Unassociated Document

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

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, 2007, the Company has accumulated losses of $41,087,239.

The consolidated financial statements include the accounts of its wholly owned subsidiaries, SPE Technologies, Inc. and Hybrid Lighting Technologies, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Acquisitions

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

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

Preferred Stock issued:	$	2,520,000

Cash received	$	250,000
Patents received		2,270,000
Liabilities assumed		( -	)

Net:	$	2,520,000

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

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

Common stock issued:	$	768,500
Preferred stock issued:		768,500
Preferred Stock issued:	$	1,537,000

Cash received	$	150,000
Patents received		1,387,000
Liabilities assumed		( -	)

Net:	$	1,537,000

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.

F-11

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Revenue Recognition

Revenues are recognized in the period that products are provided. For revenue from product sales, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, REVENUE RECOGNITION ("SAB104"), which superseded Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB101"). SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. At September 30, 2007 and December 31, 2006, the Company did not have any deferred revenue.

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

Estimates

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

Cash and cash equivalents

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

Foreign Currency Translation

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

Accounts Receivables

Accounts Receivable are shown at December 31, 2007 and December 31, 2006 net of Allowance for Doubtful Accounts in the amounts of $ 8,646 and $23,502. 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.

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 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, 2007 and 2006 are as follows:

	2007			2006
Component parts	$	151,940		$	239,441
Finished goods		48,772			60,990
		200,712			300,431
Less: allowance for obsolete inventory		(43,333	)		(102,660	)
	$	157,379		$	197,771

F-12

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

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

Advertising costs

The Company expenses all costs of marketing and advertising as incurred. Marketing and advertising costs totaled $20,437 and $143,010 for the year ended December 31, 2007 and 2006, respectively.

Research and Development

The Company accounts for research and development costs in accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs". Under SFAS 2, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company expenditures were $164,793 and $225,770 on research and product development for the year ended December 31, 2006 and 2005, respectively.

Reclassification

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

Impairment of long lived assets

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

Fair value of financial instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2007 and 2006. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

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, 2007 and 2006, allowance for doubtful receivable was $8,646 and $23,502, respectively.

F-13

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Stock based compensation

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123R (revised 2004), Share-Based Payment" which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement 123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees", and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the approach in Statement 123R is similar to the approach described in Statement 123. However, Statement 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro-forma disclosure is no longer an alternative. This statement does not change the accounting guidance for share based payment transactions with parties other than employees provided in Statement of Financial Accounting Standards No. 123(R). This statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans.” On April 14, 2005, the SEC amended the effective date of the provisions of this statement. The effect of this amendment by the SEC is that the Company had to comply with Statement 123R and use the Fair Value based method of accounting no later than the first quarter of 2006. The Company implemented SFAS No. 123(R) on January 1, 2006 using the modified prospective method. The fair value of each option grant issued after January 1, 2006 was determined as of grant date, utilizing the Black-Scholes option pricing model. The amortization of each option grant will be over the remainder of the vesting period of each option grant.

As more fully described in Note I below, the Company granted stock options over the years to employees of the Company under a non-qualified employee stock option plan. As of December 31, 2005, 34,000,000 stock options were outstanding and exercisable.

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

For the year ended December 31, 2006, the Company granted 34,930,000 stock options to employees with exercise prices of $0.022 to $0.04 per share expiring ten years from date of issuance. The fair value of the options was determined using the Black-Scholes option pricing model with the following assumptions: expected dividend yield: 0%; volatility from 364% to 373%; risk free interest rate from 4.57% to 5.04%. The fair value of $1,131,500 was recorded as a current period charge to earnings.

Segment reporting

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

Income taxes

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

At December 31, 2007, the Company has available for federal income tax purposes a net operating loss carryforward of approximately $40,000,000, expiring in the year 2023, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized. Due to significant changes in the Company's ownership, the future use of its existing net operating losses may be limited. Components of deferred tax assets as of December 31, 2007 are as follows:

F-14

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Income taxes (continued)

Non current:
Net operating loss carry forward		$	14,000,000

Valuation allowance			(14,000,000	)
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 $525,889 and $-0 for the years ended December 31, 2007 and 2006, respectively. Patents are comprised of the following:

December 31, 2006:

Description	Cost		Accumulated amortization and impairments		Net carrying value at December 31, 2006
Development costs	$	293,750	$	293,750	$	-0-
Patents		2,294,224		-		2,294,224
Total	$	2,587,974	$	293,750	$	2,294,224

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

During the years ended December 31, 2007 and 2006, the Company management preformed an evaluation of its intangible assets (Patents) for purposes of determining the implied fair value of the assets at acquisition date(s). The tests indicated that the recorded remaining book value of its patents did not exceed their fair value, as determined by discounted cash flows. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.

2008	$	525,889
2009		525,889
2010		525,889
2011		525,889
2012 and thereafter		1,051,779
Total	$	3,155,335

Comprehensive Income (Loss)

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

F-15

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Liquidity

As shown in the accompanying consolidated financial statements, the Company incurred net loss from operations of $15,619,897 for the year ended December 31, 2007. The Company's current liabilities exceeded its current assets by $6,509,670 as of December 31, 2007.

Derivative Financial Instruments

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

Recent accounting pronouncements

In July 2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for uncertainty in Income Taxes”. FIN 48 clarifies the accounting for Income Taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition and clearly scopes income taxes out of SFAS 5, “Accounting for Contingencies”. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company has not yet evaluated the impact of adopting FIN 48 on our consolidated financial position, results of operations and cash flows.

In September 2006 the Financial Account Standards Board (the “FASB”) issued its Statement of Financial Accounting Standards 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. FAS 157 effective date is for fiscal years beginning after November 15, 2007. The Company does not expect adoption of this standard will have a material impact on its financial position, operations or cash flows.

In September 2006 the FASB issued its Statement of Financial Accounting Standards 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The effective date for an employer with publicly traded equity securities is as of the end of the fiscal year ending after December 15, 2006. The Company does not expect adoption of this standard will have a material impact on its financial position, operations or cash flows.

F-16

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)

In December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration Payment Arrangements ("FSP 00-19-2") which addresses accounting for registration payment arrangements. FSP 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. FSP 00-19-2 further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of EITF 00-19-2, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006 and interim periods within those fiscal years. The Company adopted FSP 00-19-2 in the preparation of the financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose to measure many financial instruments, and certain other items, at fair value. SFAS 159 applies to reporting periods beginning after November 15, 2007. The adoption of SFAS 159 is not expected to have a material impact on the Company’s financial condition or results of operations.

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.

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.

NOTE B - PROPERTY, PLANT, AND EQUIPMENT

Property, plant and equipment at December 31, 2007 and 2006 are as follows:

	2007			2006
Furniture and fixtures	$	56,348		$	61,855
Office and computer equipment		62,061			34,543
Leasehold improvements		21,989			-
Manufacturing equipment		103,380			103,380
		243,778			199,778
Less: accumulated depreciation		(169,171	)		(141,465	)
	$	74,607		$	58,313

During the years ended December 31, 2007 and 2006, depreciation expense charged to operations was $27,706 and $23,360, respectively.

NOTE C - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at December 31, 2007 and 2006 are as follows:

	2007		2006
Accounts payable	$	733,538	$	564,875
Accrued interest and liquidation damages (see Note D below)		1,893,561		1,274,371
Accrued payroll and payroll taxes		155,661		122,669
Other accrued liabilities		295,911		297,180
Total	$	3,078,671	$	2,259,095

F-17

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES

Notes payable at December 31, 2007 and 2006 are as follows:


	2007						2006
	Gross Principal Amount		Less: Unamortized Discount		Net		Gross Principal Amount		Less: Unamortized Discount		Net
10% convertible note payable, unsecured and due September, 2003; accrued and unpaid interest due at maturity; Note holder has the option to convert note principal together with accrued and unpaid interest to the Company’s common stock at a rate of $0.50 per share. The Company is in violation of the loan covenants	$	2,500		-	$	2,500	$	2,500		-	$	2,500

10% convertible debenture, due two years from the date of the note with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a) $0.72 or b) 50% of the average of the three lowest intraday trading prices for the common stock on a principal market for twenty days before, but not including, conversion date. The Company granted the note holder a security interest in substantially all of the Company’s assets and intellectual property and registration rights. The Company is in violation of the loan covenants (see below)		-		-		-		601,687		-		601,687

10% convertible debenture, due three years from date of the note with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a) $0.03 or b) 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		158,665		935,426		1,500,000		700,183		799,817

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		216,986		583,014		800,000		483,653		316,347

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	$	231,416	$	468,584	$	700,000	$	464,749	$	235,251

F-18

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)


	2007						2006
	Gross Principal Amount		Less: Unamortized Discount		Net		Gross Principal Amount		Less: Unamortized Discount		Net
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	$	205,936	$	294,064	$	500,000	$	372,603	$	127,397

6% convertible debenture, due July 2009 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 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		262,100		237,900		500,000		428,767		71,233

6% convertible debenture, due September 2009 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 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		162,119		117,881		280,000		255,452		24,548

6% convertible debenture, due December 2009 with interest payable quarterly during the life of the note. The note is convertible into the Company’s common stock at the lower of a)$0.10 or b) 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		393,973		206,027		600,000		593,972		6,028

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

306,119

93,881

F-19

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)


	2007						2006
	Gross Principal Amount		Less: Unamortized Discount		Net		Gross Principal Amount		Less: Unamortized Discount		Net
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	$	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		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		124,795		25,205		-		-		-

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			126,575			23,425			-			-			-
		5,476,591			2,426,081			3,050,510			5,484,187			3,299,379			2,184,808
Less: current maturities:		(5,476,591	)		(2,426,081	)		(3,050,510	)		(5,484,187	)		(3,299,379	)		(2,184,808	)
Long term portion	$	-0-		$	-0-		$	0-		$	-0-		$	-0-		$	-0-

The Company entered into a Securities Purchase Agreement with four accredited investors on September 23, 2004 for the issuance of an aggregate of $1,500,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes was warrants to purchase 2,250,000 shares of the Company’s common stock. The Convertible Notes accrue interest at 10% per annum, payable quarterly, and are due two years from the date of the note. The note holder has the option to convert any unpaid note principal to the Company’s common stock at a rate of the lower of a) $0.72 or b) 50% 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 374.96% per annum.

F-20

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

As of December 31, 2007, the Company issued to investors of the Convertible Notes a total amount of $1,500,000 in exchange for net proceeds of $1,186,281. The proceeds that the Company received were net of prepaid interest of $50,000 and related fees and costs of $263,719.

The Company's identified embedded derivatives related to the Securities Purchase Agreement entered into on September 23, 2004. 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 $1,099,953 and $400,047 to the embedded derivatives and related warrants, respectively.

The Securities Purchase Agreement contains the following covenants:

Requirement to pay principal and interest when due

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

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

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

Change of control

Trading market limitations

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

As of December 31, 2007 and 2006, 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 years ended December 31, 2007 and 2006, the Company amortized the debt discount and charged to interest expense $-0- and $86,404, respectively.

F-21

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

The Company entered into a Securities Purchase Agreement with four accredited investors on April 23, 2005 for the issuance of an aggregate of $1,500,000 of convertible notes (“Convertible Notes”) and attached to the Convertible Notes 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, 2007, the Company issued to investors of the Convertible Notes a total amount of $1,500,000 in exchange for total proceeds of $1,352,067. The proceeds that the Company received were net of prepaid interest of $72,933 representing the first eight month’s interest and related fees and costs of $75,000.

The Company'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-22

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the years ended December 31, 2007 and 2006, the Company amortized the debt discount and charged to interest expense $135,609 and $500,000, 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, 2007, the Company issued to investors of the Convertible Notes a total amount of $800,000 in exchange for total proceeds of $775,000. The proceeds that the Company received were net of related fees and costs of $25,000.

The Company'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.

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-23

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the years ended December 31, 2007 and 2006, the Company amortized the debt discount and charged to interest expense $266,667 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, 2007, the Company issued to investors of the Convertible Notes a total amount of $700,000 in exchange for total proceeds of $675,000. The proceeds that the Company received were net of related fees and costs of $25,000.

The Company'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

F-24

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the years ended December 31, 2007 and 2006, the Company amortized the debt discount and charged to interest expense $233,333 and $233,333, respectively.

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, 2007, the Company issued to investors of the Convertible Notes a total amount of $500,000 in exchange for total proceeds of $460,000. The proceeds that the Company received were net of related fees and costs of $40,000.

The Company'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, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the years ended December 31, 2007 and 2006, the Company amortized the debt discount and charged to interest expense $166,667 and $127,397, 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, 2007, the Company issued to investors of the Convertible Notes a total amount of $500,000 in exchange for total proceeds of $490,000. The proceeds that the Company received were net of related fees and costs of $10,000.

The Company'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, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the years ended December 31, 2007 and 2006, the Company amortized the debt discount and charged to interest expense $166,667 and $71,233, 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, 2007, the Company issued to investors of the Convertible Notes a total amount of $280,000 in exchange for total proceeds of $259,858. The proceeds that the Company received were net of related fees and costs of $20,142.

The Company'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, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the years ended December 31, 2007 and 2006, the Company amortized the debt discount and charged to interest expense $93,333 and $24,548, 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, 2007, the Company issued to investors of the Convertible Notes a total amount of $600,000 in exchange for total proceeds of $590,000. The proceeds that the Company received were net of related fees and costs of $10,000.

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:

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-28

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the years ended December 31, 2007 and 2006, the Company amortized the debt discount and charged to interest expense $200,000 and $6,027, 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, 2007, 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.

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

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

F-29

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

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

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, 2007, 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-30

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

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

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, 2007, 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-31

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

For the year ended December 31, 2007, the Company amortized the debt discount and charged to interest expense $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, 2007, the Company issued to investors of the Convertible Notes a total amount of $150,000 in exchange for total proceeds of $150,000.

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

The Securities Purchase Agreement contains the following covenants:

Requirement to pay principal and interest when due

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

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

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

Change of control

Trading market limitations

F-32

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

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

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, 2007, 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:

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-33

CYBERLUX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007 AND 2006

NOTE D-CONVERTIBLE DEBENTURES (continued)

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

As of December 31, 2007, the Company has accrued $816,586 in default provision liabilities and liquidated damages relating the to the above described Securities Purchase Agreements.

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, 2006 and 2005, 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 $3,048,010 and $2,182,308 as of December 31, 2007 and 2006, respectively.

NOTE E-WARRANT LIABILITY

Total warrant liability as of December 31, 2007 and 2006 is comprised of the following:

	2007		2006
Fair value of warrants relating to convertible debentures	$	1,874,970	$	2,759,305
Fair value of other outstanding warrants		2,634,568		194,775
Total	$	4,509,538	$	2,954,080

Warrants were valued at the date of inception and at December 31, 2007 and December 31, 2006 using the Black Scholes Option Pricing Model.

The assumptions used at December 31, 2007 and 2006 were as follows:

	2007	2006
Expected volatility	528%	391%
Expected dividend yield	-0-%	-0-%
Average risk free rate	3.45%	4.74%
Expected life (a)	1.01 to 6.53 yrs	0.89 to 7.00 yrs

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

NOTE F - NOTE PAYABLE

Note payable as of December 31, 2007 and 2006, comprised of the following:

		2007			2006
Note payable, 24% interest per annum; due in 90 days; secured by specific accounts receivables		$	196,067		$	47,399

F-34

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)

		Page
PART I
Item 1.	Business	3
Item 2.	Properties	10
Item 3.	Legal Proceedings	10
Item 4.	Submission of Matters to a Vote of Security Holders	11

PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	12
Item 6.	Management’s Discussion and Analysis of Financial Condition and Results Of Operations	26
Item 7.	Financial Statements	41
Item 8.	Changes in and Disagreements with Accountants on Auditing and Financial Disclosure	42
Item8A(T.)	Controls and Procedures	43
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	49
Item 12.	Certain Relationships and Related Transactions	51

PART IV
Item 13.	Exhibits	53
Item 14.	Principal Accountant Fees and Services	58

Signatures		59

	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 (1)		0.0215		0.021

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.

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.

	For the Years Ended
	12/31/2007	12/31/2006
Salaries & benefits	1,893,994	2,962,413
Marketing and advertising	163,278	143,010
Rent	81,265	58,407
Insurance	13,690	27,495
Depreciation	27,706	23,360
Amortization	525,889	-
Impairment Loss Research and development	164,793	225,770
Legal expense	224,657	208,019
Accounting services	45,029	147,435
Investor relations	19,788	49,791
Travel, living and entertainment	150,658	176,919
Office expenses	550,898	199,583
Bad debt expense	14,024	51,986
	3,677,491	4,274,188

		Page

Report of Independent Registered Certified Public Accounting Firms		F-1 - F-2

Consolidated Balance Sheets at December 31, 2007 and 2006		F-3

Consolidated Statements of Operations for the Years ended December 31, 2007 and 2006		F-4

Consolidated Statement of Deficiency in Stockholders' Equity for the Years ended December 31,2007 and 2006		F-5 - F-9

Consolidated Statements of Cash Flows for the Years ended December 31, 2007 and 2006		F-10

Notes to Consolidated Financial Statements		F-11 - F-42


	/s/ RBSM LLP (Formerly known as RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP)
	Certified Public Accountants

CYBERLUX CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2007 AND 2006

	2007			2006
ASSETS
Current assets:
Cash & cash equivalents	$	626		$	395,812
Accounts receivable, net of allowance for doubtful accounts of $8,646 and $23,502, respectively		77,815			177,085
Inventories, net of allowance of $43,333		157,379			197,771
Other current assets		10,000			22,232
Total current assets		245,820			792,900

Property, plant and equipment, net of accumulated depreciation of $169,171 and $141,465, respectively		74,607			58,313

Other assets
Deposits		24,400			23,350
Patents and development costs, net of accumulated amortization of $819,639 and $293,750, respectively		3,155,335			2,294,224
Total other assets		3,179,735			2,317,574

Total Assets	$	3,500,162		$	3,168,787

LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft	$	33,178		$	-
Accounts payable		733,538			564,875
Accrued liabilities		2,345,133			1,694,220
Short-term notes payable - related parties		397,064			454,162
Short-term notes payable		196,067			47,399
Short-term convertible notes payable		3,050,510			2,184,808
Total current liabilities		6,755,490			4,945,464

Long-term liabilities:
Derivative liability relating to convertible debentures		17,334,621			8,201,086
Warrant liability relating to convertible debentures		4,509,538			2,954,080
Total long-term liabilities		21,844,159			11,155,166

Total liabilities		28,599,649			16,100,630

Commitments and Contingencies

Redeemable Series A convertible preferred stock, $0.001 par value; 200 shares designated, 28.9806 and 38.9806 issued and outstanding as of December 31, 2007 and 2006, respectively; liquidation preference of $231,845 and $264,456 as of December 31, 2007 and 2006, respectively		144,900			194,900

DEFICIENCY IN STOCKHOLDERS' EQUITY
Class B convertible preferred stock, $0.001 par value, 3,650,000 shares designated; 3,650,000 and 800,000 shares issued and outstanding for December 31, 2007 and 2006, respectively; liquidation preference of $3,650,000 and 800,000 as of December 31, 2007 and 2006, respectively		3,650			800
Class C convertible preferred stock, $0.001 par value, 700,000 shares designated; 150,000 and 100,000 shares issued and outstanding for December 31, 2007 and 2006, respectively, liquidation preference of $18,522,000 and $17,640,000, as of December 31, 2007 and 2006, respectively		150			100
Common stock, $0.001 par value, 700,000,000 shares authorized; 552,342,881and 128,279,157 shares issued and outstanding as of December 31, 2007 and 2006, respectively		552,343			128,279
Subscription received		-			25,000
Additional paid-in capital		15,286,709			12,186,420
Accumulated deficit		(41,087,239	)		(25,467,342	)
Deficiency in stockholders' equity		(25,244,387	)		(13,126,743	)

Total liabilities and (deficiency) in stockholders' equity	$	3,500,162		$	3,168,787

CYBERLUX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007			2006
REVENUE:	$	721,148		$	484,988
Cost of goods sold		(514,231	)		(377,524	)
Gross margin (loss)		206,917			107,464

OPERATING EXPENSES:
Depreciation		27,706			23,360
Research and development		164,793			225,770
General and administrative expenses		3,683,170			5,027,760
Total operating expenses		3,875,669			5,276,890

NET LOSS FROM OPERATIONS		(3,668,751	)		(5,169,426	)

Other income/(expense)		381,652			-
Debt forgiveness		-			36,799
Unrealized gain (loss) relating to adjustment of derivative and warrant liability to fair value of underlying securities		(9,620,645	)		953,719
Interest expense, net		(2,645,375	)		(2,585,708	)
Debt acquisition costs		(66,778	)		(10,784	)

Net loss before provision for income taxes		(15,619,897	)		(6,775,400	)

Income taxes (benefit)		-			-

LOSS AVAILABLE TO COMMON STOCKHOLDERS	$	(15,619,897	)	$	(6,775,400	)

Weighted average number of common shares outstanding-basic and assuming fully diluted		383,858,373			94,515,133

Loss per share-basic and assuming fully diluted	$	(0.04	)	$	(0.07	)

Preferred dividend	$	96,000		$	96,000

CYBERLUX CORPORATION
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

	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 as of January 1, 2006		800,000	$	800		-		-		75,608,334	$	75,607	$	-	$	6,382,570	$	(18,691,942	)	$	(12,232,965	)

Common stock issued in January 2006 in exchange for services rendered at $0.084 per share		-		-		-		-		3,000,000		3,000		-		249,000		-			252,000

Common stock issued in January 2006 in connection with conversion of preferred stock, Class A		-		-		-		-		190,000		190		-		18,810		-			19,000

Common stock issued in January 2006 in exchange for services rendered at $0.113 per share		-		-		-		-		100,000		100		-		11,200		-			11,300

Common stock issued in February 2006 in connection with conversion of preferred stock, Class A		-		-		-		-		229,032		230		-		22,674		-			22,904

Common stock issued in February 2006 in exchange for services rendered at $0.095 per share		-		-		-		-		10,000		10		-		940		-			950

Common stock issued in February 2006 in exchange for services rendered at $0.092 per share		-		-		-		-		1,500,000		1,500		-		136,500		-			138,000

Common stock issued in March 2006 as payment towards convertible debentures		-		-		-		-		791,369		792		-		30,863		-			31,655

Common stock issued in connection with options exercised at $0.085 per share		-		-		-		-		4,000,000		4,000		-		336,000		-			340,000

CYBERLUX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) available to common stockholders	$	(15,619,897	)	$	(6,775,400	)
Adjustments to reconcile net income (loss) to cash used in operating activities
Depreciation		27,706			23,360
Amortization		525,889			-
Fair value of options issued to officers and employees		-			1,131,500
Fair value of warrants issued for services rendered		-			67,410
Common stock issued in connection with services rendered		123,910			1,432,539
Common stock issued in settlement of debt		-			332,774
Preferred stock issued as compensation		370,500			-
Accretion of convertible notes payable		1,873,298			1,315,610
Gain on repurchase and cancellation of warrants		(381,652	)		-
Unrealized (gain) loss on adjustment of derivative and warrant liability to fair value of underlying securities		9,620,645			(953,719	)
(Increase) decrease in:
Accounts receivable		99,270			(167,661	)
Inventories		40,392			140,326
Prepaid expenses and other assets		12,232			60,582
Deposits		(1,050	)		(23,350	)
Increase (decrease) in:
Cash overdraft		33,178			-
Accounts payable		168,663			(93,055	)
Accrued liabilities		654,870			882,063
Net cash (used in) operating activities		(2,452,046	)		(2,627,021	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired in connection with acquisition of Hybrid Lighting Technologies, Inc		150,000			-
Net cash acquired in connection with acquisition of SPE Technologies		-			250,000
Payments towards patent rights		-			(5,685	)
Acquisition of fixed assets		(44,000	)		(18,540	)
Net cash provided by (used in) investing activities:		106,000			225,775

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible debentures		1,000,000			1,830,000
Proceeds from exercise of warrants		158,723			25,000
Proceeds from sale of warrants		600,000			-
Net proceeds (payments) from borrowing on long term basis		148,668			479,402
Net proceeds (payments) to notes payable, related parties		43,469			(13,000	)
Net cash provided by (used in) financing activities:		1,950,860			2,321,402

Net increase (decrease) in cash and cash equivalents		(395,186	)		(79,844	)
Cash and cash equivalents at beginning of period		395,812			475,656
Cash and cash equivalents at end of period	$	626		$	395,812

Supplemental disclosures:
Interest Paid	$	-		$	47,139
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		9,620,645			(953,719	)
Fair value of options issued to officers and employees		-			1,131,500
Common stock issued for services rendered		123,910			1,432,539
Common stock issued in settlement of debt		-			332,774
Preferred stock issued as compensation		370,500			-
Warrants issued for services rendered		-			67,410

	2007			2006
Notes payable, 12% per annum; due on demand; unsecured	$	147,714		$	102,245

Notes payable, 10% per annum, due on demand; unsecured		249,350			251,350

Notes payable, 10% per annum, due on demand, convertible into the Company’s common stock after March 2007 at a conversion rate of $0.02 per share, unsecured		-			100,567
		397,064			454,162
Less: current maturities:		(397,064	)		(454,162	)
Long term portion:	$	-		$	-

Exercise Price	Number Outstanding		Warrants Outstanding Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Warrants Exercisable Weighted Average Exercise Price
$0.001		50,000,000		4.76	$	0.001		50,000,000		0.001
0.02		50,000,000		4.43		0.02		50,000,000		0.02
0.03		25,000,000		2.38		0.03		25,000,000		0.03
0.10		991,500		1.42		0.10		991,500		0.10
0.25		58,500		1.00		0.25		58,500		0.25
0.50		50,000		0.78		0.50		50,000		0.50
1.05		100,000		1.00		1.05		100,000		1.05
0.03075		49,760,443		4.39		0.03075		49,760,443		0.03075	(a)
		175,960,443						175,960,443

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2005		48,431,128		$	0.42
Granted		68,750,000			0.07
Exercised		(100,000	)		(0.025	)
Canceled or expired		(17,186,128	)		(0.64	)
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, 2006		175,960,443			0.016

	Options Outstanding				Options Exercisable
Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$0.2125		2,000,000		5.96	$	0.2125		2,000,000	$	0.2125
0.2125		2,000,000		6.37		0.2125		2,000,000		0.2125
0.022		20,500,000		8.87		0.022		20,500,000		0.022
0.0295		4,000,000		7.35		0.0295		4,000,000		0.0295
0.04		14,430,000		8.57		0.04		14,430,000		0.04
0.10		9,502,307		6.26		0.10		9,502,307		0.10

				Weighted Average
	Number of Shares			Price Per Share
Outstanding at December 31, 2005		34,000,000		$	0.076
Granted		34,930,000			0.029
Exercised		(16,497,693	)		0.037
Canceled or expired		-			-
Outstanding at December 31, 2006		52,432,307			0.0562
Granted		-			-
Exercised		-			-
Canceled or expired		-			-
Outstanding at December 31, 2007		52,432,307		$	0.0562

For the year ended December 31, 2006:
Significant assumptions (weighted-average):
Risk-free interest rate at grant date	5.04	%
Expected stock price volatility	364	%
Expected dividend payout	-
Expected option life-years (a)	10

For the year ended December 31,2006:

Significant assumptions (weighted-average):
Risk-free interest rate at grant date	4.37	%
Expected stock price volatility	373	%
Expected dividend payout	-
Expected option life-years (a)	10

	For the year ended December 31,
	2007			2006
Net (loss) available to common stockholders	$	(15,619,897	)	$	(6,775,400	)
Basic and diluted (loss) per share		(0.04	)		(0.07	)
Weighted average common shares outstanding		383,858,373			94,515,133

1.	the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that Turner , Jones & Associates, PLLC concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or

2.	any matter that was either subject of disagreement or event, as defined in Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to Item 304 of Regulation S-B, or a reportable event, as that term is explained in Item 304(a)(1)(iv)(A) of Regulation S-B.

Name	Age	Position

Donald F. Evans	73	Chief Executive Officer and Chairman of the Board of Directors
Mark D. Schmidt	42	President, Chief Operating Officer and Director
John W. Ringo	62	Secretary, Corporate Counsel and Director
Alan H. Ninneman	64	Senior Vice President and Director
David D. Downing	58	Chief Financial Officer and Treasurer

	ANNUAL COMPENSATION
Name & Principal Position	Year		Salary ($)		Bonus ($)		Other Annual Compen- sation ($)		Restricted Stock Awards($)		Options SARs (#)		LTIP Payouts ($)		All Other Compensation
		2007		180,000
Donald F. Evans		2006		180,000		0		0				5,500,000
		2005		180,000		0		0		-		4,250,000		-		-
CEO & Chairman		2004		180,000		0		0		-		550,000		-		-
		2003		180,000		0		0		-		700,000		-		-

		2007		69,000
John W. Ringo		2006		42,000		0		0		-		1,000,000
		2005		76,000		0		0		-		1,500,000		-		-
Secretary and		2004		70,500		0		0		-		400,000		-		-
Corporate Counsel		2003		102,000		0		0		-		250,000				-

		2007		69,000
Alan H. Ninneman		2006		42,000		0		0				1,000,000
		2005		76,000		0		0		-		1,000,000		-		-
Senior Vice President		2004		70,500		0		0		-		400,000		-		-
		2003		102,000		0		0		-		250,000

		2007		180,000
Mark D. Schmidt		2006		180,000		0		0		-		3,500,000
		2005		180,000		0		0		-		4,000,000		-		-
President & COO		2004		120,000		0		0		-		650,000		-		-
		2003		120,000		0				-		550,000		-		-

	NUMBER OFSECURITIES UNDERLYING OPTIONS/SARS	% OF TOTAL OPTIONS/SARS GRANTED TO EMPLOYEES IN FISCAL			EXERCISE OR BASE EXPIRATION
NAME	GRANTED (#)	YEAR			($/SH)	DATE
Donald F. Evans	7,000,000	45.83	%	$	0.02 /Sh	2013

John W. Ringo	1,500,000	8.33	%	$	0.02 /Sh	2013

Alan H. Ninneman	1,500,000	8.33	%	$	0.02 /Sh	2013

Mark D. Schmidt	6,000,000	29.16	%	$	0.02 /Sh	2013

NAME AND ADDRESS OF OWNER	TITLE OF CLASS	NUMBER OF SHARES OWNED(1)		PERCENTAGE OF CLASS (2)
Donald F. Evans	Common Stock	31,579,845	(3)	5.57	%
4625 Creekstone Drive
Suite 130
Research Triangle Park
Durham, NC 27703

Mark D. Schmidt	Common Stock	22,808,748	(4)	4.04	%
4625 Creekstone Drive
Suite 130
Research Triangle Park
Durham, NC 27703

Alan H. Ninneman	Common Stock	6,677,583	(5)	1.18	%
4625 Creekstone Drive
Suite 130
Research Triangle Park
Durham, NC 27703

John W. Ringo	Common Stock	6,947,583	(6)	1.22	%
4625 Creekstone Drive
Suite 130
Research Triangle Park
Durham, NC 27703

David Downing	Common Stock	3,000,000 (7	)	0.52	%
4625 Creekstone Drive
Suite 130
Research Triangle Park
Durham, NC 27703

All Officers and Directors	Common Stock	71,013,759	(8)	12.52	%
As a Group (5 persons)

Donald F. Evans	Preferred B	1,000,000	27.39	%

Mark D. Schmidt	Preferred B	1,000,000	27.39	%

Alan H. Ninneman	Preferred B	550,000	13.69	%

John W. Ringo	Preferred B	750,000	20.54	%

David Downing	Preferred B	350,000	9.58	%

Exhibit No.		Description
3.1		Articles of Incorporation, dated as of May 17, 2000, filed as an exhibit to the registration statement on Form 10-SB filed with the Commission on December 17, 2001 and incorporated herein by reference.

3.2		Certificate of Amendment to the Articles of Incorporation, dated as of April 3, 2003, filed as an exhibit to the registration statement on Form SB-2 filed with the Commission on April 30, 2003 and incorporated herein by reference.

3.3		Bylaws of Cyberlux Corporation, filed as an exhibit to the registration statement on Form 10-SB filed with the Commission on December 17, 2001 and incorporated herein by reference.

3.4		Certificate of Designation of Series A Preferred Stock, filed as an exhibit to the current report on Form 8-K filed with the Commission on January 8, 2004 and incorporated herein by reference.

4.1		Securities Purchase Agreement, dated as of September 23, 2004, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit 4.1 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.2		Secured Convertible Note issued to AJW Offshore, Ltd., dated September 23, 2004, filed as Exhibit 4.2 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.3		Secured Convertible Note issued to AJW Qualified Partners, LLC, dated September 23, 2004, filed as Exhibit 4.3 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.4		Secured Convertible Note issued to AJW Partners, LLC, dated September 23, 2004, filed as Exhibit 4.4 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.5		Secured Convertible Note issued to New Millennium Capital Partners II, LLC, dated September 23, 2004, filed as Exhibit 4.5 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.6		Common Stock Purchase Warrant issued to AJW Offshore, Ltd., dated September 23, 2004, filed as Exhibit 4.6 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.7		Common Stock Purchase Warrant with AJW Qualified Partners, LLC, dated September 23, 2004, filed as Exhibit 4.7 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.8		Common Stock Purchase Warrant with AJW Partners, LLC, dated September 23, 2004, filed as Exhibit 4.8 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.9		Common Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated September 23, 2004, filed as Exhibit 4.9 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.10		Registration Rights Agreement, dated as of September 23, 2004, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit 4.10 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.11		Security Agreement, dated as of September 23, 2004, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit 4.11 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.12		Intellectual Property Security Agreement, dated as of September 23, 2004, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as Exhibit 4.12 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.13		Guaranty and Pledge Agreement, dated as of September 23, 2004, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd., New Millennium Capital Partners II, LLC and Donald F. Evans, filed as Exhibit 4.13 to the current report on Form 8-K filed with the Commission on September 29, 2004 and incorporated herein by reference.

4.14		Secured Convertible Note issued to AJW Offshore, Ltd., dated October 20, 2004.

4.15		Secured Convertible Note issued to AJW Qualified Partners, LLC, dated October 20, 2004.

4.16		Secured Convertible Note issued to AJW Partners, LLC, dated October 20, 2004.

4.17		Secured Convertible Note issued to New Millennium Capital Partners II, LLC, dated October 20, 2004.

4.18		Common Stock Purchase Warrant issued to AJW Offshore, Ltd., dated October 20, 2004.

4.19		Common Stock Purchase Warrant with AJW Qualified Partners, LLC, dated October 20, 2004.

4.20		Common Stock Purchase Warrant with AJW Partners, LLC, dated October 20, 2004.

4.21		Common Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated October 20, 2004.

4.22		Secured Convertible Note issued to AJW Offshore, Ltd., dated November 18, 2004.

4.23		Secured Convertible Note issued to AJW Qualified Partners, LLC, dated November 18, 2004.

4.24		Secured Convertible Note issued to AJW Partners, LLC, dated November 18, 2004.

4.25		Secured Convertible Note issued to New Millennium Capital Partners II, LLC, dated November 18, 2004.

4.26		Common Stock Purchase Warrant issued to AJW Offshore, Ltd., dated November 18, 2004.

4.27		Common Stock Purchase Warrant with AJW Qualified Partners, LLC, dated November 18, 2004.

4.28		Common Stock Purchase Warrant with AJW Partners, LLC, dated November 18, 2004.

4.29		Common Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated November 18, 2004.

4.30		Securities Purchase Agreement, dated as of April 22, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.31		Secured Convertible Note issued to AJW Offshore, Ltd., dated April 22, 2005, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.32		Secured Convertible Note issued to AJW Qualified Partners, LLC, dated April 22, 2005, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.33		Secured Convertible Note issued to AJW Partners, LLC, dated April 22, 2005, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.34		Secured Convertible Note issued to New Millennium Capital Partners II, LLC, dated April 22, 2005, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.35		Common Stock Purchase Warrant issued to AJW Offshore, Ltd., dated April 22, 2005, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.36		Common Stock Purchase Warrant with AJW Qualified Partners, LLC, dated April 22, 2005, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.37		Common Stock Purchase Warrant with AJW Partners, LLC, dated April 22, 2005, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.38		Common Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated April 22, 2005, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.39		Registration Rights Agreement, dated as of April 22, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.40		Security Agreement, dated as of April 22, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.41		Intellectual Property Security Agreement, dated as of April 22, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.42		Guaranty and Pledge Agreement, dated as of April 22, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd., New Millennium Capital Partners II, LLC and Donald F. Evans, filed as an exhibit to the current report on Form 8-K filed with the Commission on April 28, 2005 and incorporated herein by reference.

4.43		Securities Purchase Agreement, dated as of October 23, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC.
4.44		Secured Convertible Note issued to AJW Offshore, Ltd., dated October 23, 2005.

4.45		Secured Convertible Note issued to AJW Qualified Partners, LLC, dated October 23, 2005.

4.46		Secured Convertible Note issued to AJW Partners, LLC, dated October 23, 2005.

4.47		Secured Convertible Note issued to New Millennium Capital Partners II, LLC.

4.48		Common Stock Purchase Warrant issued to AJW Offshore, Ltd., dated October 23, 2005.

4.49		Common Stock Purchase Warrant with AJW Qualified Partners, LLC, dated October 23, 2005.

4.50		Common Stock Purchase Warrant with AJW Partners, LLC, dated October 23, 2005.

4.51		Common Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated October
		23, 2005.

4.52		Registration Rights Agreement, dated as of October 23, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC.

4.53		Security Agreement, dated as of October 23, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC.

4.54		Intellectual Property Security Agreement, dated as of October 23, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC.

4.55		Securities Purchase Agreement, dated as of December 28, 2005, by and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II, LLC.

4.56		Secured Convertible Note issued to AJW Offshore, Ltd., dated December 28, 2005.

4.57		Secured Convertible Note issued to AJW Qualified Partners, LLC, dated December 28, 2005.

4.58		Secured Convertible Note issued to AJW Partners, LLC, dated December 28, 2005.

4.59		Secured Convertible Note issued to New Millennium Capital Partners II, LLC.

4.60		Common Stock Purchase Warrant issued to AJW Offshore, Ltd., dated December 28, 2005.

4.61		Common Stock Purchase Warrant with AJW Qualified Partners, LLC, dated December 28, 2005.

4.62		Common Stock Purchase Warrant with AJW Partners, LLC, dated December 28, 2005.

4.63		Common Stock Purchase Warrant with New Millennium Capital Partners II, LLC, dated December 28, 2005.