Unassociated Document


    SECURITIES
PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”), dated as
of June 10, 2009, is entered into by and between CyberDefender Corporation, a
California corporation (the “Company”), and
Shimski L.P., a California Limited Partnership (the “Purchaser”).

     

    WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder, the
board of directors of the Company has authorized the sale and issuance to the
Purchaser of 632,500 shares of Common Stock, for a purchase price of $1.75 per
share, subject to the terms and conditions of this Agreement (the “Offering”).

     

    NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchaser agree as
follows:

     

     

    ARTICLE
I.

    DEFINITIONS

     

    1.1           Definitions.  In
addition to the terms defined elsewhere in this Agreement, the following terms
have the meanings indicated in this Section 1.1:

     

    “Action” shall have
the meaning ascribed to such term in Section 3.1(j).

     

    “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 144 under the Securities Act.  With
respect to the Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as the Purchaser will be
deemed to be an Affiliate of the Purchaser.

     

    “Business Day” means
any day except Saturday, Sunday, any day which shall be a federal legal holiday
in the United States or any day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to close
or any day that the Common Stock is not traded on the Trading
Market.

     

     “Closing” means the
closing of the purchase and sale of the Securities pursuant to Section
2.1.

     

    “Closing Date” means
the Business Day when all of the Transaction Documents have been executed and
delivered by the Company and the Purchaser, and all conditions precedent to (i)
the Purchaser’s obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.

     

      “Commission” means the
United States Securities and Exchange Commission.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Common Stock” means
the common stock of the Company, no par value per share, and any other class of
securities into which such securities may hereafter be reclassified or changed
into.

     

    “Common Stock
Equivalents” means any securities of the Company which would entitle the
holder thereof to acquire at any time Common Stock, including, without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable
for, or otherwise entitles the holder thereof to receive, Common
Stock.

     

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

    


    “GAAP” shall have the
meaning ascribed to such term in Section 3.1(h).

     

    “Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.


     

    “Material Adverse
Effect” shall have the meaning ascribed to such term in Section
3.1(b).

     

     “Offering” has the
meaning set forth in the recitals hereof.

     

    “Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

     

     “Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an investigation or partial proceeding, such as a deposition), whether commenced
or threatened.

     

    “Registration
Statement” means a registration statement covering the resale of the
Securities filed with the Commission pursuant to the Company’s obligations under
Section 4.3 of this Agreement.

     

    “Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).

     

    “Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

     

    “Securities” means the
shares of Common Stock sold to the Purchaser pursuant to this
Agreement.

     

    
      
        
        

      

      
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    “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated hereunder.

     

    “Subscription Amount”
means $1,106,875 United States Dollars in immediately available
funds.

     

    “Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.

     

    “Transaction
Documents” means this Agreement and any other documents, instruments or
agreements executed in connection with the transactions contemplated
hereby.

     

     

    ARTICLE
II.

    PURCHASE
AND SALE

     

    2.1         Closing.  On
the Closing Date, upon the terms and subject to the conditions set forth herein
and substantially concurrent with the execution and delivery of this Agreement
by the parties hereto, the Company agrees to sell and the Purchaser agrees to
purchase the Securities.  At or prior to the Closing, the Purchaser
shall deliver the Subscription Amount to the Company by wire transfer in
accordance with the Company’s written wire instructions to be provided to
Purchaser.  On the Closing Date, the Company shall deliver to the
Purchaser a certificate issued in the name of the Purchaser representing the
Securities, and the Company and the Purchaser shall deliver the other items set
forth in Section 2.2 deliverable at the Closing. The Closing shall occur upon
satisfaction of the conditions set forth in Sections 2.2 and 2.3.

     

    
      2.2         Deliveries

       

    

    (a)          On
the Closing Date, the Company shall deliver or cause to be delivered to the
Purchaser the following:

     

    
      	
               
      

            	
              (i)

            	
              this
      Agreement duly executed by the Company;
and

            


    

     

    (ii)           a
certificate for 632,500 shares of Common Stock issued in the name of the
Purchaser; provided, however, that the Company may provide to Purchaser, and for
the purposes of consummating the Closing the Purchaser shall accept, an
electronic “pdf” copy such certificate, with the original certificate to be
delivered to the Purchaser no later than two Business Days following the Closing
Date.

     

    


    (b)          On
the Closing Date, the Purchaser shall deliver or cause to be delivered to the
Company the following:

     

    
      	
               
      

            	
              (i)

            	
              this
      Agreement duly executed by the Purchaser;
and

            


    

     

    (ii)           the
Subscription Amount.

     

    
      
        
        

      

      
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    2.3         Closing
Conditions.

     

    (a)             The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:

     

    (i)           the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchaser contained herein;

     

    (ii)           all
obligations, covenants and agreements of the Purchaser required to be performed
at or prior to the Closing Date shall have been performed; and

     

    (iii)           the
delivery by the Purchaser to the Company of the items set forth in Section
2.2(b) of this Agreement.

     

    (b)             The
obligations of the Purchaser hereunder in connection with the Closing are
subject to the following conditions being met:

     

    (i)           the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein;

     

    (ii)           all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed;

     

    (iii)           the
delivery by the Company to the Purchaser of the items set forth in Section
2.2(a) of this Agreement;

     

    (iv)           there
shall have been no Material Adverse Effect with respect to the Company since
March 31, 2009; and

     

    (v)           from
the date hereof to the Closing Date, a banking moratorium shall not have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of the Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.

     

    
      
        
        

      

      
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    ARTICLE
III.

    REPRESENTATIONS
AND WARRANTIES

     

    3.1         Representations and
Warranties of the Company.  Except as set forth in the SEC
Documents or as specifically disclosed herein, the Company hereby represents and
warrants, as of the date hereof and as of the Closing Date, to the Purchaser as
follows:

     

    (a)           Subsidiaries.  The
Company has no (and has never had any) subsidiaries and does not presently own,
or record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or other equity interest in any
corporation, association or business entity, nor is the Company, directly or
indirectly, a participant in any joint venture, partnership or other
entity.

     

    (b)           Organization and
Qualification.  The Company is an entity duly incorporated,
validly existing and in good standing under the laws of the State of California,
with the requisite power and authority to own and use its properties and assets
and to carry on its business as currently conducted.  The Company is
not in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents.  The Company is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not have or reasonably
be expected to result in (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on
the results of operations, assets, business, prospects or condition (financial
or otherwise) of the Company, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.

     

    (c)           Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals.  Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

     

    
      
        
        

      

      
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    (d)           No
Conflicts.  Except as set forth on Schedule 3.1(d), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate any
provision of the Company’s articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
debt or otherwise) or other understanding to which the Company is a party or by
which any property or asset of the Company is bound or affected (or result in
the imposition of any material Liens upon any of the Company’s assets), or (iii)
subject to the Required Approvals, conflict with or result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company is bound or affected; except in the case of
each of clauses (ii) and (iii), such as could not have or reasonably be expected
to result in a Material Adverse Effect.

     

    (e)           Filings, Consents and
Approvals.  The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filing with the Commission of a Registration Statement as required by
this Agreement, and (ii) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities laws
(collectively, the “Required
Approvals”).

     

    (f)           Issuance of the
Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with this Agreement, will be duly and validly
issued, fully paid and non-assessable.

     

    (g)           Capitalization.  Except
as set forth on Schedule 3.1(g), the capitalization of the Company is as
disclosed in its Quarterly Report on Form 10-Q for the quarter ended March 31,
2009.  Except as a result of the purchase and sale of the Securities
or otherwise as set forth on Schedule 3.1(g) or in such Quarterly Report, there
are no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
is or may become bound to issue additional shares of Common Stock or Common
Stock Equivalents. Except as set forth on Schedule 3.1(g), the issuance and sale
of the Securities will not obligate the Company to issue shares of Common Stock
or other securities to any Person (other than the Purchaser) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. No Person has
any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the Transaction
Documents.  All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and non-assessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities.  No further approval
or authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities.  There
are no stockholders agreements, voting agreements or other similar agreements
with respect to the Company’s capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the Company’s
stockholders.  Except as set forth on Schedule 3.1(g) and except for
(a) shares of Common Stock or Common Stock Equivalents issued to employees,
officers, directors or consultants (other than any consultant which engages in
any business which is competitive with or provides any services which are
similar to the business of or services provided by the Purchaser or any of its
Affiliates as determined at the time of the issuance) of the Company, (b)
securities issued upon the exercise, exchange,  conversion or
amendment of any securities issued and outstanding on the date hereof, or (c)
securities issued pursuant to acquisitions or strategic transactions, since
March 31, 2009, the Company has not sold or and issued any shares of Common
Stock or Common Stock Equivalents at a price per share (or conversion or
exercise price, as the case may be) of less than $1.75.

     

    
      
        
        

      

      
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    (h)           SEC
Documents.    The Company hereby makes reference to
the following documents filed by the Company with the Commission, which are
available for review on the Commission’s website, www.sec.gov (collectively, the “SEC Documents”): (a)
Annual Report on Form 10-K for the fiscal year ended December 31, 2008; (b) and
the Quarterly Report on Form 10-Q for the period ended March 31, 2009; and any
amendments thereto.  As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, as
amended, and the rules and regulations promulgated thereunder and none of the
SEC Documents contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) (except, in
the case of unaudited statements, as permitted by the applicable form under the
Exchange Act) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the financial
position of the Company as of the dates thereof and its consolidated statements
of operations, stockholders’ equity and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal and recurring year-end
audit adjustments which were and are not expected to have a Material Adverse
Effect.  Except as and to the extent set forth on the balance sheet of
the Company as of March 31, 2009, including the notes thereto, the Company has
no liability or obligation of any nature (whether accrued, absolute, contingent
or otherwise and whether required to be reflected on a balance sheet or
not).

     

    (i)           Material
Changes.  Since March 31, 2009, except as disclosed as a
subsequent event in the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009 (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information.

     

    
      
        
        

      

      
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    (j)           Litigation.  There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor any director or officer
thereof is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach of
fiduciary duty.  There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company.

     

    
      (k)           Compliance. Except as
set forth on Schedule 3.1(k), the Company is not (i) in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company
under), nor has the Company received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has been
waived), (ii) in violation of any order of any court, arbitrator or governmental
body, or (iii) in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business and all such laws that affect the
environment, except in each case as could not have or reasonably be expected to
result in a Material Adverse Effect.

    

     

    
      
        
        

      

      
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    (l)           Title to Assets. The
Company has good and marketable title in fee simple to all real property owned
by it that is material to the business of the Company and good and marketable
title in all personal property owned by it that is material to the business of
the Company, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
Liens for the payment of federal, state or other taxes, the payment of which is
neither delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company are held by it under valid, subsisting and
enforceable leases with which the Company is in compliance.

     

    (m)         Intellectual
Property.

     

    (i)           Patents and
Trademarks. The Company has, or has the rights to use, all patents,
patent applications, trademarks, trademark applications, service marks, trade
names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights necessary or material for use in connection
with its business and which the failure to so have could have a Material Adverse
Effect (collectively, the "Intellectual Property
Rights"). The Company has not received a notice (written or otherwise)
that the Intellectual Property Rights used by the Company violate or infringe
upon the rights of any Person. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The
Company has taken reasonable security measures to protect the secrecy,
confidentiality and value of all of its intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

     

    (ii)           Know-How Necessary for the
Business. The Intellectual Property Rights are all those necessary for
the operation of the Company's businesses as it is currently conducted or as
reflected in SEC Documents. The Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Rights, free and clear of
all liens, security interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use without payment to a third party all of
the Intellectual Property Rights.

     

    (n)           Broker’s Fees. The
Purchaser shall not be obligated to pay any commission, brokerage fee, or
finder’s fee based on any alleged agreement or understanding between the Company
and a third person in respect of the transactions contemplated
hereby.  The Company hereby agrees to indemnify the Purchaser against
any claim by any third person for any commission, brokerage fee, finder’s fee,
or other payment with respect to this Agreement or the transactions contemplated
hereby based on any alleged agreement or understanding between the Company and
any such third person, whether express or implied from the actions of the
Company or anyone acting or purporting to act on behalf of the
Company.

     

    
      
        
        

      

      
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    (o)           Disçlosure. All
disclosures furnished by or on behalf of the Company to the Purchaser regarding
the Company, its business and the transactions contemplated hereby with respect
to the representations and warranties made herein are true and correct with
respect to such representations and warranties and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.

    


    3.2          Representations and
Warranties of the Purchaser.  The Purchaser hereby represents
and warrants as of the date hereof and as of the Closing Date to the Company as
follows:

     

    (a)           Organization;
Authority.  The Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
right, limited liability company power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution,
delivery and performance by the Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary limited liability
company action on the part of the Purchaser.  Each Transaction
Document has been duly executed by the Purchaser, and when delivered by the
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of the Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.

     

    (b)           Own
Account.  The Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting the Purchaser’s right to sell the
Securities pursuant to a Registration Statement or otherwise in compliance with
applicable federal and state securities laws).

     

    
      
        
        

      

      
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    (c)           Purchaser
Status.  At the time the Purchaser was offered the Securities,
it was, and at the date hereof it is: (i) an “accredited investor” as defined in
Rule 501 under the Securities Act or (ii) a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act.  The Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act.

     

    (d)           Experience of the
Purchaser.  The Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, and has so evaluated the merits and
risks of such investment.  The Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

     

    (e)           General
Solicitation.  The Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

     

    (f)           Access to Company
Information.  The Purchaser acknowledges that it has been
afforded access and the opportunity to obtain all financial and other
information concerning the Company that the Purchaser desires (including the
opportunity to meet with the Company’s executive officers, either in person or
telephonically). The Purchaser has reviewed copies of the SEC Documents and is
familiar with the contents thereof, including, without limitation, the risk
factors contained in the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008, and there is no further information about the
Company that the Purchaser desires in determining whether to acquire the
Securities.

     

    (g)           Broker’s Fees. The
Company shall not be obligated to pay any commission, brokerage fee, or finder’s
fee based on any alleged agreement or understanding between the Purchaser and a
third person in respect of the transactions contemplated hereby.  The
Purchaser hereby agrees to indemnify the Company against any claim by any third
person for any commission, brokerage fee, finder’s fee, or other payment with
respect to this Agreement or the transactions contemplated hereby based on any
alleged agreement or understanding between the Purchaser and any such third
person, whether express or implied from the actions of the Purchaser or anyone
acting or purporting to act on behalf of the Purchaser.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    ARTICLE
IV.

    OTHER
AGREEMENTS OF THE PARTIES

     

    4.1         Transfer
Restrictions.

     

    (a)           The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of the Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act.  As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of the Purchaser under this Agreement.

     

    (b)           The
Purchaser agrees to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in substantially the following
form:

     

    THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.

     

    The
Company acknowledges and agrees that the Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, the Purchaser may transfer
pledged or secured Securities to the pledgees or secured
parties.  Such a pledge or transfer would not be subject to approval
of the Company and no legal opinion of legal counsel of the pledgee, secured
party or pledgor shall be required in connection therewith.  Further,
no notice shall be required of such pledge.  At the Purchaser’s
expense, the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in connection with
a pledge or transfer of the Securities, the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling stockholders thereunder.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (c)           The
Purchaser agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the
Company’s reliance that the Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if Securities are sold pursuant to a Registration Statement, they will be sold
in compliance with the plan of distribution set forth therein.

     

    4.2         Form D; Blue Sky
Filings.  The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of the Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the Securities for, sale to the Purchaser under
applicable securities or “Blue Sky” laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of any
Purchaser.

     

    4.3         Registration
Rights.

     

    (a)           Piggyback
Rights.  The Purchaser shall have piggy-back registration
rights with respect to all of the Securities (except for registrations on
Commission Form S-4, S-8 or equivalent forms). Accordingly, the Company agrees
to include all of the Securities (other than Securities that have been
previously registered for resale under this Section 4.3(a)) in any registration
statement on Form S-1 or equivalent form filed with the Commission, in order to
register the resale of such shares pursuant and subject to Rule 415 of the
Securities Act.  In addition, the Company agrees to use its
commercially reasonable efforts to register and qualify the securities covered
by such registration statement under such other state securities or state
blue-sky laws as shall be reasonably requested by the Purchaser; provided,
however, that the Company shall not be required to qualify to do business or to
file a general consent to service of process in any such states unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act.  The Company acknowledges and agrees
that it shall make all filings, disclosures, updates and any other actions which
are necessary in order to keep any registration statement which includes any
shares issuable upon exercise hereof effective for at least 24 months following
the effective date of such registration statement.  Notwithstanding
the foregoing, the Company may suspend the effectiveness of such registration
statement for a period not to exceed 90 days after the effective date thereof if
the Company’s Board of Directors reasonably believes that the continued
effectiveness thereof would be materially detrimental to the Company because
such action would (i) materially interfere with a significant acquisition,
corporate reorganization, or other similar transaction involving the Company;
(ii) require premature disclosure of material information that the Company has a
bona fide business purpose for preserving as confidential; or (iii) render
the Company unable to comply with requirements under the Securities Act or the
Exchange Act, as applicable (each, a “Material Suspension
Event”), and any time periods with respect to filing or effectiveness
thereof shall be tolled correspondingly; provided, however, that the Company
shall not register any securities for resale for its own account or that of any
other stockholder during such 90 day period.  All expenses (other than
underwriting discounts, commissions and special counsel fees of the Purchaser)
incurred in connection with registration pursuant to this Section 4.3(a) shall
be borne and paid by the Company.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (b)          Demand
Rights.

     

    (i)           Upon
written demand by the Purchaser to the Company, the Company shall (i) prepare
and file with the SEC, as soon as practicable thereafter but in no event later
than 45 days thereafter, a registration statement on Form S-1 or other
applicable form in order to register the resale of all the Securities that the
Purchaser requests to be registered (other than Securities that have been
previously registered for resale under this Section 4.3(b)), pursuant and
subject to Rule 415 of the Act, (ii) use its best efforts to cause such
registration statement to become effective as soon as practicable after the
filing date thereof, and (iii) make all filings, disclosures, updates and any
other actions which are necessary in order to keep such registration statement
effective for at least 24 months following the effective date of such
registration statement.  Notwithstanding anything herein to the
contrary, in the event that all of the Securities that are requested by the
Purchaser to be registered on a registration statement pursuant to this Section
4.3(b) are not registered on such registration statement, the Purchaser shall
have the right to demand that the Company register any such remaining
unregistered Securities on a subsequent registration statement on Form S-1 or
other applicable form on the terms and conditions set forth in this Section
4.3(b).

     

    (ii)           Notwithstanding
the foregoing, the Company may elect to delay the filing of such registration
statement for a period not to exceed 90 days, or may suspend the effectiveness
of such registration statement after the effective date thereof for a period not
to exceed 90 days, if, in either case, the Company’s Board of Directors
reasonably believes that the filing or continued effectiveness, as the case may
be, of such registration statement would be materially detrimental to the
Company because such action would cause a Material Suspension Event, and any
time periods with respect to filing or effectiveness thereof shall be tolled
correspondingly; provided, however, that the Company may not invoke this right
more than once in any twelve (12) month period, and provided further that the
Company shall not register any securities for resale for its own account or that
of any other stockholder during such 90 day period.  All expenses
(other than underwriting discounts, commissions and special counsel fees of the
Purchaser) incurred in connection with registration pursuant to this Section
4.3(b) shall be borne and paid by the Company.  Except as otherwise
provided in Section 4(b)(i) above, the Purchaser may not exercise its demand
right pursuant to this Section 4.3(b) more than twice.

     

    (c)           Rule
144.  The Company shall keep available adequate current public information, as
that term is defined in Rule 144 promulgated by the Commission under the
Securities Act, file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act or the Exchange
Act (or within any extension periods permitted under applicable regulations of
the Commission), as applicable, and provide to the Purchaser such information as
may be reasonably requested by the Purchaser in order to make available to the
Purchaser the benefits of Rule 144 of the Securities Act and any other rule or
regulation of the Securities Act or the Exchange Act, as
applicable,  that may at any time permit the Purchaser to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-1 or any equivalent form.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    4.4           Use of
Proceeds.


    


    
      	
               
      

            	
              Working
      Capital.  The Company shall use the net proceeds from the
      Offering for working capital purposes only and not for the satisfaction of
      any portion of the Company's debt (other than payment of trade payables in
      the ordinary course of the Company's business and prior practices), to
      redeem any Common Stock or Common Stock Equivalents, or to settle any
      outstanding litigation without the prior written consent of the
      Purchaser.

            


    

    


    4.5          
Indemnification of the
Purchaser. The Company will indemnify and hold the Purchaser and its
Affiliates, and each of their directors, managers, officers, shareholders,
members, employees and agents, as the case may be (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other Transaction
Documents, provided that the Company’s liability under this Section for a breach
of any representations or warranties made by the Company in this Agreement shall
in no event exceed the Subscription Amount.

    


     

    4.7           Securities Laws Disclosure;
Publicity. The Company and the Purchaser shall consult with each other in
issuing any press releases with respect to the transactions contemplated hereby,
and neither the Company nor the Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of the Purchaser, or without the
prior consent of the Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law or regulation, in which case the disclosing
party shall promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of the Purchaser, or include the name of the
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of the Purchaser, except (i) as
required by federal securities law or regulation in connection with (A) any
registration statement contemplated herein and (B) the filing with the
Commission on Form 8-K of final Transaction Documents (including signature pages
thereto) and a summary thereof and (ii) to the extent such disclosure is
required by law or Trading Market regulations, in which case the Company shall
provide the Purchaser with prior notice of such disclosure permitted under this
subclause (ii).

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    4.8           Subsequent Equity
Sales. If, at any time within ninety (90) days following the Closing
Date, the Company sells and issues any shares of Common Stock or Common Stock
Equivalents at a price per share (or conversion or exercise price, as the case
may be) of less than  $1.75 (a “Dilutive Issuance”),
then, not later than ten (10) business days following such Dilutive Issuance,
the Company shall be required to issue to the Purchaser, for no additional
consideration, an additional number shares of Common Stock equal to the
difference of (i) an amount equal to (A) the Subscription Amount divided by (B)
the price per share of shares issued or underlying Common Stock Equivalents in
connection with such Dilutive Issuance, less (ii) the number of shares of Common
Stock issued to the Purchaser hereunder, less (iii) the number of shares of
Common Stock issued to the Purchaser pursuant to this Section 4.8 as a result of
a prior Dilutive Issuance.  Such additional shares of Common Stock
shall be issued to the Purchaser whenever a Dilutive Issuance
occurs.  A Dilutive Issuance shall not include:  (a) shares
of Common Stock or Common Stock Equivalents issued to employees, officers,
directors or consultants (other than any consultant which engages in any
business which is competitive with or provides any services which are similar to
the business of or services provided by the Purchaser or any of its Affiliates
as determined at the time of the Dilutive Issuance) of the Company, (b)
securities issued upon the exercise, exchange, conversion or amendment of any
securities issued and outstanding on the date hereof, or (c) securities issued
pursuant to acquisitions or strategic transactions.

     

    ARTICLE
V.

    MISCELLANEOUS

     

    5.1           Fees and
Expenses.  Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement.  The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchaser.

     

    5.2           Entire
Agreement.  The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.

     

    5.3           Notices.  Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Business Day, (b) the next Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Business Day
or later than 5:30 p.m. (New York City time) on any Business Day, (c) the 2nd
Business Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given.  The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    5.4           Amendments;
Waivers.  Except as otherwise set forth herein, any provision
of this Agreement may be waived, modified, supplemented or amended in a written
instrument signed by the Company and the Purchaser.  No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such
right.

     

    5.5           Headings.  The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.

     

    5.6           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns.  Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other (other than by merger).

     

    5.7           No Third-Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

     

    5.8           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law
thereof.  Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of Los Angeles.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of Los Angeles for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding.  The parties
hereby waive all rights to a trial by jury.  If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    5.9           Survival.  The
representations and, warranties, shall survive the Closing and the delivery, of
the Securities, for the applicable statue of limitations.

     

    5.10           Execution.  This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

     

    5.11           Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

     

    5.12           Remedies.  In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, the Purchaser and the Company will be
entitled to specific performance under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agrees to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at law
would be adequate.

     

    5.13           Construction. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.

     

    5.14           Replacement of
Securities. If any certificate or instrument evidencing any Securities is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof (in the
case of mutilation), or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction. The applicant for a new certificate
or instrument under such circumstances shall also pay any reasonable third-party
costs (including customary indemnity) associated with the issuance of such
replacement Securities.

     

     (Signature
Pages Follow)

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    


    IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

     

    
      
        	
                CYBERDEFENDER
      CORPORATION

              	 	 	
                Address for
      Notice:

              	 
	 	 	 	 	 
	 	 	 	 	 
	
                By:  /s/ Gary Guseinov

                
                  
      

                Name:  Gary
      Guseinov

                
                  Title:  Chief
      Executive Officer

                

              	 	 	
                617
      West 7th Street, Suite 401

                
                  Los
      Angeles CA 90017

                  
                    Fax:  213.689.8640

                  

                

              	 
	 	 	 	 	 
	
                With
      a copy to (which shall not constitute notice):

              	 	 	 
	 	 	 	 	 
	
                Richardson
      & Patel, LLP

              	 	 	 	 
	
                10900
      Wilshire Blvd., Suite 500

              	 	 	 	 
	
                Los
      Angeles, CA 90024

              	 	 	 	 
	
                Fax:  310.208.1154

              	 	 	 	 
	
                Attention:  Kevin
      Friedmann

              	 	 	 	 


      

    

     

     [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    


    [PURCHASER
SIGNATURE PAGE TO

    CYBERDEFENDER
SECURITIES PURCHASE AGREEMENT]

    


    IN
WITNESS WHEREOF, the undersigned has caused this Securities Purchase Agreement
to be duly executed by its authorized signatory as of the date first indicated
above.

    
       

      
        
          	
                  
                    SHIMSKI
      L.P.

                  

                	 	 	
                  
                    Address for
      Notice:

                  

                	 
	 	 	 	 	 
	 	 	 	 	 
	
                  By:  /s/ Boris
      Shimanovsky

                  
                    
      

                  Name:  Boris
      Shimanovsky

                  
                    Title:  Managing
      Partner

                  

                	 	 	
                  
                    SHIMSKI
      L.P.

                    c/o
      Shim & Sons Enterprises, Inc.

                    1223
      Wilshire Blvd. #307

                    Santa
      Monica, CA. 90403

                    Attention:
      Boris Shimanovsky

                  

                	 
	 	 	 	 	 
	
                  With
      a copy to (which shall not constitute notice):

                   

                  c/o
      Stanislawski & Harrison

                  301
      N. Lake Avenue Suite 900

                  Pasadena,
      CA. 91101

                  Attention:
      Gregory Stanislawski

                  Fax :
      626-793-3631

                	 	 	 


        

      

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

    


    Schedule
3.1 (d) – No Conflicts

    


    Certain
of the Company’s outstanding convertible debentures and warrants contain
conversion and exercise price adjustment provisions in the event the Company
issues Common Stock or Common Stock Equivalents below the current market price
of the Common Stock.  The conversion and exercise price adjustment in
these instruments will be approximately $0.01 from $0.99 to $0.98.

    


    Schedule
3.1 (g) – Capitalization

    


    As of
June 10, 2009, the Company has approximately 21,700,000 shares of Common Stock
issued and outstanding.  Since March 31, 2009, the Company has granted
options and warrants to purchase a total of approximately 1,500,000 shares of
Common Stock.  In addition, approximately 1,350,000 warrants have been
exercised for cash or cashless since March 31, 2009 and the shares have been
reflected above in the total number of shares issued and
outstanding.

    


    Certain
of the Company’s outstanding convertible debentures and warrants contain
conversion and exercise price adjustment provisions in the event the Company
issues Common Stock or Common Stock Equivalents below the current market price
of the Common Stock.  The price adjustment in these instruments will
be approximately $0.01 from $0.99 to $0.98.  

    


    Schedule
3.1 (k) – Compliance

    


    The
Company has $396,671 in outstanding principal amount of its 10% Secured
Convertible Debentures and $137,588 in outstanding principal of its 10%
Convertible Debentures.  The Company is delinquent in the payment of
approximately $100,000 of interest accrued on these debentures, which interest
was due April 1, 2009 and January 1, 2009.   As a result of the
delinquency of these interest payments, there exists an Event of Default under
the Company’s 10% Secured Convertible Debentures and 10% Convertible
Debentures.

    


    The
Company is currently responding to the City of Los Angeles in relation to an
audit of its business tax payments for the periods 2005-2007.  The
Company expects is liability to the City of Los Angeles to be in the range of
$25,000 to $100,000.

     

    
      
        
        

      

      
        21