SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~¨ TRANSITION REPORT~~For ~~PURSUANT~~the TOfiscal ~~SECTION~~year 13ended: ORDecember ~~15(d)~~31, ~~OF THE~~2009

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2008

Commission file number 000-33415

CYBERLUX CORPORATION (Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

Nevada		91-2048978
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4625 Creekstone Drive, Suite 130 Research Triangle Park Durham, North Carolina		27703
(Address of principal executive offices)		(zip code)

Nevada		91-2048978
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4625 Creekstone Drive, Suite 130
Research Triangle Park
Durham, North Carolina	27703
(Address of principal executive offices)	(zip code)

Issuer's Telephone Number: (919) 474-9700

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 par value

(Title if Class)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x o No ¨þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to Form 10-K.

Yes ¨o No x þ Delinquent filers are disclosed herein.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, or a small reporting company.

¨o Large ~~accerated filer ¨~~accelerated ~~Accelerated~~ filer ¨ o Non-accelerated filer x o Accelerated filer o Smaller reporting company

Total revenues for Fiscal Year ~~2008~~2009 were $~~632~~_121,~~529~~892, with an unfulfilled order backlog of $~~249~~203,~~781~~639.

The aggregate market value of the Common Stock held by non-affiliates (as affiliates are defined in Rule 12b-2 of the Exchange Act) of the registrant, computed by reference to the average of the high and low price on May 15 5, ~~2009~~2010, was $111,~~572~~509,~~283~~579.

As of May 15 5, ~~2009~~2010 there were ~~999~~ 15,~~955~~095,~~532~~789,033 shares of issuer’s common stock outstanding.

Transitional Small Business Disclosure Format (check one): Yes ~~¨ No x~~ o Noþ

~~CYBERLUX CORPORATION~~1

ANNUAL REPORT ON FORM 10-K

CYBERLUX CORPORATION ANNUAL REPORT ON FORM 10-K For the Fiscal Year Ended December 31, 2009 TABLE OF CONTENTS
PART I			Page
	Item 1. Item 2. Item 3. Item 4.	Business Properties Legal Proceedings Submission of Matters to a Vote of Security Holders	4 5 5 5
PART II
	Item 5. Item 6. Item 7. Item 8. Item8A(T.) Item 8B.	Market for Registrant’s Common Equity and Related Stockholder Matters Management’s Discussion and Analysis of Financial Condition and Results Of Operations Financial Statements… Changes in and Disagreements with Accountants on Auditing and Financial Disclosure Controls and Procedures. Other Information	6 10 26 54 54 55
PART III
	Item 9. Item 10. Item 11. Item 12.	Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management Certain Relationships and Related Transactions	56 59 62 64
PART IV
	Item 13. Item 14.	Exhibits Principal Accountant Fees and Services	65 70

	Signatures		71

For the Fiscal Year Ended December 31, 2007

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	3
Item 2.	Properties	4
Item 3.	Legal Proceedings	4
Item 4.	Submission of Matters to a Vote of Security Holders	5
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	6
Item 6.	Management’s Discussion and Analysis of Financial Condition and Results Of Operations	21
Item 7.	Financial Statements	41
Item 8.	Changes in and Disagreements with Accountants on Auditing and Financial Disclosure	42
Item 8A	Controls and Procedures	42
Item 8B.	Other Information	44
PART III
Item 9.	Directors and Executive Officers of the Registrant	45
Item 10.	Executive Compensation	48
Item 11.	Security Ownership of Certain Beneficial Owners and Management	50
Item 12.	Certain Relationships and Related Transactions	53
PART IV
Item 13.	Exhibits	54
Item 14.	Principal Accountant Fees and Services	59
Signatures		60

This Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are necessarily based on certain assumptions and are subject to significant risks and uncertainties. These forward-looking statements are based on management's expectations as of the date hereof, and the Company does not undertake any responsibility to update any of these statements in the future. Actual future performance and results could differ from that contained in or suggested by these forward-looking statements as a result of factors set forth in this Form 10-K (including those sections hereof incorporated by reference from other filings with the Securities and Exchange Commission), in particular as set forth in the "Management’s Discussion and Analysis and Results of Operation" under Item 6.

In this Form 10-K references to "Cyberlux", “the Company”, "we," "us," and "our" refer to Cyberlux Corporation.

PART I

ITEM 1. . DESCRIPTION OF BUSINESS

OVERVIEW

We are principally devoted to designing, developing and marketing advanced lighting systems that utilize white (and other) light emitting diodes as illumination elements.

We are developing and marketing new product applications of solid-state diodal illumination (TM) that demonstrate added value over traditional lighting systems. Using proprietary technology, we are creating a family of products including portable illumination systems for military and Homeland Security, retail products, commercial task and accent lighting, emergency and security lighting. We believe our solid-state lighting technology offers extended light life, greater energy efficiency and greater overall cost effectiveness than other existing forms of illumination. Our business model is to address the large lighting industry market segments with solid-state lighting products and technologies, including our proprietary hybrid lighting technology, that includes military and Homeland Security applications, direct and indirect task and accent lighting applications, indoor/outdoor ~~downlighting~~ down-lighting applications, commercial and residential lighting applications..

For the military and Homeland Security portable illumination products, our target markets include all branches of the military and all government organizations providing homeland security services, such as border control and airport security. For our retail products, our target customers include the home improvement and consumer goods retailers and name-brand companies that we would supply products to as the original equipment manufacturer.

REGULATION

Our advertising and sales practices concerning our products are regulated by the Federal Trade Commission and state consumer protection laws. Such regulations include restrictions on the manner that we promote the sale of our products. We believe we are in material compliance with such regulations. We believe that we will be able to comply in all material respects with laws and regulations governing the conduct of business operations in general. We are not aware of any pending government regulations that may adversely affect our business.

RESEARCH AND DEVELOPMENT ACTIVITIES

We anticipate continuing to incur research and development expenditures in connection with the development of our portable illumination system and new 2009 commercial product lines during the next twelve months. In addition, we will continue to incur research and development expenditures in connection with the commercialization of our Hybrid Lighting Technology.

These projected expenditures are dependent upon our generating revenues and obtaining sources of financing in excess of our existing capital resources. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected costs of research and development during the next twelve months.

Employees

We currently have 13 full time employees and eight firms acting as sales and business development agents. Our employees are primarily at the executive level based upon our role in coordination of outsource contracts for manufacturing and other production considerations. Currently, there exist no organized labor agreements or union agreements between us and our employees. We believe that our relations with our employees are good.

ITEM 2. DESCRIPTION OF PROPERTY

We maintain our principal office at 4625 Creekstone Drive, Suite 130, Research Triangle Park, Durham, North Carolina 27703. Our telephone number at that office is (919) 474-9700 and our facsimile number is (919) 474-9712. We lease 7,472 square feet of office space. The lease expires on December 31, 2012. The monthly rent is $115,~~002.52~~000, subject to an annual cost of living increase. We believe that our current office space and facilities are sufficient to meet our present needs and do not anticipate any difficulty securing alternative or additional space, as needed, on terms acceptable to us. We maintain websites at www.cyberlux.com and www.luxSel.com. The information contained on those websites is not deemed to be a part of this annual report.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as disclosed below, we are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

On ~~April 16~~December 11, ~~2007~~2009, ~~Casey~~Cyberlux ~~Tool~~Corporation ~~and~~reached ~~Machine Co. filed~~ a ~~complaint~~resolution ~~against~~of usits inlitigation ~~the~~with ~~Circuit Court for~~ the ~~Fourth~~NIR ~~Judical District~~Group, ~~Shelbyville, Illinois, alleging breach of contract for failure to pay $14,222 on an account payable~~Ltd. We ~~intend to~~and ~~resolve~~its ~~this matter in a judicious manner~~affiliates.

On September 5, 2007, we announced that we had commenced an action against AJW Partners, LLC, AJW Offshore, LTD., AJW Qualified Partners, LLC, and New Millennium Capital Partners II, LLC, (the “Defendants”) in the United States District Court for the Southern District of New York for violations of the anti-fraud provisions of the Securities Act of 1934, fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract, breach of implied covenant of good faith and fair dealing and conversion. The complaint alleges that the Defendants utilized an illegal trading scheme involving deceptive secured loan financings to convert shares of Company’s common stock for the Defendants’ own use and benefit. The trading scheme involved the Defendants manipulating the Company’s stock price downward by short sales. In addition the complaint seeks declaratory, injunctive and monetary relief. On September 17, 2007, AJW Partners, LLC, AJW Offshore, LTD., AJW Qualified Partners, LLC, New Millennium Capital Partners II, LLC and AJW Master Fund, LTD, filed and action against us in the Supreme Court of the State of New York, County of New York alleging breach of contract. On September 26, 2007, we removed the state law complaint to federal court to join the federal court complaint. On March 17, 2008, the federal court having determined that it lacked subject matter jurisdiction over the state court complaint, remanded the case back to state court. On May 1, 2008, we filed our answer and affirmative and separate defenses and our counterclaims for declaratory, injunctive and monetary relief. This litigation is currently in the discovery phase.

On September 13, 2007, Britannia Law Office commenced an action against us and our President, Mark D. Schmidt, in the General Court of Justice, Superior Court Division, Durham County. North Carolina, alleging breach of contract, additional payments due under contract, unjust enrichment, fraud and unfair trade practices arising out of a consultant agreement. Plaintiff seeks compensation pursuant to a consulting agreement of $30,000 and the issuance of five million shares of the Company’s common stock. These motions are currently pending. On March 12, 2009, the parties executed a mutual settlement and release agreement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the OTC Bulletin Board under the symbol "CYBL".

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

	High($)		Low ($)
2004
First Quarter		0.53		0.19
Second Quarter		0.85		0.27
Third Quarter		0.55		0.23
Fourth Quarter		0.35		0.06
2005
First Quarter		0.07		0.02
Second Quarter		0.20		0.05
Third Quarter		0.15		0.05
Fourth Quarter		0.15		0.06
2006
First Quarter		0.12		0.06
Second Quarter		0.08		0.06
Third Quarter		0.07		0.04
Fourth Quarter		0.05		0.02
2007
First Quarter		0.04		0.01
Second Quarter		0.02		0.01
Third Quarter		0.0083		0.0021
Fourth Quarter		0.037		0.0195
2008
First Quarter		0.0215		0.021
Second Quarter		0.129		0.0048
Third Quarter		0.009		0.0021
Fourth Quarter		0.042		0.003
2009
First Quarter		0.0045		0.001
Second Quarter		0.0035		0.001
Third Quarter		0.001		0.0009
Fourth Quarter		0.0009		0.0002
2010
First Quarter		0.0004		0.0001
Second Quarter (1)		0.0002		0.0001

Third Quarter	0.07	0.04
Fourth Quarter	0.05	0.02
2007
First Quarter	0.04	0.01
Second Quarter	0.02	0.01
Third Quarter	0. 0083	0.0021
Fourth Quarter	0.037	0.0195
2008
First Quarter	0.0215	0.021
Second Quarter	0,129	0.0048
Third Quarter	0.009	0.0021
Fourth Quarter	0.042	0.003
2009
First Quarter	0.0045	0.001
Second Quarter (1)	0.0035	0.001

(1) As of May 5, 2010

~~(1) As of May 14, 2009~~5

DESCRIPTION OF SECURITIES

Common Stock

We are authorized to issue up to 120,~~450~~000,000,000 shares of common stock, par value $.001. As of May 15 05, ~~2009~~2010, there were ~~999~~ 15,~~955~~095,~~532~~ 789,033 shares of common stock outstanding. Holders of the common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefore. Upon the liquidation, dissolution, or winding up of our company, the holders of common stock are entitled to share ratably in all of our assets which are legally available for distribution after payment of all debts and other liabilities and liquidation preference of any outstanding common stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are validly issued, fully paid and non-assessable.

Preferred Stock

Our Articles of Incorporation authorize the issuance of 10100,000,000 shares of preferred stock, $0.001 par value per share, the designation and rights of which are to be determined by our Board of Directors. Our Board of Directors has authority, without action by the shareholders, to issue all or any portion of the authorized but unissued preferred stock in one or more series and to determine the voting rights, preferences as to dividends and liquidation, conversion rights, and other rights of such series. We consider it desirable to have preferred stock available to provide increased flexibility in structuring possible future acquisitions and financing and in meeting corporate needs which may arise. If opportunities arise that would make desirable the issuance of preferred stock through either public offering or private placements, the provisions for preferred stock in our Articles of Incorporation would avoid the possible delay and expense of a shareholder's meeting, except as may be required by law or regulatory authorities. Issuance of the preferred stock could result, however, in a series of securities outstanding that will have certain preferences with respect to dividends and liquidation over the common stock which would result in dilution of the income per share and net book value of the common stock.

Issuance of additional common stock pursuant to any conversion right which may be attached to the terms of any series of preferred stock may also result in dilution of the net income per share and the net book value of the common stock. The specific terms of any series of preferred stock will depend primarily on market conditions, terms of a proposed acquisition or financing, and other factors existing at the time of issuance. Our Board of Directors may issue additional preferred stock in future financing, but has no current plans to do so at this time. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock.

As of May 15 6, ~~2009~~2010, we had 26.9806 shares of our Series A Convertible Preferred Stock issued and outstanding. Each share is convertible into 50,000 shares of common stock. The Series A Convertible Preferred have the following designations and rights:

Maturity:	Perpetual Preferred
Dividend:	12% per annum. The dividend shall be payable semi-annually in cash or common stock at our option.

Maturity:

Perpetual Preferred

Dividend:

12% per annum. The dividend shall be payable semi-annually in cash or common stock at our option.

Fixed Conversion Price:

The Series A Convertible Preferred shall be convertible into common stock at $0.10 per share.

Stated Value:

$5,000 per share

Mandatory Conversion:

Beginning 180 days from the effective date of a registration statement, if the closing bid price for our common stock exceeds $1.50 for a period of 10 consecutive trading days, we have the right to force the holders to convert the Series A Convertible Preferred into common stock at the applicable conversion price.

Limitations on Conversion.

Each holder of the Series A Convertible Preferred shares shall not convert the shares into common stock such that the number of shares of common stock issued after the conversion would exceed, when aggregated with all other shares of common stock owned by such holder at such time, in excess of 4.99% of our then issued and outstanding shares of common stock.

No Voting Rights.

The holders of the Series A convertible shares have no voting rights until their shares are converted to common shares.

The Board of Directors, pursuant to our Articles of Incorporation and By-Laws, authorized Series B Convertible Preferred Stock which was issued to officers and directors in order to convert accrued management fees and other liabilities ~~into4,650,000~~ into shares of the Series B Preferred Stock. The Series B Convertible Preferred Stock has the following designations and rights:

Term:

Perpetual Preferred

Dividend:

12% per annum

Conversion:

Each share of the Series B Convertible Preferred Stock may be converted to 10 shares of our common stock at the option of the bearer.

Voting Rights:

Except with respect to transactions upon which the Series B Preferred stock shall be entitled to vote separately, the Series B Preferred Stock shall have superior voting rights equal to ten times the number of shares of Common Stock such holder of Series B Preferred Stock would receive upon conversion of such holder's shares of Series B Preferred Stock. The conversion price is $0.10 per share.

Series C – Convertible Preferred stock

On November 13, 2006, the Company filed a Certificate of Designation creating a Series C Convertible Preferred Stock classification for 100,000 shares. Subsequently amended on January 11, 2007 to 700,000 shares. There are currently 150,000 Series C Convertible Preferred shares outstanding.

Term:	Perpetual Preferred
Dividend:	5% per annum
Conversion:	The shares of the Series C Preferred are convertible, at the option of the holder into common shares one year from issuance.

Term:

Perpetual Preferred

Dividend:

5% per annum

Conversion:

The shares of the Series C Preferred are convertible, at the option of theholder into common shares one year from issuance.

No Voting Rights.

The holders of the Series A convertible shares have no voting rights until their shares are converted to common shares.

Common stock

Options

There are currently options outstanding that have been issued to our officers and directors to purchase ~~235~~276,~~452~~952,307 shares of our common stock.

~~Convertible Securities and Warrants~~7

Not including approximately 83,010,628 shares of common stock issuable upon exercise of outstanding options and warrants, approximately 25,939,462 shares of common stock are issuable, based on current market prices, upon conversion of outstanding secured convertible notes issued pursuant to the Securities Purchase Agreement dated September 23, 2004, approximately 50,000,000 shares of common stock are issuable, based on current market prices, upon conversion of outstanding secured convertible notes issued pursuant to the Securities Purchase Agreement dated April 22, 2005. approximately 22,857,143 shares of common stock are issuable, based on current market prices, upon conversion of outstanding secured convertible notes issued pursuant to the Securities Purchase Agreement dated October 24, 2005 and approximately 22,222,222 shares of common stock are issuable, based on current market prices, upon conversion of outstanding secured convertible notes issued pursuant to the Securities Purchase Agreement dated December 28, 2005.

SEPTEMBER 2004 SECURITIES PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on September 23, 2004 for the sale of (i) $1,500,000 in secured convertible notes, and (ii) warrants to purchase 2,250,000 shares of our common stock. As of March 31, 2006, $597,194.10 of the secured convertible notes has been converted and $902,805.90 remains outstanding.

The investors provided us with an aggregate of $1,500,000 as follows:

· $500,000 was disbursed on September 23, 2004;

· $500,000 was disbursed on October 20, 2004; and

· $500,000 was disbursed on November 18, 2004.

The notes bear interest at 10%, mature two years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of:

· $0.72; or

· 50% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date.

Our right to repay the notes is exercisable on not less than ten trading days prior written notice to the holders of the secured convertible notes. For notice purposes, a trading day is any day on which our common stock is traded for any period on the OTC Bulletin Board. Notwithstanding the notice of prepayment, the holders of the secured convertible notes have the right at all times to convert all or any portion of the secured convertible notes prior to payment of the prepayment amount.

The full principal amount of the secured convertible notes are due upon default under the terms of secured convertible notes. The warrants are exercisable until five years from the date of issuance at a purchase price of $0.50 per share. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights. No dividend can be issued while the notes are in effect.

APRIL 2005 SECURITIES PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on April 22, 2005 for the sale of (i) $1,500,000 in secured convertible notes, and (ii) warrants to purchase 25,000,000 shares of our common stock.

The investors provided us with an aggregate of $1,500,000 as follows:

· $600,000 was disbursed on April 22, 2005;

· $500,000 was disbursed on May 24, 2005; and

· $400,000 was disbursed on July 19, 2005.

The notes bear interest at 10%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of:

· $0.03; or

· 50% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date.

We have a call option under the terms of the secured convertible notes. The call option provides us with the right to prepay all of the outstanding secured convertible notes at any time, provided we are not in default and our stock is trading at or below $.03 per share. Prepayment of the notes is to be made in cash equal to either (i) 125% of the outstanding principal and accrued interest for prepayments occurring within 30 days following the issue date of the secured convertible notes; (ii) 135% of the outstanding principal and accrued interest for prepayments occurring between 31 and 60 days following the issue date of the secured convertible notes; and (iii) 150% of the outstanding principal and accrued interest for prepayments occurring after the 60th day following the issue date of the secured convertible notes.

We also have a partial call option under the terms of the secured convertible notes in any month in which the current price of our common stock is below $0.03. Under the terms of the partial call option, we have the right to pay the outstanding principal amount of the secured convertible notes plus one-month's interest for that month, which will stay any conversions of the secured convertible notes by the holders for that month. The principal amount of the secured convertible notes to be repaid is determined by dividing the then outstanding principal amount of the notes by the maturity of the notes in months, or 36.

The full principal amount of the secured convertible notes are due upon default under the terms of secured convertible notes. The warrants are exercisable until five years from the date of issuance at a purchase price of $0.03 per share. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights. No dividend can be issued while the notes are in effect.

OCTOBER 2005 STOCK PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on October 24, 2005, for the sale of (i) $800,000 in secured convertible notes, and (ii) warrants to purchase 800,000 shares of our common stock.

The notes bear interest at 10%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of:

· $0.06; or

· 50% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date.

We also have a partial call option under the terms of the secured convertible notes in any month in which the current price of our common stock is below $0.10. Under the terms of the partial call option, we have the right to pay the outstanding principal amount of the secured convertible notes plus one-month's interest for that month, which will stay any conversions of the secured convertible notes by the holders for that month. The principal amount of the secured convertible notes to be repaid is determined by dividing the then outstanding principal amount of the notes by the maturity of the notes in months, or 36.

The full principal amount of the secured convertible notes are due upon default under the terms of secured convertible notes. The warrants are exercisable until five years from the date of issuance at a purchase price of $0.10 per share. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights. No dividend can be issued while the notes are in effect.

DECEMBER 2005 STOCK PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on December 28, 2005, for the sale of (i) $700,000 in secured convertible notes, and (ii) warrants to purchase 700,000 shares of our common stock.

The notes bear interest at 8%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of:

· $0.10; or

· 55% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date.

We have a call option under the terms of the secured convertible notes. The call option provides us with the right to prepay all of the outstanding secured convertible notes at any time, provided we are not in default and our stock is trading at or below $.09 per share. Prepayment of the notes is to be made in cash equal to either (i) 125% of the outstanding principal and accrued interest for prepayments occurring within 30 days following the issue date of the secured convertible notes; (ii) 135% of the outstanding principal and accrued interest for prepayments occurring between 31 and 60 days following the issue date of the secured convertible notes; and (iii) 150% of the outstanding principal and accrued interest for prepayments occurring after the 60th day following the issue date of the secured convertible notes.

We also have a partial call option under the terms of the secured convertible notes in any month in which the current price of our common stock is below $0.13. Under the terms of the partial call option, we have the right to pay the outstanding principal amount of the secured convertible notes plus one-month's interest for that month, which will stay any conversions of the secured convertible notes by the holders for that month. The principal amount of the secured convertible notes to be repaid is determined by dividing the then outstanding principal amount of the notes by the maturity of the notes in months, or 36.

The full principal amount of the secured convertible notes are due upon default under the terms of secured convertible notes. The warrants are exercisable until five years from the date of issuance at a purchase price of $0.15 per share. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights. No dividend can be issued while the notes are in effect.

MARCH 2006 STOCK PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on March 27, 2006, for the sale of (i) $500,000 in secured convertible notes, and (ii) warrants to purchase 19,000,000 shares of our common stock.

The notes bear interest at 8%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of:

· $0.06; or

· 55% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date.

We have a call option under the terms of the secured convertible notes. The call option provides us with the right to prepay all of the outstanding secured convertible notes at any time, provided we are not in default and our stock is trading at or below $.13 per share. Prepayment of the notes is to be made in cash equal to either (i) 125% of the outstanding principal and accrued interest for prepayments occurring within 30 days following the issue date of the secured convertible notes; (ii) 135% of the outstanding principal and accrued interest for prepayments occurring between 31 and 60 days following the issue date of the secured convertible notes; and (iii) 150% of the outstanding principal and accrued interest for prepayments occurring after the 60th day following the issue date of the secured convertible notes.

The full principal amount of the secured convertible notes are due upon default under the terms of secured convertible notes. The warrants are exercisable until seven years from the date of issuance at a purchase price of $0.10 per share. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights. No dividend can be issued while the notes are in effect.

JULY 2006 STOCK PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on July 28, 2006, for the sale of (i) $500,000 in secured convertible notes, and (ii) warrants to purchase 15,000,000 shares of our common stock.

The notes bear interest at 6%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of:

· $0.06; or

· 40% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date.

We have a call option under the terms of the secured convertible notes. The call option provides us with the right to prepay all of the outstanding secured convertible notes at any time, provided we are not in default and our stock is trading at or below $.13 per share. Prepayment of the notes is to be made in cash equal to either (i) 125% of the outstanding principal and accrued interest for prepayments occurring within 30 days following the issue date of the secured convertible notes; (ii) 135% of the outstanding principal and accrued interest for prepayments occurring between 31 and 60 days following the issue date of the secured convertible notes; and (iii) 150% of the outstanding principal and accrued interest for prepayments occurring after the 60th day following the issue date of the secured convertible notes.

SEPTEMBER 2006 STOCK PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on September 26, 2006, for the sale of (i) $280,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000 shares of our common stock.

The notes bear interest at 6%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of:

· $0.06; or

· 40% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date.

We have a call option under the terms of the secured convertible notes. The call option provides us with the right to prepay all of the outstanding secured convertible notes at any time, provided we are not in default and our stock is trading at or below $.13 per share. Prepayment of the notes is to be made in cash equal to either (i) 125% of the outstanding principal and accrued interest for prepayments occurring within 30 days following the issue date of the secured convertible notes; (ii) 135% of the outstanding principal and accrued interest for prepayments occurring between 31 and 60 days following the issue date of the secured convertible notes; and (iii) 150% of the outstanding principal and accrued interest for prepayments occurring after the 60th day following the issue date of the secured convertible notes.

DECEMBER 2006 STOCK PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on December 20, 2006, for the sale of (i) $600,000 in secured convertible notes, and (ii) warrants to purchase 20,000,000 shares of our common stock.

The notes bear interest at 6%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of:

· $0.06; or

· 40% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date.

We have a call option under the terms of the secured convertible notes. The call option provides us with the right to prepay all of the outstanding secured convertible notes at any time, provided we are not in default and our stock is trading at or below $.13 per share. Prepayment of the notes is to be made in cash equal to either (i) 125% of the outstanding principal and accrued interest for prepayments occurring within 30 days following the issue date of the secured convertible notes; (ii) 135% of the outstanding principal and accrued interest for prepayments occurring between 31 and 60 days following the issue date of the secured convertible notes; and (iii) 150% of the outstanding principal and accrued interest for prepayments occurring after the 60th day following the issue date of the secured convertible notes.

APRIL 2007 SECURITIES PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on April 18, 2007, for the sale of (i) $400,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000 shares of our common stock. The investors purchased all of the secured convertible notes on April 18, 2007.

The proceeds received from the sale of the secured convertible notes were used for business development purposes, working capital needs, pre-payment of interest, payment of consulting and legal fees and purchasing inventory.

The secured convertible notes bear interest at 8%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of (i) $0.10 or (ii) 25% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date. The full principal amount of the secured convertible notes is due upon default under the terms of secured convertible notes. The warrants are exercisable until seven years from the date of issuance at a purchase price of $0.02 per share. In addition, the conversion price of the secured convertible notes and the exercise price of the warrants will be adjusted in the event that we issue common stock at a price below the fixed conversion price, below market price, with the exception of any securities issued in connection with the Securities Purchase Agreement. The conversion price of the secured convertible notes and the exercise price of the warrants may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution of the selling stockholder’s position. As of the date of this filing, the conversion price for the secured convertible debentures and the exercise price of the warrants have not been adjusted. The selling stockholders have contractually agreed to restrict their ability to convert or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.9% of the then issued and outstanding shares of common stock. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights. No dividend can be issued while the notes are in effect.

MAY 2007 SECURITIES PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on May 1, 2007, for the sale of (i) $150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000 shares of our common stock. The investors purchased all of the secured convertible notes on May 1, 2007.

We will still need additional investments in order to continue operations to cash flow break even. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations again.

The proceeds received from the sale of the secured convertible notes will be used for business development purposes, working capital needs, pre-payment of interest, payment of consulting and legal fees and purchasing inventory. No dividend can be issued while the notes are in effect.

JUNE 6, 2007 SECURITIES PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on June 6, 2007, for the sale of (i) $150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000 shares of our common stock. The investors purchased all of the secured convertible notes on June 6, 2007.

JUNE 20, 2007 SECURITIES AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on June 20, 2007, for the sale of (i) $150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000 shares of our common stock. The investors purchased all of the secured convertible notes on June 20, 2007.

We also has a partial call option under the terms of the secured convertible notes in any month in which the current price of our common stock is below $0.10. Under the terms of the partial call option, we have the right to pay the outstanding principal amount of the secured convertible notes plus one-month's interest for that month, which will stay any conversions of the secured convertible notes by the holders for that month. The principal amount of the secured convertible notes to be repaid is determined by dividing the then outstanding principal amount of the notes by the maturity of the notes in months, or 36.

The full principal amount of the secured convertible notes is due upon default under the terms of secured convertible notes. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights. No dividend can be issued while the notes are in effect.

JULY 2007 SECURITIES PURCHASE AGREEMENT

To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on July 18, 2007, for the sale of (i) $150,000 in secured convertible notes, and (ii) warrants to purchase 10,000,000 shares of our common stock. The investors purchased all of the secured convertible notes on July 18, 2007.

The secured convertible notes bear interest at 8%, mature three years from the date of issuance, and are convertible into our common stock, at the investors' option, at the lower of (i) $0.02 or (ii) 25% of the average of the three lowest intraday trading prices for the common stock on the Over-The-Counter Bulletin Board for the 20 trading days before but not including the conversion date. The full principal amount of the secured convertible notes is due upon default under the terms of secured convertible notes. The warrants are exercisable until seven years from the date of issuance at a purchase price of $0.02 per share. In addition, the conversion price of the secured convertible notes and the exercise price of the warrants will be adjusted in the event that we issue common stock at a price below the fixed conversion price, below market price, with the exception of any securities issued in connection with the Securities Purchase Agreement. The conversion price of the secured convertible notes and the exercise price of the warrants may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution of the selling stockholder’s position. As of the date of this filing, the conversion price for the secured convertible debentures and the exercise price of the warrants have not been adjusted. The selling stockholders have contractually agreed to restrict their ability to convert or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.9% of the then issued and outstanding shares of common stock. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights.

Penny Stock Regulation.

Shares of our common stock are subject to rules adopted by the Securities and Exchange Commission that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure prepared by the Securities and Exchange Commission, which contains the following:

·	A description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

·	A description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities’ laws;

·	A brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the “bid” and “ask” price;

·	A toll-free telephone number for inquiries on disciplinary actions;

·	Definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and

·	Such other information and in such form (including language, type, size and format), as the Securities and Exchange Commission shall require by rule or regulation.

Prior to effecting any transaction in a penny stock, the broker-dealer also must provide the customer the following:

·	The bid and offer quotations for the penny stock;

·	The compensation of the broker-dealer and its salesperson in the transaction;

·	The number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

·	Monthly account statements showing the market value of each penny stock held in the customer’s account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Holders of shares of our common stock may have difficulty selling those shares because our common stock will probably be subject to the penny stock rules for an indeterminate period of time.

Recent Sales of Unregistered Securities

In On January ~~2008~~22, ~~holders~~2009, ~~converted~~we 2issued ~~shares~~to ofmanagement ~~preferred stock – Series A into 100~~1,000,000 shares of ~~common~~our ~~stock. Each~~Series ~~share~~B ofConvertible ~~preferred~~Preferred stock, ~~is convertible~~par ~~into~~value 50$0.001,~~000~~ ~~shares~~pursuant ofto ~~common~~a stock grant.

InOn ~~January~~April ~~2008~~15, we2009, ~~issued~~Messrs. ~~100~~Ninneman, Ringo and Schmidt returned 5,000 ,000. 5,000,000 and 10,000,000 shares, respectively of ~~its~~our ~~common~~ Common stock into ~~exchange~~treasury ~~for~~to ~~services~~assist ~~rendered~~the Company in its financings.

InOn ~~March~~June ~~2008~~5, ~~the~~2009, ~~Company~~Messrs. Ninneman, Ringo and Schmidt were issued 6 30,~~763~~000,~~300~~000 shares of ~~its~~our ~~common~~Common stock, aspar ~~security~~value in$0.001, ~~conjunction~~pursuant ~~with~~to ~~the sale of~~ a ~~warrant~~stock grant.

InOn ~~March~~August ~~2008~~10, ~~the~~2009, ~~Company~~Messrs Ringo, Ninneman, Downing, Schmidt, and Brown were issued 7 3,~~500~~850,000 ~~shares~~Series ofB ~~its~~Convertible ~~common~~Preferred stock, inpar ~~conjunction~~value ~~with~~$0.001 ~~the~~pursuant ~~sale~~to of a ~~warrant~~ stock grant.

~~In April 2008, we borrowed a aggregate of $122,000. In conjunction with the borrowing, we issued a total of 10,000,000 shares of our common stock..~~8

InOn ~~May~~September ~~2008~~21, ~~we borrowed a aggregate of $63~~2009,~~000. In~~ ~~conjunction with the borrowing,~~ we issued aScott ~~total~~Elliott ~~of 15~~4,000,000 million shares of our common stock for services rendered..

InOn ~~June~~October ~~2008~~8, 2009, we ~~borrowed~~issued ato ~~aggregate of~~management ~~$49,000. In~~and ~~conjunction~~certain ~~with~~key ~~the~~employees, ~~borrowing~~72,003,674 weshares ~~issued~~of aour ~~total~~Series ~~of 5~~B Common stock,~~000,000~~ ~~shares~~par ofvalue ~~our~~$0.001, ~~common~~pursuant to a stock grant..

InOn ~~June~~November ~~2008~~25,2009, we issued 530,000,000 ~~shares~~ toof ~~Donald~~our F.Common ~~Evans~~Stock, ~~our~~par ~~former~~value, ~~CEO~~$001, ~~and Chairman of the Board~~ pursuant to a ~~Separation~~debt ~~Agreement~~purchase agreement.

InOn ~~July~~December ~~2008~~29, 2009, we ~~borrowed~~issued ato ~~aggregate of~~management ~~$132~~16,500~~. In~~,000 ~~conjunction~~shares ~~with~~of ~~the~~our ~~borrowing,~~Series weB ~~issued~~Convertible aPreferred ~~total of 12~~stock,~~500,000~~ ~~shares~~par ofvalue ~~our~~$0.001, ~~common~~pursuant to a stock grant.

On July 29, 2008, we issued 36,000,000 shares of our common stock to our employees pursuant to an Incentive Stock Grant

Plan.

On August 7, 2008, we reissued 3,650,000 shares of Series B Convertible Preferred shares (“Series B shares”) to management. The previously issued Series B shares had been converted to common in a financing transaction.

In August 2008, we borrowed an aggregate of $127,500. In conjunction with the borrowing, we issued a total of 15,000,000 shares of our common stock.

On August 12, 2008, we issued 6,971,116 shares of common stock to RBSM Advisors, LLC for $62,740 in services.

On September 9, 2008, we issued 2,200,000 shares of our common stock to D.G. Yarborough, Inc. for $14,500 in services.

In September 2008, we borrowed an aggregate of $56,250. In conjunction with the borrowing, we issued a total of 7,500,000 shares of our common stock.

In October 2008, we borrowed an aggregate of $146,735, In conjunction with the borrowing, we issued a total of 38,712,121

shares of our common stock.

On October 21, 2008, we issued 2,000,000 shares to David D. Downing for $7,200 in services.

In October 2008, we issued 8,000,000 shares to Scott Elliott for $26,400 in services.

On December 2, 2008, we issued 250,000 shares to Matthew Hendrickson for $375 in services.

On December 17, 2008, we issued 25,250,000 shares of our common stock to our employees pursuant to an Incentive Stock Grant Plan.

In December 2008, we borrowed an aggregate of $29,250. In conjunction with the borrowing, we issued a total of 22,500,000 shares of our common stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULT OF OPERATIONS.

This report contains forward-looking statements. Actual results and events could differ materially from those projected, anticipated, or implicit, in the forward-looking statements as a result of the risk factors set forth below and elsewhere in this report.

With the exception of historical matters, the matters discussed herein are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning anticipated trends in revenues and net income, projections concerning operations and available cash flow. Our actual results could differ materially from the results discussed in such forward-looking statements. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto appearing elsewhere herein.

Overview

We ~~are~~have ~~a Nevada~~been ~~corporation~~principally ~~that~~devoted ~~was incorporated on May 17, 2000. We were founded~~ to ~~design,~~ ~~develop~~designing, ~~market~~developing and ~~sell~~marketing advanced lighting systems that utilize ~~light emitting~~white diodes as illumination elements. White diodes are a relatively new phenomenon that offer major advances in illumination technology. Our diodes consume 92% less energy than incandescent counterparts to produce comparable light output. In electrochemical (~~battery powered) applications, this diminution of energy consumption positions our lighting solutions as more durable~~ and ~~reliable~~ ~~than~~ other interim lighting alternatives. In standard alternating current electrical applications, the calculated life of LEDs as lighting elements is over 20 years versus 750 hours for traditional incandescent light bulbs. These exceptional performance characteristics, diminutive energy consumption and extended life, have prompted diode implementation in traffic lights and automotive brake lights, but have not yet significantly occurred in our area of focus, diodal illumination (tm). ~~Diodal illumination is the production of~~ light ~~through the use of white light~~ emitting diodes. A light emitting diode is a chemical compound that produces a visible light when an electrical current is applied. This production of light through a diode is contrasted with light from a typical light bulb, in which light is produced as ~~a by-product~~illumination ~~of a burning filament contained within a vacuum globe~~elements. ~~The diode uses 92% less energy to produce comparable light to that of a traditional light bulb.~~

OnWe ~~January~~are ~~15,~~developing ~~2008,~~and wemarketing ~~announced~~new product applications of solid-state diodal illumination (TM) that ~~the~~ demonstrate added value over traditional lighting systems. Using proprietary technology, we ~~had~~are ~~been~~creating ~~selected~~a tofamily ~~provide~~of products including portable ~~task~~illumination ~~lighting~~systems for ~~the~~military ~~City~~and ofHomeland ~~New York's~~Security, ~~new~~retail ~~911~~products, ~~Public~~commercial ~~Safety~~task ~~Answering~~and ~~Center.~~accent ~~Selected~~lighting, byemergency ~~Evans~~and ~~Consoles,~~security ~~the manufacturer~~lighting. ofWe ~~the~~believe ~~new~~our ~~911~~solid-state ~~Dispatch~~lighting ~~Command~~technology ~~Consoles~~offers extended light life, ~~the~~greater ~~Cyberlux~~energy ~~Portable~~efficiency ~~LED Task~~and ~~Light~~greater ~~will~~overall ~~illuminate~~cost ~~the~~effectiveness ~~work~~than ~~environment~~other existing forms of illumination. Our business model is to address the ~~new~~large ~~911~~lighting ~~public~~industry ~~safety call~~market ~~taking~~segments with solid-state lighting products and ~~dispatching~~technologies, ~~operators.~~including Weour ~~received~~proprietary anhybrid ~~initial~~technology, ~~order~~that ~~from~~includes ~~Evans Consoles~~military ~~for~~and ~~355~~Homeland ~~units~~Security ~~valued~~applications, atdirect ~~over~~and ~~$64~~indirect task and accent lighting applications,~~000~~ indoor/outdoor down-lighting applications, commercial and residential lighting applications..

21For the military and Homeland Security portable illumination system products, our target markets include all branches of the military and all government organizations providing homeland security services, such as border control and airport security. For our retail products, our target customers include the home improvement and consumer goods retailers. In the commercial markets, our task and accent lighting products and emergency and security lighting products address the lighting needs in restaurants, hotels, hospitals, nursing homes, airports, shopping centers and multiple family complexes; long-term evacuation solutions for theaters, office and public buildings; reduced maintenance cost solutions for property managers as applied to walkway, corridor or landscape lighting unit.

~~The~~On ~~milspec~~March ~~LED~~27, ~~Task~~2009, ~~Light~~we ~~performs~~announced ~~for over~~that we ~~50,000~~had ~~hours~~introduced ~~without~~two anew ~~lighting~~categories ~~element~~of ~~replacement~~outdoor commercial-grade lighting products, ~~and~~the ~~operates~~Outdoor ~~with~~Area ~~up to~~Lighting ~~52%~~and ~~more~~the ~~energy~~Outdoor ~~efficiency~~Overhead onLighting, ~~low~~that ~~lighting~~will ~~levels~~expand ~~and~~our upproduct offering to ~~31%~~address ~~more~~large ~~energy efficiency~~emerging oncommercial ~~high~~opportunities. ~~lighting~~To ~~levels~~capture ~~when~~these ~~compared~~opportunities, towe ~~traditional~~have ~~fluorescent~~incorporated ~~task lighting.~~the ~~Our~~advanced ~~milspec~~capabilities of our military-grade LED ~~Task~~lighting ~~Lighting~~technology ~~products~~into ~~provide~~a upgeneral topurpose ~~1000~~lighting ~~lumens~~product ~~of illumination~~line ~~with~~for 12existing ~~watts~~Department of ~~power~~Defense ~~and~~(DoD), ~~utilize~~Federal, astate ~~patent-pending~~and ~~thermal management~~local ~~system~~governments ~~for~~and ~~optimal~~commercial ~~lighting performance~~customers.

InOur ~~addition,~~Outdoor ~~our~~Area ~~milspec~~Lighting ~~LED~~(OAL) ~~Task~~and ~~Light is~~ the ~~only~~Outdoor ~~LED~~Overhead ~~task~~Lighting ~~light~~(OOL) ~~available~~products ~~that~~deliver ~~is compatible with~~ the ~~Johnson Controls~~most ~~Personal~~energy ~~Environments~~efficient ~~control~~white ~~center.~~LED ~~The~~lighting ~~Johnson~~for ~~Control~~outdoor ~~system~~area ~~is typically~~illumination ~~used~~and byoutdoor ~~call~~overhead ~~center~~illumination ~~operators,~~commercially ~~including~~available. ~~those~~Designed into ~~New~~provide ~~York~~ideal ~~City,~~light ~~to control~~dispersion ~~lighting, heating~~ and ~~air~~illumination ~~conditioning~~for ~~within~~outdoor ~~their~~areas, ~~personal~~We ~~operating environment.~~have ~~The~~designed ~~dual-arm~~the ~~milspec~~OAL ~~LED~~and ~~Task~~OOL ~~Light~~configurations isto ~~adjustable~~flexibly ~~and~~illuminate ~~adaptable to~~ any ~~call~~outdoor ~~center~~area, ~~operator's~~including ~~lighting~~pathways, ~~needs~~walkways and isparking ~~dimmed~~lots, ~~and~~where ~~controlled~~DC ~~using~~solar ~~the Johnson~~power ~~Controls~~or ~~system~~AC topower ~~vary~~is ~~the amount of light according to task~~available.

OnOur ~~February~~Outdoor ~~19,~~Overhead ~~2008,~~Lighting weis ~~announced~~available ~~that we had received the first commitment~~ for 80general ~~BrightEye~~ and 60solar ~~WatchDog~~street ~~Visible~~ light and ~~Covert~~parking ~~Portable~~lot ~~Illumination Systems from the United States Air Force (USAF). This initial USAF order for Cyberlux tactical~~ lighting ~~equipment~~applications ~~equates to $3,318,646 in revenue, including spares~~ and ~~maintenance~~has ~~supplies. We projected that operations will be cash flow positive with~~ the ~~fulfillment~~following ~~of these~~operational ~~first USAF orders.~~characteristics:

The 2008 Department of Defense Appropriations legislation contains $8.0 million for the equipping of the USAF with our Portable Illumination Systems. As part of this $8.0 million budget, the USAF Air Mobility Command will first fulfill the requirements of the Operations, Installation and Mission Support commands for the BrightEye and WatchDog systems. The remaining $4.6 million appropriations will be allocated within the Air Mobility Command and other USAF commands during the remaining Fiscal Year 2008.9

~~The~~Each ~~BrightEye~~OOL ~~Portable~~Lighthead ~~Illumination System~~illuminates ~~is designed as~~ a ~~portable~~minimum ~~visible~~40’ ~~and~~x ~~night-vision~~40’ ~~compatible illumination~~grid ~~system~~with ~~for~~directed general mission tactical lighting, force protection, maintenance lighting, expeditionary base protection, disaster first responders, and other rapidly deployable high-intensity lighting applications. Using advanced optics, advanced solid-state lighting technology, and light-weight battery power, all contained in an easily transportable wheeled case, the BrightEye system is capable of eliminating the space-consuming bulk, noise and energy consumption of the current generator-powered incandescent lighting systems. Unique to the marketplace, the BrightEye system provides both white and night-vision compatible covert lighting, a capability not available in traditional lighting systems.

OnPerforms March 24, 2008, we announced that that we had successfully completed the field demonstration of the new 4-meter tower-based BrightEye high-performance solid-state LED lighting system. The testing was conducted by Cyberlux and the United States Air Force Air Mobility Command at Fort Huachuca, the home to the U.S. Army Intelligence Center, located in Arizona. The new BrightEye 4M Tower Portable Illumination System is the latest product developed by Cyberlux to fulfill the United States Air Force requirements for ~~portable,~~over ~~light-weight~~50,000 ~~battery-powered~~hours ~~visible~~without ~~and~~a ~~covert night vision- compatible~~ lighting ~~systems~~element ~~for air field support, aircraft maintenance and forward air base in-theater lighting capability.~~replacement

~~The BrightEye 4M Tower Portable Illumination~~ System ~~was~~is ~~tested~~more inthan ~~both~~37% ~~visible~~more ~~and~~energy ~~covert~~efficiency ~~lighting~~compared ~~modes~~ to ~~demonstrate~~ ~~advanced~~traditional lighting capability during various scenarios, including force protection and broad area security lighting, first responder rapid set up capability, night vision-compatible illumination for aircraft maintenance, and general operational lighting for ground operation support of supply aircraft such as the C-130. All testing scenarios met the Air Mobility Command (AMC) expectations, including illumination levels, power system runtimes, system weight levels and deployment set-up times.

~~The~~Provides ~~2008~~up ~~Department~~to of3,000 ~~Defense Appropriations~~lumens ~~legislation contains $8.0 million for the equipping~~ of ~~the~~illumination ~~United States Air Force (USAF)~~ with ~~Cyberlux~~40 ~~Portable~~watts Illumination Systems. Of the $8.0 million budget, the USAF Air Mobility Command will utilize $3.3M to fulfill initial Operations, Installation and Mission Support requirements. The remaining $4.6M will be allocated within the USAF for the purchase of ~~various~~12 ~~BrightEye systems~~- ~~including~~32 ~~the~~VDC ~~Dual Lighthead Portable Illumination Systems and the new 4M Tower Portable Illumination System during the remaining Fiscal Year 2008.~~power

22Solar System Configuration: OOL Lighthead, Solar Panel Pole Set and Batteries

InUp anto ~~earlier~~4 ~~field~~Lightheads ~~test~~per ~~evaluation~~system (40, ~~the~~ ~~AMC determined that the BrightEye System is 97% smaller in footprint~~80, ~~weighs 94% less than the current diesel- powered incandescent lighting systems and saves an estimated 63% in daily operating costs. In addition~~120, ~~the~~& ~~AMC~~160 ~~concluded that the BrightEye System provides versatile and economical tactical lighting capability as required by expeditionary forces across all U.S. armed services.~~watts)

OnMounting ~~April~~hardware 8,kit ~~2008,~~including weDC ~~announced~~control ~~that that we had competed its National Program budget forecast for solid-state lighting systems for use within the Department of Defense (DOD) and submitted this forecast to its sponsorship~~ in ~~the~~an ~~House~~outdoor ofrated Representatives and Senate for 2009 Fiscal Year (October 1, 2008 to September 30, 2009) budget consideration. We estimated the continuation of its Portable Illumination System National Program rollout within the DOD to be more than $25 million, which represents expanded demand for its tactical covert and visible lighting systems of over 300% from 2008 to 2009.box

~~Although~~Our weOutdoor ~~delivered~~Area ~~our~~Lighting ~~BrightEye~~is ~~and WatchDog~~designed ~~Systems~~as toa ~~certain~~multi-use ~~commands~~general ~~within~~lighting ~~the~~product ~~USAF~~for ~~and~~broad ~~the~~area ~~National~~lighting ~~Guard and the USAF has committed $3.3 million~~ of ~~the~~buildings, ~~$8.0~~parking ~~million 2008 National Program budget for Portable Illumination Systems~~garages, ~~these~~outdoor ~~equipment~~easements ~~requests,~~ and ~~the remaining~~thruways ~~$4.7M~~and ~~2008 budget, remain unshipped pending designation of the National Stocking Numbers (NSNs) by the Defense Logistics Agency. This protracted accounting delay~~ has ~~created~~ the ~~need~~following ~~for~~operational ~~two short-term equity financings which have recently been concluded.~~characteristics:

OnEach ~~April~~OAL ~~17,~~Lighthead ~~2008,~~illuminates ~~we announced that we received~~ a ~~request~~minimum ~~from~~20’ ~~the~~x ~~National~~20’ ~~Guard~~grid towith ~~participate~~directed in the Vigilant Guard 2008 Disaster Response Exercise in Beaufort, South Carolina from April 21st through April 24th. The Vigilant Guard event is designed to simulate the chaotic aftermath of an earthquake or terrorist attack and will include 50 specific missions designed to test emergency response, search and rescue, evacuation and distribution of goods capabilities. We deployed a team of our specialists to operate the BrightEye 4M Tower Illumination Systems and the BrightEye Dual Lighthead Tactical Illumination Systems to provide rapid set-up and 'stadium-bright' lighting capability during the various exercises.light

~~Over~~Performs ~~the last two years, we haave worked with select National Guard units and the National Guard Bureau to refine the capabilities of our portable visible and night-vision compatible illumination systems~~ for general mission tactical lighting, disaster first response, force protection, maintenance lighting, expeditionary base protection and other rapidly deployable high-intensity lighting applications. Participation in the Vigilant Guard 2008 event, along with over 250,000 ~~National~~hours ~~Guardsmen~~without ~~from 11 states, is~~ a ~~continuation~~lighting ofelement ~~the customer/manufacturer solutions-oriented relationship we have developed with the National Guard.~~replacement

OnSystem ~~April~~is ~~24,~~more ~~2008,~~than we31% ~~announced~~more ~~that~~energy ~~we had~~efficiency ~~received~~compared ~~a purchase commitment for 10 BrightEye Dual Lighthead Tactical Illumination Systems from the Air National Guard. The initial Air National Guard order for 10 BrightEye Systems equates~~ to ~~$187,412~~traditional ~~in revenue. In December 2007, the National Guard Bureau purchased 17 BrightEye Systems, a $313,004 purchase order, to equip the Nation's emergency response CERFP teams.~~lighting

~~Over~~System ~~the~~provides ~~last~~up ~~year, we have worked with select Air National Guard units~~ to ~~evaluate~~4500 ~~the~~lumens ~~BrightEye products in order to refine the capabilities~~ of ~~the Cyberlux portable visible and night-vision compatible~~ illumination ~~systems.~~from ~~The~~69 ~~Air~~watts ~~National~~of Guard intends to deploy the 10 BrightEye Dual Lighthead Tactical Illumination Systems to Aviation Support Facilities across the country. The BrightEye Systems will be used for aircraft maintenance lighting, expeditionary base lighting and other high-intensity lighting applications that require rapid deployment and a small size/weight footprint.power

OnSystem ~~May~~operates 2,on ~~2008,~~120V we/ announced that the U.S. Patent Office has recently awarded patent protection for 29 claims contained within two of our patent filings that address the apparatus and methods for providing multi-mode solid-state lighting. These 29 claims provide us with patent protection that extends to its WatchDog and BrightEye family of tactical lighting products, as well as other future product releases.69W

~~The~~On ~~claims~~March ~~awarded~~31, by2009, ~~the~~we ~~U.S.~~announced that we ~~Patent Office~~had ~~address~~introduced atwo ~~broad~~categories ~~array~~ of ~~solid-state~~outdoor lighting ~~devices~~products, Outdoor Area Lighting and Outdoor Overhead Lighting, that ~~are~~will ~~comprised of~~expand anour ~~array~~product ofofferings ~~light~~to ~~emitting~~the ~~diodes~~Department of Defense (~~LEDs~~DoD) agencies and also address large emerging commercial opportunities. To capture these opportunities, we along with Sacred Power Corporation, a ~~corresponding~~leading ~~control~~provider ~~circuit that~~of ~~provides~~renewable energy solutions, have teamed to incorporate the ~~system~~advanced capabilities of our lighting with ~~power~~Sacred ~~sensing~~Power’s product line for existing DoD, ~~motion~~Federal ~~sensing~~government and ~~ambient~~commercial ~~light sensing~~customers. We have received an initial order from Sacred Power for ~~system~~both ~~control,~~the ~~along~~Overhead ~~with~~and aArea ~~localized~~lighting, ~~electrical~~which ~~energy~~will ~~source~~be ~~that powers~~incorporated in the ~~array~~Sacred ofPower ~~LEDs~~solar ~~for~~solutions. ~~illumination~~Sacred Power, ~~along~~a ~~with~~Native aAmerican ~~reflector~~owned ~~positioned proximate~~and tooperated ~~the~~8(a) ~~array~~certified ofcompany, ~~LEDs~~specializes ~~for~~in ~~reflecting~~solar power solutions and ~~optimizing~~provides ~~the~~innovative ~~light~~renewable ~~output~~energy of technologies to the ~~LEDs~~Department of Defense (DoD), Federal government and commercial marketplace.

23This joint initiative between Cyberlux and Sacred Power is the next project under the scope of the companies’ prime contractor/subcontractor partnering agreement for solid-state lighting and solar power renewable energy opportunities. The first project the two companies have delivered together is a portable, solar powered visible and covert LED security lighting system for future deployment across the DoD agencies, which is now being tested and evaluated by Sandia National Laboratories on behalf of the DoD. The combination of solar power and advance lighting capabilities position both companies as leaders in the Energy, Security and Power Surety market segments.

InFrom ~~addition,~~ the ~~awarded~~macro-economic ~~claims~~factors ~~address~~ such as the ~~method~~performance of ~~operating~~the ancapital ~~LED~~markets ~~light~~to ~~device~~the ~~that~~micro-economic ~~operates~~reality byof ~~sensing~~the ~~electrical power~~limited ~~information,~~availability ~~sensing mode~~ of ~~illumination~~small ~~information~~business ~~provided~~credit, bywe, alike ~~user via~~many asmall ~~user interface~~companies, ~~sensing~~have ~~LED~~had ~~intensity~~to ~~information~~focus ~~provided~~on byits ~~the~~core ~~user~~business ~~via the~~opportunities ~~user~~and ~~interface,~~the ~~directing~~long-term angrowth ~~array~~and prosperity of ~~LEDs~~the toCompany, ~~operate~~sometimes inat ~~either~~the aexpense ~~spot-light mode~~ of ~~illumination,~~the aour ~~flood~~short-~~light~~term ~~mode~~objectives. The offinancial ~~illumination,~~market orcollapse ahas ~~combined~~caused ~~mode~~all ~~of illumination~~investors, ~~based~~no ~~upon~~matter what the ~~sensed~~quality ~~mode~~ of ~~illumination information, and displaying~~ the ~~information~~security toor the ~~user~~investment ~~via~~risk ~~a user interface based upon the sensed battery electrical power information~~involved, ~~the~~to ~~sensed~~re-evaluate ~~mode~~their ofinvestment ~~illumination information,~~strategies and ~~the~~their ~~sensed~~allocation ~~LED~~of ~~intensity information~~capital.

~~The~~Management 29has ~~claims~~focused ~~awarded~~on ~~under~~our patented LED technology knowledge and our ~~two patent~~product ~~filings~~capability ~~create~~in anthe ~~extensible~~existing ~~intellectual~~Department ~~property~~of ~~platform~~Defense (DoD) Agency and Homeland Security/First Responder channels, but we have significantly changed our model from competing as the prime contractor for ~~current tactical~~DoD ~~lighting~~contracts ~~system~~to ~~production~~being the supplier who supports existing prime contractors and ~~future~~existing ~~lighting~~contracts. ~~system development~~In addition, Management has also significantly changed our retail product strategy to become the product innovator and supplier to large existing retail marketing companies who have the scale and capability to bring a product to market world-wide. These 'go-to-market' strategy changes are significant and have far-reaching implications for how we create value in the marketplace, how the business scales and grows, how brand equity is created and how the value in the underlying equity of the company grows.

On May 12, 2008, we announced that we had received the next in a series of multi-million dollar commitments from the United States Air Force (USAF). The new commitment represents an additional 50 WatchDog Visible and Covert Portable Illumination Systems, an additional 30 BrightEye Dual Lighthead Portable Illumination Systems and 40 BrightEye 4M Tower Portable Illumination Systems. This USAF order for our tactical lighting equipment equates to $2,189,245 in revenue, including spares and maintenance supplies. We projected that with aggregate USAF orders of over $5.5 million, operations will be profitable upon fulfillment of these orders.10

~~The~~We ~~2008~~continue ~~Department~~to ofmake ~~Defense Appropriations~~hard-fought ~~legislation~~progress ~~allocates~~in $8the marketplace.0 This ~~million~~has ~~for~~required ~~the~~drastic ~~equipping~~measures ofappropriate for the ~~USAF with~~times ~~our~~and ~~Portable~~the ~~Illumination~~circumstances, ~~Systems.~~but, Asnonetheless ~~part~~progress ofhas ~~this~~been ~~$8.0~~made ~~million~~towards ~~budget,~~our sustainability ~~the USAF~~and ~~Air~~future ~~Mobility~~growth. ~~Command~~Management ishas ~~fulfilling~~reduced ~~the~~all ~~requirements~~non-essential ~~of the Logistics~~personnel, ~~Operations,~~ ~~Installation~~cut ~~and~~all ~~Mission~~available ~~Support~~operating ~~commands~~costs ~~for the BrightEye~~ and ~~WatchDog~~ ~~systems.~~senior ~~The~~management ~~remaining~~has ~~$2.5~~deferred ~~million~~compensation inuntil ~~appropriations~~we ~~will~~are bestabilized ~~allocated within~~and ~~other~~executing ~~USAF~~the ~~commands~~new ~~during~~revenue ~~Fiscal~~and ~~Year~~sales ~~2008 which ends September 30th~~strategy.

~~BrightEye~~In ~~Portable~~this ~~Illumination~~business ~~System family~~environment, isour ~~designed~~management ashas ~~visible~~focused on our patented LED technology, our proprietary knowledge and ~~night-vision~~our ~~compatible~~product ~~illumination~~development ~~systems for~~and ~~general~~manufacturing ~~mission~~capability. ~~tactical~~In ~~lighting,~~the ~~force~~existing ~~protection,~~Department ~~maintenance~~of ~~lighting, expeditionary~~Defense ~~base~~(DoD) ~~protection,~~and ~~disaster~~Homeland ~~first~~Security/First ~~responders~~Responder channels, ~~and~~Management ~~other~~has ~~rapidly deployable~~significantly ~~high-~~changed ~~intensity~~our ~~lighting~~model ~~applications.~~from ~~Using~~competing ~~advanced~~as ~~optics, advanced~~the ~~solid-state~~prime ~~lighting~~contractor ~~technology,~~for ~~light-weight~~DoD ~~Li-On~~contracts. ~~battery~~In ~~power~~January, ~~all contained~~we intransformed anour ~~easily~~Go-to-Market ~~transportable~~strategy ~~wheeled~~from ~~case,~~competing ~~the~~as ~~BrightEye~~a ~~system~~prime ~~is capable~~contractor ofto ~~eliminating~~being the ~~space-consuming~~supplier ~~bulk,~~who ~~noise~~supports existing prime contractors and ~~energy~~existing ~~consumption~~contracts. ~~of the~~In ~~current~~addition, ~~generator-powered~~Management ~~incandescent~~has ~~lighting~~also ~~systems.~~significantly ~~Unique~~changed our retail product strategy to ~~the marketplace,~~become the ~~BrightEye~~product ~~system~~innovator ~~provides~~and ~~both~~supplier ~~white~~to ~~and~~large ~~night-vision compatible~~existing ~~covert~~retail ~~lighting,~~marketing acompanies that have the scale and capability ~~not~~to ~~available~~bring ina ~~traditional~~product ~~lighting systems~~to market world-wide.

OnThese ~~May~~Go-to-Market ~~14,~~strategy ~~2008,~~changes weare ~~announced~~significant ~~that~~and ~~we had~~have ~~received~~far-reaching ~~purchase~~implications ~~commitments~~for ~~from~~how ~~the~~we ~~New~~create ~~York~~value ~~Air~~in ~~National~~the ~~Guard~~marketplace, how the ~~New York~~business ~~National~~scales ~~Guard~~and ~~Civilian Support Team~~grows, ~~the~~how ~~Indiana~~brand ~~National~~equity ~~Guard~~is created and how the ~~Minnesota~~ ~~National~~value ~~Guard~~in ~~for~~the ~~BrightEye~~underlying ~~Tactical~~equity ~~Illumination~~of ~~Systems~~the company grows. ~~The BrightEye~~In ~~Systems~~the ~~are~~past, ~~for~~we ~~immediate~~were ~~deployment~~competing toon ~~Iraq~~a ~~with~~very ~~the~~large, ~~various~~very ~~state National~~sophisticated ~~Guard~~playing ~~and~~field ~~Air~~against ~~National~~companies ~~Guard~~that ~~units.~~were ~~The~~either ~~new~~better ~~orders~~positioned ~~total~~or ~~$163,005~~better ~~in revenue~~capitalized to secure contracts and large purchase commitments.

~~Over~~In fact, we found ourselves in this very position with the ~~last~~United ~~year,~~States weAir ~~have~~Force ~~supported~~ (USAF) contract. Despite having developed the ~~National~~best ~~Guard~~products ~~Bureau~~directly with the ~~deployment~~USAF ofcustomer, ~~BrightEye~~the ~~systems~~contract was awarded to ~~state-level~~ ~~National~~another ~~Guard~~company who underbid us and, ~~Air~~to ~~National~~our ~~Guard~~knowledge, ~~units.~~did ~~This~~not ~~effort~~have ~~has generated~~a ~~over~~real ~~$750,000~~product in ~~orders~~market ~~and~~at ~~over~~the ~~$650,000~~time ~~thus~~of ~~far~~the inaward. ~~2008,~~This ~~all incremental~~was ~~revenue~~a significant setback which we appealed to the $8USAF, then to the Government Accountability Office (GAO) which ultimately denied our appeal.0 ~~million~~We may ~~Department~~ultimately ofseek ~~Defense~~legal ~~Appropriations Budget~~damages ~~for~~as Uevents present the opportunity to do so.S. ~~Air~~Nonetheless, ~~Force~~the USAF contract battle was a clear indication that a Go-to-Market strategy shift was not only necessary but fundamentally required, where we would serve those companies with existing contracts as an OEM supplier and sub-contractor rather than compete in an arena where we cannot win.

~~Over~~We ~~the~~continued ~~last~~to ~~six~~make ~~months,~~have continued hard-fought progress in the ~~National Guard~~marketplace, ~~Bureau~~which ~~purchased~~has 17required ~~BrightEye~~some ~~Systems,~~drastic ameasures ~~$313~~appropriate for the times and the circumstances,~~004~~ ~~purchase~~but, tononetheless ~~equip~~progress ~~the Nation's~~has ~~emergency~~been ~~response~~made ~~CERFP~~towards ~~teams~~the ~~and~~our ~~Air~~sustainability ~~National~~and ~~Guard~~future ~~purchased~~growth. ~~10 BrightEye~~On ~~Systems,~~the acost ~~$187,412~~control ~~purchase~~side, toManagement ~~support~~has ~~the~~reduced ~~Aviation~~all ~~Support Facilities~~non-essential ~~across~~personnel, ~~the~~cut ~~country.~~all ~~The~~available ~~BrightEye~~operating ~~Systems~~costs ~~will~~and beasked ~~used~~the ~~for maintenance~~senior ~~lighting~~management team, ~~expeditionary~~beginning ~~base~~in ~~lighting~~the ~~and~~third ~~general~~quarter ~~lighting applications~~of ~~that~~2008, ~~require~~to ~~rapid~~defer ~~deployment~~compensation ~~and~~until we are in a ~~small~~good ~~size/weight~~operating ~~footprint~~condition. ~~Most~~ ~~recently,~~This ~~Cyberlux~~ has ~~supported~~resulted ~~the~~in ~~Air~~a ~~National~~reduction ~~Guard's~~of ~~Emergency~~true ~~Medical Support~~operating ~~(EMEDS)~~expense ~~units~~of ~~with~~over ~~remote~~75% ~~lighting~~this ~~capability~~year. ~~provided~~Management byis continuing the ~~BrightEye 4M~~very ~~Tower~~difficult ~~System~~task for aligning expense to revenue, and ~~the~~we ~~EMEDS~~should ~~units~~be ~~are~~well ~~now~~positioned ~~pursuing~~to ~~the~~take ~~BrightEye~~advantage ~~systems~~of ~~for field~~our ~~deployment~~new cost structure as we make revenue gains going forward.

24 We have introduced five new, very exciting product families in order to expand our military and commercial product offerings, despite the cost reduction initiatives. In the first six months of 2009, we launched the Portable Shelter Lighting products for tents and portable structures, the Outdoor Overhead and Outdoor Area Lighting products for municipal and military street lighting opportunities, the ArcLight LED products to address the traditional fluorescent lighting replacement opportunities, the BrightEye Solar-powered Trailer-mounted Lighting System for the DoD ‘green’ initiatives, and the WhiteEye product as a white light version of the BrightEye for lower cost tactical lighting needs.

~~The~~With ~~BrightEye~~our ~~Portable~~change ~~Illumination Systems~~in ~~are~~strategy, ~~designed~~these asnew ~~visible~~products and ~~night-vision~~the ~~compatible~~existing ~~illumination~~products, ~~system for~~are ~~mission-critical~~being ~~tactical~~offered ~~lighting~~to ~~requiring~~prime ~~rapidly~~contractors ~~deployable, high-intensity~~and ~~lighting~~companies ~~capability.~~with ~~Using~~existing ~~advanced~~contracts ~~optics,~~that ~~advanced~~contain ~~solid-state~~ lighting ~~technology,~~requirements. ~~and~~The ~~light-~~OEM ~~weight~~LED ~~advanced~~lighting ~~battery~~market ~~power,~~is ~~all~~approximately ~~contained~~$2 billion ~~in easily~~per ~~transportable~~year, ~~wheeled~~and ~~cases,~~our ~~the~~products ~~BrightEye~~represent ~~Systems~~a ~~are~~market ~~capable~~opportunity of ~~eliminating~~ ~~the~~approximately ~~space-consuming~~$400M. ~~bulk,~~If ~~noise~~we ~~and~~capture ~~energy~~a ~~consumption~~realistic ofmarket ~~the current~~share ~~generator-powered~~of ~~incandescent~~1% ~~lighting systems. Unique~~ to ~~the marketplace~~3%, ~~the~~we ~~BrightEye~~would ~~Systems~~experience ~~provide~~a ~~broad~~rational ~~area~~level ~~visible~~of ~~white~~growth. ~~lighting~~Management ~~and night-vision~~is ~~compatible~~beginning IRto ~~lighting~~see ~~capable~~results ofthat ~~operating~~will ~~all~~be ~~night~~forthcoming onover ~~an advanced~~the ~~battery~~next ~~power~~two ~~system,~~quarters ~~capabilities~~of ~~not available in traditional lighting systems~~performance.

~~The BrightEye Systems are available through the General Services Administration (GSA) Federal Supply Schedule 56 for Specialty Lighting products under Cyberlux GSA Contract GS-07F-9409S.~~11

OnManagement ~~May~~believes 15these changes in our strategy will accelerate the growth, ~~2008~~driving us into a sustainable, fully operating company with important customers who have ongoing needs for our products. This process is challenging, requiring significant effort and creative problem solving from each of our employees. As we ~~announced~~begin ~~that~~to grow again, we ~~had~~ ~~received~~are ancommitted ~~invitation~~to ~~from~~excellence ~~the~~with ~~Boeing~~a ~~Intelligence~~vigilant &focus ~~Security~~on ~~Systems Division~~quality and execution, where every commitment we make is also a commitment we make to ~~attend~~excellence. There is no shortcut; there is only consistent, day-in and day-out action, where excellence is achieved through the ~~Secure~~constant ~~Border~~‘whatever ~~Initiative~~it ~~(SBInet)~~takes’ ~~supplier~~effort ~~briefing scheduled~~our ~~for~~employees ~~May~~make 22across our engineering, ~~2008~~sales, inmarketing, ~~Washington~~manufacturing, Daccounting, legal and management functions.C.

InOn ~~September~~November ~~of 2007~~10, 2009 we ~~were~~announced ~~awarded the~~today ~~SBInet~~that ~~Toolkit~~our ~~Supplier~~revenue ~~Contract~~backlog tohas ~~supply~~reached ~~the~~its ~~BrightEye~~highest ~~Portable~~level ~~Visible and~~for ~~Covert~~all ~~10 Meter Tower Lighting System as part~~ of ~~the SBInet's mobile command infrastructure~~2009. ~~The~~We ~~Company~~posted ~~is one of only two lighting companies~~$228,421 ~~and~~in ~~the only solid-state LED lighting solutions company, to be awarded the SBInet Toolkit Supplier Contract for portable lighting. In November, we fulfilled the first system~~ order ~~from~~backlog ~~The Boeing Company associated with the SBInet deployment plans~~ for the ~~Mexican~~week ~~and~~ending ~~Canadian~~November ~~borders~~6, 2009.

OnThis ~~June~~order 3,backlog ~~2008,~~includes wenew ~~announced~~OEM ~~that~~orders ~~the Defense~~for ~~Logistics Agency has awarded National Stocking Numbers to~~ our ~~Portable Illumination~~portable ~~System~~shelter ~~line~~lighting ~~of products. The Defense Logistics Agency (DLA)~~systems, ~~the largest~~OEM ~~combat~~orders ~~support agency within the Department of Defense (DOD), is the source~~ for ~~nearly~~BrightEye ~~every supply item~~systems, ~~whether~~United ~~for~~States ~~combat readiness, emergency preparedness or the day-to-day operations of the Army,~~ Air Force, ~~Navy,~~orders ~~Marine Corps~~for ~~and~~BrightEye ~~federal~~10 ~~agencies.~~Meter ~~National~~Tower ~~Stocking~~Systems ~~Numbers (NSNs) are standardized, officially recognized item numbers used by the United States Government, the North Atlantic Treaty Organization (NATO)~~ and ~~many~~National ~~governments~~Guard ~~around~~orders ~~the~~for ~~world to~~BrightEye ~~purchase~~Dual ~~and~~Lighthead ~~manage billions of dollars worth of procurement annually~~Systems. ~~The assignment of NSNs will enable us to easily and efficiently expand their military customer base to the global military marketplace.~~

~~Our~~Over ~~Portable~~the ~~Illumination~~past ~~Systems~~year, ~~are designed~~we varied our sales strategy, no longer competing as ~~visible~~a ~~and~~prime ~~night-vision~~contractor, ~~compatible~~but ~~illumination~~rather ~~systems~~becoming ~~for mission-critical~~the ~~tactical~~supporting ~~lighting~~supplier ~~that~~of ~~requires~~existing ~~rapidly~~prime ~~deployable, high-intensity~~contractors ~~lighting~~and ~~capability~~open contracts. Additionally, ~~Using~~we ~~advanced~~significantly ~~optics,~~changed ~~advanced~~our ~~solid-state lighting~~product ~~technology,~~strategy ~~and~~to ~~light-weight~~focus ~~advanced~~on ~~battery~~innovative ~~power,~~products ~~all~~that ~~contained~~can ~~in easily~~fulfill ~~transportable~~market ~~wheeled~~opportunities ~~cases,~~through companies where the ~~WatchDog~~scale and ~~BrightEye~~capability ~~tactical~~to ~~lighting systems~~sell ~~provide~~products ~~broad~~world-wide ~~area~~already ~~visible~~exists. ~~white~~While ~~lighting~~still ~~and~~in ~~night-vision~~its ~~compatible~~infancy ~~IR lighting~~stages, ~~capable~~the ofcurrent ~~operating~~order ~~all~~backlog ~~night~~is ona anleading ~~advanced~~indicator ~~battery~~that ~~power~~these ~~system, capabilities~~strategy ~~not~~changes ~~available~~are inshowing ~~traditional~~definite ~~lighting~~signs ~~systems~~of progress.

Our ~~Portable~~OEM ~~Illumination~~products ~~Systems~~include ~~were first~~general ~~available~~lighting ~~through~~products ~~the~~for ~~General~~buildings, ~~Services~~offices ~~Administration~~and ~~(GSA)~~retail ~~Federal~~applications. ~~Supply Schedule~~Our 56military-grade products include visible and night-vision compatible illumination systems for ~~Specialty~~general ~~Lighting~~mission ~~products~~tactical ~~under~~lighting, ~~Cyberlux~~force ~~GSA~~protection, ~~Contract GS-07F-9409S~~maintenance lighting, expeditionary base protection, disaster first responders, and ~~will~~high-intensity ~~continue~~lighting toapplications, beand ~~purchasable~~are available through ~~the~~General ~~GSA.~~Services ~~The~~Administration ~~new National~~(GSA) ~~Stocking~~Federal ~~Numbers~~Supply ~~assigned~~Schedule to56 ~~the~~under Cyberlux ~~Portable~~GSA ~~Illumination~~Contract ~~System products are:~~GS-07F-9409S.

WatchDog System	GSA P/N 2CP0150	NSN 6230015635690
WatchDog System Spares Kit	GSA P/N 2CP0169	NSN 6210015635711
BrightEye Dual Lighthead
System	GSA P/N 2CP0170	NSN 6230015635725
BrightEye Dual Lighthead
System Spares Kit	GSA P/N 2CP0180	NSN 6210015635748
BrightEye 4M Tower System	GSA P/N 2CP0190	NSN 6230015635774
BrightEye 4M Tower System
Spares Kit	GSA P/N 2CP0191	NSN 6210015635807
BrightEye 10M Tower System	GSA P/N 2CP0182	NSN 6230015635832
BrightEye 10M Tower System
Spares Kit	GSA P/N 2CP0183	NSN 6210015635839
BrightEye Portable Power
System	GSA P/N 2CP0185	NSN 6115015635624

On November 24, 2009, we announced that the SP Cyberlight Solar LED Lighting System has successfully completed the Sandia National Laboratories testing protocol. The SP Cyberlight product is the solar-powered lighting system jointly developed by Cyberlux Corporation and Sacred Power Corporation for the Department of Defense (DoD) Power Surety Task Force. The Power Surety Task Force is tasked with identifying efficient energy solutions that support the Warfighter in the theater of operation, including portable solar lighting solutions for the night time security of Forward Base Operations.

25Sandia National Laboratories evaluated the SP Cyberlight Solar LED Lighting System in two different modes of operation: one mode for checkpoint, access points and task lighting, and the other for perimeter lighting for forward bases, buildings and site security. The technical evaluation of each mode of operation addressed the optical properties of the lighting, the light beam profile and map, the light pattern, intensity and balance and the battery and battery charging performance. As part of the operational analysis, the Sandia assessment team also evaluated the product’s ease of use, the applicability of product features, the operability in expected conditions, the cost benefit and the product’s robustness.

~~The~~In ~~2008~~the ~~Department~~overall offindings ~~Defense Appropriations~~published ~~legislation~~in ~~established~~the areport, ~~National~~SAND2009-3730P, ~~Program~~the ofSandia ~~$8.0~~assessment ~~million~~team ~~for~~ concluded that the ~~equipping~~SP ofCyberlight Solar LED Lighting System provides excellent lighting in the ~~United~~checkpoint ~~States~~mode ~~Air~~of ~~Force~~operation ~~with~~and ~~our~~site-specific ~~Portable~~task ~~Illumination Systems~~lighting ~~during~~uses ~~Fiscal~~such ~~Year~~as ~~2008~~construction. The ~~ending~~product ~~September~~also ~~30th~~gained technical approval for use in the perimeter security mode for forward base and general site security. The ~~designation~~SP ofCyberlight also received high marks for the ~~NSNs~~ ~~will~~solar ~~enable~~and usbattery topower ~~meet~~capability, ~~these~~the ~~requirements~~overall asusability ~~well~~of asthe LED lighting system, the ~~additional requests~~product’s ~~for~~portability ~~our~~and ~~equipment~~ruggedness, ~~from~~and ~~other~~the ~~branches~~cost of the ~~U.S.~~system ~~Armed~~when ~~Services~~compared ~~as well~~to asother ~~NATO~~tactical lighting solutions.

On June 26, 2008, we announced that we had posted record revenues of $137,284 for the week ending June 20, 2008. We produced and shipped BrightEye Dual Lighthead System orders in record time for immediate deployment to Iraq with National Guard units from New York, Indiana and Minnesota. In addition, the Company verified that its production and distribution processes will support the output needed to fulfill the United States Air Force production requirements.12

~~Over~~Cyberlux ~~the~~and ~~last~~Sacred ~~year~~Power Corporation, wea ~~have~~leading ~~supplied BrightEye~~provider ~~systems~~of renewable energy solutions, announced in October 2008 that the companies had entered into a teaming agreement to ~~state-level~~jointly ~~National~~develop ~~Guard~~the ~~and~~SP ~~Air~~Cyberlight ~~National~~LED ~~Guard~~Lighting ~~units, generating~~System ~~$650,000~~product inby ~~revenue~~incorporating inthe ~~2008.~~advanced ~~The~~capabilities ~~National~~of ~~Guard~~Cyberlux lighting and ~~Air~~Sacred ~~National Guard~~Power’s ~~revenue~~advanced issolar ~~incremental~~power technology in order to deliver the ~~2008~~solar-powered ~~Department~~LED oflighting ~~Defense~~solution ~~Appropriations legislation~~as ~~that~~commissioned ~~allocates~~by $8the Power Surety Task Force.0 ~~million~~Sacred ~~for~~Power, ~~the~~a ~~equipping~~Native ofAmerican owned and operated 8(a) certified company, specializes in solar power solutions and innovative renewable energy technologies and has significant government and military experience in the ~~United~~design ~~States Air~~and ~~Force~~delivery ~~with~~of ~~our~~telecommunication, ~~Portable~~power ~~Illumination~~generation ~~Systems~~and electrification projects.

OnThe ~~June~~SP ~~30,~~Cyberlight ~~2008,~~Solar weLED ~~announced~~Lighting ~~that our Board of Directors has unanimously approved Mark D. Schmidt~~System, ~~President~~now ~~and~~complete ~~Chief Operating~~with ~~Officer,~~the toSandia ~~succeed~~testing ~~Donald F. Evans as Chief Executive Officer~~process, ~~effective~~ ~~July~~is 1,being ~~2008.~~further ~~The~~evaluated ~~appointment~~at ofthe ~~Mr.~~Army’s ~~Schmidt~~National ~~concludes~~Training aCenter ~~two-year internal~~(NTC) ~~transition~~located ~~plan~~at ~~during which time Mr~~Ft. ~~Schmidt~~Irwin, ~~managed our operations~~California. ~~Mr.~~ ~~Evans,~~Reports ~~who~~from ~~founded~~ the ~~Company~~NTC inindicate ~~1999~~that ~~and~~the ~~has~~systems ~~led~~will usbe asshipped ~~Chairman and Chief Executive Officer since 2000, is beginning a planned phased retirement at age 73. In conjunction with his retirement plan, Mr. Evans' estate advisors have proposed~~ to ~~privately~~Afghanistan ~~place~~for or“in ~~otherwise~~theater” ~~liquidate~~demonstration uppurposes toin ~~25%~~preparation offor ~~his~~requirements ~~Cyberlux equity~~determination ~~holdings~~and ~~over~~ultimate ~~the next three years~~procurement.

InThe aSP ~~related~~Cyberlight ~~matter,~~LED Lighting System is built upon the ~~our~~patented ~~Board~~and ~~of Directors~~patent-pending ~~also~~technology ~~unanimously~~behind ~~appointed~~the ~~John~~Cyberlux WTactical Illumination Systems. ~~Ringo~~These LED lighting systems provide mission-critical visible and night-vision compatible lighting that use advanced optics, ~~our~~advanced ~~Corporate~~solid-state ~~Counsel~~lighting technology and ~~Company~~ ~~Director~~advanced light-weight battery power, asall ~~the~~contained ~~new~~in ~~Chairman~~easily transportable cases. Cyberlux Tactical Illumination Systems provide broad area visible white lighting and night-vision compatible IR lighting capable of operating all night on battery power, qualities not available in traditional lighting systems. The U.S. Patent Office has awarded patent protection for 50 claims contained within the ~~Board~~Company’s ofPortable ~~Directors~~Light Device patents, which provide Cyberlux with thorough patent protection for its lighting products and any future products developed on this patent foundation.

On ~~June~~December 3018, ~~2008~~2009, we announced today that we had ~~entered~~completed ~~into~~the aproduction ~~business development, sales~~ and ~~product~~shipment ~~solutions relationship~~of ~~with~~ten APortable ~~and~~Shelter ALighting ~~Logistics,~~Systems ~~Inc.~~for ~~For~~an ~~over~~exclusive 17Department ~~Years,~~of ~~the~~Defense ~~founders~~(DoD) order offor ~~A and~~a Amulti-national ~~Logistics,~~OEM ~~Inc~~customer. Introduced ~~have~~earlier ~~delivered~~this ~~solutions~~year, onour ~~demand~~Portable toShelter ~~the~~Lighting ~~U.S.~~System ~~military, U.S.~~is ~~government~~designed ~~agencies~~to ~~such~~replace as the ~~Federal~~existing ~~Emergency~~fluorescent ~~Management~~lighting ~~Agency~~used ~~(FEMA) and~~in ~~the~~all ~~U.S.~~free-standing ~~Postal~~field ~~Service (USPS)~~shelters, ~~state~~ranging ~~and~~from ~~local~~personnel ~~municipal~~tents ~~government agencies,~~to command and ~~foreign~~control ~~military organizations~~complexes.

InOur ~~addition~~Portable toShelter ~~the~~Lighting ~~consultative relationship~~(PSL) Aproducts ~~and~~deliver Athe ~~Logistics~~most ~~has~~energy ~~with~~efficient ~~the~~white ~~U.S.~~and ~~Special~~red ~~Operations~~LED ~~Command (USSOCOM),~~lighting weavailable ~~were~~for ~~recently~~portable ~~appointed~~shelter toillumination. ~~the~~Designed ~~Task~~to ~~Force~~provide onideal ~~the~~light ~~Reconstruction~~dispersion ~~of Afghanistan.~~and ~~Selected~~illumination for the ~~diversity~~portable ofshelter ~~experience~~environment, ~~and~~we engineered the ~~expertise~~PSL ofconfiguration ~~the~~to ~~A and~~flexibly Ailluminate ~~Logistics~~any ~~management~~shelter ~~team,~~size ~~the~~and ~~Company~~scale, ~~will~~all ~~focus~~powered onby ~~business~~either ~~development in~~AC ~~Afghanistan~~or ~~and~~DC onpower, ~~accelerating~~including ~~the~~DC ~~development~~solar ofpower ~~essential~~if ~~businesses~~available. These ~~and services~~PSL ~~for~~products ~~the~~expand our ~~mutual~~OEM ~~benefit~~product ofofferings to the ~~people~~DoD ~~and~~supplier ~~government~~marketplace ofand ~~Afghanistan~~address ~~and~~ the ~~private~~significant ~~sector~~fluorescent lighting technology transition.

InOn ~~representing~~December us21, in2009, ~~business development~~we ~~and~~announced ~~sales~~today ~~efforts~~that Awe ~~and~~had Aformally ~~Logistics~~entered ~~will~~into ~~assist~~a ~~customers~~supplier ~~such~~agreement ~~as USSOCOM~~with ~~and~~Spectrum ~~FEMA~~Brands ~~with~~to ~~requirements,~~deliver ~~concept~~six ~~and~~products ~~solution~~for ~~development~~its Rayovac trade name, ~~along~~two ~~with product~~of which are for immediate delivery ~~services~~for ~~including~~orders ~~logistics~~that ~~support~~Spectrum Brands has procured. We ~~With~~will asupply ~~focus~~Rayovac ~~on technology~~with ~~solutions~~our ~~that~~existing ~~provide~~LED ~~critical~~lighting ~~life-sustaining~~products, ~~support~~as well as LED products exclusively designed for the ~~Warfighter~~ ~~and~~Rayovac ~~the~~brand ~~Emergency~~itself. The ~~Responder,~~various Aproduct ~~and~~lines Awill ~~Logistics~~encompass ~~currently~~technology ~~provides customers~~previously ~~with~~designed ~~portable~~by ~~lighting~~our ~~products~~intellectual property owned or licensed by Cyberlux and ~~generators,~~new ~~solar~~proprietary ~~powered electrical~~designs ~~systems,~~that ~~self-powered~~Rayovac ~~IED~~will ~~detection~~have ~~products~~exclusivity to, ~~and~~but ~~water~~will ~~purification systems~~be owned by Cyberlux.

On ~~August~~July 2221st, ~~2008,~~Cyberlux weentered ~~announced~~into ~~that we~~negotiations ~~had~~with ~~received~~Spectrum ~~purchase~~Brands ~~orders~~regarding ~~from~~various ~~the~~LED ~~Oklahoma~~products ~~National~~that ~~Guard~~Cyberlux ~~for~~had ~~BrightEye Tactical~~already ~~Illumination~~developed ~~Systems.~~and ~~These~~patented ~~BrightEye~~as ~~Systems~~well ~~are~~as ~~for~~had ~~immediate deployment~~substantial intellectual property and ~~will~~patent berights ~~used~~for. The bydesign of new LED products exclusively for the ~~state's~~Rayovac ~~National~~brand ~~Guard~~was ~~unit~~discussed as well.

We have successfully sold our BrightEye Systems to 23 National Guard states within the National Guard Bureau, and we expect this momentum to continue until the majority of the states are outfitted with BrightEye tactical lighting systems.

On August 28, 2008, we announced that the U.S. Patent Office has recently awarded patent protection for 21 claims contained within our U.S. Patent Application for Portable Light Device, Application Number 11/336,562 filed on January 21, 2006. The new patent claims define specific areas of patent protection for our BrightEye and WatchDog portable lighting products and augment the 29 patent claims announced in May 2008. In combination, the 50 patent claims provide us with thorough patent protection for its WatchDog and BrightEye family of tactical lighting products, as well as any future products developed on this patent foundation.

The new claims awarded by the U.S. Patent Office address a lighting device comprised of an array of LEDs that operate in spot-light and flood-light modes of illumination, or in a spot-light/flood-light combined mode, with alterable intensity levels, controlled by an electrical power system and electrical sensor operation. Further, the new claims cover the user interface that allows the user to change operating modes continuously between spot-light and flood- light illumination and to display the battery power capacity on a percentage and time interval basis.

In addition, the claims address the specifics around the use of narrowing lenses as LED optics adapted to focus illumination in a cone angle between 4 and 50 degrees. This unique optical method and practice enable the spot-light and flood-light modes of illumination.

Lastly, the claims address the use of a computer and computer-executable programming instructions for operating a lighting device. The operations are defined as comprising the steps of sensing electrical power information, sensing modes of illumination information and sensing LED intensity information provided by a user via the user interface, directing the array of LEDs to operate in either a spot-light, flood-light or combined mode of illumination, directing the array of LEDs to operate at a desired intensity level, and displaying the power supply capacity message to the user based upon the sensed electrical power, mode of illumination and LED intensity information.

These newly awarded 21 patent claims provide us with a deeper, more extensible intellectual property platform for the current tactical lighting system products and for future lighting systems currently under development. Importantly, the combined 50 patent claims create a significant licensing portfolio that will allow other companies access to these fundamental LED lighting capabilities.

On September 9, 2008, we announced that we had entered into a business development, project consulting and product sales relationship with Sabot 6, Inc. Sabot 6, Inc. specializes in accelerating the adoption of innovative technologies within the Department of Defense (DoD) and Federal government marketplace. Sabot 6 has significant government and military experience and has access to a network of uniquely qualified experts in the Power, Energy and Government Operations fields.

Under the agreement, the Sabot 6 firm will provide tactical and strategic sales planning, access to senior government officials and tactical users, access to soldiers for hands-on evaluation and ongoing product sales support for governmental entities not yet addressed by us. In addition, Sabot 6 will provide a specific focus on the procurement process for our current Portable Illumination System products and will spearhead future development projects where Cyberlux will leverage the company's significant engineering and product development knowhow. If needed, Sabot 6 will also provide surge support in specific areas of expertise, at any location deemed necessary by us or our customer. This combination of capabilities will immediately enhance our revenue pipeline, particularly in the Energy, Security and Power Surety market segments.

On September 10, 2008, we announced that we had received a purchase order from the Hawaiian Air National Guard for the purchase of a BrightEye Tactical Illumination System.

We have demonstrated continued success in selling its flagship product, the BrightEye Tactical Illumination System, to individual state-level National Guard units across the country. The Company feels strongly that it is positioned to be the tactical lighting leader within multiple branches of the United States Armed Services in the future.

On October 17, 2008, the Company filed a protest with the General Accountability Office on the unfair and prejudicial treatment it received during the contracting process which resulted in the inability of Cyberlux to fairly compete for Solicitation Award FA4452-08-R-0025. This protest was filed based on the following claims: (1) ambiguous and unclear specification in the statement of work of RFP FA4452-08-R-0025 which obscured the requirements and resulted in the exclusion of Cyberlux from the list of technically compliant offerors and further ensured that Cyberlux would be the highest bidder; (2) ambiguous and unclear evaluation criteria which resulted in the initial exclusion of Cyberlux from technical compliance and ensured that Cyberlux could only be the high bidder in an unfair process; (3) inappropriate process steps involving a lack of timely notice were utilized to further mask the adverse prejudicial treatment of Cyberlux and other potential offerors in the 2nd phase of this Air Mobility Command procurement action; and (4) the competition was not open and not fair because after amendments were made and two bidders with known prices were considered technically acceptable, Cyberlux specifically asked the Contracting Officer if the Company could lower the prices of its bid during the Final Proposal Revisions (Best and Final Offers), and the Contracting Officer failed to notify Cyberlux that it could lower its price.

On February 23, 2009, the General Accountability Office denied the protest.

The Company is currently evaluating further legal actions regarding the infringement of its patent rights, which have not been licensed to any third party at this time.

On October 3, 2008, we announced that our WatchDog and BrightEye tactical lighting systems were the only two solutions listed in Resolution NO. J-29, RELATING TO LIGHT EMITTING DIODE PORTABLE ILLUMINATION SYSTEMS, adopted during the 130th National Guard Association of the United States (NGAUS) General Conference held during Sept. 20-22, 2008 in Baltimore, MD.

We have equipped 27 National Guard Units with its BrightEye tactical lighting systems and anticipates substantial order flow from the NGAUS 2009 congressional funding recommendation as adopted in Resolution No. J-29 for LED Portable Illumination Systems.

NGAUS (http://www.ngaus.org/) is a nonpartisan organization representing nearly 45,000 current and former Army and Air National Guard officers. It was formed in 1878 with the goal of obtaining better equipment, standardized training and a more combat-ready force by petitioning Congress for resources.

On October 20, 2008, we announced that we had received a purchase order from the Hawaiian National Guard for the purchase of an additional BrightEye Tactical Illumination System.

With 27 state-level National Guard units having purchased BrightEye Tactical Illumination Systems, We have demonstrated continued success in selling its leadership product to individual National Guard units across the country. We are positioned to be the tactical lighting leader within multiple branches of the United States Armed Services.

On October 31, 2008, we announced that we had entered into a product development, business development and product sales relationship with Sacred Power Corporation, a leading provider of renewable energy solutions. Sacred Power Corporation specializes in solar power solutions and provides innovative renewable energy technologies to the Department of Defense (DOD) and Federal government marketplace. Sacred Power, a Native American owned and operated 8(a) certified company, has significant government and military experience in the design and delivery of telecommunication, power generation and electrification projects.

Under the terms of the agreement between the two companies, Sacred Power and Cyberlux will work as prime contractor/subcontractor teaming partners on solid-state lighting and solar power renewable energy opportunities. In addition, the companies will support cross-product and cross-channel sales initiatives where Cyberlux will utilize the solar power capability of Sacred Power to offer a range of renewable power options for its Cyberlux Portable Illumination System products, and Sacred Power will leverage our solid-state lighting capability, including our Portable Illumination System products, in its renewable energy projects. This combination of capabilities will immediately enhance the presence of both companies in the Energy, Security and Power Surety market segments.

As a first project, the two companies have been awarded a purchase order contract from Sandia National Laboratories on behalf of the DOD to provide portable, solar powered visible and covert LED security lighting systems for testing, evaluation and future deployment across the DOD agencies. For this project, Sacred Power will provide the solar power solution and system integration capability, and Cyberlux will provide the visible and covert LED security lighting solution.

On December 2, 2008, we announced that the United States Special Operations Command (SOCOM), had placed its first order for two BrightEye Tactical Lighting Systems. Secured through one of our contractual sales arms, this purchase order will supply SOCOM with BrightEye units for field testing and evaluation by the U.S. Army Special Operations Command at Fort Bragg, N.C.

The United States Special Operations Command (SOCOM) was activated in April 1987 to provide command, control and training for all special operations forces (SOF) in the United States. SOCOM headquarters is at MacDill Air Force Base, Fla. Its component commands include the U.S. Army Special Operations Command at Fort Bragg, N.C.; the Air Force Special Operations Command, Hurlburt Field, Fla; the Naval Special Warfare Command, Coronado, Calif.; and the Joint Special Operations Command at Fort Bragg, N.C. The John F. Kennedy Special Warfare Center and School, the U.S. Air Force Special Operations School and the Naval Special Warfare Center are also assigned to the command.

Intellectual Property

The following summarizes the patent and trademark holding of Cyberlux Corporation.

Cyberlux Corporation is the registered owner of the CYBERLUX® mark for lighting products, namely, diodal illuminators. Trademark applications are pending for the CAMPLIGHT™, FOCALBRIGHT™, RELIABRIGHT™, SENSORBRIGHT™, RELYON™, FOCUSON™, EVERON™, BRIGHTEYE™, WATCHDOG™, LUMENOPTIC™ and KEON™ marks. The above marks are registered under International Goods and Services Class 9 (Electrical and Scientific Apparatus), Class 11 (Environmental Control Apparatus), or both.

Cyberlux has the world-wide exclusive rights to U.S. Patent No. 5,966,393 from the University of California-Santa Barbara. In addition, the Company has the world-wide exclusive rights to a suite of pending patents that define Scattered Photon ExtractionTM (SPE) technology, which were acquired from Rensselaer Polytechnic Institute. The combination of these two technologies forms the patent foundation for the resulting proprietary lighting technology known as “Hybrid White Light” (HWL) and “Hybrid Multi-color Light” (HML). HWL and HML is expected to yield a lower cost, more energy-efficient lighting source than currently

available in solid-state light-emitting diode (LED) solutions.

Cyberlux Corporation is the owner of U.S. Patent No. 6,752,515, which issued June 22, 2004, and is entitled Apparatus and Method for Providing Emergency Lighting. Cyberlux Corporation also owns U.S. Patent No. 6,986,589, which issued January 17, 2006, and is entitled Apparatus and Method for Providing an Emergency Lighting Augmentation System. Cyberlux Corporation is the owner of U.S. Patent No. 7,045,975, which issued May 16, 2006 and is entitled Apparatus and Methods for Providing Emergency Safety Lighting. Six patent applications are currently pending before the USPTO. Two additional patent applications are currently being prepared but have not yet been filed with the USPTO. In November 2006, Cyberlux was awarded 21 patent claims 21 claims by the U.S. Patent Office for our Emergency Safety Lighting will accelerate our further pursuit of providing long-term solutions for interim and emergency lighting in hotels, hospitals, elder care facilities, apartment complexes and residences. The lighting device, designed as a replacement electrical wall outlet, simply plugs into an existing outlet after removal of its cover plate. Although the lighting device continues to operate as an electrical outlet, it also contains a constant charge battery; a motion sensor for initiating low levels of lighting for gentle illumination of a darkened room or navigation of a corridor; a power sensor for broadcasting a high level of light up the attendant wall surface to reflect off of the ceiling thereby illuminating a room or corridor; and a photo cell that detects ambient light in the space which disables the system. The lighting device is intended to provide long-term solutions for emergency and interim lighting. The patent addresses an electrochemical lighting system capable of providing prolonged illumination with the use of light emitting diodes (LEDs) as the illumination source. In addition, on November 18, 2008. we were granted U.S.Patent No. 7,452,099, which is entitled Portable Lighting Device and embodies portable LED lighting devices comprised of a body, a handle, a user interface and a pivotal support of a lighting element assembly.

All other issued patents and presently filed United States patent applications are briefly described below.

Pat. No. 6,752,515 - The patent addresses an improved emergency or interim lighting device and associated methods for providing emergency or temporal lighting. The device satisfies the need for an electrochemical lighting system capable of providing prolonged illumination over the life of the power unit. The device benefits from the use of light emitting diodes (“LEDs”) as the illumination source, which provides optimum lumen output with considerably less power consumption than conventional incandescent lighting devices. By providing a unique diode/parabolic reflector arrangement the directional limitations of conventional LED lighting devices are overcome and wide area illumination coverage is possible. Additionally, the device provides multiple illumination levels that may be triggered by a power outage condition.

Pat. No. 6,986,589 - The patent addresses an emergency lighting device having at least one LED, a local energy source such as a lithium ion battery, a control circuit in electric communication with the at least one LED and further sensing a main power supply, and a reflector for broadcasting light produced by the LED to designated areas. The application describes an emergency lighting device that transforms existing fluorescent, incandescent or halogen light fixtures into emergency lighting systems for homes, hospitals, hotels, nursing homes and businesses. The device includes a power sensor for triggering the control circuit to engage the LEDs when electrical service is disrupted, thereby broadcasting a wash of light over an otherwise darkened room or corridor.

Pat. No. 7,045,975 - The patent application addresses a lighting device that transforms existing electrical wall outlets into an emergency lighting system for homes, hospitals, hotels, nursing homes and businesses. The lighting device, designed as a replacement electrical wall outlet or receptacle, simply plugs into an existing dual outlet after removal of its faceplate. The lighting device continues to function as an electrical outlet, however, also comprises a local power source such as a constant charge lithium ion battery; a motion sensor for initiating a low level of lighting for darkened room or corridor transit; a power sensor for activating a high level of light when electrical service is disrupted, thereby broadcasting a wash of light over an otherwise darkened room or corridor; and a photoelectric cell which detects daylight or otherwise provided lighting of the room or corridor and thereby prevents unnecessary power usage.

Ser. No. 11/392,428 - The patent application is a divisional of Pat. No. 7,045,975 described above and addresses subject matter that was restricted by the USPTO during prosecution of the ‘975 patent.

Pat. No. 7,452,099 - The patent application is directed to a portable light system having a body, an arm pivotally attached to the body, and one or more lighting elements disposed at one end of the arm. The portable light device further includes a handle, one or more batteries, an on-off switch, and one or more power cords for transmitting or receiving electrical energy. The portable light device is adapted to operate in a spot light mode of illumination, a flood light mode of illumination, or a combination thereof. The device benefits from the use of LEDs as an illumination source. LEDs provide optimum lumen output with considerably less power consumption than conventional lighting devices. Finally, the device provides real-time battery life information to a user such that the performance of the device may be tailored to extend or shorten expected battery life as needed.

Ser. No. 11/089,073 - The patent application is directed to a key cap light assembly that produces an efficient beam of light and is adaptable to a variety of key types. The key cap light has an elastomeric sleeve that is adapted to enclose a variety of key heads having different sizes, shapes, and thicknesses. The elastomeric sleeve binds an LED assembly to the key to provide an energy efficient, operator-activated, light source proximate the key.

Ser. No. 60/757,654 - The patent application is directed to a device for illuminating a yard sign that uses an efficient beam of light and that is adapted to cycle on and off. The illuminating device includes a main body portion configured to attach to the yard sign, a switch, a control circuit, a power source, at least one arm adjustably attached to the main body portion, and a light head disposed proximate an end of the at least one arm that comprises at least one LED assembly. The control circuit of the device is advantageously configured to automatically cycle the LED assembly on and off at predetermined daily illumination intervals.

Ser. No. 60/757,654 - The patent application is directed to an improved apparatus, method and system for providing multi-mode illumination. Specifically, exemplary embodiments of the present invention include a lighting apparatus capable of multiple modes of illumination and battery powered operation. The lighting apparatus further includes a fuel gauge module that is capable of displaying an expected battery life based on a selected operating mode and a current state of charge of the battery. Lighting devices structured in accordance with various embodiments of the invention may be light-weight and portable to improve ease of transport and deployment. Such lighting devices may also include a stable and yet retractable mounting device.

Ser. No. 60/793,541 - The patent application is directed to an improved tilt bracket and associated system for coupling an illumination device to a surface. For example, in one embodiment, the improved tilt bracket and associated system may be adapted to couple one or more LED arrays to the under-mount surface of a cabinet. In this regard, such tilt brackets and associated systems may provide enhanced LED array cooling and greater mounting flexibility.

Critical Accounting Policies

The preparation of our ~~consolidated~~ financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

o stock-based compensation;

o revenue recognition; and

o derivatives

Stock-Based Compensation

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued ~~FASB Statement~~Accounting ~~No.~~Standards ~~123R~~Codification ASC 718 "Compensation - Stock Compensation" (revised 2004), ~~Share-Based Payment"~~ which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation". ~~Statement 123R~~ASC 718 supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees", and amends ~~FASB~~ASC ~~Statement No. 95~~230, "Statement of Cash Flows". Generally, ~~the~~ that approach in ~~Statement~~ASC ~~123R~~718 is similar to the approach described in Statement 123. However, ~~Statement~~ASC ~~123R~~718 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.~~Codification ~~123(R)~~718. 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~~ASC ~~123R~~718 and use the Fair Value based method of accounting no later than the first quarter of 2006. The Company implemented ~~SFAS~~ASC ~~No. 123(R)~~718 on January 1, 2006 using the modified prospective method. The fair value of each option grant issued after January 1, 2006 was determined as of grant date, utilizing the Black-Scholes option pricing model. The amortization of each option grant will be over the remainder of the vesting period of each option grant.

Revenue Recognition

Revenues are recognized in the period that products are provided. For revenue from product sales, the Company recognizes revenue in accordance with ~~Staff~~ Accounting ~~Bulletin~~Standards ~~No.~~Codification ~~104, REVENUE RECOGNITION (~~605"~~SAB104"),~~Revenue ~~which~~Recognition ~~superseded~~SEC Staff Accounting Bulletin ~~No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (~~13"~~SAB101")~~. ~~SAB~~ASC ~~101~~605 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~~December 3031, ~~2007~~ 2009 and December 31, ~~2006~~2008, the Company did not have any deferred revenue.

~~SAB~~ASC ~~104~~ 605 incorporates ~~Emerging~~Accounting ~~Issues~~Standards ~~Task~~Codification ~~Force 00~~605-2125 ~~(“EITF~~"Revenue 00Recognition -~~21”),~~ ~~MULTIPLE DELIVERABLE~~Multiple ~~REVENUE~~Element ~~ARRANGEMENTS~~Arrangement". ~~EITF~~ASC 00605-2125 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~~ASC 605-2125 on the Company’s financial position and results of operations was not significant.

~~Derivative Financial Instruments~~16

The Company's derivative financial instruments consist of embedded derivatives related to the 10% Secured Convertible Debentures (see Note D). These embedded derivatives include certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related warrants at their fair values as of the inception date of the Note Agreement and at fair value as of each subsequent balance sheet date. In addition, under the provisions of EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," as a result of entering into the Notes, the Company is required to classify all other non-employee stock options and warrants as derivative liabilities and mark them to market at each reporting date. Any change in fair value inclusive of modifications of terms will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income. Conversion-related derivatives were valued using the intrinsic method and the warrants using the Black Scholes Option Pricing Model with the following assumptions: dividend yield of 0%; annual volatility of 528%; and risk free interest rate from 3.36% to 3.70%. The derivatives are classified as long-term liabilities.

Registration rights

In with raising capital through the issuance of Convertible Notes, the Company has issued convertible debentures and warrants in that have registration rights with liquidated damages for the underlying shares. As the contract must be settled by the delivery of registered shares and the delivery of the registered shares is not controlled by the Company, pursuant to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, the net value of the of the underlying embedded derivative and warrants at the date of issuance was recorded as liabilities on the balance sheet. Liquidated damages are estimated and accrued as a liability at each reporting date. The Company has accrued an estimated $816,856 in liquidation damages.

RESULTS OF OPERATIONS

Results of Operations for the Years Ended December 31, ~~2007~~2009 and ~~2006~~ 2008 Compared.

Revenues for the year ended December 31, ~~2008~~2009 were $~~639~~121,~~529~~892. This compares to revenues of $ ~~721~~639,~~148~~529 for the year ended December 31, ~~2007~~2008.

32Cost of goods sold were $105,082 for 2009 compared with $405,929 for 2008.

~~Cost~~Operating ~~of goods~~expenses ~~sold~~for the year ended December 31, 2009 were $~~405~~1,~~939~~ 923,929compared with $5,380,931 for the year ended December 31, 2008. Included in expenses for 2009 was $101,832 for consulting services compared with $~~514~~517,~~231~~915 for ~~2007~~ the previous year.

Operating expenses for the year ended December 31, 2008 were $5,430,931compared with $3,875,668 for the year ended December 31, 2007. Included in expenses for 2008 was $517,915 for consulting services compared with $198,178 for the previous year.17

	For the YearsEnded
	12/31/2008		12/31/2007
Salaries & benefits		1,649,459		1,893,994
Marketing and advertising		26,352		163,278
Rent		124,695		81,265
Insurance				13,691
Depreciation and amortization		25,617		553,595
Impairment Loss Research and development		1,698,229		164,7936
Legal expense		224,657		224,657
Accounting services		1514,621		45,029
Investor relations		22,414		19,788
Travel, living and entertainment		86,109		150,658
Office expenses		1,416,310		550,898
Bad debt expense		1,796		14,024
		5,430,931		3,677,491

Interest expense for 2009 was $1,319,442 compared to $2,419,691 for 2008. Included in interest expense for 2009 is $721,005 which was booked to recognize the imbedded beneficial conversion feature of the $4,500,000 convertible notes payable entered into during the 3rd and 4th quarters of 2004, 2005 and 2006.

~~Interest expense~~The net profit realized for ~~2008~~2009 was $218,~~793~~640,~~580~~748, ~~compared to~~ or $~~2,645,375for 2007~~. ~~Included~~01 inper ~~interest~~share ~~expense~~on ~~for~~an ~~2006~~average ~~is $~~of 1,~~926~~523,~~625which~~296,304 ~~was booked~~shares tooutstanding ~~recognize~~and ~~the~~compares ~~imbedded~~to ~~beneficial~~net ~~conversion~~loss ~~feature~~ of ~~the $4~~10,~~500~~897,~~000 convertible~~982, ~~notes~~or ~~payable~~$.03 ~~entered~~per ~~into~~share ~~during~~on ~~the~~an ~~3rd~~average ~~and 4th quarters~~ of ~~2004~~ 643,052,419 ~~2005~~shares ~~and~~outstanding ~~2006~~for the year 2008.

The net loss realized for 2008 was $11,323,482, or $0.02 per share on an average of 643,052,619 shares outstanding and compares to net loss of $15,619,897, or $0.04 per share on an average of 383,858,373 shares outstanding for the year 2007.

Liquidity and Capital Resources

As of December 31, ~~2008~~2009, we had a working capital deficit of $10(14,~~546~~062,~~455~~174). As a result of our operating losses for the year ended December 31. ~~2008~~2009, we generated a cash flow deficit of $1(3,~~184~~348,~~170~~389) from operating activities. Cash flows generated through investing activities was $0 during the year ended December 31, ~~2008~~2009. ~~We met~~Cash ~~our~~used ~~cash~~in ~~requirements~~financing ~~during~~activities ~~this~~was ~~period through the issuance of~~ $~~525~~(3,~~000 Convertible Notes Payable and $675~~342,~~760 from the sale of Common Stock~~670.

While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development.

By adjusting our operations and development to the level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits through the next twelve months. However, if thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

Our independent certified public accountant has stated in their report, dated as of May 156, ~~2009~~2010, that we have incurred operating losses, and that we are dependent upon management's ability to develop profitable operations. These factors among others may raise substantial doubt about our ability to continue as a going concern.

~~The Company~~Capital has engaged Ayuda Equity Funding, LLC to provide equity-collateralized loan financing as a non-toxic incremental financing option to fund the Company’s ongoing operations. The Company provides Ayuda Equity Funding, LLC with freely trading shares of common stock for use as collateral for capital loans then made to the Company. Ayuda Equity Funding, LLC values the freely trading shares at a 30% discount to market and provides collateralized capital loans to the Company in return.Resources

~~The~~On ~~Company~~January ~~completed an equity financing with St. George Investments~~8, ~~LLC (SGI)~~2009, anwe ~~Illinois~~issued ~~limited liability company~~55, ~~on March 21~~529,412 2008 for $1,500,000. The equity financing is structured as a 25% discount to market Warrant transaction that provides $500,000 in capital at closing, followed by four traunches of $250,000 each. Each $250,000 traunch is staggered at 60-day intervals commencing in six months on September 22, 2008, which is the date that shares ~~are salable pursuant to Rule 144 upon exercise~~ of ~~the~~our ~~Warrant. The~~common ~~Company~~stock ~~issued 7,500,000 shares of Common Stock~~ to ~~SGI in order to induce the SGI to purchase the $1,500,000 Warrant~~St. InGeorge ~~addition~~Investments, 6LLC,~~763,300~~ ~~additional shares of Common Stock were issued as Performance Stock~~ in ~~the~~conjunction ~~name of SGI to remain in their original certificated form and remain in escrow~~ with the ~~law firm~~sale of ~~Anslow & Jaclin, LLP acting as escrow agent. As~~ a ~~provision~~ of the Warrant Purchase Agreement, we pledged 35,736,700 shares of “Pledge Stock” to be held in escrow as a potential remedy in the event of the occurrence of certain identified “trigger events”warrant. On June 23rd , 2008, one trigger event, the closing price of our stock, went below the identified market price of $0.012 per share, triggrering the release from escrow of the 6,763,300 shares of Performance Stock and the 35,736,700 shares of Pledge stock”. This trigger event, as defined in the Warrant Purchase Agreement, also increased the Warrant Account by 25% of the balance, or $375,000, in exchange for the elimination of the 25% discount to market.

WeOn January ~~will still need additional investments in order to continue operations to cash flow break even. Additional investments are being sought~~20, ~~but~~ 2009, we ~~cannot~~borrowed ~~guarantee that~~an weaggregate ~~will be able to obtain such investments. Financing transactions may include the issuance~~ of ~~equity or debt securities~~$28,000 ~~obtaining credit~~from ~~facilities,~~Ayuda orFunding ~~other financing mechanisms~~Corp. ~~However,~~In ~~the~~conjunction ~~trading~~with ~~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~~borrowing, ~~it is possible that~~ we ~~could~~issued ~~incur~~a ~~unexpected~~total ~~costs~~of ~~and expenses~~25, ~~fail to collect significant amounts owed to us~~000,000 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.~~

34On February 12, 2009, we borrowed an aggregate of $21,000 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 25,000,000 of our common stock.

On March 31, 2009, we borrowed an aggregate of $26,250 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 25,000,000 of our common stock.

On April 28, 2009, we borrowed an aggregate of $22,750 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 25,000,000 of our common stock.

On May 12, 2009, we borrowed an aggregate of $70,000 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 50,000,000 shares of our common stock.

On May 21,2009, we issued 76,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On June 1, 2009, we borrowed an aggregate of $59,500 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 50,000,000 of our common stock.

On June 25, 2009, we issued 70,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On August 7, 2009, we issued 95,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On August 24, 2009, we issued 30,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On September 16, 2009, we received $25,000 , from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 57,777,778 shares of our common stock.

On September 16, 2009, we received $25,000, from War Chest Capital Multi Strategy Fund, LLC. (“War Chest”). In conjunction with debt purchase agreement, we issued at total of 57,777,778 shares of our common stock.

On September 30, 2009, we issued 100,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On October 12, 2009, we received $25,000, from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 86,666,667 shares of our common stock.

On October 12, 2009, we received $25,000, from War Chest. In conjunction with debt purchase agreement, we issued at total of 86,666,667 shares of our common stock.

On October 14, 2009, we issued 110,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On October 22, 2009, we issued 100,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On October 28, 2009, we received $25,000 from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 86,666,667 shares of our common stock.

On October 28, 2009, we received $25,000 from War Chest In conjunction with debt purchase agreement, we issued at total of 86,666,667 shares of our common stock.

On October 28, 2009, we issued 125,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On November 5, 2009, we issued 107,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On November 12, 2009, we received $25,000 from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 125,000,000 shares of our common stock.

On November 12, 2009, , we received $25,000 from War Chest, LLC. In conjunction with debt purchase agreement, we issued at total of 125,000,000 shares of our common stock.

On November 12, 2009, we issued 109,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On November 19, 2009, we issued 146,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On November 30, 2009, we issued 120,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On December 3, 2009, we issued 150,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On December 10, 2009, we received $16,667 from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 166,666,667 shares of our common stock.

On December 10, 2009, we received $15,667 from War Chest. In conjunction with debt purchase agreement, we issued at total of 166,666,667 shares of our common stock.

On December 11, 2009, 100,000,000 shares of our common stock was deposited in a AJW NIR escrow fund in conjunction with settlement of a law suit.

On December 11, 2009, we issued 170,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On December 17, 2009, we issued the following shares of our common stock to the following entities pursuant to a settlement agreement: AJW Master Fund II, LTD., 5,973,000 shares; AJW Master Fund, LTD, 1,633,500 shares: AJW Offshore II, LTD, 68,970,000 shares: AJW Offshore LTD X, 24,964,500 shares; AJW Partners II, LLC, 15,295,000 shares; AJW Partners, LLC, 544,500; AJW Qualified Partners II, LLC, 40,903,500 shares; AJW Qualified Partners, LLC X, 4,141,500 shares; New Millennium Capital Partners III, 2,590,500 shares.

On December 21, 2009, we issued 275,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On December 24, 2009, we issued 200,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant.

On December 28, 2009, we received $16,147 from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 166,666,667 shares of our common stock.

On December 28, 2009, we received $16,147 from War Chest LLC. In conjunction with debt purchase agreement, we issued at total of 166,666,667 shares of our common stock.

We will still need additional investments in order to continue operations.

Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations again.

Recent Accounting Pronouncements

InEffective July ~~2006~~ 1, 2009, the ~~FASB~~Company ~~issued~~adopted ~~Interpretation~~the ~~No.~~Financial 48Accounting ~~(FIN~~Standards 48Board (“FASB”). Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting ~~for uncertainty~~Principles in– ~~Income~~Overall ~~Taxes~~(“ASC 105-10”). ~~FIN~~ASC 48105-10 ~~clarifies~~establishes the ~~accounting~~FASB ~~for~~Accounting ~~Income~~Standards ~~Taxes by~~Codification ~~prescribing~~(the “Codification”) as the ~~minimum~~source ~~recognition~~of ~~threshold~~authoritative aaccounting ~~tax~~principles ~~position~~recognized isby ~~required~~the FASB to ~~meet~~ ~~before~~be ~~being~~applied ~~recognized~~by nongovernmental entities in the preparation of financial statements in conformity with U.S. ItGAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also ~~provides~~ sources of authoritative U.S. GAAP for SEC registrants. All guidance oncontained ~~derecognition,~~in ~~measurement,~~the ~~classification,~~Codification ~~interest~~carries an equal level of authority. The Codification superseded all existing non-SEC accounting and ~~penalties~~reporting standards. All other non-grandfathered, non-SEC accounting literature not included in ~~interim~~the ~~periods,~~Codification ~~disclosure~~is ~~and~~non-authoritative. ~~transition~~The ~~and~~FASB ~~clearly~~will ~~scopes income~~not ~~taxes~~issue ~~out~~new standards in the form of ~~SFAS~~Statements, 5FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, “it will issue Accounting ~~for~~Standards ~~Contingencies~~Updates (“ASUs”). ~~FIN~~The 48FASB iswill ~~effective for~~not ~~fiscal~~consider ~~years~~ASUs ~~beginning~~as ~~after~~authoritative ~~December~~in ~~15,~~their ~~2006~~own right. ~~The~~ASUs ~~Company~~will ~~has~~serve ~~not~~only ~~yet evaluated~~to update the ~~impact~~Codification, ofprovide ~~adopting~~background ~~FIN~~information 48about the guidance and provide the bases for conclusions on ~~our~~the ~~consolidated~~change(s) ~~financial~~in ~~position, results~~the ofCodification. ~~operations~~References ~~and~~made ~~cash~~to ~~flows~~FASB guidance throughout this document have been updated for the Codification.

~~In December~~Effective January ~~2007~~1, 2008, the ~~FASB~~Company ~~issued~~adopted ~~SFAS~~FASB ~~No. 141(R),"Business~~ASC ~~Combinations" ("SFAS No. 141(R)")~~820-10, ~~which~~Fair ~~establishes~~Value ~~principles~~Measurements and ~~requirements~~Disclosures ~~for~~– ~~how an~~Overall ~~acquirer~~(“ASC ~~recognizes~~820-10”) ~~and~~with ~~measures~~respect into its financial ~~statements~~assets ~~the~~and ~~identifiable assets~~liabilities. ~~acquired~~In February 2008, the ~~liabilities~~FASB ~~assumed~~issued updated guidance related to fair value measurements, ~~and~~which ~~any~~is ~~noncontrolling~~included ~~interest~~in the Codification in ~~an acquiree~~ASC 820-10-55, ~~including~~Fair ~~the~~Value ~~recognition~~Measurements and ~~measurement~~Disclosures of– ~~goodwill~~Overall ~~acquired~~– inImplementation ~~a business~~Guidance ~~combination~~and Illustrations. ~~SFAS~~The ~~No.~~updated ~~141R~~guidance isprovided ~~effective~~a asone year deferral of the ~~beginning~~effective date of ~~the first~~ASC ~~fiscal~~820-10 ~~year~~for ~~beginning~~non-financial onassets orand ~~after~~non-financial ~~December 15~~liabilities, ~~2008. Earlier~~ ~~adoption~~except isthose ~~prohibited~~that ~~and~~are ~~the~~recognized ~~Company~~or isdisclosed ~~currently evaluating~~in the ~~effect,~~financial ifstatements ~~any~~at fair value at least annually. Therefore, ~~that~~the Company adopted the provisions of ASC 820-10 for non-financial assets and non-financial liabilities effective January 1, 2009, and such adoption ~~will~~did not have a material impact on ~~its~~the ~~financial position,~~Company’s consolidated results of operations or ~~cash~~financial ~~flows~~condition.

InEffective ~~September~~April 1, ~~2006~~2009, the ~~Financial~~Company ~~Account Standards~~adopted ~~Board (the “~~FASB”) ~~issued~~ASC ~~its Statement of Financial Accounting Standards 157~~820-10-65, Fair Value Measurements. ~~This~~and ~~Statement~~Disclosures ~~defines~~– ~~fair~~Overall ~~value, establishes~~– aTransition ~~framework~~and ~~for~~Open ~~measuring~~Effective ~~fair~~Date ~~value~~Information ~~in generally accepted accounting principles~~ (~~GAAP),~~“ASC ~~and expands disclosures about fair value measurements~~820-10-65”). ~~This~~ASC ~~Statement~~820-10-65 ~~applies~~provides ~~under~~additional ~~other~~guidance ~~accounting~~for ~~pronouncements~~estimating ~~that require or permit~~ fair value ~~measurements, the Board having previously concluded~~ in ~~those~~accordance ~~accounting~~with ~~pronouncements~~ASC ~~that~~820-10 ~~fair~~when ~~value is~~ the ~~relevant~~volume ~~measurement attribute.~~and ~~Accordingly,~~level ~~this~~of ~~Statement~~activity ~~does~~for ~~not~~an ~~require~~asset ~~any~~or ~~new~~liability ~~fair~~have ~~value measurements~~significantly decreased. ~~However,~~ASC ~~for~~820-10-65 ~~some~~also ~~entities,~~includes ~~the~~guidance ~~application~~on ofidentifying ~~this~~circumstances ~~Statement~~that ~~will change~~indicate ~~current~~a ~~practice.~~transaction ~~FAS 157 effective date~~ is ~~for~~not ~~fiscal years beginning after November 15, 2007~~orderly. The ~~Company does not expect~~ adoption of ~~this~~ASC ~~standard will~~820-10-65 ~~have~~did anot ~~material~~have an impact on ~~its~~the ~~financial~~Company’s ~~position,~~consolidated results of operations or ~~cash flows~~financial condition.

InEffective ~~September~~April 1, ~~2006~~2009, the ~~FASB~~Company ~~issued~~adopted ~~its Statement~~FASB ofASC 825-10-65, Financial ~~Accounting~~Instruments ~~Standards~~– ~~158~~Overall ~~“Employers’~~– ~~Accounting~~Transition ~~for Defined~~and ~~Benefit~~Open ~~Pension~~Effective ~~and~~Date ~~Other~~Information ~~Postretirement~~(“ASC ~~Plans~~825-10-65”). ~~This~~ASC ~~Statement~~825-10-65 ~~improves financial~~amends ~~reporting~~ASC by825-10 ~~requiring an employer~~ to ~~recognize~~require ~~the~~disclosures ~~overfunded~~about ~~or underfunded~~fair ~~status~~value of afinancial ~~defined~~instruments ~~benefit~~in ~~postretirement~~interim ~~plan~~financial ~~(other~~statements ~~than~~as ~~a multiemployer~~well ~~plan)~~ as ~~an asset or liability~~ in ~~its~~annual ~~statement of~~ financial ~~position~~ statements and toalso ~~recognize~~amends ~~changes~~ASC ~~in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not~~270-~~for-profit~~10 ~~organization. This Statement also improves financial reporting by requiring an employer~~ to ~~measure~~require ~~the~~those ~~funded status~~disclosures ofin aall ~~plan~~interim ~~as of the date of its year-end statement of~~ financial ~~position, with limited exceptions~~statements. The ~~effective~~adoption ~~date for an employer with publicly traded equity securities is as~~ of ~~the~~ASC ~~end~~825-10-65 ofdid ~~the fiscal year ending after December 15, 2006. The Company does~~ not ~~expect adoption of this standard will~~ have a material impact on ~~its~~the ~~financial~~Company’s ~~position,~~consolidated results of operations or ~~cash~~financial ~~flows~~condition.

In ~~December~~May ~~2006~~2009, the FASB issued ~~FSP EITF~~SFAS ~~00-19-2~~No. 165, ~~Accounting~~“Subsequent ~~for~~Events”, ~~Registration~~which ~~Payment~~is ~~Arrangements~~included ~~("FSP~~in ~~00-19-2") which~~ASC ~~addresses~~Topic ~~accounting~~855, ~~for~~Subsequent ~~registration payment arrangements~~Events. ~~FSP~~ASC ~~00-19-2 specifies~~Topic ~~that~~855 ~~the~~established ~~contingent~~principles ~~obligation~~and torequirements ~~make~~for ~~future~~evaluating ~~payments~~and orreporting ~~otherwise transfer~~subsequent ~~consideration~~events ~~under~~and adistinguishes ~~registration~~which ~~payment~~subsequent ~~arrangement,~~events ~~whether issued as a separate agreement or included as a provision of a financial instrument or other agreement,~~ should be ~~separately~~ recognized ~~and measured~~ in ~~accordance~~the ~~with FASB Statement No. 5, Accounting for Contingencies. FSP 00-19-2 further clarifies that a~~ financial ~~instrument~~statements ~~subject~~versus towhich asubsequent ~~registration~~events ~~payment arrangement~~ should be ~~accounted~~disclosed ~~for~~ in ~~accordance~~the ~~with~~financial ~~other~~statements. ~~applicable generally~~ASC ~~accepted~~Topic ~~accounting~~855 ~~principles~~also ~~without~~required ~~regard~~disclosure toof the ~~contingent obligation~~date tothrough ~~transfer~~which ~~consideration~~subsequent ~~pursuant~~events toare ~~the~~evaluated ~~registration~~by ~~payment arrangement~~management. ASC ~~For~~Topic ~~registration~~855 ~~payment~~was ~~arrangements~~effective ~~and~~for ~~financial~~interim ~~instruments subject~~periods toending ~~those~~after ~~arrangements~~June 15, ~~that~~2009 ~~were~~and ~~entered~~applies ~~into~~prospectively. Because ~~prior~~ASC ~~to the issuance~~Topic of855 ~~EITF~~impacted ~~00-19-2~~the disclosure requirements, ~~this~~and ~~guidance~~not ~~shall~~the beaccounting ~~effective~~treatment for ~~financial statements~~subsequent ~~issued~~events, ~~for~~the ~~fiscal~~adoption ~~years~~of ~~beginning~~ASC ~~after~~Topic ~~December~~855 ~~15,~~did ~~2006~~not ~~and~~impact ~~interim periods~~our ~~within~~results ~~those~~of ~~fiscal~~operations ~~years.~~or ~~The~~financial ~~Company~~condition. See ~~adopted~~Note ~~FSP~~14 ~~00-19-2~~for indisclosures ~~the preparation~~regarding ofour ~~the~~subsequent ~~financial statements~~events.

InEffective ~~February~~July 1, ~~2007~~2009, the Company adopted FASB ~~issued~~ASU ~~SFAS~~ No. ~~159~~ 2009-05, ~~“The~~ Fair Value ~~Option~~Measurements ~~for~~and ~~Financial~~Disclosures ~~Assets~~(Topic ~~and~~820) ~~Financial~~(“ASU ~~Liabilities.~~2009-05” ~~SFAS~~). ~~159~~ASU ~~permits~~2009-05 ~~entities~~provided toamendments ~~choose~~ to ~~measure~~ASC ~~many~~820-10, ~~financial~~Fair ~~instruments,~~Value Measurements and ~~certain~~ ~~other~~Disclosures ~~items~~– Overall, atfor the fair value measurement of liabilities. ~~SFAS~~ASU ~~159~~2009-05 ~~applies~~provides toclarification ~~reporting~~that ~~periods beginning~~in ~~after~~circumstances ~~November~~in 15which a quoted price in an active market for the identical liability is not available, ~~2007~~a reporting entity is required to measure fair value using certain techniques. ~~The~~ASU ~~adoption~~2009-05 also clarifies that when estimating the fair value of ~~SFAS~~a ~~159~~liability, a reporting entity is not ~~expected~~required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s ~~financial~~consolidated ~~condition or~~ results of operations or financial condition.

35In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition) (“ASU 2009-13”) and ASU 2009-14, Certain Arrangements That Include Software Elements, (amendments to FASB ASC Topic 985, Software) (“ASU 2009-14”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on the Company’s consolidated results of operations or financial condition.

In December 2007, the FASB issued SFAS No. 141(R),"Business Combinations" ("SFAS No. 141(R)"), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited and the Company is currently evaluating the effect, if any, that the adoption will have on its financial position, results of operations or cash flows.21

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS No. 160"), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. SFAS No. 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited and the Company is currently evaluating the effect, if any, that the adoption will have on its financial position, results of operations or cash flows.

On February 16, 2006 the Financial Accounting Standards Board (FASB) issued SFAS 155, “Accounting for Certain Hybrid Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company does not expect its adoption of this new standard to have a material impact on its financial position, results of operations or cash flows.

Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company's principal operating segment.

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143,” which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. The Company is required to adopt the provisions of FIN 47 no later than the first quarter of fiscal 2006. The Company does not expect the adoption of this Interpretation to have a material impact on its consolidated financial position, results of operations or cash flows In May 2005 the FASB issued Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The Company does not expect the adoption of this SFAS to have a material impact on its consolidated financial position, results of operations or cash flows.

Product Research and Development

We anticipate continuing to incur research and development expenditures in connection with the development of our Advanced Illumination Systems during the next twelve months. We anticipate that we will expend approximately $800,000 in this endeavor.

Acquisition or Disposition of Plant and Equipment

We do not anticipate the sale of any significant property, plant or equipment during the next twelve months. We do not anticipate the acquisition of any significant property, plant or equipment during the next 12 months.

Risk Factors

Much of the information included in this annual report includes or is based upon estimates, projections or other "forward-looking statements". Such forward-looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other "forward-looking statements" involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward-looking statements".

Our common shares are considered speculative. Prospective investors should consider carefully the risk factors set out below.

Risks Relating to Our Business:

We Have a History Of Losses Which May Continue, Which May Negatively Impact Our Ability to Achieve Our Business Objectives.

We incurred a net ~~loss~~profit of $1118,~~322~~640,~~912~~748 for the year ended December 31, ~~2008~~2009 compared to a net loss of ~~$15~~10,~~619,~~897,982 for the year ended December 31, ~~2007~~2008. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether we will be able to continue expansion of our revenue. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

If We Are Unable to Obtain Additional Funding Our Business Operations Will be Harmed and If We Do Obtain Additional Financing Our Then Existing Shareholders May Suffer Substantial Dilution.

We will require additional funds to sustain and expand our sales and marketing activities. We anticipate that we will require up to approximately $4 million to fund our continued operations for the next twelve months, depending on revenue from operations. We need additional funding for research and development, increasing inventory, marketing and general and administrative expenses. Although this amount is less than our net losses in the past, we expect to decrease our general and administrative expenses by eliminating most of our consulting fees. In the event that we cannot significantly reduce our consulting fees, we will need to raise additional funds to continue our operations. Additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations. Any additional equity financing may involve substantial dilution to our then existing shareholders.

3722

Our Independent Auditors Have Expressed Substantial Doubt About Our Ability to Continue As a Going Concern, Which May Hinder Our Ability to Obtain Future Financing.

In their report dated May 15 6, ~~2009~~2010, our independent auditors stated that our financial statements for the year ended December 31, ~~2008~~2009 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of accumulated losses for the year ended December 31, ~~2008~~2009 in the amount of $1133,~~322~~769,~~912~~973 . ~~We continue to experience net operating losses.~~ Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

Many Of Our Competitors Are Larger and Have Greater Financial and Other Resources Than We Do and Those Advantages Could Make It Difficult For Us to Compete With Them.

The lighting and illumination industry is extremely competitive and includes several companies that have achieved substantially greater market shares than we have, and have longer operating histories, have larger customer bases, and have substantially greater financial, development and marketing resources than we do. If overall demand for our products should decrease it could have a materially adverse affect on our operating results.

Our Trademark and Other Intellectual Property Rights May Not be Adequately Protected Outside the United States, Resulting in Loss of Revenue.

We believe that our trademarks, whether licensed or owned by us, and other proprietary rights are important to our success and our competitive position. In the course of our international expansion, we may, however, experience conflict with various third parties who acquire or claim ownership rights in certain trademarks. We cannot assure that the actions we have taken to establish and protect these trademarks and other proprietary rights will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as a violation of the trademarks and proprietary rights of others. Also, we cannot assure you that others will not assert rights in, or ownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent, as do the laws of the United States.

Our Principal Stockholders, Officers And Directors Own a Controlling Interest in Our Voting Stock And Investors Will Not Have Any Voice in Our Management.

On October 10, 2007, we issued 3,650,000 shares of Series B Convertible Preferred Stock (“Series B stock”) to our officers and directors which are convertible into 36,500,000 shares of common stock and, in the aggregate, have the right to cast 365,000,000 million votes in any vote by our shareholders. On January 22, 2009, we issued 1,000,000 additional shares of Series B stock to our officers and directors. Combined with the number of shares of common stock held by our officers and directors, they have the right to cast approximately 56% of all votes by our shareholders. As a result, these stockholders, acting together, will have the ability to control substantially all matters submitted to our stockholders for approval, including:

o election of our board of directors;

o removal of any of our directors;

o amendment of our certificate of incorporation or bylaws; and

o adoption of measures that could delay or prevent a change in control or impede a merger, ~~takeover~~takeove or other business combination involving us.

As a result of their ownership and positions, our directors and executive officers collectively are able to influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, sales of significant amounts of shares held by our directors and executive officers, or the prospect of these sales, could adversely affect the market price of our common stock. Management's stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

Risks Relating to Our Common Stock:

We Have Issued a Large Amount of Stock in Lieu of Cash for Payment of Expenses and Expect to Continue this Practice in the Future. Such Issuances of Stock Will Cause Dilution to Our Existing Stockholders.

Due to our limited economic resources, we try to issue stock in lieu of cash for payment of expenses and services provided for us. In 2008, we issued 9,700,000 shares of common stock in exchange for expenses and services rendered. We anticipate issuing shares of common stock whenever possible in lieu of cash to conserve our financial position. The number of shares of common stock issued is directly related to our stock price at the time of issuance. In the event that our stock price drops, we will be required to issue larger amounts of shares for expenses and services rendered, if the other party is willing to accept stock at all. The issuance of shares of common stock will have the effect of diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.

If We Fail to Remain Current on Our Reporting Requirements, We Could be Removed From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to Sell Our Securities and the Ability of Stockholders to Sell Their Securities in the Secondary Market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading Market in Our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

· that a broker or dealer approve a person's account for transactions in penny stocks; and

· the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

· obtain financial information and investment experience objectives of the person; and

· make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

· sets forth the basis on which the broker or dealer made the suitability determination; and

· that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our Common Stock.

4025

ITEM 7. FINANCIAL STATEMENTS

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

FORMING A PART OF ANNUAL REPORT

PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934

CYBERLUX CORPORATION

INDEX TO FINANCIAL STATEMENTS

	~~Page~~	Page
Report of Independent Registered Certified Public Accounting Firms	~~F-1~~		27
Consolidated Balance Sheets at December 31, 2008 and 2007	F-2
Consolidated Balance Sheets at December 31, 2009 and 2008			28
Consolidated Statements of Operations for the Years ended December 31, 2008 and 2007	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008			30
Consolidated Statement of Deficiency in Stockholders' Equity for the Years ended December 31,2008 and 2007	F-4 - F-6
Consolidated Statement of Deficiency in Stockholders' Equity for the Years Ended December 31, 2009 and 2008			31
Consolidated Statements of Cash Flows for the Years ended December 31, 20087and 2006	F-7
Consolidated Statements of Cash Flows for the Years ended December 31, 2009 and 2008			33
Notes to Consolidated Financial Statements	~~F-8 - F-45~~		34

4126

Turner, Jones & Associates, PLLC

Certified Public Accountants

108 Center Street, North, 2nd Floor

Vienna, Virginia 22180-5712

(703) 242-6500

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Cyberlux Corporation and Subsidiaries

4625 Creekstone Drive, Suite 130

Research Triangle Park

Durham, NC 27703

We have audited the accompanying consolidated balance ~~sheet~~sheets of Cyberlux Corporation and subsidiaries as of December 31, ~~2008~~2009 and December 31, ~~2007~~2008 and the related consolidated statements of income, stockholders' equity and cash flows for year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cyberlux Corporation and subsidiaries as of December 31, ~~2008~~2009 and December 31, ~~2007~~2008, and the results of its operations and its cash flows for the ~~year~~years ended December 31, ~~2008~~2009 and December 31, ~~2007~~2008, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements must have been prepared assuming the Company will continue as a going concern. As discussed in Note L to the consolidated financial statements, the Company has suffered recurring losses from operations, negative working capital, and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters is also described in Note NL. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.

Vienna, Virginia

May 156, ~~2009~~ 2010

/s/ s Turner, Jones & Associates, PLLC ~~Turner, Jones & Associates, PLLC~~

~~F-1~~Turner, Jones & Associates, PLLC

CYBERLUX CORPORATION

CONDENSED BALANCE SHEET

AS OF DECEMBER 31

	2009			2008
Assets

Current assets:

Cash & cash equivalents	$	24,951		$	19,233
Investment - restricted use		23,413			25,511
Accounts Receivable, Allowance for Doubtful Accounts of $7,760 and $7,760, respectively		72,146			249,924
Inventory		32,082			53,202
Other current assets		-			32,198

Total current assets		152,592			380,068

Property, plant and equipment, net of accumulated
depreciation of $109,223 and $91,408 respectively		31,175			48,990

Other Assets:

Patents, net of accumulated amortization and impairment of $3,974,974 and $2,750,007, respectively		-			931,217

Total Assets	$	183,767		$	1,360,275


Liabilities and Deficiency in Stockholders' Equity

Current liabilities:

Cash overdraft		-		$	86
Accounts payable		3,527,038			1,299,145
Accrued liabilities		3,631,966			3,425,885
Short-term notes payable, related parties		1,372,311			402,823
Short-term notes payable, non-related parties		5,225,549			4,838,072

Warrants payable		457,902			935,000

Total current liabilities		14,214,766			10,901,012

Long-term liabilities:

Notes payable
Derivative liability relating to convertible debentures		-			24,384,586
Warrant liability relating to convertible debentures		9,976			255,042

Total long-term liabilities		9,976			24,639,628


Deficiency Stockholders' equity:

Class A Preferred, $5,000 par value, 100,000,000 shares authorized 26.9806 and 26.9806 shares issued and
outstanding as of December 31, 2009 and December 31, 2008 respectively		134,900			134,900

Class B Preferred, $0.001 par value, 100,000,000 shares authorized, 25,000,000 and 3,650,000 shares issued and
outstanding as of December 31, 2009 and December 31, 2008 respectively		25,000			3,650

Class C Preferred, $0.001 par value, 700,000 shares authorized, 150,000 and 150,000 shares issued and
outstanding as of December, 2009 and December 31, 2008 respectively		150			150

Common stock, $0.001 par value, 20,000,000,000 shares
authorized, 4,816,864,598 and 814,426,120 shares issued
and outstanding as of December 31, 2009 and December 31,
2008 respectively		4,816,865			814,426

Additional paid-in capital		14,752,084			17,277,230
Accumulated deficit		(33,769,973	)		(52,410,721	)

Deficiency in stockholders' equity		(14,175,875	)		(34,180,365	)

Total liabilities and (deficiency) in stockholders' equity	$	183,767		$	1,360,275

The accompanying notes are an integral part of these financial statements.

CYBERLUX CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

Years Ended December 31, 2009 and 2008

	2009			2008

Revenue	$	121,892		$	639,529

Cost of goods sold		(105,082	)		(405,929	)

Gross margin (loss)		16,810			233,600

Operating Expenses:

Depreciation		17,815			25,617
Research and development		43,115			3,582
General and administrative expenses		1,862,998			3,703,513

Total operating expenses		1,923,929			3,732,712

(Loss) from operations		(1,907,119	)		(3,499,112	)

Other income/(expense)

Unrealized (loss) relating to adjustment of derivative and
warrant liability to fair value of underlying securities		-			(2,795,469	)
Gain on debt conversion		22,632,138
Impairment Loss		(744,974	)		(1,698,229	)
Interest income		775			1,111
Interest expense		(1,319,442	)		(2,794,691	)
Debt acquisition costs		(12,100	)		(536,602	)
Loss on sale of Treasury Stock		(8,000	)		-
Total other income/(expense)		20,548,397			(5,750,651	)
Net income/(loss) before provision for income taxes
and preferred dividend		18,641,278			(11,322,912	)

Income taxes (benefit)		530			490

Net income/(loss) available to common stockholders	$	18,640,748		$	(11,323,912	)

Weighted average number of common shares
outstanding, basic		1,523,296,304			643,052,619

Net income/(loss) per share - basic	$	0.01		$	(0.02	)

Weighted average number of common shares
outstanding, diluted		1,746,841,948			N/A

Net income/(loss) per share - diluted	$	0.01			N/A

The accompanying notes are an integral part of these financial statements.

CYBERLUX CORPORATION

STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	Class B Preferred				Class C Preferred										Additional
			Stock				Stock		Common		Stock		Subscription		Paid in		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Receivable		Capital		Deficit			Total
Balance, December 31, 2007		3,650,000	$	3,650.0		150,000	$	150		552,342,881	$	552,343	$	-	$	15,286,709	$	(41,087,239	)	$	(25,244,387	)
Common stock issued in January 2008 in connection with conversion of preferred stock, Class A		-		-		-		-		100,000		100		-		9,900		-			10,000

Common stock issued in February 2008 for services rendered at $0.023 per share		-		-		-		-		100,000		100		-		2,200		-			2,300

Common stock issued in conjunction with the issuance of debt		-		-		-		-		14,263,300		14,263		-		370,845		-			385,108

Beneficial conversion feature		-		-		-		-		-		-		-		184,736		-			184,736

Sale of common stock		-		-		-		-		126,212,123		126,212		-		549,548		-			675,760

Common stock issued in settlement of debt		-		-		-		-		6,971,116		6,971				55,769					62,740

Common stock issued for services rendered		-		-		-		-		114,436,700		114,437		-		817,523		-			931,960

Net loss		-		-		-		-		-		-		-		-		(11,273,482	)		(11,323,482	)
Balance, December 31, 2008		3,650,000	$	3,650		150,000	$	150	$	814,426,120	$	814,426	$	-	$	17,277,230	$	(52,410,721	) )	$	(34,265,264	)

The accompanying notes are an integral part of these consolidated financial statements.

CYBERLUX CORPORATION
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	Class B Preferred				Class C Preferred										Additional
			Stock				Stock		Common		Stock		Subscription		Paid in			Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Receivable		Capital			Deficit			Total
Balance, December 31, 2008		3,650,000	$	3,650		150,000	$	150		814,426,120	$	814,426	$	-	$	17,277,230		$	(52,410,721	)	$	(34,315,264	)
Preferred stock issued in January 2009 for compensation		1,000,000		1,000		-		-		-		-		-		17,000			-			18,000

Preferred stock issued in August 2009 for compensation		3,850,000		3,850		-		-		-		-		-		30,800			-			34,650

Preferred stock issued in August 2009 for compensation		16,500,000		16,500		-		-		-		-		-		49,500			-			66,000

Common stock issued in conjunction with warrant conversion		-		-		-		-		2,038,529,412		2,038,529		-		(1,306,212	)		-			732,317

Common stock issued as compensation		-		-		-		-		82,003,674		82,004		-		(33,002	)		-			49,002

Sale of common stock		-		-		-		-		1,578,888,892		1,578,889		-		(1,082,720	)		-			496,169

Common stock issued in settlement of debt		-		-		-		-		265,016,500		265,017		-		(185,512	)		-			79,505

Common stock issued for services rendered		-		-		-		-		38,000,000		38,000		-		(15,000	)		-			23,000

Net loss		-		-		-		-		-		-		-		-			18,640,748			18,640,748
Balance, December 31, 2009		25,000,000	$	25,000		150,000	$	150		4,816,864,598	$	4,816,865	$	-	$	17,277,230		$	(33,769,973	)	$	(14,175,875	)

The accompanying notes are an integral part of these consolidated financial statements.

CYBERLUX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31

	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) available to common stockholders	$	18,640,748		$	(11,323,481	)
Adjustments to reconcile net income (loss) to cash used in operating activities
Depreciation		17,815			25,617
Amorization		186,244			525,889
Impairment loss		744,974			1,698,229
Common stock issued in connection issuance of debt		889,072			385,108
Common stock issued in connection for services rendered		51,042			941,000
Series B preferred stock issued for services rendered		118,650			-
Beneficial conversion feature relating to convertible debenture		-			619,736
Accretion of convertible notes payable		-			1,569,697
Unrealized (gain) loss on adjustment of derivative and warrant liability to fair value of underlying securities		(25,106,750	)		2,795,469
(Increase) decrease in:
Accounts receivable		177,778			(172,109	)
Inventories		21,120			104,177
Prepaid expenses and other assets		34,296			(23,309	)
Increase (decrease) in:
Cash overdraft		-			67,935
Accounts payable		2,227,893			561,607
Accrued liabilities		206,081			1,080,752
Net cash (used in) operating activities		(1,791,038	)		(1,184,710	)

CASH FLOWS FROM INVESTING ACTIVITIES		-			-

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance/(redemption) of convertible debentures		(4,645,207	)		525,000
Proceeds from sale of common stock		439,791			675,760
Net proceeds (payments) from borrowing on long term basis		5,032,684			(3,202	)
Net proceeds (payments) to notes payable, related parties		969,488			5,759
Net cash provided by financing activities:		1,796,756			1,203,317

Net increase in cash and cash equivalents		5,719			18,607
Cash and cash equivalents at beginning of period		19,233			626
Cash and cash equivalents at end of period	$	24,952		$	19,233

Supplemental disclosures:
Interest Paid	$	30,029		$	7,277
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	$	(25,106,750	)	$	2,795,469
Series B preferred stock issued for services rendered	$	118,650		$	-
Common stock issued for services rendered	$	51,042		$	941,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

CYBERLUX CORPORATION

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2008 AND 2007

	2008			2007
ASSETS
Current assets:
Cash & cash equivalents	$	19,233		$	626
Accounts receivable, net of allowance for doubtful accounts of $1,803 and $8,646, respectively		249,924			77,815
Inventories, net of allowance of $43,333		53,202			157,379
Other current assets		32,198			10,000
Total current assets		354,557			245,820
Property, plant and equipment, net of accumulated depreciation of $194,788 and $169,171, respectively		48,990			74,607
Other assets
Deposits		25,511			24,400
Patents and development costs, net of accumulated amortization and write off of $3,043,757 and $819,639, respectively		931,217			3,155,335
Total other assets		956,728			3,179,735
Total Assets	$	1,360,275		$	3,500,162
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft	$	86		$	33,178
Accounts payable		1,,299,145			733,538
Accrued liabilities		3,425,885			2,345,133
Short-term notes payable - related parties		402,823			397,064
Short-term notes payable		192,865			196,067
Warrant payable		935,000			-
Short-term convertible notes payable		4,645,207			3,050,510
Total current liabilities		10,901,012			6,755,490
Long-term liabilities:
Derivative liability relating to convertible debentures		24,384,586			17,334,621
Warrant liability relating to convertible debentures		255,042			4,509,538
Total long-term liabilities		24,639,628			21,844,159
Total liabilities		35,540,639			28,599,649
Commitments and Contingencies
Redeemable Series A convertible preferred stock, $0.001 par value; 200 shares designated, 26.9806 and 28.9806 issued and outstanding as of December 31, 2008 and 2007; liquidation preference of $219,892 and $231,845 as of December 31, 2008 and 2007, respectively		134,900			144,900
DEFICIENCY IN STOCKHOLDERS' EQUITY
Class B convertible preferred stock, $0.001 par value, 3,650,000 shares designated; 3,650,000 shares issued and outstanding as of December 31, 2008 and 2007; liquidation preference of $3,650,000 as of December 31, 2008 and 2007		3,650			3,650
Class C convertible preferred stock, $0.001 par value, 700,000 shares designated; 150,000 shares issued and outstanding as of December 31, 2008 and 2007, liquidation preference of $3,992,333 and $3,823,230, as of December 31, 2008 and 2007, respectively		150			150
Common stock, $0.001 par value, 950,000,000 shares authorized; 814,426,120and 552,342,881 shares issued and outstanding as of December 31, 2008 and 2007, respectively		814,426			552,343
Additional paid-in capital		17,277,230			15,286,709
Accumulated deficit		(52,410,720	)		(41,087,239	)
Deficiency in stockholders' equity		(34,315,264	)		(25,244,387	)
Total liabilities and (deficiency) in stockholders' equity	$	1,360,275		$	3,500,162

The accompanying notes are an integral part of these consolidated financial statements

F-2

CYBERLUX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2008 AND 2007

	2008			2007
REVENUE:	$	639,529		$	721,148
Cost of goods sold		(405,939	)		(514,231	)
Gross margin (loss)		233,590			206,917
OPERATING EXPENSES:
Depreciation		25,617			27,706
Research and development		3,582			164,793
Impairment loss		1,698,229			-
General and administrative expenses		3,703,503			3,683,169
Total operating expenses		5,430,931			3,875,668
NET LOSS FROM OPERATIONS		(,197,341	)		(3,668,751	)
Debt forgiveness		-			381,652
Unrealized gain (loss) relating to adjustment of derivative and warrant liability to fair value of underlying securities		(2,795,469	)		(9,620,645	)
Interest expense, net		(2,793,580	)		(2,645,375	)
Debt acquisition costs		(536,602	)		(66,778	)
Net Income (loss) before provision for income taxes		(11,322,912	)		(15,619,897	)
Income taxes (benefit)		490			-
INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	$	(11,323,482	)	$	(15,619,897	)
Weighted average number of common shares outstanding-basic		643,052,619			383,858,373
Weighted average number of common shares outstanding-fully diluted
Income (loss) per share-basic	$	(0.02	)	$	(0.04	)
Loss per share-fully diluted
Preferred dividend	$	96,000		$	96,000

The accompanying notes are an integral part of these consolidated financial statements

F-3

CYBERLUX CORPORATION

STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

	Class B Preferred				Class C Preferred											Additional
			Stock				Stock		Common		Stock		Subscription			Paid in		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Receivable			Capital		Deficit			Total
Balance, January 1, 2007		800,000	$	800		100,000	$	100	$	128,279,157	$	128,279	$	25,000		$	12,186,420	$	(25,467,342	)	$	(13,126,743	)
Common stock issued in January 2007 as payment towards convertible debentures		-		-		-		-		25,564,000		25,564		-			221,932		-			247,496
Warrants exercised at $0.25 per share		-		-		-		-		100,000		100		(25,000	)		24,900		-			-
Preferred Class C stock issued in connection with the acquisition of Hybrid Lighting Technologies, Inc.		-		-		50,000		50		-		-		-			768,450		-			768,500
Common stock issued in connection with the acquisition of Hybrid Lighting Technologies, Inc.		-		-		-		-		26,500,000		26,500		-			742,000		-			768,500
Common stock issued in January 2007 in connection with conversion of preferred stock, Class A		-		-		-		-		500,000		500		-			49,500		-			50,000
Common stock issued in February 2007 as payment towards convertible debentures		-		-		-		-		24,309,800		24,310		-			160,282		-			184,592
Common stock issued in March 2007 as payment towards convertible debentures		-		-		-		-		18,021,800		18,022		-			98,220		-			116,242
Common stock issued in April 2007 as payment towards convertible debentures		-		-		-		-		33,357,000		33,357		-			121,197		-			154,554
Preferred stock issued in April 2007 as payment towards compensation		2,850,000		2,850		-		-		-		-		-			367,650		-			370,500
Common stock issued in April 2007 for services rendered at $0.011 per share		-		-		-		-		2,500,000		2,500		-			25,000		-			27,500
Subtotal		3,650,000	$	3,650		150,000	$	150	$	259,131,757	$	259,132	$	-		$	14,765,551	$	(25,467,342	)	$	(10,438,859	)

F-4

CYBERLUX CORPORATION

STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

	Class B Preferred				Class C Preferred										Additional
			Stock				Stock		Common		Stock		Subscription		Paid in			Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Receivable		Capital			Deficit			Total
Balance forward		3,650,000	$	3,650		150,000	$	150	$	259,131,757	$	259,132	$	-	$	14,765,551		$	(25,467,342	)	$	(10,438,859	)
Common stock issued in April 2007 as payment towards related party debentures and related interest		-		-		-		-		5,226,182		5,226		-		99,298			-			104,524
Sale of warrants to purchase common stock in May 2007		-		-		-		-		-		-		-		150,000			-			150,000
Common stock issued in May 2007 as payment towards convertible debentures		-		-		-		-		48,579,100		48,579		-		57,766			-			106,345
Exercise of warrants in June 2007		-		-		-		-		32,216,950		32,217		-		95,282			-			127,499
Common stock issued in June 2007 as payment towards convertible debentures		-		-		-		-		60,418,910		60,419		-		25,709			-			86,128
Common stock issued in July 2007 as payment towards convertible debentures		-		-		-		-		90,328,573		90,328		-		11,499			-			101,827
Common stock issued in August 2007 as payment towards convertible debentures		-		-		-		-		11,568,802		11,569				(1,157	)		-			10,412
Exercise of warrants in September 2007		-		-		-		-		18,022,607		18,023		-		13,201			-			31,224
Common stock issued in September 2007 for services rendered at $0.034 per share		-		-		-		-		26,650,000		26,650		-		63,960			-			90,610
Common stock issued in October 2007 for services rendered at $0.029 per share		-		-		-		-		200,000		200		-		5,600			-			5,800
Net loss		-		-		-		-		-		-		-		-			(15,619,897	)		(15,619,897	)
Balance, December 31, 2007		3,650,000	$	3,650		150,000	$	150	$	552,342,881	$	552,343	$	-	$	15,286,709		$	(41,087,239	)	$	(25,244,387	)

The accompanying notes are an integral part of these consolidated financial statements

F-5

CYBERLUX CORPORATION

STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

	Class B Preferred				Class C Preferred										Additional
			Stock				Stock		Common		Stock		Subscription		Paid in		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Receivable		Capital		Deficit			Total
Balance, forward		3,650,000	$	3,650.0		150,000	$	150	$	552,342,881	$	552,343	$	-	$	15,286,709	$	(41,087,239	)	$	(25,244,387	)
Common stock issued in January 2008 in connection with conversion of preferred stock, Class A		-		-		-		-		100,000		100		-		9,900		-			10,000
Common stock issued in February 2008 for services rendered at $0.023 per share		-		-		-		-		100,000		100		-		2,200		-			2,300
Common stock issued in conjunction with the issuance of debt		-		-		-		-		14,263,300		14,263		-		370,845		-			385,108
Beneficial conversion feature		-		-		-		-		-		-		-		184,736		-			184,736
Sale of common stock		-		-		-		-		126,212,123		126,212		-		549,548		-			675,760
Common stock issued in settlement of debt		-		-		-		-		6,971,116		6,971				55,769					62,740
Common stock issued for services rendered		-		-		-		-		114,436,700		114,437		-		817,523		-			931,960
Net loss		-		-		-		-		-		-		-		-		(11,323,482	))		(11,323,482	)
		3,650,000	$	3,650		150,000	$	150	$	814,426,120	$	814,426	$	-	$	17,277,230	$	(52,410,721	)	$	(34,315,264	)

The accompanying notes are an integral part of these consolidated financial statements

F-6

CYBERLUX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

YEAR ENDED DECEMBER 31, 2008 AND 2007

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) available to common stockholders	$	(11,323,481	)	$	(15,619,897	)
Adjustments to reconcile net income (loss) to cash used in operating activities
Depreciation		25,617			27,706
Amortization		525,889			525,889
Impairment loss		1,698,229			-
Common stock issued in connection issuance of debt		385,108			-
Common stock issued in connection with services rendered		941,000			123,910
Preferred stock issued as compensation		-			370,500
Gain on repurchase and cancellation of warrants					(381,652	)
Beneficial conversion feature relating to convertible debenture		619,736			-
Accretion of convertible notes payable		1,569,697			1,873,298
Unrealized (gain) loss on adjustment of derivative and warrant liability to fair value of underlying securities		2,795,469			9,620,645
(Increase) decrease in:
Accounts receivable		(172,109	)		99,270
Inventories		104,177			40,392
Prepaid expenses and other assets		(23,309	)		11,182
Increase (decrease) in:
Cash overdraft		67,935			33,178
Accounts payable		561,607			168,663
Accrued liabilities		1,080,752			654,870
Net cash (used in) operating activities		(1,184,710	)		(2,452,046	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired in connection with acquisition of Hybrid Lighting Technologies, Inc		-			150,000
Acquisition of fixed assets		-			(44,000	)
Net cash provided by (used in) investing activities:		-			106,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible debentures		525,000			1,000,000
Proceeds from sale of common stock		675,760
Proceeds from exercise of warrants		-			158,723
Proceeds from sale of warrants		-			600,000
Net proceeds (payments) from borrowing on long term basis		(3,202	)		148,668
Net proceeds (payments) to notes payable, related parties		5,759			43,469
Net cash provided by (used in) financing activities:		1,203,317			1,950,860
Net increase (decrease) in cash and cash equivalents		18,607			(395,186	)
Cash and cash equivalents at beginning of period		626			395,812
Cash and cash equivalents at end of period	$	19,233		$	626
Supplemental disclosures:
Interest Paid	$	-		$	-
Income Taxes Paid		-			-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Unrealized (gain) loss in adjustment of derivative and warrant liability to fair value of underlying securities	$	2,795,469		$	9,620,645
Common stock issued for services rendered	$	941,000		$	123,910
Preferred stock issued as compensation	$	-		$	370,500

The accompanying notes are an integral part of these consolidated financial statements

F-7

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE A-SUMMARY OF ACCOUNTING POLICIES

General

A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:

Business and Basis of Presentation

Cyberlux Corporation (the "Company") is incorporated on May 17, 2000 under the laws of the State of Nevada. ~~Until December 31, 2004, the Company was a development state enterprise as defined under Statement on Financial Accounting Standards No.7, Development Stage Enterprises ("SFAS No.7").~~ The Company develops, manufactures and markets long-term portable lighting products for commercial and industrial users. While the Company has generated revenues from its sale of products, the Company has incurred expenses, and sustained losses. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise. As of December 31, ~~2008~~2009, the Company has accumulated losses of $5233,~~360~~769,~~720~~973.

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.33

Acquisitions

On December 28, 2006, the Company acquired SPE Technologies, Inc, a Florida corporation, as a wholly owned subsidiary. SPE Technologies, Inc. was acquired by issuance 100,000 shares of Class C 5% convertible preferred stock valued at the time acquisition at $2,520,000.

The total consideration paid was $2,520,000 and the significant components of the transaction are as follows:

Preferred Stock issued:	$	2,520,000
Cash received	$	250,000
Patents received		2,270,000
Liabilities assumed		( -	)
Net:	$	2,520,000

On January 11, 2007, the Company acquired Hybrid Lighting Technologies, Inc, a Florida corporation, as a wholly owned subsidiary. Hybrid Lighting Technologies, Inc was acquired by issuance of 26,500,000 shares of its common stock and 50,000 shares of Class C 5% convertible preferred stock. The total value assigned at the time of acquisition of $1,537,000.

The total consideration paid was $1,537,000 and the significant components of the transaction are as follows:

Common stock issued:	$	768,500
Preferred stock issued:		768,500
Preferred Stock issued:	$	1,537,000
Cash received	$	150,000
Patents received		1,387,000
Liabilities assumed		( -	)
Net:	$	1,537,000

F-8

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

The Company has adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, whereby the Company periodically tests its intangible assets for impairment. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets are tested for impairment, and write-downs will be included in results from operations.

Revenue Recognition

Revenues are recognized in the period that products are provided. For revenue from product sales, the Company recognizes revenue in accordance with FASB ~~Staff~~ Accounting ~~Bulletin~~Standards ~~No. 104~~Codification 605, REVENUE RECOGNITION ~~("SAB104"),~~SEC ~~which~~STAFF ~~superseded Staff~~ACCOUNTING ~~Accounting~~BULLETIN ~~Bulletin~~TOPIC ~~No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (~~13"~~SAB101")~~. ~~SAB~~ASC 605 ~~101~~ requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. At December 31, ~~2008~~2009 and 8 ~~2007,~~ the Company did not have any deferred revenue.

~~SAB~~ASC 605 ~~104~~ incorporates ~~Emerging~~Accounting ~~Issues~~Standards ~~Task~~Codification ~~Force 00~~605-~~21 (“EITF 00-21”)~~25, REVENUE RECOGNITION MULTIPLE ~~DELIVERABLE~~ ~~REVENUE~~ELEMENT ARRANGEMENTS. ~~EITF 00~~ ASC 605-2125 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing EITF 00-21 on the Company’s financial position and results of operations was not significant.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.

Foreign Currency Translation

The Company translates the foreign currency financial statements in accordance with the requirements of ~~Statement of Financial~~ Accounting Standards ~~No. 52~~Codification 830, "Foreign Currency ~~Translation~~Matters." Assets and liabilities are translated at current exchange rates, and related revenue and expenses are translated at average exchange rates in effect during the period. Resulting translation adjustments are recorded as a separate component in stockholders' equity. Foreign currency translation gains and losses are included in the statement of operations.

Accounts Receivables

Accounts Receivable are shown at December 31, ~~2008~~2009 and December 31, ~~2007~~2008 net of Allowance for Doubtful Accounts in the amounts of $172,~~803~~146 and $8249,~~646~~924. Our policy is to provide an allowance when an Account becomes greater than 90 days past due. An account is charged off when it is determined by management to be uncollectible.

~~F-9~~34

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

The Company presently utilizes the services of Prestige Capital to provide financing for our Accounts Receivable invoices. Prestige Capital advances seventy-five percent (75%) of the face value of the invoices submitted by the Company to Prestige Capital for financing. Prestige Capital holds in reserve the remaining twenty-five percent (25%) of the invoice value until the invoice is paid by the invoiced company to Prestige. Provided that there are no outstanding ~~chargebacks~~ charge-backs or disputes, Prestige pays the reserve amount, less any financing fees due Prestige, on the Friday following the week in which the invoice is collected by Prestige from the Company receiving the invoice from the Company.

Prestige Capital’s financing fees are based on the number of days an invoice is outstanding from the date of the initial 75% advance payment. If the invoice is paid by the invoiced company within 30 days, a financing fee of three percent (3%) is paid to Prestige from the 25% reserve; if paid within 40 days a financing fee of four percent (4%) is paid to Prestige; if paid within 50 days a financing fee of five percent (5%) is paid to Prestige; if paid within 60 days a financing fee of six percent (6%) is paid to Prestige; and an additional one percent (1%) for each 10 day period thereafter until the invoice is paid by the invoiced company.

Inventories

Inventories are stated at the lower of cost or market determined by the average cost method. The Company provides inventory allowances based on estimates of obsolete inventories. Inventories consist of products available for sale to distributors and customers as well as raw material.

Components of inventories as of December 31, ~~2008~~2009 and ~~2007~~2008 are as follows:

	2007			2007
	2009			2008
Component parts	$	3427,~~632~~000		$	~~151~~34,~~940~~631
Finished goods		6148,~~903~~415			4861,~~772~~903
		96.535			200,712
		75,415			96,534
Less: allowance for obsolete inventory		(43,333	)		(43,333	)
	$	5332,~~202~~082		$	~~157~~53,~~379~~202

Property and Equipment

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives as follows:

Furniture and fixtures		7 years
Office equipment		3 to 5 years
Leasehold improvements		5 years
Manufacturing equipment		3 years
Depreciation expense totaled $17,815and $25,617 for the years ended December 31, 2009 and 2008, respectively.

~~Advertising costs~~35

The Company expenses all costs of marketing and advertising as incurred. Marketing and advertising costs totaled $6,356 and $20,437 for the year ended December 31, 2008 and 2007, respectively.

F-10

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Research and Development

The Company accounts for research and development costs in accordance with the Financial Accounting Standards Board's ~~Statement of Financial~~ Accounting Standards ~~No.~~Codification 730 ~~2 (~~"~~SFAS 2"), "Accounting for~~ Research and Development ~~Costs~~". Under ~~SFAS 2~~ASC 730, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company expenditures were $343,~~582~~115 and $~~164~~3,~~793~~582 on research and product development for the year ended December 31, ~~2008~~2009 and ~~2007~~2008, respectively.

Reclassification

Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year.

Impairment of long lived assets

The Company has adopted ~~Statement of Financial~~ Accounting Standards ~~No.~~Codification 360 ~~144~~"Property, ~~(SFAS 144)~~Plant and Equipment". The Statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undercounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. SFASC 360 ~~AS No. 144~~ also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Fair Values

On January 1, 2008, the Company adopted ~~SFAS~~Accounting ~~No.~~Standards Codification ~~157~~820, “Fair Value Measurements” ~~(SFAS No. 157) as amended by FASB Statement of Position (FSP) FAS 157-1~~ and ~~FSP FAS 157-2~~Disclosures”. ~~SFAS No.~~ASC ~~157~~820 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. ~~FSP~~The ~~FAS 157-2 delays, until the first quarter of fiscal year 2009, the~~ effective date for ~~SFAS~~ASC 820 ~~No. 157~~ for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) was the first quarter of 2009. The adoption of ~~SFAS No.~~ASC ~~157~~820 did not have a material impact on the Company’s financial position or operations.

Concentrations of Credit Risk

Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company periodically reviews its trade receivables in determining its allowance for doubtful accounts. At December 31, ~~2008~~2009 and ~~2007~~ 2008, allowance for doubtful receivable was $17,~~803~~760 and $87,~~646~~760, respectively.

~~F-11~~36

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Stock based compensation

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued ~~FASB Statement~~Accounting ~~No.~~Standards ~~123R~~Codification 718 ~~(revised 2004), Share-Based Payment~~" ~~which is a revision of FASB Statement No. 123, "Accounting for Stock~~Compensation-~~Based~~Stock Compensation". ~~Statement 123R~~ASC 718 supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees", and amends ~~FASB Statement No.~~ ASC 95, "Statement of Cash Flows". ~~Generally,~~ASC 718 ~~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~~ASC 718. ~~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~~ASC 718 ~~123R~~ and use the Fair Value based method of accounting no later than the first quarter of 2006. The Company implemented ~~SFAS No.~~ASC ~~123(R)~~718 on January 1, 2006 using the modified prospective method. The fair value of each option grant issued after January 1, 2006 was determined as of grant date, utilizing the Black-Scholes option pricing model. The amortization of each option grant will be over the remainder of the vesting period of each option grant.

In prior years, the Company applied the intrinsic-value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for the issuance of stock options to employees and accordingly compensation expense related to employees’ stock options were recognized in the prior year financial statements to the extent options granted under stock incentive plans had an exercise price less than the market value of the underlying common stock on the date of grant.

Segment reporting

The Company follows ~~Statement of Financial~~ Accounting Standards ~~No.130,~~Codification ~~Disclosures About~~280 ~~Segments~~"Segment ~~of an Enterprise and Related Information~~Reporting". The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

Income taxes

The Company follows ~~Statement of Financial~~ Accounting ~~Standard~~Standards ~~No.109,~~Codification ~~Accounting for~~740 "Income Taxes ~~(SFAS No.109)~~ " for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse

At December 31, ~~2008~~2009, the Company has available for federal income tax purposes a net operating loss carryforward of approximately $5020,000,000, expiring inand different stages through the year ~~2023~~2029, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized. Due to significant changes in the Company's ownership, the future use of its existing net operating losses may be limited. ~~Components of deferred tax assets as of December 31, 2008 are as follows:~~

~~F-12~~37

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Income taxes (continued)

Non current:
Net operating loss carry forward	$	1720,~~500~~000,000
Valuation allowance		(17,500,000	)
Net deferred tax asset	$	—

Valuation allowance			(20,000,000	)
Net deferred tax asset		$	—

Patents

The Company acquired in December 2006, for $2,294,000, and January 2007, for $1,387,000, patents in conjunction with the acquisitions of SPE Technologies, Inc and Hybrid Lighting Technologies, Inc, respectively. The patents have an estimated useful life of 7 years. Accordingly, the Company recorded an amortization charge to current period earnings of $~~525~~186,~~889~~243 and $~~525~~186,~~889~~243 for the years ended December 31, ~~2008~~2009 and ~~2007~~2008, respectively. During the year 2009, the Company determined that the value of future revenue streams was not quantifiable sufficient to support the book value of the patents. Accordingly, the Company recorded an impairment expense in the amount of $744,974, thereby eliminating the value of the Patent asset. Patents are comprised of the following:

December 31, 2007:

Description	Cost		Accumulated amortization and impairments		Net carrying value at December 31, 2007
Development costs	$	293,750	$	293,750	$	-0-
Patents		2,294,224		327,746		1,966,478
Patents		1,387,000		198,143		1,188,857
Total	$	3,974,974	$	819,639	$	3,155,335

December 31, 2008:

Description	Cost		Accumulated amortization and impairments		Net carrying value at December 31, ~~2008~~2007
Development costs	$	293,750	$	293,750	$	-0-
Patents		2,294,224		1,646,277		648,017
Patents		1,387,000		1,103,800		283,200
Total	$	3,974,974	$	3,043,757	$	931,218

~~During the years ended~~ December 31, 2008 and 2007, the Company management preformed an evaluation of its intangible assets (Patents) for purposes of determining the implied fair value of the assets at acquisition date(s). During the year ended December 31, 2008, the tests indicated that the recorded remaining book value of its patents exceeded their fair value, as determined by discounted cash flows and accordingly recorded an impairment charge of $1,698,229 to current operations. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.2009:

2009	$	186,244
Description	Cost		Accumulated amortization and impairments		Net carrying value at December 31, 2008
2010		186,244
Development costs	$	293,750	$	293,750	$	-0-
2011		186,244
Patents		2,294,224		2,294,224		0
2012		186,244
Patents		1,387,000		1,387,000		0
2013 and thereafter		186,242
Total	$	3,974,974	$	3,974,974	$	0
Total	$	931,218

~~F-13~~38

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Comprehensive Income (Loss)

The Company adopted ~~Statement of Financial~~ Accounting Standards Codification 220 ~~No. 130; “Reporting~~ "Comprehensive Income” ~~(SFAS) No~~. ~~130~~ASC 220 establishes standards for the reporting and displaying of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. ~~SFAS~~ASC 220 ~~No. 130~~ requires other comprehensive income (loss) to include foreign currency translation adjustments and unrealized gains and losses on available for sale securities.

Liquidity

As shown in the accompanying consolidated financial statements, the Company incurred net ~~loss~~ profit from operations of $918,~~140~~640,~~254~~748 for the year ended December 31, ~~2008~~2009. The Company's current liabilities exceeded its current assets by $1014,~~061~~062,~~456~~074 as of December 31, ~~2008~~2009.

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,~~As ~~under the provisions of EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in,~~ a ~~Company's~~ ~~Own Stock," as a~~ result of entering into the Notes, the Company is required to classify all other non-employee stock options and warrants as derivative liabilities and mark them to market at each reporting date. Any change in fair value inclusive of modifications of terms will be recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge. If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income. Conversion-related derivatives were valued using the intrinsic method and the warrants using the Black Scholes Option Pricing Model with the following assumptions: dividend yield of 0%; annual volatility of 362%; and risk free interest rate from 0.37% to 1.55%. The derivatives are classified as long-term liabilities.

~~Registration rights~~39

Recent accounting pronouncements

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS No. 141(R)"), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS No. 141R in 2009 will have a material effect on its consolidated financial position, results of operations or cash flows.

F-14

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Recent accounting pronouncements

~~In December~~Effective July ~~2007~~1, 2009, the ~~FASB~~Company ~~issued~~adopted ~~SFAS~~the ~~No. 160,~~Financial ~~"Noncontrolling~~Accounting ~~Interest~~Standards ~~in Consolidated~~Board ~~Financial~~(“FASB”) ~~Statements~~Accounting Standards Codification (“ASC”) 105-10, anGenerally ~~amendment~~Accepted ofAccounting ~~ARB~~Principles ~~No. 51”~~ – Overall (“~~SFAS~~ASC ~~No. 160~~105-10”),. ~~which~~ASC ~~will~~105-10 ~~change~~establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting ~~and~~principles ~~reporting~~recognized ~~for minority~~by ~~interests,~~the ~~which~~FASB ~~will~~to be ~~recharacterized~~applied asby ~~noncontrolling~~nongovernmental ~~interests and~~entities ~~classified~~in asthe apreparation ~~component~~ of ~~equity~~financial ~~within~~statements ~~the~~in ~~consolidated~~conformity ~~balance~~with ~~sheets~~U. ~~SFAS~~S. NoGAAP. ~~160~~Rules isand ~~effective~~interpretive asreleases of the ~~beginning~~SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the ~~first~~Codification ~~fiscal~~carries ~~year~~an ~~beginning on~~equal orlevel ~~after~~of ~~December 15,~~authority. ~~2008~~The Codification superseded all existing non-SEC accounting and reporting standards. ~~Earlier~~All ~~adoption~~other non-grandfathered, non-SEC accounting literature not included in the Codification is ~~prohibited~~non-authoritative. The ~~Company does~~FASB will not ~~expect~~issue new standards in the ~~adoption~~form of ~~SFAS~~Statements, NoFASB Staff Positions or Emerging Issues Task Force Abstracts. ~~160~~Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in ~~2009~~their own right. ASUs will serve only to ~~have~~update athe ~~material~~Codification, ~~effect~~ provide background information about the guidance and provide the bases for conclusions on ~~its~~the ~~consolidated~~change(s) ~~financial~~in ~~position,~~the ~~results~~Codification. ofReferences ~~operations~~made orto ~~cash flows~~FASB guidance throughout this document have been updated for the Codification.

~~In December~~Effective ~~2007~~January 1, 2008, the Company adopted FASB ~~ratified~~ASC ~~the~~820-10, ~~consensus~~Fair inValue ~~Emerging~~Measurements ~~Issues~~and ~~Task~~Disclosures ~~Force~~ – Overall (~~EITF~~“ASC 820-10”) ~~Issue~~with ~~No. 07-1,~~respect ~~“Accounting~~to ~~for~~its ~~Collaborative~~financial ~~Arrangements” (EITF 07-1)~~assets and liabilities. ~~EITF 07-1~~In ~~defines~~February ~~collaborative~~2008, ~~arrangements~~the ~~and~~FASB ~~requires collaborators~~issued toupdated ~~present~~guidance ~~the~~related ~~result~~to offair ~~activities~~value ~~for~~measurements, which ~~they~~is ~~act~~included asin the ~~principal~~ onCodification ain ~~gross~~ASC ~~basis~~820-10-55, Fair Value Measurements and ~~report~~Disclosures ~~any~~– ~~payments~~Overall ~~received~~– ~~from~~Implementation ~~(made~~Guidance ~~to)~~and ~~the other~~Illustrations. ~~collaborators~~The ~~based~~updated onguidance ~~other~~provided ~~applicable~~a ~~authoritative~~one ~~accounting literature,~~year ~~and~~deferral inof the ~~absence~~effective date of ~~other~~ASC ~~applicable~~820-10 ~~authoritative~~for ~~literature,~~non-financial ~~on a~~assets ~~reasonable,~~and ~~rational~~non-financial ~~and~~liabilities, ~~consistent~~except ~~accounting~~those ~~policy~~that isare torecognized beor ~~elected. EITF 07-1~~disclosed ~~also~~in ~~provides~~the ~~for~~financial ~~disclosures~~statements ~~regarding~~at ~~the~~fair ~~nature~~value ~~and~~at ~~purpose~~least ~~of the~~annually. ~~arrangement~~Therefore, the ~~entity’s~~Company ~~rights~~adopted ~~and~~the ~~obligations,~~provisions ~~the~~of ~~accounting~~ASC ~~policy~~820-10 for ~~the~~ ~~arrangement~~non-financial assets and ~~the~~non-financial ~~income~~liabilities ~~statement~~effective ~~classification~~January 1, 2009, and ~~amounts~~such ~~arising~~adoption ~~from~~ did not have a material impact on the ~~agreement~~Company’s consolidated results of operations or financial condition.

~~EITF~~Effective April ~~07-~~1 ~~will~~, be2009, ~~effective~~the ~~for~~Company ~~fiscal~~adopted ~~years~~FASB ~~beginning~~ASC ~~after December 15~~820-10-65, ~~2008,~~Fair ~~which will~~Value beMeasurements ~~the~~and ~~Company’s~~Disclosures ~~fiscal~~– ~~year~~Overall ~~2009,~~– Transition and ~~will~~Open beEffective ~~applied~~Date asInformation a(“ASC ~~change~~820-10-65”). ASC 820-10-65 provides additional guidance for estimating fair value in ~~accounting~~ ~~principle~~accordance ~~retrospectively~~with ASC 820-10 when the volume and level of activity for ~~all~~an ~~collaborative~~asset ~~arrangements~~or ~~existing as~~liability have significantly decreased. ASC 820-10-65 also includes guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not have an impact on the ~~effective~~Company’s ~~date~~consolidated results of operations or financial condition.

~~The~~ Effective April 1, 2009, the Company ~~does~~adopted ~~not~~FASB ~~expect~~ASC ~~the~~825-10-65, Financial Instruments – Overall – Transition and Open Effective Date Information (“ASC 825-10-65”). ASC 825-10-65 amends ASC 825-10 to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements and also amends ASC 270-10 to require those disclosures in all interim financial statements. The adoption of ~~EITF~~ASC 07825-~~1in~~10-65 ~~2009~~did tonot have a material ~~effect~~ impact on ~~its~~the Company’s consolidated ~~financial position,~~ results of operations or ~~cash flows~~financial condition.

In June 2008, the FASB ratified the consensus on Emerging Issues Task Force (EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which is the first part of the scope exception in paragraph 11(a) of SFAS No. 133, for purposes of determining whether the instrument should be classified as an equity instrument or accounted for as a derivative instrument. The provisions of EITF Issue No. 07-5 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be applied retrospectively through a cumulative effect adjustment to retained earnings for outstanding instruments as of that date. The Company does not expect the adoption of EITF 07-05 to have a material effect on its consolidated financial position, results of operations or cash flows.40

In March 2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company does not expect the adoption of SFAS No. 161 to have a material effect on its consolidated financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3,“Determination of the Useful Life of Intangible Assets”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company is required to adopt FSP 142-3 on January 1, 2009, earlier adoption is prohibited. The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not expect the adoption of FSP No. FAS 142-3 to have a material effect on its consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The Company does not expect the adoption of SFAS No. 162 to have a material effect on its consolidated financial position, results of operations or cash flows.

F-15

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

In May ~~2008~~ 2009, the FASB issued ~~FSP~~SFAS ~~Accounting~~No. ~~Principles~~165, ~~Board~~“Subsequent ~~("APB")~~Events”, ~~14-1~~which ~~"Accounting~~is ~~for~~included ~~Convertible~~in ~~Debt Instruments~~ASC ~~That~~Topic ~~May~~855, BeSubsequent ~~Settled~~Events. inASC ~~Cash~~Topic ~~upon~~855 ~~Conversion~~established ~~(Including~~principles ~~Partial~~and ~~Cash Settlement)~~requirements "for ~~("FSP~~evaluating ~~APB 14-1"). FSP~~and ~~APB 14-1 requires~~reporting ~~the~~subsequent ~~issuer~~events ofand ~~certain~~distinguishes ~~convertible~~which ~~debt~~subsequent ~~instruments~~events ~~that~~should ~~may~~ be ~~settled~~ recognized in ~~cash~~the ~~(or~~financial ~~other~~statements ~~assets)~~versus onwhich ~~conversion~~subsequent toevents ~~separately~~should ~~account~~be ~~for~~disclosed in the ~~liability (debt)~~financial ~~and~~statements. ~~equity~~ASC ~~(conversion~~Topic ~~option)~~855 ~~components~~also required disclosure of the ~~instrument~~date inthrough awhich ~~manner that~~subsequent ~~reflects~~events ~~the~~are ~~issuer's~~evaluated ~~non-convertible~~by ~~debt borrowing rate~~management. ~~FSP APB 14-1~~ASC isTopic 855 was effective for ~~fiscal~~interim ~~years~~periods ~~beginning~~ending after ~~December~~June 15, ~~2008~~ on2009 aand ~~retroactive~~applies ~~basis~~prospectively. ~~The~~Because ~~Company~~ASC isTopic ~~currently~~855 ~~evaluating~~impacted the ~~potential~~ ~~impact~~disclosure requirements, ifand ~~any,~~not ofthe accounting treatment for subsequent events, the adoption of ~~FSP~~ASC ~~APB 14-1~~Topic on855 ~~its consolidated~~did ~~financial~~not ~~position,~~impact our results of operations or ~~cash flows~~financial condition. See Note 14 for disclosures regarding our subsequent events.

InEffective ~~May 2008~~July 1, 2009, the ~~FASB~~Company ~~issued~~adopted FASB ~~Statement~~ASU No. ~~163~~ 2009-05, ~~“Accounting~~Fair ~~for~~Value ~~Financial Guarantee~~Measurements ~~Insurance~~and ~~Contracts~~Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, ~~which~~Fair ~~clarifies~~Value ~~how~~Measurements ~~FASB~~and ~~Statement~~Disclosures No– Overall, for the fair value measurement of liabilities. 60ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, ~~“Accounting~~ ~~and~~a ~~Reporting~~reporting byentity ~~Insurance~~is ~~Enterprises”~~required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, ~~applies~~a reporting entity is not required to ~~financial guarantee~~include ~~insurance~~a ~~contracts~~separate ~~issued~~input byor ~~insurance~~adjustment ~~enterprises~~to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ~~The~~ ~~standard~~ASU is2009-05 ~~effective~~also ~~for~~clarifies ~~financial~~that ~~statements~~both ~~issued~~a quoted price in an active market for ~~fiscal years~~the ~~beginning~~identical ~~after~~liability ~~December~~at ~~15,~~the ~~2008,~~measurement ~~including~~date ~~interim~~and ~~periods~~the quoted price for the identical liability when traded as an asset in ~~that~~an ~~year. The~~active ~~Company~~market ~~does~~when ~~not~~no ~~expect~~adjustments to the ~~adoption~~quoted price of ~~SFAS~~the ~~163~~asset toare required are Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material ~~effect~~ impact on ~~its~~the Company’s consolidated results of operations or financial ~~statements~~condition.

In ~~June 2008~~ October 2009, the FASB issued ~~FSP~~ASU ~~Emerging~~2009-13, ~~Issues~~Multiple-Deliverable ~~Task~~Revenue ~~Force~~ Arrangements, (~~EITF~~amendments to FASB ASC Topic 605, Revenue Recognition) ~~No. 03~~ (“ASU 2009-613”) and ASU 2009-114, Certain Arrangements That Include Software Elements, (amendments to FASB ASC Topic 985, Software) (“~~Determining~~ASU ~~Whether~~2009-14”). ASU ~~Instruments Granted~~2009-13 requires entities to allocate revenue in ~~Share-Based~~an ~~Payment~~arrangement ~~Transactions~~using ~~Are~~estimated ~~Participating Securities.”~~selling ~~Under~~prices of the ~~FSP,~~delivered ~~unvested~~goods ~~share-~~and services based ~~payment~~on ~~awards~~a ~~that contain~~selling ~~rights~~price tohierarchy. ~~receive~~The ~~non-forfeitable~~amendments ~~dividends~~eliminate ~~(whether~~the ~~paid~~residual ormethod ~~unpaid)~~of ~~are participating~~revenue ~~securities,~~allocation and ~~should~~require revenue to be ~~included~~allocated inusing the ~~two-class~~relative selling price method. ASU 2009-14 removes tangible products from the scope of ~~computing~~ ~~EPS~~software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU ~~The~~2009-13 ~~FSP~~and isASU ~~effective~~2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after ~~December~~ June 15, ~~2008~~2010, ~~and~~with ~~interim~~early ~~periods~~adoption ~~within those years~~permitted. The Company does not expect ~~the~~ adoption of ~~FSP~~ASU ~~EITF~~2009-13 ~~No. 03~~or ASU 2009-~~6-1~~14 to have a material ~~effect~~impact on ~~its~~ ~~consolidated~~the ~~financial~~Company’s ~~position,~~consolidated results of operations or ~~cash flows~~financial condition.

In October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This position clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. It also reaffirms the notion of fair value as an exit price as of the measurement date. This position was effective upon issuance, including prior periods for which financial statements have not been issued. The adoption had no impact on the Company’s consolidated financial statements.41

In December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, which is effective for fiscal years ending after December 15, 2009. FSP 132(R)-1 requires disclosures about fair value measurements of plan assets that would be similar to the disclosures about fair value measurements required by SFAS 157. The Company is assessing the potential effect of the adoption of FSP 132(R)-1 on its consolidated financial statements.

In December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities. The FSP requires extensive additional disclosure by public entities with continuing involvement in transfers of financial assets to special-purpose entities and with variable interest entities (VIEs), including sponsors that have a variable interest in a VIE. This FSP became effective for the first reporting period ending after December 15, 2008 and did not have any material impact on the Company's consolidated financial statements.

In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

F-16

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE B - PROPERTY, PLANT, AND EQUIPMENT

Property, plant and equipment at December 31, ~~2008~~2009 and ~~2007~~2008 are as follows:

	2008			2007
	2009			2008
Furniture and fixtures	$	56,348		$	56,348
Office and computer equipment		62,061			62,061
Leasehold improvements		21,989			21,989
Manufacturing equipment		~~103,380~~0			103,380
		243,778			243,778
		140,398			243,778
Less: accumulated depreciation		(~~194~~109,~~788~~223	)		(~~169~~194,~~171~~788	)
	$	4831,~~990~~175		$	7448,~~607~~990

During the years ended December 31, ~~2008~~2009 and ~~2007~~2008, depreciation expense charged to operations was $2517,~~617~~815 and $2725,~~706~~617, respectively.

NOTE C - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, ~~2008~~2009 and ~~2007~~2008 are as follows:

	2008		2007
	2009		2008
Accounts payable	$	13,~~299~~527,~~147~~038	$	~~733~~1,~~538~~299,147
Accrued interest and liquidation damages (see Note D below)		23,~~438~~006,~~682~~582		12,~~893~~438,~~561~~682
Accrued payroll and payroll taxes		~~510~~625,~~779~~384		~~155~~510,~~661~~779
Other accrued liabilities		~~476,424~~0		~~295~~476,~~911~~424
Total	$	47,~~725~~159,~~032~~034	$	34,~~078~~725,~~671~~032

~~F-17~~42

NOTE D-CONVERTIBLE DEBENTURES

Notes payable at December 31, 2008 and 2007:

	December 31, 2008					December 31, 2007
	Gross Principal Amount		Less: Unamortized Discount	Net		Gross Principal Amount		Less: Unamortized Discount		Net
10% convertible note payable, unsecured and due September, 2003; accrued and unpaid interest due at maturity; Note holder has the option to convert note principal together with accrued and unpaid interest to the Company’s common stock at a rate of $0.50 per share. The Company is in violation of the loan covenants	$	2,500	-	$	2,500	$	2,500		-	$	2,500
10% convertible note payable, unsecured and due September, 2003; accrued and unpaid interest due at maturity; Note holder has the option to convert note principal together with accrued and unpaid interest to the Company’s common stock at a rate of $0.50 per share. The Company is in violation of the loan covenants		25,000	-		25,000		-		-		-
10% convertible debenture, due three years from date of the note with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a) $0.03 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. The Company is in violation of the loan covenants (see below)	$	1,094,091	-	$	1,094,091	$	1,094,091	$	158,665	$	935,426

F-18

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE D-~~CONVERTIBLE~~WARRANT ~~DEBENTURES (continued)~~PAYABLE

	December 31, 2008						December 31, 2007
	Gross Principal Amount		Less: Unamortized Discount		Net		Gross Principal Amount		Less: Unamortized Discount		Net
10% convertible debenture, due three years from date of the note with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a) $0.6 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. The Company is in violation of the loan covenants (see below)	$	800,000	$		$	800,000	$	800,000	$	216,986	$	583,014
8% convertible debenture, due three years from date of the note with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights (see below)		700,000				700,000		700,000		231,416		468,584
8% convertible debenture, due March 2009 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)		500,000		38,813		461,187		500,000		205,936		294,064
6% convertible debenture, due July 2009 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)		500,000		94,977		405,023		500,000		262,100		237,900
6% convertible debenture, due September 2009 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)	$	280,000	$	68,530	$	211,470	$	280,000	$	162,119	$	117,881

The Company completed an equity financing with St. George Investments, LLC (SGI), an Illinois limited liability company, on March 21, 2008 for $1,500,000. The equity financing is structured as a 25% discount to market Warrant transaction that provides $500,000 in capital at closing, followed by four traunches of $250,000 each. Each $250,000 traunch is staggered at 60-day intervals commencing in six months on September 22, 2008, which is the date that shares are salable pursuant to Rule 144 upon exercise of the Warrant. The Company issued 7,500,000 shares of Common Stock to SGI in order to induce the SGI to purchase the $1,500,000 Warrant. In addition, 6,763,300 additional shares of Common Stock were issued as Performance Stock in the name of SGI to remain in their original certificated form and remain in escrow with the law firm of Anslow & Jaclin, LLP acting as escrow agent. As a provision of the Warrant Purchase Agreement, we pledged 35,736,700 shares of “Pledge Stock” to be held in escrow as a potential remedy in the event of the occurrence of certain identified “trigger events”. On June 23rd, 2008, one trigger event, the closing price of our stock, went below the identified market price of $0.012 per share, triggering the release from escrow of the 6,763,300 shares of Performance Stock and the 35,736,700 shares of “Pledge Stock”. This trigger event, as defined in the Warrant Purchase Agreement, also increased the Warrant Account by 25% of the balance, or $375,000, in exchange for the elimination of the 25% discount to market. As of December 31, 2009 the remaining Warrant Liability balance was $457,902.

~~F-19~~43

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE D E-~~CONVERTIBLE~~WARRANT ~~DEBENTURES (continued)~~LIABILITY

	December 31, 2008						December 31, 2007
	Gross Principal Amount		Less: Unamortized Discount		Net		Gross Principal Amount		Less: Unamortized Discount		Net
6% convertible debenture, due December 2009 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)	$	600,000	$	193,425	$	406,575	$	600,000	$	393,973	$	206,027
8% convertible debenture, due April 2010 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)		400,000		172,420		227,580		400,000		306,119		93,881
8% convertible debenture, due May 2010 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)		150,000		66,438		83,562		150,000		116,575		33,425
8% convertible debenture, due June 2010 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)		150,000		70,685		79,315		150,000		120,822		29,178
8% convertible debenture, due June 2010 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)	$	150,000	$	74,658	$	75,342	$	150,000	$	124,795	$	25,205

Total warrant liability as of December 31, 2009 and 2008 is comprised of the following:

F-20

	December 31, 2009		December 31, 2008
Fair value of warrants relating to convertible debentures	$	9,976	$	105,091
Fair value of other outstanding warrants		0		149,951
Total	$	9,976	$	255,042

~~CYBERLUX CORPORATION~~Warrants were valued at the date of inception and at December 31, 2009 and 2008 using the Black Scholes Option Pricing Model.

~~NOTES TO~~The ~~CONSOLIDATED~~assumptions ~~FINANCIAL~~used ~~STATEMENTS~~at December 31, 2009 and 2008 were as follows:

DECEMBER 31, 2008 AND 2007

	December 31, 2009			December 31, 2008
Expected volatility		242	%		362	%
Expected dividend yield		-0-	%		-0-	%
Average risk free rate	0.25% - 0.40%			0.37% - 1.55 %
Expected life (a)	2.4 to 2.8 yrs			1.31 to 5.53 yrs

NOTE D-CONVERTIBLE DEBENTURES (continued)

	December 31, 2008							December 31, 2007
	Gross Principal Amount		Less: Unamortized Discount			Net		Gross Principal Amount		Less: Unamortized Discount			Net
8% convertible debenture, due July 2010 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. (See below)	$	150,000	$	76,438		$	73,562	$	150,000	$	126,575		$	23,425
Total		5,501,591		(856,384	)		4,645,207		5,476,591		(2,426,081	)		3,050,510
Less: current maturities:		5,501,591		(856,384	)		4,645,207		5,476,591		(2,426,081	)		3,050,510
Long term portion	$	-0-	$	-0-		$	0-	$	-0-	$	-0-		$	-0-

The Company entered into a Securities Purchase Agreement with four accredited investors on April 23, 2005 for the issuance of an aggregate of $1,500,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 25,000,000 shares of the Company’s common stock. The Convertible Notes accrue interest at 10% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.03 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 270.43% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $1,500,000 in exchange for total proceeds of $1,352,067. The proceeds that the Company received were net of prepaid interest of $72,933 representing the first eight month’s interest and related fees and costs of $75,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on April 23, 2005. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $945,313 and $554,687 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due · Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness · Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control · Trading market limitations

F-21

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

The Company agreed to file a registration statement with the SEC to affect the registration of the shares of its common stock underlying the Security Purchase Agreement and the warrants within 30 days from the date of receipt of written demand of the Investors. The Company also agreed to use its reasonable best efforts to cause the registration statement to be declared effective no later than 90 days after the date of the Securities Purchase Agreement. If the Registration Statement is not filed and/or not declared effective as described above, the Company will be required to pay liquidated damages in the form of cash or the Company’s common stock, at the Company’s discretion, in an amount equal to 2% of the unpaid principal balance per month to the date on which the Registrable Securities (in the opinion of counsel to the Initial Investors) may be immediately sold to the public without registration or restriction (including, without limitation, as to volume by each holder thereof) under the 1933 Act.

As of December 31, 2008 and 2007, the Company has not maintained an effective registration statement and therefore is in default of the Security Purchase agreement. As such, at the option of the Holders of a majority of the aggregate principal amount of the outstanding Notes issued pursuant to the Purchase Agreement and through the delivery of written notice to the Company by such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due and payable and the Company shall pay to the Holder an amount equal to the greater of (i) 130% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment plus (y) Default Interest (at 15% per annum), if any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights Agreement. The then outstanding principal amount of the Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall immediately become due and payable, together with all costs including legal fees and expenses of collection. If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $158,665 and $135,609, respectively.

The Company entered into a Securities Purchase Agreement with four accredited investors on October 24, 2005 for the issuance of $800,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 800,000 shares of the Company’s common stock. The Convertible Note accrues interest at 10% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.06 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 142.28% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $800,000 in exchange for total proceeds of $775,000. The proceeds that the Company received were net of related fees and costs of $25,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on October 24, 2005. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $743,770 and $56,230 to the embedded derivatives and related warrants, respectively.

F-22

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $216,986 and $266,667, respectively.

The Company entered into a Securities Purchase Agreement with four accredited investors on December 28, 2005 for the issuance of $700,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes were warrants to purchase 700,000 shares of the Company’s common stock. The Convertible Note accrues interest at 8% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 158.81% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $700,000 in exchange for total proceeds of $675,000. The proceeds that the Company received were net of related fees and costs of $25,000.

F-23

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on December 28, 2005. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $655,921 and $44,079 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $231,416 and $233,333, respectively.

F-24

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

The Company entered into a Securities Purchase Agreement with four accredited investors on March 31, 2006 for the issuance of $500,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 19,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 8% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 11.01% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $500,000 in exchange for total proceeds of $460,000. The proceeds that the Company received were net of related fees and costs of $40,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on March 31, 2006. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $136,612 and $363,388 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

F-25

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $167,123 and $166,667, respectively.

The Company entered into a Securities Purchase Agreement with four accredited investors on July 28, 2006 for the issuance of $500,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 15,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 6% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 10.00% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $500,000 in exchange for total proceeds of $490,000. The proceeds that the Company received were net of related fees and costs of $10,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on July 28, 2006. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $200,000 and $300,000 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

F-26

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $167,123 and $166,667, respectively.

The Company entered into a Securities Purchase Agreement with four accredited investors on September 26, 2006 for the issuance of $280,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 10,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 6% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 9.36% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $280,000 in exchange for total proceeds of $259,858. The proceeds that the Company received were net of related fees and costs of $20,142.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on September 26, 2006. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $100,513 and $179,487 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

F-27

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

As of December 31 2008 and 2007, the Company has not maintained an effective registration statement and therefore is in default of the Security Purchase agreement. As such, at the option of the Holders of a majority of the aggregate principal amount of the outstanding Notes issued pursuant to the Purchase Agreement and through the delivery of written notice to the Company by such Holders (the "DEFAULT NOTICE"); the Notes shall become immediately due and payable and the Company shall pay to the Holder an amount equal to the greater of (i) 130% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment plus (y) Default Interest (at 15% per annum), if any, plus (z) any amounts owed to the Holder pursuant to the Registration Rights Agreement. The then outstanding principal amount of the Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "DEFAULT SUM")or (ii) the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall immediately become due and payable, together with all costs including legal fees and expenses of collection. If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $93,589 and $93,333, respectively.

The Company entered into a Securities Purchase Agreement with four accredited investors on December 20, 2006 for the issuance of $600,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 20,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 6% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 15.00% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $600,000 in exchange for total proceeds of $590,000. The proceeds that the Company received were net of related fees and costs of $10,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on December 20, 2006. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $360,000 and $240,000 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

F-28

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $200,548 and $200,000, respectively.

The Company entered into a Securities Purchase Agreement with four accredited investors on April 18, 2007 for the issuance of $400,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 10,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 8% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 235.00% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $400,000 in exchange for total proceeds of $360,000. The proceeds that the Company received were net of related fees and costs of $40,000.

F-29

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on April 18, 2007. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $386,378 and $13,622 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $133,699 and $93,881, respectively.

F-30

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

The Company entered into a Securities Purchase Agreement with four accredited investors on May 1, 2007 for the issuance of $150,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 10,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 8% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 80.83% per annum.

As of December 31 2008, the Company issued to investors of the Convertible Notes a total amount of $150,000 in exchange for total proceeds of $150,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on May 1, 2007. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $135,154 and $14,846 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

F-31

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $50,137 and $33,425, respectively.

The Company entered into a Securities Purchase Agreement with four accredited investors on June 1, 2007 for the issuance of $150,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 10,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 8% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 91.87% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $150,000 in exchange for total proceeds of $150,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on June 1, 2007. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $136,938 and $13,062 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due

· Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Timely file a registration statement with the SEC and obtain effectiveness and maintain effectiveness

· Maintain sufficient number of authorized shares, subject to Stockholder approval for full conversion of any remaining Security Purchase Agreement

· Change of control

· Trading market limitations

F-32

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $50,137 and $29,178.

The Company entered into a Securities Purchase Agreement with four accredited investors on June 30, 2007 for the issuance of $150,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 10,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 8% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 85.51% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $150,000 in exchange for total proceeds of $150,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on June 30, 2007. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $135,966 and $14,034 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

· Requirement to pay principal and interest when due · Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Change of control · Trading market limitations

F-33

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $50,137 and $25,205, respectively.

The Company entered into a Securities Purchase Agreement with four accredited investors on July 13, 2007 for the issuance of $150,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 10,000,000 shares of the Company’s common stock. The Convertible Note accrues interest at 8% per annum, payable quarterly, and are due three years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.10 or b) 25% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before, but not including, conversion date. The effective interest rate at the date of inception was 85.13% per annum.

As of December 31, 2008, the Company issued to investors of the Convertible Notes a total amount of $150,000 in exchange for total proceeds of $150,000.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on July 13, 2007. These embedded derivatives included certain conversion features, variable interest features, call options and default provisions. The accounting treatment of derivative financial instruments requires that the Company allocate the relative fair values of the derivatives and related warrants as of the inception date of the Securities Purchase Agreement up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the Securities Purchase Agreement, the Company allocated $135,903 and $14,097 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

F-34

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

· Requirement to pay principal and interest when due · Provide shares of the Company’s common stock to the Holder(s) upon exercise by the Holder(s)

· Change of control · Trading market limitations

For the year ended December 31, 2008 and 2007, the Company amortized the debt discount and charged to interest expense $50,137 and $23,425, respectively.

As of December 31, 2008, the Company has accrued $816,586 in default provision liabilities and liquidated damages relating to the above described Securities Purchase Agreements.

Although described as a warrant, the instrument was considered a convertible debenture for accounting purposes.

In accordance with EITF 98-5, the Company recognized an imbedded beneficial conversion feature present in the convertible note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $184,736 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid in capital and a discount against the convertible note payable. The debt discount attributed to the beneficial conversion feature charged to current period earnings as interest expense.

F-35

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE D-CONVERTIBLE DEBENTURES (continued)

Additionally, in conjunction with the issuance of the above described debenture, the Company issued an aggregate of 6,763,300 and 7,500,000 shares of its common stock to be held as security and as a financing cost of the transaction, respectively. The Company charged a total of $385,109 of debt acquisition costs to current period earnings.

The accompanying financial statements comply with current requirements relating to warrants and embedded derivatives as described in FAS 133, EITF 98-5 and 00-27, and APB 14 as follows:

	·	The Company allocated the proceeds received between convertible debt and detachable warrants based upon the relative fair market values on the dates the proceeds were received. The fair values of the detachable warrants and the embedded derivatives were determined under the Black-Scholes option pricing formula and the intrinsic method, respectively
	·	Subsequent to the initial recording, the increase (or decease) in the fair value of the detachable warrants, determined under the Black-Scholes option pricing formula and the increase (or decrease) in the intrinsic value of the embedded derivatives of the convertible debentures are recorded as adjustments to the liabilities at December 31, 2008 and 2007, respectively.

	·	The expense relating to the increase (or decrease) in the fair value of the Company’s stock reflected in the change in the fair value of the warrants and derivatives is included as other income item as a gain or loss arising from convertible financing on the Company’s balance sheet.
	·	Accreted principal of $4,645,207 and $3,050,510 as of December 31, 2008 and 2007.

NOTE E – WARRANT PAYABLE

NOTE F-WARRANT LIABILITY

Total warrant liability as of December 31, 2008 and 2007 is comprised of the following:

	December 31, 2008		December 31, 2007
Fair value of warrants relating to convertible debentures	$	105,091	$	1,874,970
Fair value of other outstanding warrants		149,951		2,634,568
Total	$	255,042	$	4,509,538

Warrants were valued at the date of inception and at December 31, 2008 and 2007 using the Black Scholes Option Pricing Model.

The assumptions used at December 31, 2008 and 2007 were as follows:

	December 31, 2008			December 31, 2007
Expected volatility		362	%		528	%
Expected dividend yield		-0-	%		-0-	%
Average risk free rate	0.37% to 1.55		%		3.45	%
Expected life (a)	1.31 to 5.53 yrs			1.01 to 6.53 yrs

(a)The expected option life is based on contractual expiration dates.

~~F-36~~44

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE G F - NOTE PAYABLE

Note payable as of December 31, ~~2008~~2009 and ~~2007~~2008, comprised of the following:

	December 31, 2008		December 31, 2007
	December 31, 2009		December 31, 2008
Note payable, 24% interest per annum; due in 90 days; secured by specific accounts receivables	$	~~192,865~~-	$	~~196~~192,~~067~~865

NOTE H G - NOTES AND CONVERTIBLE NOTES PAYABLE-RELATED PARTY

Notes payable-related party is comprised of the following:

	December 31, 2008			December 31, 2007
	December 31, 2009			December 31, 2008
Notes payable, 12% per annum; due on demand; unsecured	$	~~147~~421,~~714~~759		$	147,714
Notes payable, 10% per annum, due on demand; unsecured		~~255~~950,~~109~~552			~~249~~255,~~350~~109
		402,823			397,064
		1,372,311			402,823
Less: current maturities:		(~~402~~1,~~823~~372,311	)		(~~397~~402,~~064~~823	)
Long term portion:	$	-		$	-

NOTE I H -STOCKHOLDER'S EQUITY

Series A - Convertible Preferred stock

The Company has also authorized 5100,000,000 shares of Preferred Stock, with a par value of $.001 per share.

On December 3031, 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.45

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.

F-37

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE I H -STOCKHOLDER'S EQUITY (continued)

Series A - Convertible Preferred stock (continued)

In the year ended December 31, ~~2006~~2008, 91 of the Series A Preferred shareholders exercised the conversion right and exchanged ~~20.88~~2 shares of Series A Preferred for 1 100,~~019,032~~000 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~~year ~~month period~~ ended ~~September~~Deember 3031, ~~2008~~ 2009, $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~~." InThe ~~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:

F-38

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE I H -STOCKHOLDER'S EQUITY (continued)

Series A - Convertible Preferred stock (continued)

~~Subsequent to~~The ~~the~~Company ~~initial~~was ~~recording,~~required ~~the~~to ~~increase~~record ina ~~the~~liability ~~fair~~relating ~~value~~to of the detachable warrants, ~~determined under the Black- Scholes option pricing formula, are accrued~~ as ~~adjustments~~described toin ~~the~~Accounting ~~liabilities~~Standards atCodification ~~September~~815 ~~30,~~"Derivatives ~~2008~~ and ~~December~~Hedging". ~~31, 2007,~~As ~~respectively.~~such

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.:

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, 2009 and December 31, 2008, 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 another 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~~2009, ~~and~~ April ~~2007~~2009, and December 2009 the Company issued ~~800~~1,000,000, 3,850,000 and 216,~~850~~500,000 shares, respectively, of its Series B Preferred inas ~~lieu~~a ofdecision ~~certain~~by ~~accrued management service fees payable and notes payable including interest payable thereon totaling $1,170,500 to officers of~~ the ~~company.~~Board ~~The shares~~ of ~~the~~Directors ~~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~~order ~~and~~to ~~$0.13~~retain insuperior ~~2007,~~voting ~~which represented the fair value of the common stock the shares are convertible into~~rights. 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 325,~~650~~000,000 shares of Series B Preferred shares issued and outstanding at ~~September~~December 3031, ~~2008~~2009.

The holders of the Series B Preferred shall have the right to vote, separately as a single class, at a meeting of the holders of the Series B Preferred or by such holders' written consent or at any annual or special meeting of the stockholders of the Corporation on any of the following matters: (i) the creation, authorization, or issuance of any class or series of shares ranking on a parity with or senior to the Series B Preferred with respect to dividends or upon the liquidation, dissolution, or winding up of the Corporation, and (ii) any agreement or other corporate action which would adversely affect the powers, rights, or preferences of the holders of the Series B Preferred.

The holders of record of the Series B Preferred shall be entitled to receive cumulative dividends at the rate of twelve percent per annum (12%) on the face value ($1.00 per share) when, if and as declared by the Board of Directors, if ever. All dividends, when paid, shall be payable in cash, or at the option of the Company, in shares of the ~~Company~~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~~December 3031, ~~2008~~2009 $1387,~~201,000~~863 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."

~~F-39~~47

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE I H -STOCKHOLDER'S EQUITY (continued)

Series C - Convertible Preferred stock

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~~December 3031, ~~2008~~2009 $-0- in dividends were accumulated.

Common stock

The Company has authorized ~~950~~20,000,000,000 shares of common stock, with a par value of $.001 per share. As of December 31, ~~2008~~2009 and ~~2007~~2008, the Company has ~~814~~ 4,~~426~~816,~~120~~864, 598 and ~~552~~814,~~142~~426,~~881~~120 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.48

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.

F-40

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE I H -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.

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE H -STOCKHOLDER'S EQUITY (continued)

Series C - Convertible Preferred stock

In September 2008, the Company issued 2,200,000 shares of its common stock in exchange for services rendered. The Company valued the shares issued at $14,520, which approximated the fair value of the shares issued during the periods the services were rendered.

In October 2008, the Company issued 10,000,000 shares of its common stock in exchange for services rendered. The Company valued the shares issued at $29,000, which approximated the fair value of the shares issued during the periods the services were rendered.

In December 2008, the Company issued 25,500,000 shares of its common stock in exchange for services rendered. The Company valued the shares issued at $33,200, which approximated the fair value of the shares issued during the periods the services were rendered.

~~F-41~~On January 8, 2009, we issued 55,529,412 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $155,482, which approximated the fair value of the shares issued at the date of issuance.

On January 20, 2009, we borrowed an aggregate of $28,000 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 25,000,000 of our common stock.

On February 12, 2009, we borrowed an aggregate of $21,000 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 25,000,000 of our common stock.

On March 31, 2009, we borrowed an aggregate of $26,250 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 25,000,000 of our common stock.

On April 28, 2009, we borrowed an aggregate of $22,750 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 25,000,000 of our common stock.

On May 12, 2009, we borrowed an aggregate of $70,000 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 50,000,000 shares of our common stock.

On May 21,2009, we issued 76,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $60,800, which approximated the fair value of the shares issued at the date of issuance.

On June 1, 2009, we borrowed an aggregate of $59,500 from Ayuda Funding Corp. In conjunction with the borrowing, we issued a total of 50,000,000 of our common stock.

On June 25, 2009, we issued 70,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $56,000, which approximated the fair value of the shares issued at the date of issuance.

On August 5, 2009, we issued 4,000,000 shares of our common stock to W. Scott Elliott, in exchange for services rendered. The Company valued the shares issued at $4,800, which approximated the fair value of the shares issued at the date of issuance.

On August 7, 2009, we issued 95,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $57,000, which approximated the fair value of the shares issued at the date of issuance.

On August 24, 2009, we issued 30,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $16,875, which approximated the fair value of the shares issued at the date of issuance.

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE J H -~~STOCK~~STOCKHOLDER'S ~~OPTIONS~~EQUITY ~~AND WARRANTS~~(continued)

~~Class~~Series ~~A Warrants~~C - Convertible Preferred stock

~~The following~~On ~~table~~September ~~summarizes~~16, ~~the~~2009, ~~changes~~we inreceived ~~warrants~~$25,000 ~~outstanding~~, ~~and~~from ~~related prices~~Barclay ~~for~~Lyons, ~~the~~LLC. In ~~shares~~conjunction ofwith ~~the~~debt ~~Company’s~~purchase ~~common~~agreement, ~~stock~~we issued toat ~~shareholders~~total ~~at December~~of 3157,777,778 ~~2008:~~shares of our common stock.

Exercise Price		Number Outstanding		Warrants Outstanding Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise price		Number Exercisable	Warrants Exercisable Weighted Average Exercise Price
$	0.001		50,000,000	3.76	$	0.001	50,000,000		0.001
	0.02		50,000,000	3.43		0.02	50,000,000		0.02
	0.03		25,000,000	1.38		0.03	25,000,000		0.03
	0.10		850,000	.0.49		0.10	850,000		0.10
	0.055		49,760,443	3.39		0.055	49,760,443		0.055	(a)
			175,610,443				175,610,443

~~(a)~~On ~~See~~September ~~terms~~21, 2009, we issued 4,000,000 shares of ~~warrants~~our common stock to W. Scott Elliott, in exchange for services rendered. The Company valued the shares issued ~~below~~at $3,200, which approximated the fair value of the shares issued at the date of issuance.

~~Transactions involving~~On September 30, 2009, we issued 100,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the ~~Company’s~~sale of a warrant. ~~issuance~~The ~~are~~Company ~~summarized~~valued asthe ~~follows:~~shares issued at $43,750, which approximated the fair value of the shares issued at the date of issuance.

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2006		99,895,000		$	0.09
Granted		200,000,000			0.01525
Exercised		(50,239,557	)		(0.03	)
Canceled or expired		(73,695,000	)		(0.07
Outstanding at December 31, 2007		175,960,443			0.016
Granted		-			-
Exercised		-			-
Canceled or expired		(350,000	)		.75
Outstanding at December 31, 2008		175,610,443			0.02

On October 12, 2009, we received $25,000, from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 86,666,667 shares of our common stock.

~~Warrants granted~~On ~~during~~October ~~the~~12, ~~year ended December 31~~2009, ~~2007~~we ~~totaling~~received 50$25,000,~~000~~ ~~were~~from ~~issued in~~War ~~connection~~Chest. In conjunction with debt ~~financing.~~purchase ~~The~~agreement, ~~warrants~~we ~~are~~issued ~~exercisable~~at ~~until~~total ~~five years after the date~~ of ~~issuance~~86,666,667 atshares ~~a purchase price~~ of ~~$0.02~~our ~~per~~common ~~share~~stock.

InOn ~~the year~~October ~~ended December 31~~14, ~~2007~~2009, ~~the~~we ~~Company~~issued ~~sold 100~~110,000,000 ~~five~~shares ~~year warrants with an exercise price~~ of ~~50%~~our ofcommon ~~the~~stock ~~average closing price of the twenty trading days prior~~ to ~~warrant execution~~St. ~~The~~George ~~transaction~~Investments, toLLC, ~~the~~in ~~extent~~conjunction ~~that it is to be satisfied~~ with ~~common~~the ~~stock~~sale of ~~the~~a ~~Company would normally be included as equity obligations~~warrant. ~~However,~~The inCompany ~~the~~valued ~~instant case, due to~~ the ~~indeterminate number of~~ shares ~~which might be~~ issued ~~under~~at ~~the embedded convertible host conversion feature~~$41,250, ~~the~~which ~~Company~~approximated ~~is required to record a liability relating to warrants and as such has recorded~~ the fair value of the ~~embedded~~shares ~~conversion~~issued ~~feature,~~at ~~using~~ the ~~Black-Scholes~~date ~~option~~of ~~pricing method, as a liability for the current period~~issuance.

InOn ~~the year~~October ~~ended~~22, ~~December~~2009, 31we issued 100,000,000 ~~2007~~shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company ~~sold~~valued 50the shares issued at $36,000,~~000~~ ~~five~~which ~~year~~approximated ~~warrants with~~the anfair ~~exercise~~value ~~price~~of the shares issued at the date of $0issuance.~~001.~~

~~F-42~~On October 28, 2009, we issued 72,003,674 shares of our common stock to various employees, in conjunction with a stock award. The Company valued the shares issued at $36,002, which approximated the fair value of the shares issued at the date of issuance.

On October 28, 2009, we received $25,000 from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 86,666,667 shares of our common stock.

On October 28, 2009, we received $25,000 from War Chest In conjunction with debt purchase agreement, we issued at total of 86,666,667 shares of our common stock.

On October 28, 2009, we issued 125,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $45,000, which approximated the fair value of the shares issued at the date of issuance.

On November 5, 2009, we issued 107,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $25,680, which approximated the fair value of the shares issued at the date of issuance.

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE J H -~~STOCK~~STOCKHOLDER'S ~~OPTIONS~~EQUITY ~~AND WARRANTS~~ (continued)

~~The Company~~Series ~~completed~~C an equity financing with St. George Investments, LLC (SGI), an Illinois limited liability company, on March 21, 2008 for $1,500,000. The equity financing is structured as a 25% discount to market Warrant transaction that provides $500,000 in capital at closing, followed by four traunches of $250,000 each. Each $250,000 traunch is staggered at 60-~~day~~ ~~intervals commencing~~Convertible inPreferred six months on September 22, 2008, which is the date that shares are salable pursuant to Rule 144 upon exercise of the Warrant. The Company issued 7,500,000 shares of Common Stock to SGI in order to induce the SGI to purchase the $1,500,000 Warrant. In addition, 6,763,300 additional shares of Common Stock were issued as Performance Stock in the name of SGI to remain in their original certificated form and remain in escrow with the law firm of Anslow & Jaclin, LLP acting as escrow agent. As a provision of the Warrant Purchase Agreement, we pledged 35,736,700 shares of “Pledge Stock” to be held in escrow as a potential remedy in the event of the occurrence of certain identified “trigger events”. On June 23rd, 2008, one trigger event, the closing price of our stock, went below the identified market price of $0.012 per share, triggering the release from escrow of the 6,763,300 shares of Performance Stock and the 35,736,700 shares of “Pledge Stock”. This trigger event, as defined in the Warrant Purchase Agreement, also increased the Warrant Account by 25% of the balance, or $375,000, in exchange for the elimination of the 25% discount to market.

~~Employee~~On ~~Stock Options~~November 12, 2009, we received $25,000 from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 125,000,000 shares of our common stock.

~~The following~~On ~~table~~November ~~summarizes~~12, ~~the~~2009, ~~changes~~, inwe ~~options~~received ~~outstanding~~$25,000 ~~and~~from ~~the~~War ~~related prices~~Chest, ~~for~~LLC. In ~~the~~conjunction ~~shares~~with ofdebt ~~the~~purchase ~~Company's~~agreement, ~~common~~we ~~stock~~ issued toat ~~employees~~total of ~~the Company~~125,000,000 ~~under~~shares aof ~~non-qualified~~our ~~employee~~common stock ~~option plan at December 31, 2008:~~.

		Options Outstanding					Options Exercisable
				Weighted Average		Weighted			Weighted
				Remaining		Average			Average
	Exercise	Number		Contractual Life		Exercise	Number		Exercise
	Prices	Outstanding		(Years)		Price	Exercisable		Price
$	0.2125		2,000,000	4.96	$	0.2125	2,000,000	$	0.2125
	0.2125		2,000,000	5.37		0.2125	2,000,000		0.2125
	0.022		20,500,000	7.87		0.022	20,500,000		0.022
	0.0295		4,000,000	6.35		0.0295	4,000,000		0.0295
	0.04		14,430,000	7.57		0.04	14,430,000		0.04
	0.10		9,502,307	5.26		0.10	9,502,307		0.10

On November 12, 2009, we issued 109,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $26,160, which approximated the fair value of the shares issued at the date of issuance.

~~Transactions involving~~On ~~stock~~November ~~options~~19, 2009, we issued 146,000,000 shares of our common stock to ~~employees~~St. ~~are~~George ~~summarized~~Investments, ~~as follows:~~LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $32,120, which approximated the fair value of the shares issued at the date of issuance

		Weighted Average
	Number of Shares	Price Per Share
Outstanding at December 31, 2006	52,432,307		0.0562
Granted	-		-
Exercised	-		-
Canceled or expired	-		-
Outstanding at December 31, 2007	52,432,307		0.0562
Granted	-		-
Exercised	-		-
Canceled or expired	-		-
Outstanding at December 31, 2008	52,432,307	$	0.0562

On November 25, 2009, we issued 30,000,000 shares of our common stock in exchange for services. The Company valued the shares issued at $15,000, which approximated the fair value of the shares issued at the date of issuance.

~~The Company~~On ~~did~~November ~~not~~30, ~~grant~~2009, ~~employee~~we issued 120,000,000 shares of our common stock ~~options~~to St. George Investments, LLC, in conjunction with the ~~years~~sale ~~ended~~of ~~December~~a 31warrant. The Company valued the shares issued at $21, ~~2008~~600, ~~and~~which ~~2007.~~approximated the fair value of the shares issued at the date of issuance

~~NOTE K~~On ~~-RELATED~~December ~~PARTY~~3, ~~TRANSACTIONS~~2009, we issued 150,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $27,000, which approximated the fair value of the shares issued at the date of issuance

~~From~~On ~~time to~~December ~~time~~10, ~~the~~2009, ~~Company's~~we ~~principal~~received ~~officers~~$16,667 ~~have~~from ~~advanced~~Barclay ~~funds~~Lyons, toLLC. In ~~the~~conjunction ~~Company~~with ~~for working~~debt ~~capital~~purchase ~~purposes in the form of unsecured promissory notes~~agreement, ~~accruing interest~~we issued at ~~10%~~total ~~to 12% per annum. As~~ of ~~December 31~~166, ~~2008 and 2007~~666,667 shares ~~the~~of ~~balance due~~our tocommon ~~the officers was $402,823 and $397,064, respectively~~stock.

~~NOTE L~~On December 10, 2009, we received $15,667 from War Chest. In conjunction with debt purchase agreement, we issued at total of 166,666,667 ~~-COMMITMENTS~~shares ~~AND~~of ~~CONTINGENCIES~~our common stock.

On December 11, 2009, 100,000,000 shares of our common stock was deposited in a AJW NIR escrow fund in conjunction with settlement of a law suit. The Company valued the shares issued at $30,000, which approximated the fair value of the shares issued at the date of issuance

On December 11, 2009, we issued 170,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $30,600, which approximated the fair value of the shares issued at the date of issuance

On December 17, 2009, 165,016,500 shares of our common stock was deposited in a AJW NIR escrow fund in conjunction with settlement of a law suit. The Company valued the shares issued at $49,505, which approximated the fair value of the shares issued at the date of issuance

On December 21, 2009, we issued 275,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $33,000, which approximated the fair value of the shares issued at the date of issuance

On December 24, 2009, we issued 200,000,000 shares of our common stock to St. George Investments, LLC, in conjunction with the sale of a warrant. The Company valued the shares issued at $24,000, which approximated the fair value of the shares issued at the date of issuance

On December 28, 2009, we received $16,147 from Barclay Lyons, LLC. In conjunction with debt purchase agreement, we issued at total of 166,666,667 shares of our common stock.

On December 28, 2009, we received $16,147 from War Chest LLC. In conjunction with debt purchase agreement, we issued at total of 166,666,667 shares of our common stock.

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE I -RELATED PARTY TRANSACTIONS

From time to time, the Company's principal officers have advanced funds to the Company for working capital purposes in the form of unsecured promissory notes, accruing interest at 10% to 12% per annum. As of December 31, 2009 and 2008, the balance due to the officers was $1,372,311 and $402,823, respectively.

NOTE J -COMMITMENTS AND CONTINGENCIES

Consulting Agreements

The Company has consulting agreements with outside contractors, certain of whom are also Company stockholders. The Agreements are generally for a term of 12 months from inception and renewable automatically from year to year unless either the Company or Consultant terminates such engagement by written notice.

~~F-43~~53

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

NOTE L J -COMMITMENTS AND CONTINGENCIES (continued)

Operating Lease Commitments

The Company leases office space in Durham, NC on a six year lease expiring December 31, 2012, for an annualized rent payment of $88,020. ~~Additionally the Company leases warehouse space on a month to month basis for $550 per month~~. At December 31, ~~2008~~2009, schedule of the future minimum lease payments is as follows:

2009			88,020
2010			60,000
2010			88,020
2011			60,000
2011			88,020
2012			60,000
2012			88,020
2013			-

Litigation

The Company is subject to other legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its consolidated financial position, results of operations or liquidity. There was no outstanding litigation as of December 31, ~~2008~~2009.

NOTE M K – FAIR VALUES

~~SFAS No. 157~~Accounting Standards Codification 820 "Fair Value Measurements and Disclosures" defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ~~SFAS No.~~ASC ~~157~~820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ~~SFAS No.~~ASC ~~157~~820 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

Items recorded or measured at fair value on a recurring basis in the accompanying financial statements consisted of the following items as of December 31, ~~2008~~ 2009:

~~F-44~~54

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009 AND ~~2007~~2008

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