable operations or the
resolution of its liquidity problems.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
The
following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. There are several important factors that could cause actual results
to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. The Company has sought to
identify the most significant risks to its business, but cannot predict whether
or to what extent any of such risks may be realized nor can there be any
assurance that the Company has identified all possible risks that might arise.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company's stock. The following
discussion and analysis should be read in conjunction with the financial
statements of the Company and notes thereto. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment from our Management.
Overview
We
have
been principally devoted to designing, developing and marketing advanced
lighting systems that utilize white (and other) light emitting diodes as
illumination elements.
We
are
developing and marketing new product applications of solid-state diodal
illumination (TM) that demonstrate added value over traditional lighting
systems. Using proprietary technology, we are creating a family of products
including portable illumination systems for military and Homeland Security,
retail products, commercial task and accent lighting, emergency and security
lighting. We believe our solid-state lighting technology offers extended light
life, greater energy efficiency and greater overall cost effectiveness than
other existing forms of illumination. Our business model is to address the
large
lighting industry market segments with solid-state lighting products and
technologies, including our proprietary hybrid technology, that includes
military and Homeland Security applications, direct and indirect task and accent
lighting applications, indoor/outdoor downlighting applications, commercial
and
residential lighting applications..
For
the
military and Homeland Security portable illumination system products, our target
markets include all branches of the military and all government orgainzations
providing homeland security services, such as border control and airport
security. For our retail products, our target customers include the home
improvement and consumer goods retailers. In the commercial markets, our task
and accent lighting products and emergency and security lighting products
address the lighting needs in restaurants, hotels, hospitals, nursing homes,
airports, shopping centers and multiple family complexes; long-term evacuation
solutions for theaters, office and public buildings; reduced maintenance cost
solutions for property managers as applied to walkway, corridor or landscape
lighting
On
July
30, 2008, we announced that we had entered into a business development, sales
and product solutions relationship with A and A Logistics, Inc. For over 17
Years, the founders of A and A Logistics, Inc. have delivered solutions on
demand to the U.S. military, U.S. government agencies such as the Federal
Emergency Management Agency (FEMA) and the U.S. Postal Service (USPS), state
and
local municipal government agencies, and foreign military organizations.
In
addition to the consultative relationship A and A Logistics has with the U.S.
Special Operations Command (USSOCOM), it has recently been appointed to the
Task
Force on the Reconstruction of Afghanistan. Selected for the diversity of
experience and the expertise of the A and A Logistics management team, we will
focus on business development in Afghanistan and on accelerating the development
of essential businesses and services for the mutual benefit of the people and
government of Afghanistan and the private sector.
In
representing us in business development and sales efforts A and A Logistics
will
assist customers such as USSOCOM and FEMA with requirements, concept and
solution development, along with product delivery services including logistics
support. With a focus on technology solutions that provide critical
life-sustaining support for the Warfighter and the Emergency Responder, A and
A
Logistics currently provides customers with portable lighting products and
generators, solar powered electrical systems, self-powered IED detection
products, and water purification systems.
On
August
22, 2008, we announced that we had received purchase orders from the Oklahoma
National Guard for BrightEye Tactical Illumination Systems. These BrightEye
Systems are for immediate deployment and will be used by the state's National
Guard unit.
We
have
successfully sold its BrightEye Systems to 23 National Guard states within
the
National Guard Bureau, and we expect this momentum to continue until the
majority of the states are outfitted with BrightEye tactical lighting
systems.
On
August
28, 2008, we announced that the U.S. Patent Office had recently awarded patent
protection for 21 claims contained within our U.S. Patent Application for
Portable Light Device, Application Number 11/336,562 filed on January 21, 2006.
The new patent claims define specific areas of patent protection for our
BrightEye and WatchDog portable lighting products and augment the 29 patent
claims announced in May 2008. In combination, the 50 patent claims provide
us
with thorough patent protection for its WatchDog and BrightEye family of
tactical lighting products, as well as any future products developed on this
patent foundation.
On
September 9, 2008, we announced that we had entered into a business development,
project consulting and product sales relationship with Sabot 6, Inc. Sabot
6,
Inc. specializes in accelerating the adoption of innovative technologies within
the Department of Defense (DoD) and Federal government marketplace. Sabot 6
has
significant government and military experience and has access to a network
of
uniquely qualified experts in the Power, Energy and Government Operations
fields.
Under
the
agreement, the Sabot 6 firm will provide tactical and strategic sales planning,
access to senior government officials and tactical users, access to soldiers
for
hands-on evaluation and ongoing product sales support for governmental entities
not yet addressed by us. In addition, Sabot 6 will provide a specific focus
on
the procurement process for our current Portable Illumination System products
and will spearhead future development projects where we will leverage our
significant engineering and product development knowhow. If needed, Sabot 6
will
also provide surge support in specific areas of expertise, at any location
deemed necessary by us or the our customer. This combination of capabilities
will immediately enhance our revenue pipeline, particularly in the Energy,
Security and Power Surety market segments.
On
September 10, 2008, we announced that we had received a purchase order from
the
Hawaiian Air National Guard for the purchase of a BrightEye Tactical
Illumination System.
We
have
demonstrated continued success in selling our flagship product, the BrightEye
Tactical Illumination System, to individual state-level National Guard units
across the country. We feel strongly that we are positioned to be the tactical
lighting leader within multiple branches of the United States Armed Services
in
the future.
Results
of Operations
Nine
months ended September 30, 2008 compared to the nine months ended September
30,
2007
REVENUES
Revenues
for the nine months ended September 30, 2008 were $401,162 as compared to
$521,814 for the same period last year.
OPERATING
EXPENSES
Operating
expenses for the nine months ended September 30, 2008 were $2,912,426 as
compared to $3,004,319 for the same period ended September 30, 2007. Included
in
the nine months ended September 30, 2008 were $1,386 in expenses for research
& development. This compares to $121,951for the nine months ended September
30, 2007.
We
reported an unrealized loss for the change in fair value or warrants and debt
derivatives of $3,032,859 as compared to a loss of $65,227,499 for the same
period last year. Although the change of $62,194,640 is unrelated to our
operating activities, the decrease in included in our reported net
gain.
Three
months ended September 30, 2008 compared to the three months ended September
30,
2007
REVENUES
Revenues
for the three months ended September 30, 2008 were $69,256 as compared to
$298,459 for the same period last year.
OPERATING
EXPENSES
Operating
expenses for the three months ended September 30, 2008 were $1,357,843 as
compared to $2,912,426 for the same period ended September 30, 2007.
We
reported an unrealized gain for the change in fair value or warrants and debt
derivatives of $2,754,714 as compared to a loss of $56,164,992 for the same
period last year. Although the change of $58,919,706 is unrelated to our
operating activities, the increase is included in our reported net
loss.
As
a
result of limited capital resources and minimal revenues from operations from
its inception, we have relied on the issuance of equity securities to
non-employees in exchange for services. Our management enters into equity
compensation agreements with non-employees if it is in our best interest under
terms and conditions consistent with the requirements of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation. In order to conserve
our limited operating capital resources, we anticipate continuing to compensate
non-employees for services during the next twelve months. This policy may have
a
material effect on our results of operations during the next twelve
months.
Liquidity
and Capital Resources
As
of
September 30, 2008, we had a working capital deficit of $9,173,475. This
compares to a working capital deficit of $6,509,670 as of December 31, 2007.
Accrued interest on notes payable was $2,272,224 compared to accrued interest
of
$1,893,561 as December 31, 2007. Accounts payable as of September 30, 2008
were
$1,050,295 and compares to $733,538 as compared to December 31, 2007. As a
result of our operating losses for the nine months ended September 30, 2008,
we
generated a cash flow deficit of $891,882 from operating activities. Cash flows
provided by investing activities was $0 for the nine months ended September
30,
2008 primarily from the cash received with the acquisition of Hybrid Lighting
Technologies, Inc . Cash flows from financing activities provided $891,546
from
the borrowing on a long term basis for the nine months ended September 30,
2008.
While
we
have raised capital to meet our working capital and financing needs in the
past,
additional financing is required in order to meet our current and projected
cash
flow deficits from operations and development.
By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits through the next twelve months. However, if thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
Our
independent certified public accountant has stated in their report included
in
our December 31, 2007, Form 10-KSB that we have incurred operating losses in
the
last two years, and that we are dependent upon management's ability to develop
profitable operations. These factors among others may raise substantial doubt
about our ability to continue as a going concern.
April
2007 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on April 18, 2007, for the sale of
(i)
$400,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on April 18, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
May
2007
Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on May 1, 2007, for the sale of (i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on May 1, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
We
will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even
if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to
us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing inventory.
June
6,
2007 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on June 6, 2007, for the sale of (i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on June 6, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
We
will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even
if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to
us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing inventory.
June
20,
2007 Stock Purchase Agreement
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with four accredited investors on June 20, 2007, for the sale of
(i)
$150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000
shares of our common stock. The investors purchased all of the secured
convertible notes on June 20, 2007.
The
proceeds received from the sale of the secured convertible notes were used
for
business development purposes, working capital needs, pre-payment of interest,
payment of consulting and legal fees and purchasing inventory.
The
secured convertible notes bear interest at 8%, mature three years from the
date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest
intraday trading prices for the common stock on the Over-The-Counter Bulletin
Board for the 20 trading days before but not including the conversion date.
The
full principal amount of the secured convertible notes is due upon default
under
the terms of secured convertible notes. The warrants are exercisable until
seven
years from the date of issuance at a purchase price of $0.02 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such
as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions
as
would otherwise result in dilution of the selling stockholder’s position. As of
the date of this filing, the conversion price for the secured convertible
debentures and the exercise price of the warrants have not been adjusted. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors
a
security interest in substantially all of our assets and intellectual property
and registration rights.
We
will
still need additional investments in order to continue operations to cash flow
break even. Additional investments are being sought, but we cannot guarantee
that we will be able to obtain such investments. Financing transactions may
include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. However, the trading price of our common stock
and the downturn in the U.S. stock and debt markets could make it more difficult
to obtain financing through the issuance of equity or debt securities. Even
if
we are able to raise the funds required, it is possible that we could incur
unexpected costs and expenses, fail to collect significant amounts owed to
us,
or experience unexpected cash requirements that would force us to seek
alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
The
proceeds received from the sale of the secured convertible notes will be used
for business development purposes, working capital needs, pre-payment of
interest, payment of consulting and legal fees and purchasing inventory.
Critical
Accounting Policies
In
February 2006, the FASB issued SFAS No. 155. “Accounting for certain Hybrid
Financial Instruments an amendment of FASB Statements No. 133 and 140,” or SFAS
No. 155. SFAS No. 155 permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips
are
not subject to the requirements of Statement No. 133, establishes a requirement
to evaluate interests in securitized financial assets to identify interests
that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. We do not expect the adoption of SFAS 155 to have a material
impact on our consolidated financial position, results of operations or cash
flows.
In
March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability
each
time it undertakes an obligation to service a financial asset by entering into
a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The adoption of SFAS No.156
did
not have a material impact on the Company's financial position and results
of
operations.
In
July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for
uncertainty in Income Taxes”. FIN 48 clarifies the accounting for Income Taxes
by prescribing the minimum recognition threshold a tax position is required
to
meet before being recognized in the financial statements. It also provides
guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition and clearly scopes
income taxes out of SFAS 5, “Accounting for Contingencies”. FIN 48 is effective
for fiscal years beginning after December 15, 2006. We have not yet evaluated
the impact of adopting FIN 48 on our consolidated financial position, results
of
operations and cash flows.
In
September 2006 the Financial Account Standards Board (the “FASB”) issued its
Statement of Financial Accounting Standards 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, this Statement does not require
any
new fair value measurements. However, for some entities, the application of
this
Statement will change current practice. FAS 157 effective date is for fiscal
years beginning after November 15, 2007. The Company does not expect adoption
of
this standard will have a material impact on its financial position, operations
or cash flows.
Non-GAAP
Financial Measures
The
financial statements appearing in this quarterly report on Form 10-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 military and Homeland
Security, portable illumination,system, lighting and our hybrid lighting
technnology that is based on the recently acquired patent rights from Renssealer
Polytechnic Institute and at the University of California Santa
Barbara.
These
projected expenditures are dependent upon our generating revenues and obtaining
sources of financing in excess of our existing capital resources. There is
no
guarantee that we will be successful in raising the funds required or generating
revenues sufficient to fund the projected costs of research and development
during the next twelve months.
Acquisition
or Disposition of Plant and Equipment
We
do not
anticipate the sale of any significant property, plant or equipment during
the
next twelve months. We do not anticipate the acquisition of any significant
property, plant or equipment during the next 12 months.
ITEM
3.
CONTROLS AND PROCEDURES
(a) |
Evaluation
of Disclosure Controls and
Procedures.
|
In
connection with the preparation of this Report and in accordance with Item
307
of Regulation S-K, we carried out an evaluation, under the supervision and
with
the participation of management, including our Chief Executive Officer and
Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of September
30,
2008 because of remediative action taken to resolve an identified material
weakness in our internal control over financial reporting discussed
below.
Accounting
software in use prior to December 31, 2007 did not provide for the efficient
recording of movements in and out of raw materials and work-in-process
inventories, without the added manual intervention of accounting department
personnel, which presented opportunity for misstatement. During the month of
December, 2007 we evaluated and acquired new accounting software that was
designed to correct the weakness. This software was installed and implemented
effective January 1, 2008. Subsequent evaluation has determined the reliability
and accuracy of the recording, storage, and reporting of inventory transactions
during the period covered by this report ended September 30, 2008, in accordance
with Generally Accepted Accounting Principles.
(b) |
Changes
in Internal Control Over Financial
Reporting
|
During
the three month period ended September 30, 2008, there were no changes to our
internal control over financial reporting, other than the remediation of a
pre-existing material weakness identified above, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART
II -
OTHER INFORMATION
Item
1.
Legal Proceedings.
From
time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.
On
April
16, 2007, Casey Tool and Machine Co. filed a complaint against us in the Circuit
Court for the Fourth Judical District, Shelbyville, Illinois, alleging breach
of
contract for failure to pay $14,222 on an account payable. We intend to resolve
this matter in a judious manner.
On
September 5, 2007, we announced that we had commenced an action against AJW
Partners, LLC, AJW Offshore, LTD., AJW Qualified Partners, LLC, and New
Millennium Capital Partners II, LLC, (the “Defendants”) in the United States
District Court for the Southern District of New York for violations of the
anti-fraud provisions of the Securities Act of 1934, fraud, negligent
misrepresentation, breach of fiduciary duty, breach of contract, breach of
implied covenant of good faith and fair dealing and conversion. The complaint
alleges that the Defendants utilized an illegal trading scheme involving
deceptive secured loan financings to convert shares of Company’s common stock
for the Defendants’ own use and benefit. The trading scheme involved the
Defendants manipulating the Company’s stock price downward by short sales. In
addition the complaint seeks declaratory, injunctive and monetary relief. On
September 17, 2007, AJW Partners, LLC, AJW Offshore, LTD., AJW Qualified
Partners, LLC, New Millennium Capital Partners II, LLC and AJW Master Fund,
LTD,
filed and action against us in the Supreme Court of the State of New York,
County of New York alleging breach of contract. On September 26, 2007, we
removed the state law complaint to federal court to join the federal court
complaint. On March 17, 2008, the federal court having determined that it lacked
subject matter jurisdiction over the state court complaint, remanded the case
back to state court. On May 1, 2008, we filed our answer and affirmative and
separate defenses and our counterclaims for declaratory, injunctive and monetary
relief. This
litigstion is currently in the discovery phase.
On
September 13, 2007, Britannia Law Office commenced an action against us and
our
President, Mark D. Schmidt, in the General Court of Justice, Superior Court
Division, Durham County. North Carolina, alleging breach of contract, additional
payments due under contract, unjust enrichment, fraud and unfair trade practices
arising out of a consultant agreement. These
motions are currently pending. We believe that their claims are without merit
and we will vigorously defend these claims.
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds.
In
July
2008, we borrowed a aggregate of $132,500. In conjunction with the borrowing,
we
issued a total of 12,500,000 shares of our common stock.
On
July
29, 2008, we issued 36,000,000 shares of our common stock to our employees
pursuant to an Incentive Stock Grant
Plan.
On
August
7, 2008, we reissued 3,650,000 shares of Series B Convertible Preferred shares
(“Series B shares”) to management. The previously
issued Series B shares had been converted to common in a financing
transaction.
In
August
2008, we
borrowed a aggregate of $127,500. In conjunction with the borrowing, we issued
a
total of 15,000,000 shares of our common stock.
On
August
12, 2008, we issued 6,971,116 shares of common stock to RBSM Advisors, LLC
for
$62,740 in services.
On
September 9, 2008, we issued 2,200,000 shares of our common stock to D.G.
Yarborough, Inc. for $14,500 in services.
In
September 2008, we borrowed a aggregate of $56,250. In conjunction with the
borrowing, we issued a total of 7,500,000 shares of our common
stock.
Item
3.
Defaults Upon Senior Securities.
On
August
21, 2007, we received a Notice of Default from AJW Partners, LLC, New Millennium
Capital Partners II, LLC, AJW Qualified Partners, LLC and AJW Offshore, LTD.
(collectively, the “Investors”), claiming that we were purportedly in default of
certain obligations under our notes issued to the Investors due to our refusal
to honor any further conversion of notes to common stock.
Item
4.
Submission of Matters to a Vote of Security Holders.
None.
Item
5.
Other Information.
Subsequent
Event.
On
October 18, 2008, we filed a Protest with the Government Accountability Office
against the Air Force for procurement award irregularities.
Item
6.
Exhibits
31.1 |
Certification
of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
31.2 |
Certification
of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
32.1 |
Certifications
pursuant to 18 U.S.C. Sectopm 1350 as adopted pursuant to Section
906 of
the Sarbanes Oxley Act of 2002.
|
SIGNATURES
In
accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
CYBERLUX CORPORATION |
|
|
|
Date:
November 14, 2008
|
By: |
/s/
MARK D. SCHMIDT
|
|
|
Mark
D. Schmidt
|
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
|
|
Date:
November 14, 2008
|
By: |
/s/
DAVID D. DOWNING
|
|
|
David
D. Downing
|
|
|
Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|