Plaintiffs Atlantic Wave Holdings, LLC and Secure Community, LLC’s Further Supplemental Update re: Defendants’ Motion to Vacate

David M. Keithly, State Bar No. 292101 dkeithly@mortensontaggart.com Sara K. Ross, State Bar No. 346153 sross@mortensontaggart.com

MORTENSON TAGGART ADAMS LLP 300 Spectrum Center Drive, Suite 1200 Irvine, California 92618 Telephone: (949) 774-2224 Facsimile: (949) 774-2545

Attorneys for Plaintiffs ATLANTIC WAVE HOLDINGS, LLC and SECURE COMMUNITY, LLC

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

ATLANTIC WAVE HOLDINGS, LLC, a Virginia limited liability company and SECURE COMMUNITY, LLC, a Virginia limited liability company, Plaintiffs, VS. CYBERLUX CORPORATION, a Nevada Corporation; MARK D. SCHMIDT, an individual,

Defendants.

CASE NO. 3:24-cv-00482-RBM-VET Honorable Ruth Bermudez Montenegro

PLAINTIFFS ATLANTIC WAVE HOLDINGS, LLC AND SECURE COMMUNITY, LLC'S FURTHER SUPPLEMENTAL UPDATE RE: DEFENDANTS' MOTION TO VACATE

Filed concurrently with Declaration of David M. Keithly, Declaration of William Welter and Declaration of Federico J. Zablah

NO ORAL ARGUMENT UNLESS ORDERED BY THE COURT

PLAINTIFFS' FURTHER SUPPLEMENTAL UPDATE RE: MOTION TO VACATE

Plaintiffs Atlantic Wave Holdings, LLC and Secure Community, LLC (collectively, "Plaintiffs") submit this supplemental update to highlight new and critical developments underscoring the urgency for immediate judicial intervention.

Plaintiffs domesticated their Virginia judgment in California in February 2024. Plaintiffs filed this action in San Diego because Defendants' only remaining significant asset is Datron, a company located in Vista, California, making local court involvement essential. Shortly after Plaintiffs domesticated their judgment, on March 11, 2024, Defendants removed this action to federal court and filed a motion to vacate and stay the judgment. During this period, Plaintiffs learned that Defendants received over $38 million in early September 2023 from a U.S. Government contract, which should have been used to satisfy Defendants' Judgment debt. However, Defendants falsely stated in October that there had been "no drone sales," contradicting evidence of their revenue, and refused to pay.

Plaintiffs also recently learned that in April 2024, amidst ongoing litigation, Defendants assigned all revenue from the drone contract to Legalist SVP III-a factoring company-effectively selling the drone contract without informing Plaintiffs, stockholders, or the Court. This covert action deprived Plaintiffs of critical revenue that should have been used to satisfy the Judgment-and violated the Settlement Agreement, which mandates disclosure of all material information related to drone sales and status. Despite their financial obligations, Defendants have engaged in a troubling pattern of deceit and strategic delay aimed at evading their obligations and dissipating assets intended to satisfy the Judgment.

On August 9, 2024, the same Virginia court that issued the Judgment released garnished funds to Plaintiffs totaling approximately $183,798.34 from PNC Bank and $4,862.86 from Towne Bank. This release reaffirms the validity and immediate enforceability of the June 28, 2023 Amended Final Order and Judgment. Despite this

judicial endorsement, Defendants have used litigation in Virginia and misleading representations in Texas to delay enforcement. Specifically, Defendants' counsel falsely claimed that a stay of enforcement was entered in Virginia, misleading the Texas court into further delaying enforcement of the Judgment. This mirrors Defendants' arguments in favor of their Motion to Vacate, suggesting that Virginia actions need resolution before enforcement can proceed. In fact, the Virginia actions do not question the Judgment's validity or enforceability and do not bar immediate enforcement of the Judgment. Adding to these concerns, Defendants' counsel in the Virginia litigation has stated unavailability for hearings until April 2025, despite seeking urgent injunctive relief.

Further complicating matters, Plaintiffs recently discovered that Defendants failed to disclose the termination of their crucial U.S. Government drone contract in May 2024 a contract repeatedly cited as a primary source of funds to satisfy the Judgment. The secret assignment of future payments from this contract to Legalist SVP III further shields these assets from Plaintiffs.

This persistent pattern of non-compliance, misrepresentation, and strategic delay underscores the urgent need for the Court to deny Defendants' Motion to Vacate and lift the stay on enforcement actions. Immediate Court intervention is essential not only to prevent further asset dissipation but also to ensure that Defendants do not continue to misuse the judicial process to delay enforcement of the Judgment debt.

Plaintiffs obtained the final Judgment in Virginia on June 28, 2023, which was subsequently domesticated in California to facilitate enforcement against Defendants' assets in San Diego (Docket ("Dkt.") No. 1-5). On March 11, 2024, Defendants removed the action to federal court (Dkt. No. 1). Shortly thereafter, on April 5, 2024, Cyberlux assigned all revenue from its drone contract to a factoring company, Legalist SVP III, effectively diverting funds that could have satisfied the judgment

MORTENSON TAGGART ADAMS LLP

(Declaration of Federico J. Zablah ("Zablah Decl."), 1 11, Ex. D at 11 12-14; Declaration of William Welter ("Welter Decl."), 112, 5.)

On April 10, 2024, Defendants filed a motion to vacate the judgment, which is now fully briefed and awaiting decision. (Dkt. Nos. 9, 12, 13). As Plaintiffs sought to enforce the judgment, they filed an application for a writ of execution on June 12, 2024 (Dkt. No. 16). However, Defendants filed an ex parte application to quash the writ just two days later, on June 14, 2024 (Dkt. No. 18), and the Court subsequently granted this motion on June 25, 2024, further stalling Plaintiffs' enforcement efforts (Dkt. No. 20).

Despite ongoing litigation, on July 12, 2024, Cyberlux filed a written notice requesting HII Mission Technologies Corp. to pay Legalist, reinforcing the assignment of revenue initially made in April (Zablah Decl., [ 11, Ex. D at | 15; Welter Decl., 16). Then, on July 15, 2024, Plaintiffs filed an ex parte motion for Defendants to post a bond, which was subsequently denied by the Court, leading to additional delays in enforcement (Dkt. Nos. 22, 26).

Below is a timeline of events leading up to the present:

· September 8, 2023: Defendants received over $38 million from a U.S. Government contract. (Welter Decl., 13, Ex. A).

· October 10, 2023: Defendants falsely claimed there had been "no drone sales." (Welter Decl., 17, Ex. B).

· February 2024: Plaintiffs domesticated their Virginia judgment in California. (Dkt. No. 1-5)

· March 2024: Defendants removed the case to federal court and filed a motion to vacate. (Dkt. Nos. 1, 9)

· April 5, 2024: Defendants assigned all drone sales to Legalist in return for consideration, effectively selling the drone contract. (Zablah Decl., | 11, Ex. D). The Settlement Agreement states that all material information must be disclosed to Plaintiffs regarding drone sales and status. (Dkt No. 24-1, § 8).

Defendants did not inform Plaintiffs, stockholders, or the Court of the assignment. (Welter Decl., 15; see Zablah Decl., [ 12).

· June 2024: Plaintiffs applied for a writ of execution (Dkt. No. 16) and Defendants filed an ex parte application to quash the writ of execution, which the Court granted (Dkt. Nos. 18-20).

· Asset Sale Attempts: During this time, Defendants also attempted to sell company assets. (Zablah Decl., 19, Ex. C at RFA No. 24; See Declaration of David M. Keithly ("Keithly Decl."), 15, Ex. B).

· July 8, 2024: Defendants filed lawsuits in Virginia and then used those lawsuits to mislead courts here and in Texas, claiming these were dispositive of the Judgment's validity to stall enforcement. (Zablah Decl., 11 4-5, 8; Keithly Decl., 112-3, Ex. A; Welter Decl., 11 10-11).

· Post-July 8, 2024: Despite filing lawsuits, Defendants have taken no action, but continue to delay the proceedings through dilatory tactics. (Zablah Decl., 11 13-17; Dkt. No. 31 at ||2-13).

· July 15, 2024: Plaintiffs filed an ex parte motion for Defendants to post a bond (Dkt. No. 22), which the Court denied (Dkt. Nos. 25-26).

· Dissipation of Assets: Plaintiffs' judgment is quickly losing collateral due to Defendants' actions. (Welter Decl., 11 2-6, 8-9).

Throughout this period, Defendants engaged in a series of nefarious maneuvers designed to complicate enforcement and mislead Plaintiffs and Courts here, in Texas and in Virginia. Notably, the drone contract, which Defendants had long cited as a forthcoming asset capable of satisfying the Judgment, was terminated on May 17, 2024 a fact Defendants failed to disclose, instead perpetuating the false narrative that the contract remained active (Welter Decl., 14; see Zablah Decl., 112). This non- disclosure misled Plaintiffs and the Court, obstructing rightful enforcement efforts.

/// ///

In California, Plaintiffs' efforts to enforce the Virginia Judgment have been temporarily halted due to the pending Motion to Vacate the domesticated judgment and the Court's Order staying enforcement of the sister-state Judgment pending the Court's decision on the motion. (Docket ("Dkt.") Nos. 9, 12, 13 and 20). This motion has been fully briefed and awaiting a decision for more than five months and all related enforcement actions and discovery efforts have been stayed during that time. The delay has impacted Plaintiffs' ability to conduct discovery on whether or not assets exist within this Court's jurisdiction that could be used to satisfy the Judgment. Plaintiffs acknowledge the Court's careful consideration of the issues at hand and respectfully anticipate a resolution that will enable them to continue their enforcement efforts and secure the judgment owed.

Since the last update, significant developments have unfolded in Virginia that further underscore the immediate enforceability of the judgment and the urgency for court intervention.

Plaintiffs successfully garnished funds through the Virginia court, resulting in the release of approximately $183,798.34 from PNC Bank and $4,862.86 from Towne Bank to Plaintiffs. (Zablah Decl., 11 6-7, Exs. A-B.) This action reinforces the validity and enforceability of the Virginia judgment and demonstrates the court's support for Plaintiffs' efforts to collect the amounts owed. The Virginia Court would not have released garnished funds to Plaintiffs if there were any doubt as to the immediate enforceability of the Judgment. (Id.)

Additionally, Plaintiffs sought to garnish future payments owed to Cyberlux by its contractor, HII Mission Technologies Corp ("HII"). (Zablah Decl., 11 10-12, Ex.

D.) However, HII's October 24, 2024 Answer and Plea of Nonjoinder revealed that Cyberlux's subcontract was terminated for convenience in May 2024 over five months ago. (Id., Ex. D at || 7-11.) This termination-which Defendants never disclosed to Plaintiffs-critically undermines Cyberlux's financial capacity to satisfy the judgment. (Welter Decl., 14; see Zablah Decl., 112.) These assets appear to have been dissipated by Defendants, making recovery in San Diego even more important.

The cancellation of the contract is particularly significant because, for more than a year now, Defendants had repeatedly asked Plaintiffs to delay enforcement of the judgment, claiming they were about to receive an imminent payment under the contract sufficient to satisfy their judgment debt to Plaintiffs. (Welter Decl., 1 4.) Despite these assurances, the contract was canceled in May, and Cyberlux failed to inform Plaintiffs, its shareholders, or the Court. (Welter Decl., 14; see Zablah Decl., [ 12.)

Compounding this issue, even if the contract had not been canceled, Cyberlux already assigned its interests in any future payments to Legalist SVP III, LP, a factoring company1 before the contract cancelation. (Zablah Decl., | 11; Ex. D at 11 12-21; Welter Decl., 112, 5.) This assignment means that Legalist would have priority over any additional monies received under the contract, effectively blocking Plaintiffs from recovering funds. (Id.)

Moreover, Cyberlux received a $38 million payment, via wire from "HII Technical" on September 8, 2023, which was linked to drone sales and should have been used to satisfy the Judgment in full (Welter Decl., [ 3, Ex A). However, in October 2023, when Plaintiffs inquired about the number of drones sold, Cyberlux's attorney stated there had been none (Welter Decl., 1 7, Ex. B). This contradiction

raises serious concerns about the veracity of Defendants' disclosures and the management of these funds.

Since filing complaints for immediate injunctive relief and declaratory relief in Virginia on July 8, 2024, Defendants have not meaningfully engaged in legal proceedings in Virginia. (Zablah Decl., 11 13-17; Dkt. No. 31 at 11 2-13.) Despite Defendants' assertions elsewhere, no stay has been issued-or even considered-in the Virginia proceedings. (Zablah Decl. 11 4-5; Keithly Decl., 11 2-3; Welter Decl., 11 10-11).

Defendants have not agreed to reasonable hearing dates or complied with discovery obligations, including responding to Requests for Admissions (RFAs) served on September 6, 2024, which were due by September 27, 2024. (Zablah Decl., 19, Ex. C; 11 13-17). Under Rule 4:11 of the Rules of the Supreme Court of Virginia, RFAs not answered within 21 days are deemed admitted. Cyberlux's failure to respond has led to several critical admissions, including:

· Cyberlux shipped approximately $15,000,000 worth of drones prior to December 31, 2023 (Zablah Decl., 19, Ex. C at RFA No. 25), in breach of the requirement to disclose such sales and provide $5,000 per drone sold as stipulated in the Settlement Agreement (Dkt No. 24-1 (Settlement Agreement) at §§ 4.b, 4.c).

· Cyberlux failed to provide requested documentation relevant to drone sales (Zablah Decl., 19, Ex. C at RFA No. 28), violating their obligation to provide updates and documentation as required (Dkt. No. 24-1 at § 8).

· Cyberlux provided inaccurate financials to induce settlement (Zablah Decl., 1 9, Ex. C at RFA No. 32), breaching the representation that financial statements are materially true and accurate. (Dkt. No. 24-1 at § 10).

· Cyberlux attempted to sell or merge its business or assets in the last 24 months (Zablah Decl., 19, Ex. C at RFA No. 24), contrary to its obligations under the

MORTENSON TAGGART ADAMS LLP

Settlement Agreement to inform Plaintiffs of any significant changes impacting their financial standing (see Dkt. No. 24-1, §§ 7-8).

These admissions represent clear breaches of the Settlement Agreement, further justifying the immediate enforcement of the Judgment. By failing to disclose material facts and provide accurate financials, Cyberlux has violated the agreement's transparency requirements, undermining the basis for any ongoing or future negotiation regarding the Judgment debt.

Plaintiffs' counsel's experiences in Virginia illustrate the extent of Defendants' non-compliance and obstruction. Defendants refuse to cooperate on scheduling reasonable hearing dates, with their counsel unreasonably delaying proceedings by claiming unavailability for months, despite the urgency of the matters at hand. (Zablah Decl. 11 13-17; Dkt. No. 31 at 11 2-13). This tactic of delay allows Cyberlux to continue to use the Virginia litigation as a shield against Plaintiffs' collection actions.

Crucially, Defendants' Virginia actions do not challenge the validity of the underlying Judgment. (Zablah Decl., 1 8.) However, the mere filing of these complaints, coupled with Defendants refusal to advance the litigation, has caused confusion and led courts in both this jurisdiction and Texas to delay enforcement of Plaintiffs' Judgment. This misuse of the legal process emphasizes the need for immediate court intervention. Plaintiffs must be allowed to enforce their rightful claims and secure the assets needed to satisfy the Judgment.

Recent proceedings in Texas have highlighted the persistent obstruction tactics employed by Defendants. On October 28, 2024, during a hearing on Cyberlux's motion to vacate Plaintiffs' domesticated Judgment, Defendants' counsel misrepresented to the Texas court that the Virginia court had issued a stay of execution of the Judgment. (Keithly Decl., 12; Welter Decl., 11 10-11; see Zablah Decl, 11 4-5.) This assertion was entirely false; no stay has been granted or even considered in Virginia. (Zablah Decl. 15; Keithly Decl., 13; Welter Decl., [ 11).

Relying on this misrepresentation, the Texas court temporarily stayed enforcement of the Judgment for 30 days to provide Defendants the opportunity to present evidence of the supposed stay, although it did not halt discovery. (Keithly Decl. 13, Ex. A; Welter Decl., [11.) This maneuver exemplifies Defendants' broader strategy of leveraging the Virginia litigation to obstruct and delay Plaintiffs' legitimate collection efforts while sowing jurisdictional confusion across the courts involved. (Keithly Decl., 14.)

By exploiting procedural ambiguities and creating jurisdictional confusion, Defendants aim to prolong the enforcement process and dissipate assets that should rightfully satisfy the Judgment debt. This misuse of the legal system underscores the urgent need for court intervention to prevent further obstruction and ensure that Plaintiffs can secure the assets needed to satisfy the Judgment.

Plaintiffs urge the Court to recognize the severity of Defendants' conduct and deny the Motion to Vacate the domesticated Judgment. Moreover, lifting the stay on enforcement actions is essential to prevent further asset dissipation and to uphold the integrity of the judicial process, allowing Plaintiffs to proceed with their rightful claims without further hindrance.

The actions taken by Defendants extend beyond mere procedural delays; they represent a strategic pattern designed to undermine the enforcement of a valid judgment and to obfuscate their financial obligations. This pattern is evidenced by a series of calculated maneuvers that have systematically impeded Plaintiffs' efforts to collect the amounts owed under the Amended Final Order and Judgment. Defendants' decision to assign all revenue from the drone contract to Legalist SVP III, a factoring company, effectively diverts potential funds from Plaintiffs, undermining the enforcement of the judgment (Zablah Decl., [ 11, Ex. D at || 12-14; Welter Decl., 11 2, 5). This transaction, which was neither disclosed to Plaintiffs nor the court,

MORTENSON TAGGART ADAMS LLP

represents a deliberate attempt to shield assets and avoid financial liabilities. (Zablah Decl., 112; Welter Decl., 112, 5). The concealment of the assignment, coupled with the undisclosed termination of the drone contract in May 2024, illustrates Defendants' intent to mislead Plaintiffs and continue their pattern of non-compliance.

Throughout these proceedings, Defendants have engaged in a campaign of misinformation, falsely representing to various courts that stays had been issued in Virginia, thereby sowing jurisdictional confusion. Such tactics have not only delayed enforcement actions but have also strained judicial resources as courts are misled into unnecessary deliberations based on false premises (Keithly Decl., 11 2-3; Welter Decl., 1110-11). The cumulative effect of Defendants' actions necessitates immediate judicial intervention to prevent further asset dissipation and to uphold the integrity of the judicial process. Plaintiffs have been systematically blocked from enforcing their judgment due to Defendants' strategic delays and financial machinations. The release of garnished funds by the Virginia court serves as a clear judicial endorsement of the judgment's validity, further reinforcing the need for this Court to deny the Motion to Vacate and lift the stay on enforcement proceedings.

Plaintiffs respectfully request that this Court acknowledge the urgency of the situation and take decisive action to prevent further evasion by Defendants. By denying the Motion to Vacate and lifting the stay, the Court would enable Plaintiffs to pursue their rightful claims and ensure that justice is not only served but seen to be served.

Defendants Cyberlux Corporation and Mark D. Schmidt have consistently evaded enforcement of the valid judgment secured by Plaintiffs through strategic delays and misleading representations, creating jurisdictional confusion and dissipating assets intended to satisfy the Judgment. Their undisclosed termination of a critical U.S. Government contract in May 2024, coupled with the secret assignment of payment interests to Legalist SVP III, underscores their intent to shield assets and

avoid financial obligations. These actions necessitate immediate judicial intervention to prevent further asset dissipation. Plaintiffs respectfully request that the Court deny Defendants' Motion to Vacate and lift the stay on enforcement actions to uphold the integrity of the judicial process and ensure Defendants are held accountable.

DATED: November 7, 2024

MORTENSON TAGGART ADAMS LLP

By:

David M. Keithly Attorney for Plaintiffs ATLANTIC WAVE HOLDINGS, LLC and SECURE COMMUNITY, LLC