CyberDefender California does not currently maintain a share repurchase program. Under California law, repurchase programs are subject to certain restrictions that are not present in Delaware law. Delaware law, however, provides that a corporation may redeem or repurchase its shares only if the capital of the corporation is not impaired and such redemption or repurchase would not impair the capital of the corporation. If we were to reincorporate in Delaware, we may be able to implement a share repurchase program with fewer restrictions than is the case under California law, thereby facilitating our Board’s ability to return value to our shareholders.

Under California law, shareholders holding 50% or more of the total voting power may elect to require a corporation’s dissolution, with or without the approval of the corporation’s board of directors, and this right may not be modified by the articles of incorporation. Shareholders who have not voted in favor of dissolution may prevent the dissolution by purchasing for cash at fair market value the shares of the parties attempting to initiate the dissolution.

By contrast, under Delaware law, shareholders holding 100% of the total voting power of the corporation must approve dissolution unless the board of directors approves the proposal to dissolve. If the dissolution is initiated by the board of directors, it may be approved by the holders of a simple majority of the corporation’s outstanding shares entitled to vote. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions to enable a corporation to prevent a board-initiated dissolution scenario. CyberDefender Delaware’s Certificate of Incorporation contains no such supermajority voting requirement, however, and the vote of the holders of a majority of the outstanding shares would be sufficient to approve a dissolution of CyberDefender Delaware which had previously been approved by its Board of Directors.

Shareholder Derivative Suits

California law provides that a shareholder bringing a derivative action on behalf of a corporation need not have been a shareholder at the time of the transaction in question, provided that certain tests are met. California law also provides that the corporation or the defendant in a derivative suit may make a motion to the court for an order requiring the plaintiff shareholder to furnish a security bond. Delaware law differs from California law insofar as it does not have such a bond requirement. However, under Delaware law, a shareholder may bring a derivative action on behalf of the corporation only if the shareholder was a shareholder of the corporation at the time of the transaction in question or if his stock thereafter came to be owned by him by operation of law.

Application of the CGCL to Delaware Corporations

Under Section 2115 of the CGCL, certain foreign corporations ( i.e. , corporations not organized under California law) are subject to a number of key provisions of the CGCL. Such corporations are included in a special category (referred to in this discussion as “quasi-California” corporations) if they have characteristics of ownership and operation which indicate that they have significant contacts with California. These characteristics include the following: (1) more than half of the corporation’s outstanding voting securities being held of record by persons or entities domiciled in California and (2) the average of a “property factor, sales factor and payroll factor” (as defined under California law) exceeds a 50% threshold. Key provisions of the CGCL to which a Delaware corporation would be subject are those relating to the election and removal of directors, cumulative voting, prohibition of classified boards of directors unless certain requirements are met, standard of liability and indemnification of directors, distributions, dividends and repurchases of shares, shareholder meetings, approval of certain corporate transactions, dissenters’ appraisal rights and inspection of corporate records. See “Comparison of the Corporation Laws of California and Delaware.”

However, an exemption from Section 2115 is provided for corporations whose shares are listed on the New York Stock Exchange or Nasdaq. If CyberDefender Delaware’s shares become listed on NASDAQ after the Merger, then CyberDefender Delaware would become exempt from the provisions of Section 2115.

Federal Income Tax Considerations

The following is a discussion of certain federal income tax considerations with respect to the Merger that are generally applicable to holders of CyberDefender California capital stock who receive CyberDefender Delaware capital stock in exchange for their CyberDefender California capital stock in the Merger. This summary is for general information purposes only and does not purport to address all the federal income tax considerations that may be relevant to particular shareholders of CyberDefender California in light of their particular circumstances or who are subject to special treatment under the federal income tax laws (such as shareholders that are dealers in securities, foreign persons or shareholders that acquired their shares in connection with a stock option plan or other compensatory transaction). Furthermore, no foreign, state or local tax considerations are addressed herein. This summary is based on current federal income tax law, which is subject to change at any time, possibly with retroactive effect. ALL SHAREHOLDERS OF CYBERDEFENDER CALIFORNIA ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.

Subject to the limitations, qualifications and exceptions described herein, and assuming the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the following tax consequences generally should result:

(a)

No gain or loss should be recognized by a shareholder of CyberDefender California who exchanges all of such shareholder’s CyberDefender California capital stock for CyberDefender Delaware capital stock in the Merger;

(b)

The aggregate tax basis of the CyberDefender Delaware capital stock received by a shareholder of CyberDefender California in the Merger should be equal to the aggregate tax basis of CyberDefender California capital stock surrendered in exchange therefor; and

(c)

The holding period of the CyberDefender Delaware capital stock received in the Merger should include the period for which the CyberDefender California capital stock surrendered in exchange therefor was held, provided that the CyberDefender California capital stock is held as a capital asset at the time of the Merger.

We have not requested a ruling from the Internal Revenue Service, nor an opinion from our outside legal counsel, with respect to the federal income tax consequences of the reincorporation under the Internal Revenue Code. In any case, such an opinion would neither bind the Internal Revenue Service nor preclude it from asserting a contrary position.

State, local or foreign income tax consequences to shareholders may vary from the federal tax consequences described above.

Our company would not recognize gain or loss for federal income tax purposes as a result of the reincorporation, and CyberDefender Delaware would succeed, without adjustment, to the federal income tax attributes of CyberDefender California.

Accounting Consequences

We believe that there will be no material accounting consequences for us resulting from the reincorporation.

Regulatory Approval

To our knowledge, the only required regulatory or governmental approval or filings necessary in connection with the consummation of the reincorporation would be the filings with the Secretary of State of California and the Secretary of State of Delaware.

FOR THE REASONS SET FORTH ABOVE, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 1 ON THE PROXY CARD).

PROPOSAL 2

INCREASE THE COMPANY’S AUTHORIZED COMMON STOCK FROM 50,000,000 TO 100,000,000

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” INCREASING THE COMPANY’S AUTHORIZED COMMON STOCK FROM 50,000,000 TO 100,000,000.

At the Annual Meeting, shareholders will be asked to approve an increase in the number of authorized shares of Common Stock of the Company from 50,000,000 to 100,000,000. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote is required to approve this Proposal No. 2. Approval of Proposal No. 2 is contingent upon approval of all Proposals 1 through 8, including the reincorporation of the Company in Delaware as discussed in Proposal 1.

In this Proposal, we refer to the current CyberDefender Corporation, a California corporation, as “CyberDefender California”, and a new CyberDefender Corporation, the Delaware corporation into which CyberDefender California will merge (if Proposal 1 is approved), as “CyberDefender Delaware.”

CyberDefender California’s authorized capital stock consists of 50,000,000 shares of Common Stock. However, CyberDefender Delaware will have more authorized Common Stock than CyberDefender California. CyberDefender Delaware’s authorized capital stock consists of a total of 110,000,000 shares, consisting of 100,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of “blank check” preferred stock, par value $0.001 per share. This means that if this Proposal (together with the other Proposals upon which approval of this Proposal is contingent) is approved, our authorized Common Stock would increase from 50,000,000 shares to 100,000,000 shares.

CyberDefender Delaware’s authorized but unissued shares of Common Stock would be available for future issuance as determined by the Board. However, the Company has no plans, proposals or arrangements, written or otherwise, at this time to issue any Common Stock that will become newly authorized. The Board believes that the authorized capital stock of CyberDefender Delaware is consistent with the Company’s need to maintain adequate capitalization in order to enable the Company to raise growth capital as and when the Board deems it appropriate and to make acquisitions using equity consideration in lieu of cash in order to conserve the Company’s cash reserves. For these reasons, the Board believes that the increase in the authorized shares of Common Stock described in this Proposal 2 is in the best interests of the Company and its shareholders.

Even though not intended by the Board, the possible overall effect of the increase in the authorized shares of Common Stock on the holders of our Common Stock may include the dilution of their ownership interests in the Company, prevention of mergers or business combinations with the Company and the discouragement of possible tender offers for shares of our Common Stock. These factors could discourage attempts to purchase control of the Company even if such change in control may be beneficial to the holders of our Common Stock. Moreover, the issuance of Common Stock to persons friendly to the Board could make it more difficult to remove incumbent management and directors from office, even if such changes would be favorable to shareholders generally.

The ability of the Board to issue shares of Common Stock or rights to acquire Common Stock that could dilute the ownership of Common Stock by one or more persons seeking to effect a change in the composition of the Board or contemplating a tender offer could be employed as an anti-takeover device. This Proposal is not presently intended for that purpose and is not proposed in response to any specific takeover threat known to the Board. Furthermore, this Proposal is not part of any plan by the Board to adopt anti-takeover devices, and the Board currently has no intention of proposing anti-takeover measures. In addition, any such issuance of Common Stock in the takeover context would be subject to compliance by the Board with applicable principles of fiduciary duty.

The Board believes that the financial flexibility offered by the increase in the authorized Common Stock outweighs any of its disadvantages. To the extent that this Proposal may have anti-takeover effects, it may encourage persons seeking to acquire the Company to negotiate directly with the Board, enabling the Board to consider the proposed transaction in a non-disruptive atmosphere and to discharge effectively its obligation to act on the proposed transaction in a manner that best serves all the shareholders' interests.

FOR THE REASONS SET FORTH ABOVE, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 2 ON THE PROXY CARD).

PROPOSAL 3

AUTHORIZE 10,000,000 SHARES OF “BLANK-CHECK” PREFERRED STOCK

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” AUTHORIZING 10,000,000 SHARES OF “BLANK-CHECK” PREFERRED STOCK.

At the Annual Meeting, shareholders will be asked to authorize the Company to issue, from time to time, up to 10,000,000 shares of “blank check” preferred stock. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote is required to approve Proposal No. 3. Approval of Proposal No. 3 is contingent upon approval of all Proposals 1 through 8, including the reincorporation of the Company into Delaware as discussed in Proposal 1.

The current Articles of Incorporation of CyberDefender California do not authorize the Company to issue any preferred stock. The Certificate of Incorporation of CyberDefender Delaware, however, which will become the Certificate of Incorporation of the Company if Proposal 1 (reincorporation to Delaware) is approved, will authorize the Company to issue up to 10,000,000 shares of “blank check” preferred stock.

The Board believes that having “blank check” preferred stock could facilitate corporate financing of the Company and is intended to maximize its opportunities for raising growth capital. If approved, the blank check preferred stock could be issued by the Board without further shareholder approval, in one or more series, and with such dividend rates and rights, liquidation preferences, voting rights, conversion rights, rights and terms of redemption and other rights, preferences, and privileges as determined by the Board. That is the reason the preferred stock is referred to as “blank check” preferred stock. The Board believes that the complexity of modern business financing and possible future transactions require greater flexibility in the Company's capital structure than currently exists. The Board will be permitted to issue preferred stock from time to time for any proper corporate purpose, including acquisitions of other businesses or properties and the raising of additional capital. Shares of preferred stock could be issued publicly or privately, in one or more series that could rank senior to our Common Stock with respect to dividends and liquidation rights. There are no present plans, understandings or agreements for, and the Company is not engaged in any negotiations that will involve, the issuance of preferred stock.

Even though not intended by the Board, the possible overall effect of the existence of preferred stock on the holders of our Common Stock may include the dilution of their ownership interests in the Company, the continuation of the current management of the Company, prevention of mergers or business combinations with the Company and the discouragement of possible tender offers for shares of our Common Stock.

Upon conversion of convertible preferred stock into shares of our Common Stock, the voting power and percentage ownership of holders of our Common Stock before such conversion would be diluted, and such issuances could have an adverse effect on the market price of our Common Stock. Additionally, the issuance of shares of preferred stock with certain rights, preferences and privileges senior to those held by Common Stock holders could diminish the Common Stock holders’ rights to receive dividends, if declared by the Board, and to receive payments upon the liquidation of the Company.

If shares of preferred stock are issued, approval by holders of such shares, voting as a separate class, could be required prior to certain mergers with or business combinations by the Company. These factors could discourage attempts to purchase control of the Company even if such change in control may be beneficial to the holders of our Common Stock. Moreover, the issuance of preferred stock having general voting rights together with Common Stock to persons friendly to the Board could make it more difficult to remove incumbent management and directors from office, even if such changes would be favorable to shareholders generally.

If shares of preferred stock are issued with conversion rights, the attractiveness of the Company to a potential tender offeror for the Common Stock may be diminished. The purchase of the additional shares of Common Stock or preferred stock necessary to gain control of the Company may increase the cost to a potential tender offeror and prevent the tender offer from being made, even though such offer may have been desirable to many of the holders of our Common Stock.

The ability of the Board, without any additional shareholder approval, to issue shares of preferred stock with such rights, preferences, privileges and restrictions as determined by the Board could be employed as an anti-takeover device. The amendment is not presently intended for that purpose and is not proposed in response to any specific takeover threat known to the Board. Furthermore, this proposal is not part of any plan by the Board to adopt anti-takeover devices, and the Board currently has no present intention of proposing anti-takeover measures in the near future. In addition, any such issuance of preferred stock in the takeover context would be subject to compliance by the Board with applicable principles of fiduciary duty.

The Board believes that the financial flexibility offered by the preferred stock outweighs any of its disadvantages. To the extent that this Proposal may have anti-takeover effects, it may encourage persons seeking to acquire the Company to negotiate directly with the Board, enabling the Board to consider the proposed transaction in a non-disruptive atmosphere and to discharge effectively its obligation to act on the proposed transaction in a manner that best serves all the shareholders' interests. It is also the Board's view that the existence of preferred stock should not discourage anyone from proposing a merger or other transaction at a price reflective of the true value of the Company and which is in the interests of its shareholders.

FOR THE REASONS SET FORTH ABOVE, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 3 ON THE PROXY CARD).

PROPOSAL 4

INCREASE THE MAXIMUM NUMBER OF DIRECTORS OF THE COMPANY

FROM FIVE (5) TO NINE (9)

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” CHANGING THE MAXIMUM NUMBER OF DIRECTORS OF THE COMPANY FROM FIVE (5) TO NINE (9).

At the Annual Meeting, shareholders will be asked to approve an increase in the maximum number of authorized directors of the Company from five (5) to nine (9). The affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote is required to approve Proposal No. 4. Approval of Proposal No. 4 is contingent upon approval of all Proposals 1 through 8, including the reincorporation of the Company into Delaware as discussed in Proposal 1.

The amended Bylaws of CyberDefender California specify a range of three (3) to five (5) for the number of directors and authorize the Board to fix the exact number of directors within that range. The number of directors of CyberDefender California is currently fixed at four (4).

The Bylaws of CyberDefender Delaware, which will become the Bylaws of the Company if Proposal 1 (reincorporation in Delaware) is approved, establish a range of three (3) to nine (9) for the number of directors and authorizes the Board to fix the exact number of directors within this range. Changes outside of these limits may be made only by amendment to the Bylaws of CyberDefender Delaware, which may be amended by the Board, although any amendment enacted by the Board may be repealed by the shareholders.

The increase in the maximum size of the Board has potential disadvantages. Increasing the maximum number of authorized directors from five (5) to nine (9) would enable the Board to create four (4) new director vacancies, compared to the single director vacancy that it could now create under the Bylaws of CyberDefender California, given that Company currently has four (4) out of the permitted five (5) directors. Since the Board has the power to fill director vacancies, it could fill newly created vacancies with directors of its choosing until such time as the directors are up for re-election or until their earlier resignation or removal. This could result in a Board with one or more members that have not yet been approved by the stockholders.

The Board believes that the increase in the maximum number of directors of the Company will have certain significant benefits. First, it will give the directors and the shareholders of the Company greater flexibility in adding qualified members to the Board without having to further amend the Bylaws to increase the authorized number of directors. Second, it will give the Company the ability to fill any additional director vacancies with independent directors, which will be essential for the Company to become listed on NASDAQ in the future (as NASDAQ listing requirements provide that a listed company must have a majority of independent directors, and using the NASDAQ definition of “independent director,” we have determined that none of our directors currently in office or nominated for election in this proxy statement qualify as an independent director).

FOR THE REASONS SET FORTH ABOVE, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 4 ON THE PROXY CARD).

PROPOSAL 5

ELIMINATION OF CUMULATIVE VOTING RIGHTS OF THE SHAREHOLDERS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ELIMINATING THE CUMULATIVE VOTING RIGHTS OF THE SHAREHOLDERS.

At the Annual Meeting, shareholders will be asked to approve the elimination of cumulative voting rights of the shareholders. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote is required to approve Proposal No. 5. Approval of Proposal No. 5 is contingent upon approval of all Proposals 1 through 8, including the reincorporation of the Company into Delaware as discussed in Proposal 1.

As CyberDefender California is incorporated in California, it is currently subject to the laws of California regarding cumulative voting. California law permits any shareholder to cumulate his or her votes in the election of directors upon proper notice of the intention to do so. Under cumulative voting, a shareholder may cast as many votes as shall equal the number of votes that such holder would be entitled to cast for the election of directors multiplied by the number of directors to be elected. The holder may cast all such votes for a single director or distribute the votes among two or more directors. Thus, minority shareholders are often able to use cumulative voting to elect one or more directors to the Board.

Under Delaware law, however, cumulative voting is not permitted unless it is expressly authorized in the certificate of incorporation. In keeping with this general rule and the practices of most companies incorporated in Delaware, the Certificate of Incorporation of CyberDefender Delaware, which will become the Certificate of Incorporation of the Company if Proposal 1 (reincorporation in Delaware) is approved, would not provide for cumulative voting. The shareholders rights with respect to cumulative voting would, therefore, change if this Proposal (along with the other Proposals on which approval of this Proposal is contingent) is approved.

The Board believes that, under a cumulative voting regime, directors elected by a minority shareholder who was unable or unwilling to persuade the majority of shareholders could act to advance courses of action with respect to which the majority shareholders were not persuaded. This provides a benefit to minority shareholders in that it gives them an ability to wield substantial voting power despite having limited votes. However, such situations may lead to impediment and frustration of the intentions of the majority of shareholders. The majority shareholders of a corporation that does not employ cumulative voting would have greater ability to exercise control because their voting power would be directly proportional to their ownership in voting shares. Cumulative voting is often used when a minority shareholder (or shareholder group) is otherwise unable to persuade the majority to elect one or more nominees for the election of directors.

The Board believes that it is the general practice of companies incorporated in Delaware not to provide for cumulative voting because cumulative voting has the effect of giving disproportionate power to minority shareholders over and at the expense of the interests of the majority shareholders. Cumulative voting tends to be used specifically in instances in which minority shareholders hold views not held by the majority. By cumulating votes, a minority shareholder can leverage its minority position in order to elect a nominee to a board of directors. By design, such nominee, once on the board of directors, then serves the interests of the minority investor that elected him over the interests of the majority shareholders, and may tend to act to frustrate the will of the majority shareholders. After careful review, the Board believes that cumulative voting is typically used to advantage a minority investor who is unable to persuade the majority to vote for his interests. By eliminating cumulative voting, therefore, the Board believes that an enhanced environment is created whereby the Board and our management can give greater consideration to the desires of our majority shareholders.

FOR THE REASONS SET FORTH ABOVE, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 5 ON THE PROXY CARD).

PROPOSAL 6

AUTHORIZE THE BOARD OF DIRECTORS TO CHANGE THE AUTHORIZED NUMBER OF DIRECTORS TO A NUMBER OUTSIDE THE RANGE SPECIFIED IN THE BYLAYS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” AUTHORIZING THE BOARD OF DIRECTORS TO CHANGE THE AUTHORIZED NUMBER OF DIRECTORS FROM TIME TO TIME TO A NUMBER OUTSIDE THE RANGE SPECIFIED IN THE BYLAWS.

At the Annual Meeting, shareholders will be asked to authorize the Board to, from time to time, change the authorized number of directors outside the limits of the range of authorized number of directors specified in the Bylaws of the Company. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote is required to approve Proposal No. 6. Approval of Proposal No. 6 is contingent upon approval of all Proposals 1 through 8, including the reincorporation of the Company into Delaware as discussed in Proposal 1.

Currently, the amended Bylaws of CyberDefender California specify a range of three (3) to five (5) for the number of directors and authorize the Board to fix the exact number of directors within that range. The number of directors of CyberDefender California is currently fixed at four (4). CyberDefender California’s amended Bylaws permit an increase in the maximum number of directors only with the approval of the holders of at least a majority of the outstanding voting shares of CyberDefender California.

The Bylaws of CyberDefender Delaware therefore would make it more difficult for shareholders of the Company to control the addition of directors to the Board, thereby making it more difficult to control the composition of the Board in between annual shareholder meetings. The Board could potentially expand the size of the Board and fill the vacancies with directors of its choosing until such time the directors come up for re-election, which could frustrate the will of the shareholders.

However, we believe that the Bylaws of CyberDefender Delaware allow for greater flexibility of the Board to expand the size of the Board from time to time, without having to wait for the annual shareholder meeting, if the Board should desire to add additional members with complementary skills and experience. Further, the change described above may also allow the Company greater flexibility in obtaining third party financing in situations where an investor desires to have a representative on the Board and where the Board has no existing director vacancies, and may become necessary or advisable in situations where additional independent directors are needed to maintain a majority of independent directors, as required by Nasdaq.

FOR THE REASONS SET FORTH ABOVE, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 6 ON THE PROXY CARD).

PROPOSAL 7

AUTHORIZE THE BOARD OF DIRECTORS TO FILL DIRECTOR VACANCIES CREATED BY REMOVAL OF DIRECTORS BY THE SHAREHOLDERS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” AUTHORIZING THE BOARD OF DIRECTORS TO FILL DIRECTOR VACANCIES CREATED BY THE REMOVAL OF DIRECTORS BY THE SHAREHOLDERS.

At the Annual Meeting, shareholders will be asked to authorize the Board to, from time to time, fill director vacancies created by the removal of directors by the shareholders. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock represented and voting at the meeting is required to approve Proposal No. 7. Approval of Proposal No. 7 is contingent upon approval of all Proposals 1 through 8, including the reincorporation of the Company into Delaware as discussed in Proposal 1.

Under California law, any vacancy on a corporation’s board of directors, other than one created by the removal of a director by shareholders, may be filled by the board of directors. If the number of directors is less than a quorum, a vacancy may be filled by the unanimous written consent of the directors then in office, by the affirmative vote of a majority of the directors at a meeting held pursuant to notice or waivers of notice or by a sole remaining director. A vacancy created by the removal of a director by shareholders may be filled only if authorized by a corporation’s articles of incorporation or by a bylaw approved by the corporation’s shareholders. CyberDefender California’s Articles of Incorporation and Bylaws do not authorize directors to fill vacancies created by the removal of a director by shareholders.

The Certificate of Incorporation and Bylaws of CyberDefender Delaware, which will become the Bylaws of the Company if Proposal 1 (reincorporation in Delaware) is approved, would also permit the majority of directors then in office to fill board vacancies and newly created directorships. However, in contrast to California law and CyberDefender California’s Bylaws and Articles of Incorporation, Delaware law and CyberDefender Delaware’s Certificate of Incorporation and Bylaws would also permit the majority of directors then in office to fill any vacancy created by the removal of a director by shareholders. This would give the Board an added level of power to control the composition of the Board.

A potential disadvantage of giving this power to the Board is that the Board could potentially frustrate the will of the shareholders by appointing persons of its own choosing to fill a director vacancy rather than waiting for the shareholders to elect a person to fill such vacancy.

On the other hand, the Board believes that the ability of the Board to fill director vacancies, for any reason, is important for the efficient management of the Company. It may be undesirable to have a director vacancy available for a long period of time, and the Board may deem it to be in the Company’s best interests to fill such vacancy prior to a shareholder meeting should a qualified applicant become available. Additionally, the Board is well-positioned to understand whether a director will not only be qualified to serve on the Board, but also able to complement the experience and skills of the other Board members. Furthermore, any such director appointed by the Board to fill a director vacancy will, at the subsequent annual meeting of the shareholders (or if earlier, a special meeting of the shareholders) be subject to election by the shareholders.

FOR THE REASONS SET FORTH ABOVE, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 7 ON THE PROXY CARD).

PROPOSAL 8

APPROVE THE RIGHT OF THE SHAREHOLDERS TO ELECT DIRECTORS BY

NON-UNANIMOUS WRITTEN CONSENT

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE RIGHT OF THE SHAREHOLDERS TO ELECT DIRECTORS BY NON-UNANIMOUS WRITTEN CONSENT.

At the Annual Meeting, shareholders will be asked to approve giving the shareholders the right to elect directors of the Company by written consent on a non-unanimous basis. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock represented and voting at the meeting is required to approve Proposal No. 8. Approval of Proposal No. 8 is contingent upon approval of all Proposals 1 through 8, including the reincorporation of the Company into Delaware as discussed in Proposal 1.

Under California law and the Bylaws of CyberDefender California, shareholders may act by written consent with regard to any action required or permitted to be taken at an annual or special meeting, if written consents signed by the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, provided, however, that in the case of the election of directors by written consent, such consent would be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors.

In contrast, the proposed Certificate of Incorporation and Bylaws of CyberDefender Delaware would make any written consent of shareholders, including, without limitation, a written consent for the election of directors, effective if signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. However, under Delaware law, if a written consent to elect directors is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.

The ability to elect directors by written consent in the manner set forth in the Certificate of Incorporation and Bylaws of CyberDefender Delaware will provide the shareholders of the Company with greater flexibility in electing directors because any such election by written consent will no longer require the written consent of every single shareholder. Rather written consent would only require the consent of the holders of that number of shares as would be required to take action at a shareholder meeting. The Board believes that this increased flexibility in shareholder voting further empowers the shareholders and is therefore in the best interests of the Company and its shareholders.

FOR THE REASONS SET FORTH ABOVE, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 8 ON THE PROXY CARD).

PROPOSAL 9

ELECTION OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF

EACH OF THE NOMINEES LISTED BELOW.

The amended bylaws of the Company currently provide that the Company’s board of directors (the “Board”) will consist of not less than three (3) nor more than five (5) members, the actual number of directors to be determined by the Board from time to time. However, the Bylaws of the Surviving Entity provide that the Board will consist of not less than three (3) nor more than nine (9) members, the actual number of directors to be determined by the Board from time to time. The Board of the Surviving Entity, which, prior to the Annual Meeting, consists of the current directors of the Company, namely Gary Guseinov, Kevin Harris, Igor Barash and Bennet Van de Bunt, has set the number of directors of the Surviving Entity at four (4).

The holders of Common Stock will elect four (4) directors at the Annual Meeting, each of whom will be elected to serve until the next annual meeting of shareholders, and thereafter until their successors shall have been duly elected and qualified, or until their earlier resignation or removal. Unless a shareholder either indicates “withhold authority” on his proxy card or indicates on his proxy card that his shares should not be voted for certain nominees, or should be cumulated to vote for certain nominees properly submitted, it is intended that the persons named in the proxy will vote for the election of the persons named in the table below.

Information with Respect to Nominees. The table below sets forth the name and age as of the Record Date of each nominee, and the period during which he has previously served on our Board. Each of the nominees for director has agreed to serve if elected and has consented to being named in this Proxy Statement.

Name	Age	Director Since

Gary Guseinov	40	2003
Kevin Harris	41	2009
Igor Barash	39	2003
Bennet Van de Bunt	47	2010

Each of the persons nominated for election to our Board is currently a director on our Board, and together they constitute our entire Board. There is no arrangement or understanding between any of our directors/director nominees and any other person pursuant to which any director/director nominee was or is to be selected as a director, except that Bennet Van de Bunt is the designee of GR Match LLC (“GRM”) pursuant to the Media and Marketing Services Agreement, dated as of March 24, 2009, between the Company and GRM, as amended, which provides GRM with the right to designate one member of our Board. The principal occupations and employment of each such person during the past five years is set forth below in the discussion of Directors and Executive Officers. In each instance in which dates are not provided in connection with a nominee’s business experience, such nominee has held the position indicated for at least the past five years.

There is no family relationship between any of the director nominees.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE BOARD OF DIRECTORS’ NOMINEES (PROPOSAL 9 ON THE PROXY CARD).

DIRECTORS AND EXECUTIVE OFFICERS

The following table identifies our current directors and executive officers.

Name	Age	Title

Gary Guseinov	40	Chief Executive Officer, and Chairman of the Board of Directors
Kevin Harris	41	Chief Financial Officer, Secretary and Director
Igor Barash	49	Chief Product Officer, Director
Steve Okun	46	Chief Revenue Officer
Bennet Van de Bunt	47	Director

There are no family relationships between any two or more of our directors or executive officers. Our executive officers are appointed by our Board and serve at the Board’s discretion. There is no arrangement or understanding between any of our directors/director nominees and any other person pursuant to which any director/director nominee was or is to be selected as a director, except that Bennet Van de Bunt is the designee of GR Match LLC (“GRM”) pursuant to the Media and Marketing Services Agreement, dated as of March 24, 2009, between the Company and GRM, as amended, which provides GRM with the right to designate one member of our Board. There is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current Board. There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.

Gary Guseinov is one of our co-founders and has served as our Chief Executive Officer and Chairman of the Board of Directors since our inception in August of 2003. Mr. Guseinov has over 12 years of start-up business experience in the e-commerce sector in addition to direct marketing expertise. In 1994, Mr. Guseinov rapidly grew Digital Media Concepts, a web development/ecommerce firm, by establishing business relationships with AT&T, Pacific Bell and British Petroleum. In 1998, Digital Media Concepts merged with Synergy Ventures Inc., a marketing firm focusing on performance based Internet advertising. By 1999, Mr. Guseinov developed the first Automated Media Planning System (“SynergyMPS”) and an email marketing platform capable of delivering over 1 billion email messages per month. While at Synergy, Mr. Guseinov was responsible for acquiring such clients as Lucent Technologies, Wells Fargo Bank, Citibank, Chase, New Century Financial, JD Powers and Associates, Sears, GoToMyPC/Citrix and many other Fortune 1000 clients. Under Mr. Guseinov’s management, Synergy was able to generate over $2 billion in revenues for its clients. Mr. Guseinov earned his B.A. from the California State University at Northridge, School of Social and Behavioral Sciences. We believe that Mr. Guseinov’s experience with technology start-up companies and his position as a founder of the Company, which gives him an in-depth knowledge of the Company’s business and industry, qualify him to be a director.

Kevin Harris joined us as a financial consultant in October 2008 and became our Chief Financial Officer in January 2009 and a director in March 2009. Mr. Harris is a Certified Public Accountant in the State of California with over fifteen years of financial, accounting and management experience. From April 2004 to December 31, 2008, Mr. Harris served as the Chief Operating Officer of Statmon Technologies Corp., a publicly traded company, where he was also a financial advisor from 2002-2004. From February 2001 to March 2004, Mr. Harris served as the Senior Vice President of Finance for RKO Pictures, LLC. Prior to RKO, he was the Vice President – Finance and Controller for Pop.com, LLC, an Internet content joint venture among DreamWorks SKG, Imagine Entertainment and Vulcan Ventures. From 1998 to 2000, Mr. Harris was the Director – Corporate Financial Planning at Metro-Goldwyn-Mayer Studios, Inc. From 1995 to 1998, Mr. Harris was the Head of Production Finance and Assistant Controller at PolyGram Television where he oversaw all aspects of production finance, accounting and financial planning. From 1993 to 1995, Mr. Harris was a Senior Auditor at KPMG Peat Marwick. Mr. Harris graduated with honors from the California State University at San Bernardino, earning his Bachelor of Science in Business Administration. Mr. Harris serves as a board member and treasurer of Lollipop Theater Network, a 501c(3) non-profit organization. We believe that Mr. Harris’ education and his experience, both as a CPA and as a financial manager in public companies, provides our Board with expertise that it may otherwise lack and qualifies him to be a director.

Igor Barash is one of our co-founders and has served as our Chief Information Officer or Chief Product Officer and as a director since our inception in August of 2003. Mr. Barash has over 10 years of senior level management experience with tier one Internet service providers. In 1997, Mr. Barash became one of the first employees of Hostpro, a Los Angeles based ISP. With his extensive knowledge of the Internet based systems, servers, administration and development, Hostpro grew to become one of the largest hosting service providers in the world. After Hostpro’s purchase by Micron PC, Mr. Barash took a key role in Micron’s Internet services business, including developing value added features on enterprise level service models and participating as Micron’s representative to Microsoft. Later, Mr. Barash became the technical due diligence leader during Micron’s procurement of other ISPs, and Mr. Barash delivered assessments of all companies in contention to be purchased and incorporated under the Micron umbrella. In 1999, Mr. Barash was given the task of restructuring and incorporating WorldWide Hosting in Boca Raton, an acquisition he led. Since January 2000, Mr. Barash has been operating his own consulting firm, supplying high level IT solutions and management services. Mr. Barash earned his B.S. from the California State University at Northridge, School of Computer Science. Like Mr. Guseinov, Mr. Barash is a founder of the Company and has an in-depth knowledge of the Company’s business.

Steve Okun has over twenty years of senior-level sales, marketing and business development experience. He joined CyberDefender in June 2009 from LeadPoint, Inc., where he was in charge of the company's customer acquisition efforts as its Vice President of Sales and Business Development from April 2005 to May 2009. As a founding member of their senior management team, he was instrumental in delivering record level year-over-year revenue growth during the last four years of his service. From March 2000 to July 2002 , Mr. Okun also held the position of Vice President of Global Sales at Commission Junction, the largest pay-for-performance affiliate network, where he was responsible for leading the growth of the company's U.S. and international sales and account management teams. He served as a member of the Executive Committee before Commission Junction was sold to ValueClick. Earlier in his career, Mr. Okun served in senior management roles at several Internet-related B2C software technology companies including Success Learning Systems, a Web-based training and educational products company that he founded and led as President. He holds a B.A. in Political Science from Trinity College in Hartford, CT.

Bennet Van de Bunt has served as a director from July 21, 2009 through December 31, 2009 and was reappointed as of March 22, 2010. Mr. Van de Bunt is a principal of Guthy-Renker Partners, Inc. and is the Co-Chief Executive Officer and Co-President of Guthy-Renker LLC, where he is responsible for business affairs and new business development. Mr. Van de Bunt joined Guthy-Renker in 1993. Prior to joining Guthy-Renker, Mr. Van de Bunt was an attorney at Allen, Matkins. A graduate of Harvard Law School and a member of the California Bar Association, he also holds a degree in history from UCLA where he graduated with honors. Mr. Van de Bunt was also on the Board of Directors of the Electronic Retailing Association (ERA). We believe that Mr. Van de Bunt’s expertise in the direct response marketing industry provides our Board with expertise that is important to the Company’s growth and qualifies him to be a director.

In each instance in which dates are not provided in connection with a nominee’s business experience, such nominee has held the position indicated for at least the past five years. There is no arrangement or understanding between any of our officers and any other person pursuant to which any officer was or is to be selected as an officer.

Family Relationships

There is no family relationship among any of the directors/director nominees or executive officers named above.

Involvement in Certain Legal Proceedings

There is no past, pending or, to our knowledge, threatened litigation or administrative action to which any director or director nominee, officer or affiliate of the Company, holders of over 5% of any class of voting securities of the Company, or any associate of any of the foregoing persons are a party, which is adverse to us or, or in which such persons have a material interest that is adverse to us.

None of our directors/director nominees or executive officers has, during the past ten years,

Had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent, or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

Been convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

(i)

Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

(ii)

Engaging in any type of business practice; or

(iii)

Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; or

Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (i) above, or to be associated with persons engaged in any such activity;

Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, where the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;

Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, where the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated;

Been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

(i)

Any federal or state securities or commodities law or regulation; or

(ii)

Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

(iii)

Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

Been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Compensation of Directors

Our directors do not currently receive compensation for their services as directors nor are they reimbursed for expenses incurred in attending board meetings.

EXECUTIVE COMPENSATION

Summary of Compensation

The following table reflects all compensation awarded to, earned by or paid to our Chief Executive Officer, our two most highly compensated officers other than the Chief Executive Officer and any other individuals who are no longer serving, but who did serve, as an officer during the last two completed fiscal years. These individuals are sometimes referred to in this discussion as the “named executive officers”.

Summary Compensation Table

Name and principal position	Year	Salary ($)			Bonus ($)		Stock Awards ($)		Option Awards ($)			Non- Equity Incentive Plan Compen -sation ($)		Nonquali- fied Deferred Compen- sation Earnings ($)		All Other Compen- sation ($)(6)		Total ($)

Gary Guseinov, Chief Executive Officer and President	2009	$	225,000	(1)	$	137,500		0		0			0		0	$	14,344	$	376,844
	2008	$	225,000	(1)	$	112,500		0		0			0		0	$	14,024	$	351,524

Kevin Harris, Chief Financial Officer	2009	$	190,000	(2)	$	72,500		0	$	373,617	(4)		0		0	$	11,000	$	647,117
	2008	$	13,750	(2)		0		0	$	24,675	(5)		0		0		0	$	38,425

Igor Barash, Chief Product Officer	2009	$	158,958	(3)	$	25,000		0	$	92,691	(4)		0		0	$	5,115	$	281,764
	2008	$	137,500	(3)		0		0		0			0		0	$	3,255	$	140,755

(1) As of October 1, 2006, Mr. Guseinov’s base salary has been set, pursuant to his employment agreement, at $225,000 per year. While Mr. Guseinov’s employment agreement requires a matching contribution to a 401(k) plan in the amount of $2,500 per month and a life insurance policy the premium of which is no more than $3,000 per year, we have not provided either of these benefits to him. In November 2006, in order to conserve cash, Mr. Guseinov agreed to defer payment of one-half of his base salary. In total, compensation in the amount of $121,875 was deferred and had been accrued for Mr. Guseinov’s benefit. In 2008, all deferred compensation from 2006 and 2007 was paid to Mr. Guseinov. In addition, of the $112,500 accrued as a 2008 bonus, $41,000 was paid during 2008 and the balance of $71,500 was paid in 2009. Of the $137,500 accrued as a 2009 bonus, $75,611 was paid during 2009 and the balance of $61,889 was accrued at December 31, 2009.

(2) Mr. Harris rendered services to us during the 2008 fiscal year as a consultant. The salary paid to him during the 2008 fiscal year was for the period that began on October 1, 2008. In 2009, he was appointed Chief Financial Officer and his base salary has been set, pursuant to his employment agreement, at $190,000 per year. Of the $72,500 accrued as a 2009 bonus, $50,000 was paid during 2009 and the balance of $22,500 was accrued at December 31, 2009.

(3) As of January 1, 2006, Mr. Barash’s base salary has been set, pursuant to his employment agreement, at $135,000 per year. Mr. Barash’s base salary was increased to $140,000 per year at July 1, 2008. Mr. Barash’s base salary was increased to $175,000 per year at June 16, 2009. In November 2006, in order to conserve cash, Mr. Barash agreed to defer payment of one-half of his base salary. In total, compensation in the amount of $73,125 was deferred and had been accrued for Mr. Barash’s benefit. In 2008, deferred compensation of $47,462 was paid to Mr. Barash. In 2009, deferred compensation of $25,663 was paid to Mr. Barash.

(4) For the assumptions used in calculating the value of this grant, please see Note 6 of our financial statements for the fiscal year ended December 31, 2009.

(5) For the assumptions used in calculating the value of this grant, please see Note 6 of our financial statements for the fiscal year ended December 31, 2008.

(6) Other compensation includes auto allowance and company 401(k) matching contributions.

Discussion of Compensation

Our compensation program consists of the following four components:

base salary;

bonuses;

awards of restricted stock or stock options from our 2005 Equity Incentive Plan and our Amended and Restated 2006 Equity Incentive Plan; and

participation in the Company’s 401(k) plan.

We believe that a combination of cash and Common Stock or options will allow us to attract and retain the services of the individuals who will help us achieve our business objectives, thereby increasing value for our shareholders.

In setting the compensation for our officers our Board, which is currently comprised of Mr. Gary Guseinov, Mr. Igor Barash, Mr. Kevin Harris and Mr. Van de Bunt, looked primarily at the person’s responsibilities, at salaries paid to others in businesses comparable to ours, at the person’s experience and at our ability to replace the individual. We expect the salaries of our executive officers to remain relatively constant unless the person’s responsibilities are materially changed.

Bonuses are used to reward exceptional performance, either by the individual or by the company. With the exception of the calculation of any bonus to be paid to Mr. Harris, which is determined by the terms of his employment agreement, bonuses are discretionary and there is no single method of computing bonuses. The Board may use any criteria to determine the amount of a bonus. During the last fiscal year, the Board authorized the payment of bonuses to our named executive officers based on the Company’s exceptional increase in sales over the prior fiscal year and the closing of several financings. Mr. Harris’ bonus included $47,500, which was calculated in accordance with his employment agreement, plus an additional $25,000 discretionary bonus. Mr. Guseinov’s bonus included $112,500, which was calculated in accordance with his employment agreement, plus an additional $25,000 discretionary bonus. Mr. Barash received a $25,000 discretionary bonus.

In 2008 and 2009 we granted options to purchase our Common Stock to Mr. Harris as an inducement to him to accept employment as our Chief Financial Officer. During 2009 we issued to Mr. Barash options per a prior employment offer and employment agreement. We grant options or restricted stock to employees because we believe that share ownership is an effective method to deliver superior shareholder returns by increasing the alignment between the interests of our employees and our shareholders. No employee is required to own Common Stock in our company.

The following table sets forth certain information concerning stock option awards granted to the named executive officers. No options were exercised by our named executive officers during the last two fiscal years.

Outstanding Equity Awards at Fiscal Year-End

OPTION AWARDS										STOCK AWARDS
Name	Number of securities underlying unexercised options (#) Exercisable		Number of securities underlying unexercised options (#) Unexercis-able		Equity Incentive Plan Awards: Number of Securities underlying unexercised unearned options (#)		Option exercise price ($)		Option expiration date	Number of shares or units of stock that have not vested (#)		Market value of shares or units of stock that have not vested ($)		Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)		Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested (#)

Igor Barash		9,375		3,125		-0-	$	1.00	12/11/2016		-0-		-0-		-0-		-0-
Igor Barash		47,000		-0-		-0-	$	1.00	11/23/2015		-0-		-0-		-0-		-0-
Igor Barash		53,125		96,875		-0-	$	1.00	7/1/2018		-0-		-0-		-0-		-0-
Kevin Harris		20,000		-0-		-0-	$	1.00	10/1/2018		-0-		-0-		-0-		-0-
Kevin Harris		100,000		100,000		-0-	$	1.00	1/13/2019		-0-		-0-		-0-		-0-
Kevin Harris		9,375		15,625		-0-	$	1.00	3/31/2019		-0-		-0-		-0-		-0-
Kevin Harris		6,250		18,750		-0-	$	1.00	6/30/2019		-0-		-0-		-0-		-0-
Kevin Harris		3,125		21,875		-0-	$	1.00	9/30/2019		-0-		-0-		-0-		-0-
Kevin Harris		-0-		25,000		-0-	$	1.00	12/31/2019		-0-		-0-		-0-		-0-

Employment Agreements, Termination of Employment and Change-in-Control Arrangements

The following discussions provide only a brief description of the documents described below. The discussions are qualified by the full text of the agreements.

We entered into an employment agreement with Mr. Gary Guseinov as of August 31, 2006. The term of the agreement is three years, however if the agreement is not terminated during that period, then it will be renewed for a period of one year until terminated pursuant to its terms. Mr. Guseinov receives compensation of $225,000 per year and is reimbursed for business related expenses. Under the employment agreement, we are required to match Mr. Guseinov’s monthly contribution to our 401(k) plan up to the sum of $2,500 per month and we have agreed to provide a term life insurance policy with coverage in the face amount of $1,000,000, so long as the premium for any such policy does not exceed the sum of $3,000 per year, however, we do not currently, and we have not in the past, provided these benefits. We also agreed to obtain officers and directors liability insurance with coverage of not less than $1,000,000, which we obtained in November 2007. Mr. Guseinov receives three weeks of paid vacation per year. We are entitled to terminate Mr. Guseinov’s employment upon a change of control, upon Mr. Guseinov’s disability or for cause. Constructive termination is defined as a change in Mr. Guseinov’s position, authority, duties, responsibilities or status, an adverse change in his title, any reduction in his salary with which he does not agree (unless such reduction is concurrent with and part of a company-wide reduction for all employees), any breach by us of a material obligation to Mr. Guseinov under this agreement, any requirement that Mr. Guseinov relocate to an office that is outside of Los Angeles County, California or outside of a 30 mile radius from his home, any termination of this agreement (other than as permitted by the agreement) and the failure of Mr. Guseinov to be elected to the Board. Mr. Guseinov may terminate his employment upon 30 days written notice to us or in the event that he is constructively terminated. If Mr. Guseinov’s employment is terminated for any reason other than voluntarily by him or for cause, he is entitled to receive upon termination all accrued but unpaid salary, earned and pro rata bonus compensation, vested stock and stock options and post termination benefits. Post termination benefits are defined as Mr. Guseinov’s right to receive his monthly base salary in effect at termination for a period of one year following termination and to continue to receive coverage under our health and dental insurance program (if any) for a period of six months following his termination. By signing the agreement, Mr. Guseinov assigned and agreed to assign in the future, to us or to our nominees, all intellectual property defined in the agreement as “Relevant Intellectual Property”.

On July 1, 2008, we entered into an “at-will” employment agreement with Igor Barash, as our Chief Product Officer, whereby Mr. Barash’s compensation was $140,000 per year and Mr. Barash received an option to purchase 150,000 shares of our Common Stock at $1.00 per share that vests over four years. Mr. Barash’s compensation was increased to $175,000 per year during 2009. We reimburse Mr. Barash for reasonable business expenses. Currently, Mr. Barash is entitled to 17 paid days of personal time and three sick days for each 12 months of employment.

During a transition period from October 1, 2008 until his appointment as our Chief Financial Officer, Mr. Kevin Harris served as a financial consultant to us, assisting Mr. Michael Barrett, our former Chief Financial Officer. In addition to paying Mr. Harris $13,750 in cash compensation for his consulting services during this transition period, we granted Mr. Harris a 10-year option to purchase a total of 20,000 shares of our Common Stock at an exercise price of $1.00 per share.

On March 24, 2009, the Board approved an employment agreement with Kevin Harris, who is now our Chief Financial Officer and a director. Pursuant to the employment agreement, Mr. Harris will provide services to us as our Chief Financial Officer through December 31, 2010, unless the employment agreement is terminated earlier pursuant to its terms. We will pay Mr. Harris annual compensation at the rate of $190,000 per year for his services. We also agreed to grant to Mr. Harris options to purchase 300,000 shares of our Common Stock, as described below.

The right to purchase 200,000 shares of Common Stock will vest as follows: (i) the right to purchase 25,000 shares of Common Stock vested immediately upon execution of the employment agreement; (ii) the right to purchase 25,000 shares of Common Stock will vest on April 1, 2009; and the right to purchase the remaining 150,000 shares of Common Stock will vest in equal increments of 6,250 shares of Common Stock per month over a period of 24 months, starting with the effective date of the employment agreement which is January 1, 2009. The term of the option is 10 years and the exercise price is $1.00 per share.

We also provided quarterly performance goals to be met by Mr. Harris during the 2009 fiscal year. Mr. Harris was successful in meeting these goals, and earned a quarterly bonus each quarter consisting of $11,875 in cash and an option to purchase an additional 25,000 shares of Common Stock. These options have a term of 10 years and an exercise price of $1.00 per share. The right to purchase the shares will vest in equal increments over a period of 24 months.

The performance goals to be met by Mr. Harris during the 2010 fiscal year will be agreed to by us and Mr. Harris on or about April 15, 2010.

We have also agreed to pay for health and dental insurance for Mr. Harris and his family and to provide him with an automobile allowance of $750 per month. Mr. Harris will also receive 4 weeks paid vacation.

Mr. Harris may terminate his employment upon giving us 30 days written notice of his termination. We may terminate Mr. Harris’ employment for cause, in the event that a disability (as defined in the employment agreement) renders him unable to provide services to us and as a result of a Change of Control (as defined in the employment agreement). Mr. Harris’ employment may also be terminated as a result of a “Constructive Termination” (as defined in the employment agreement). If his employment is terminated as a result of a disability or Change of Control, or if we terminate his employment in our discretion but without cause, Mr. Harris will receive his monthly base salary for the lesser of six months or the remaining term of the employment agreement and we will continue to pay the premiums for his health and dental insurance for a period of 6 months (the “Post-Termination Benefits”). If Mr. Harris’ employment is terminated as a result of a Constructive Termination that occurs on or after July 1, 2009, all stock option grants and conditional grants (such as the grant made in conjunction with the performance goals) will vest and Mr. Harris will receive the Post Termination Benefits. If Mr. Harris’ employment is terminated as a result of a Change of Control, aside from the Post-Termination Benefits, all stock option grants and conditional grants will vest. In the event of termination for any reason, Mr. Harris will also be entitled to receive his accrued but unpaid salary, earned bonus compensation, vested stock options and vested benefits, such as accrued vacation pay.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

OWNERS AND MANAGEMENT

The following tables set forth certain information regarding beneficial ownership of our securities as of April 9, 2010 by (i) each person who is known by us to own beneficially more than 5% of the outstanding shares of each class of our voting securities, (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. Unless otherwise stated, the address of our directors and executive officers is c/o CyberDefender Corporation, 617 West 7th Street, 10 th Floor, Los Angeles, California 90017.

We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Under these rules, beneficial ownership generally includes voting or investment power over securities. The number of shares shown as beneficially owned in the tables below are calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934. Under Rule 13d-3(d)(1), shares not outstanding that are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. Except as otherwise indicated, we believe that the beneficial owners listed below, based on the information furnished by these owners, have sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to applicable community property laws. As of April 9, 2010, there were 25,829,675 shares of Common Stock issued and outstanding.

Name of Director, Officer and Beneficial Owner (1)	Number of Shares of Common Stock Beneficially Owned			Percentage of Common Stock

Named Executive Officers and Directors:
Gary Guseinov, Chief Executive Officer and Director		5,832,075			22.6	%
Igor Barash, Chief Product Officer, Director		756,211	(2)		2.9	%
Kevin Harris, Chief Financial Officer, Secretary and Director		178,500	(3)		0.7	%
Steve Okun, Chief Revenue Officer		18,750	(4)		0.1	%
Bennet Van de Bunt, Director		6,557,830	(5)		21.0	%

5% Shareholders:
GR Match, LLC		6,557,830	(5)		21.0	%
ITU Ventures		1,819,382	(6)		6.9	%
Bing Liu		1,504,227	(7)		5.7	%

TOTAL		16,666,975			50.8	%

All officers and directors as a group (5 persons)		13,343,366			42.3	%

(1) The address for each of our officers and directors is 617 West 7th Street, 10 th Floor, Los Angeles, California 90017.

(2) This number includes the vested portions of Mr. Barash’s option to purchase 209,500 shares of our Common Stock.

(3) This number includes 8,500 shares of Common Stock acquired by Mr. Harris prior to his employment with the Company and the vested portions of Mr. Harris’ option to purchase 320,000 shares of our Common Stock.

(4) This number includes the vested portions of Mr. Okun’s option to purchase 100,000 shares of our Common Stock.

(5) This number represents 1,142,860 shares of Common Stock and 5,414,970 shares of Common Stock issuable upon the exercise of Common Stock purchase warrants. The address of GR Match, LLC is c/o Guthy-Renker LLC, 3340 Ocean Park Boulevard, Suite 3000, Santa Monica, CA 90405. Mr. Van de Bunt is a beneficial owner of these securities, inasmuch as he is the Manager of GR Match, LLC and the beneficiary of a trust that owns a 4.86% interest in Guthy-Renker Partners, Inc., which owns a 94% interest in Guthy-Renker Holdings, LLC, which is the sole owner of Guthy-Renker LLC, which owns an 80% interest in GR Match, LLC. Mr. Van de Bunt disclaims ownership of these securities.

(6) This number represents 1,252,475 shares of Common Stock and 566,907 shares of Common Stock issuable upon the exercise of a Common Stock purchase warrant. The address of ITU Ventures is 1900 Avenue of the Stars, Suite 2701, Los Angeles, California 90067.

(7) This number consists of 841,843 shares of Common Stock and options to purchase 662,384 shares of our Common Stock.

PROPOSAL 10

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 10

The Board of Directors, subject to shareholder approval, appointed KMJ Corbin & Company LLP (“KMJ”) as our independent auditors for our financial statements for the fiscal year ended December 31, 2010. The affirmative vote of a majority of votes properly cast on this proposal at the Annual Meeting is required to ratify such selection.

Shareholder ratification of the appointment is not required by the amended Articles of Incorporation of the Company or the Certificate of Incorporation of the Surviving Entity, or the bylaws of the Company or Surviving Entity, or otherwise. If our shareholders fail to ratify the appointment, the Board of Directors will reconsider whether to retain that firm. Even if the appointment is ratified, the Board of Directors in its discretion may direct the appointment of a different independent accounting firm if the Board of Directors determines that such a change would be in our best interests and the best interests of our shareholders.

KMJ has audited our financial statements commencing with the year ended December 31, 2007. A representative of that firm is expected to be present at the Annual Meeting, and will have an opportunity to make a statement to the shareholders and will be available to respond to appropriate questions.

The following table sets forth fees billed to us by KMJ Corbin & Company LLP during the fiscal years ended December 31, 2008 and December 31, 2009 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services that were reasonably related to the performance of the audit or review of our financial statements and that are not reported as Audit Fees, (iii) services rendered in connection with tax compliance, tax advice and tax planning, and (iv) all other fees for services rendered.

		December 31, 2008		December 31, 2009

(i)	Audit Fees	$	119,732	$	154,575
(ii)	Audit Related Fees	$	0	$	18,500
(iii)	Tax Fees	$	6,685	$	7,500
(iv)	All Other Fees	$	0	$	0

All of the above fees were billed to us by our independent auditor for the services categorized above. We do not have an audit committee. Audit fees included fees associated with the audit of our year-end financial statements and the review of documents filed with the Securities and Exchange Commission, including our quarterly reports on Form 10-Q and annual report on Form 10-K. We incurred no audit-related fees, tax fees, or other fees.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 10 ON THE PROXY CARD).

PROPOSAL 11

AMENDMENT TO THE COMPANY’S

AMENDED AND RESTATED 2006 EQUITY INCENTIVE PLAN

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 11

At the Annual Meeting, shareholders will be asked to approve an amendment to our Amended and Restated 2006 Equity Incentive Plan (the “2006 Plan”) to increase by 1,500,000 the number of shares of Common Stock reserved for issuance under the 2006 Plan to an aggregate of 2,875,000 shares. The Board of Directors approved the amendment on June 17, 2009. The amendment and the 2006 Plan are summarized below. A copy of the 2006 Plan is available upon a shareholder's written request to the Company, 617 W. 7th Street, Suite 1000, Los Angeles, CA 90017, Attention: Secretary.

Description of the Amendment

The amendment increases by 1,500,000 the number of shares of Common Stock reserved for issuance under the 2006 Plan to an aggregate of 2,875,000 shares. The amendment was approved and adopted by the Board of Directors of the Company on June 17, 2009. Approval of the shareholders, however, is required for the Company to grant options from the increased number of shares reserved under the 2006 Plan as “incentive stock options” rather than as “non-qualified stock options.” “Incentive stock options” are stock options that qualify under Section 422 of the Internal Revenue Code.

Reasons for the Amendment

The Board of Directors believes that stock options are an important incentive for attracting, retaining and motivating employees and officers through the opportunity of equity participation. In the view of the Board of Directors, stock options uniquely focus the attention of the officers and employees on the Company's goal of increasing shareholder value, since the options only provide a reward to the extent that the stock price increases. The Board of Directors further believes that stock option grants have been a key element in the Company's growth. The amendment to increase the number of shares of Common Stock under the 2006 Plan is intended to enable the Company to continue to have an adequate number of shares of Common Stock available for stock options, and to allow the Company to issue such options as “incentive stock options” (as defined in Section 422 of the Internal Revenue Code). Granting options as “incentive stock options” can result in potentially favorable tax treatment to the recipient. In order to grant “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, the plan and any amendments to the plan under which the options are issued must be approved by the stockholders of the granting company within 12 months of adoption of the plan or amendment. Therefore, the 2006 Plan amendment which the Board adopted on June 17, 2009 must be approved by the shareholders of the Company no later than June 17, 2010 in order to grant “incentive stock options” from the increased pool of 2006 Plan shares created by the amendment.

As of April 9, 2010, 1,227,385 shares of Common Stock remained available for the grant of stock options under the 2006 Plan. Based on the number of shares remaining under the 2006 Plan, and the shares anticipated to be needed for the granting of options (including options intended to qualify as “incentive stock options”) to attract and retain key employees, sufficient shares are not expected to be available for the grant of such stock options without obtaining approval from the shareholders to increase the number of shares available under the 2006 Plan.

Description of the 2006 Plan

The 2006 Plan was adopted by the Board of Directors on October 30, 2006. The 2006 Plan provides for the granting of “incentive stock options,” “non-qualified stock options,” stock awards and stock bonuses to acquire Common Stock (collectively, “Stock Incentives”) to employees, officers, directors, consultants, independent contractors and advisors of the Company or its subsidiaries (“Participants”). An aggregate of 2,875,000 shares of Common Stock have been reserved for issuance under the 2006 Plan. Our Board of Directors approved the 2006 Plan on October 30, 2006 to provide for the granting of Stock Incentives. The 2006 Plan does not pose a limit or restriction on the number of shares, from the total number of shares of Common Stock reserved under the 2006 Plan, which our Board of Directors may grant as incentive stock options, nonqualified stock options, stock awards or stock bonuses. Under present law, however, incentive stock options may only be granted to employees. The granting of incentive stock options allows the Company to reward key employees for their contribution to the growth of the Company and to the appreciation in shareholder value. In not restricting the number of available shares for the different types of Stock Incentives that may be granted under the 2006 Plan, our Board of Directors has flexibility in determining the type of Stock Incentives that may be granted to Participants. The Board of Directors believes that it is prudent to have the flexibility to grant a variety of stock-based Stock Incentives to eligible Participants in order to accomplish our goal of giving the necessary incentives to such Participants.

The 2006 Plan is currently administered by the Board of Directors, except with respect to awards to be made to persons other than officers and directors of the Company. Awards to non-officers and non-directors may be made by either the Chief Financial Officer or Chief Executive Officer, each acting alone, pursuant to authority granted to such officers by Board in accordance with the terms of the 2006 Plan. Subject to the foregoing, as the administrators of the 2006 Plan, the Board, or the Chief Financial Officer or Chief Executive Officer, as the case may be, have the full power to: select eligible participants to receive Stock Incentives under the 2006 Plan; determine the sizes and types of Stock Incentives under the 2006 Plan; determine the terms and conditions of such Stock Incentives; establish, amend, or waive rules or regulations for the administration of the 2006 Plan; amend the terms and conditions of any outstanding stock incentives as allowed under the 2006 Plan; and make all other determinations, or take such other actions, as may be necessary or advisable for the administration of the 2006 Plan.

With respect to each grant of an incentive stock option to a Participant who is not a shareholder holding more than 10% of our total voting stock (“ten-percent shareholder”), the exercise price will not be less than the fair market value of the shares, which is equal to the closing sales price of the Common Stock on the grant date (“Fair Market Value”). With respect to each grant of an incentive stock option to a recipient who is a ten-percent shareholder, the exercise price will not be less than 110% of the Fair Market Value of the shares.

Stock options may not be exercised after the tenth anniversary of the grant date, except that any incentive stock option granted to a ten-percent shareholder may not be exercised after the fifth anniversary of the grant date.

A stock option issued under the 2006 Plan may not be transferable or assignable, except by the laws of descent and distribution, and may be exercisable only by the Participant. However, a non-qualified stock option may be transferred by the Participant as a bona fide gift to his or her spouse, lineal descendant or ascendant, siblings, and children by adoption.

Payment for shares purchased pursuant to exercise of a stock option may be made in cash or, with the consent of the Board of Directors, or for stock options to non-officers and non-directors, with the consent of the Chief Financial Officer or Chief Executive Officer, by delivery to us of a number of shares that have been owned and completely paid for by the Participant for at least six months prior to the date of exercise, or a combination thereof. In addition, if permitted by the Board of Directors, or for stock options to non-officers and non-directors, if permitted by the Chief Financial Officer or Chief Executive Officer, the stock option may be exercised through a brokerage transaction as permitted under the provisions of Regulation T, applicable to cashless exercises promulgated by the Board of Governors of the Federal Reserve System, unless prohibited by Section 402 of the Sarbanes-Oxley Act of 2002. Except as otherwise provided in the 2006 Plan, payment must be made at the time that the stock option, or any part thereof, is exercised, and no shares shall be issued or delivered to the Participant upon exercise of the option until full payment has been made by the Participant.

A stock bonus is an award of shares under the 2006 Plan for extraordinary service to us or to any subsidiary. The Board of Directors, or for stock bonuses to non-officers and non-directors, the Chief Financial Officer or Chief Executive Officer, will determine the number of shares to be awarded and any conditions, criteria, or performance requirements applicable to the stock bonus.

A stock award is an offer by us to sell to an eligible person shares that may or may not be subject to restrictions. The Board of Directors, or for stock awards to non-officers and non-directors, the Chief Financial Officer or Chief Executive Officer, may determine the terms, conditions, restrictions, and other provisions of each stock award. Stock awards issued under the 2006 Plan may have restrictions that lapse based upon the service of a Participant, or based upon the attainment of performance goals established pursuant to the business criteria listed in the 2006 Plan, or based upon any other criteria that the Board of Directors, or the Chief Financial Officer or Chief Executive Officer, as the case may be, may determine appropriate. The purchase price of shares sold pursuant to a stock award will be determined by us on the date the stock award is granted but may not be less than the Fair Market Value of our Common Stock on the date of grant, provided however, in the case of a sale to a holder of 10% or more of our Common Stock, the purchase price shall not be less than 110% of the Fair Market Value.

The Board of Directors may suspend, terminate, or amend the 2006 Plan from time to time except that certain amendments as specified in the Plan may not be made without the approval of our shareholders, including an amendment to increase the number of shares reserved and issuable under the 2006 Plan, to extend the term of the 2006 Plan, or to decrease the minimum exercise price of any Stock Incentive. The Board of Directors may also modify, amend or cancel any Stock Incentive granted under the Plan, provided, however, that without the consent of the Participant affected, no such modification, amendment or cancellation may diminish the rights of such Participant under the Stock Incentive previously granted under the 2006 Plan.

Summary of Federal Income Tax Consequences

The following is a summary of the Federal income taxation treatment applicable to us and the Participants who receive Stock Incentives under the 2006 Plan.

Option Grants. Options granted under the discretionary grant program may be either “incentive stock options” which satisfy the requirements of Code Section 422 or “non-qualified stock options” which are not intended to meet such requirements. The Federal income tax treatment for the two types of options differs as follows:

Incentive Options. No taxable income is recognized by the optionee at the time of the option grant, and no taxable income is recognized for regular tax purposes at the time the option is exercised, although taxable income may arise at that time for alternative minimum tax purposes. The optionee will recognize taxable income in the year in which the purchased shares are sold or otherwise made the subject of certain other dispositions. For Federal tax purposes, dispositions are divided into two categories: (i) qualifying, and (ii) disqualifying. A qualifying disposition occurs if the sale or other disposition is made more than two years after the date the option for the shares involved in such sale or disposition is granted and more than one year after the date the option is exercised for those shares. If the sale or disposition occurs before these two periods are satisfied, then a disqualifying disposition will result.

Upon a qualifying disposition, the optionee will recognize long-term capital gain in an amount equal to the excess of (i) the amount realized upon the sale or other disposition of the purchased shares over (ii) the exercise price paid for the shares. If there is a disqualifying disposition of the shares, then the excess of (i) the fair market value of those shares on the exercise date or (if less) the amount realized upon such sale or disposition over (ii) the exercise price paid for the shares will be taxable as ordinary income to the optionee. Any additional gain recognized upon the disposition will be a capital gain.

If the optionee makes a disqualifying disposition of the purchased shares, then we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal to the amount of ordinary income recognized by the optionee as a result of the disposition. We will not be entitled to any income tax deduction if the optionee makes a qualifying disposition of the shares.

Non-Qualified Stock Options. No taxable income is recognized by an optionee upon the grant of a non-statutory option. The optionee will in general recognize ordinary income in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the shares, and the optionee will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the optionee with respect to the exercised non-statutory option. The deduction will in general be allowed for our taxable year in which such ordinary income is recognized by the optionee.

Stock Awards (unrestricted) and Stock Bonuses. The recipient of an unrestricted stock award or a stock bonus will recognize ordinary income in the year in which the shares subject to an unrestricted stock award or stock bonus are issued to the holder. The amount of that income will be equal to the fair market value of the shares on the date of issuance, and the holder will be required to satisfy the tax withholding requirements applicable to such income. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder at the time the shares are issued. The deduction will be allowed for the taxable year in which such ordinary income is recognized.

Restricted Stock Awards. The recipient of unvested shares of Common Stock issued under the 2006 Plan will not recognize any taxable income at the time those shares are issued but will have to report as ordinary income, as and when those shares subsequently vest, an amount equal to the excess of (i) the fair market value of the shares on the vesting date over (ii) the cash consideration (if any) paid for the shares. The recipient may, however, elect under Internal Revenue Code Section 83(b) to include as ordinary income in the year the unvested shares are issued an amount equal to the excess of (i) the fair market value of those shares on the issue date over (ii) the cash consideration (if any) paid for such shares. If the Section 83(b) election is made, the recipient will not recognize any additional income as and when the shares subsequently vest. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the recipient with respect to the unvested shares. The deduction will in general be allowed for our taxable year in which such ordinary income is recognized by the recipient.

New Plan Benefits

The table below summarizes certain information with respect to all stock options and stock awards that have been granted under the 2006 Plan on or before April 23, 2010, including awards out of the increased pool of 1,500,000 shares created by the amendment adopted by the Board on June 17, 2009. Because grants and awards under the 2006 Plan are discretionary, we cannot determine the number of additional options and stock awards that may be granted or awarded in the future under the 2006 Plan. We have no specific plans, proposals or arrangements, written or otherwise, at this time to grant specific awards under the 2006 Plan.

Name	Dollar Value (1)		Number of Shares Underlying Options

Named Executive Officers and Directors:
Gary Guseinov, Chief Executive Officer and Director	$	-		-
Igor Barash, Chief Product Officer, Director (2)	$	411,500		259,500
Kevin Harris, Chief Financial Officer, Secretary and Director (3)	$	1,307,000		395,000
Steve Okun, Chief Revenue Officer	$	-		-
Bennet Van de Bunt, Director	$	-		-

Executive Group	$	1,718,500		654,500
Non-Executive Director Group	$	-		-
Non-Executive Employee Group	$	1,165,884		451,689

(1)

Determined by multiplying the applicable numbers of shares of underlying options and stock awards granted by the exercise price of each award on the date of grant, which was equal to the fair market value of our Common Stock on the date of grant.

(2)

On December 11, 2006, the Company granted to Igor Barash an option to purchase 12,500 shares of common at a price of $1.00 per share, vesting equally over 48 months. On October 1, 2009, the Company granted to Mr. Barash, in accordance with the terms of his employment agreement dated July 1, 2008, an option to purchase 150,000 shares of common stock at a price of $1.00 per share, vesting equally over 48 months from the date of the employment agreement. In addition, the Company granted to Mr. Barash an option to purchase 47,000 shares of common stock, at a price of $1.00 per share in accordance with the terms of his prior employment agreement dated November 23, 2005. On April 26, 2010, per the terms of Mr. Barash’s amended employment agreement, the Company granted an option to purchase a total of 50,000 shares of common stock at an exercise price of $4.04 per share, vesting equally over 36 months.

(3)

On October 1, 2008, the Company granted to Kevin Harris, a consultant, an option to purchase 35,000 shares of common at a price of $1.00 per share. 15,000 of the shares were cancelled as Mr. Harris joined the Company full-time in January 2009. Per the terms of the employment agreement, the Company granted options to purchase a total of 75,000 shares of Common Stock at an exercise price of $1.00 per share, vesting equally over 24 months, as bonus compensation with 25,000 options being issued at June 30, 2009, September 30, 2009, and December 31, 2009, respectively. On April 26, 2010, per the terms of Mr. Harris’ amended employment agreement, the Company granted an option to purchase a total of 300,000 shares of common stock at an exercise price of $4.04 per share, vesting equally over 36 months.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL (PROPOSAL 11 ON THE PROXY CARD).

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires executive officers, directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership with the Securities and Exchange Commission. Executive officers, directors and more than 10% shareholders are required by regulations to furnish us with copies of all Section 16(a) reports they file.

To our knowledge, based solely on review of the copies of such reports furnished to us and written representations that no other reports were required, all of our officers, directors and greater than 10% shareholders complied with all applicable Section 16(a) filing requirements for the fiscal year ended December 31, 2009, with the exception of the following:

(i) Guthy-Renker Partners, Inc. failed to file a Form 3 within 10 days from the date it became the beneficial owner of more than 10% of our equity securities.

(ii) Kevin Harris failed to file a Form 3 within 10 days from the date of his appointment as Chief Financial Officer and a member of the board of directors.

(iii) Gary Guseinov filed a Form 4 one day after the filing date. The Form 4 disclosed one transaction.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Described below are certain transactions or series of transactions between us and our executive officers, directors and the beneficial owners of 5% or more of our Common Stock, on an as converted basis, and certain persons affiliated with or related to these persons, including family members, in which they had or will have a direct or indirect material interest in an amount that exceeds the lesser of $120,000 or 1% of the average of our total assets as of year-end for the last two completed fiscal years, other than compensation arrangements that are otherwise required to be described under “Executive Compensation.”

	Sincerely,

	CYBERDEFENDER CORPORATION

	/s/ Kevin Harris
	Kevin Harris, Secretary, Chief Financial Officer

	BY ORDER OF THE BOARD OF DIRECTORS

	/s/ Kevin Harris
	Kevin Harris, Secretary , Chief Financial Officer

	April __, 2010

PROPOSAL 11 – AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED 2006 EQUITY INCENTIVE PLAN	48
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE	53
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS	56
FINANCIAL AND OTHER INFORMATION	57
STOCKHOLDER PROPOSALS	57
HOUSEHOLDING OF PROXY MATERIALS	57
WHERE YOU CAN FIND MORE INFORMATION	58
OTHER MATTERS	58

APPENDIX A – FORM OF MERGER AGREEMENT
APPENDIX B – FORM OF CERTIFICATE OF INCORPORATION OF CYBERDEFENDER DELAWARE
APPENDIX C – FORM OF BYLAWS OF CYBERDEFENDER DELAWARE

CYBERDEFENDER CORPORATION, a California corporation

By:
	Name:	Gary Guseinov
	Title:	Chief Executive Officer

ATTEST:

By:
	Kevin Harris, Secretary

CYBERDEFENDER CORPORATION, a Delaware corporation

By:
	Name:	Gary Guseinov
	Title:	Chief Executive Officer

ATTEST:

By:
	Kevin Harris, Secretary

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	7
INFORMATION CONCERNING SOLICITATION AND VOTING	7
General	7
Purpose	7
Record Date and Voting Rights	7
Quorum; Broker Non-Votes and Abstentions	8
Vote Required for Approval of the Proposals and Election of Directors	8
Solicitation	8
Voting of Proxies	8
Revocation	9
Recommendations of the Board of Directors	9
Other Business	9
BOARD INDEPENDENCE AND COMMITTEES	9
Board Independence	9
Shareholder Communications with the Board of Directors	10
Board Meetings	10
Director Attendance at Annual Meeting of Shareholders	10
Committees of the Board	10
Code of Ethics	10
Corporate Governance	10
Nomination Process of Directors	10
Board Leadership	11
Risk Oversight	11
PROPOSAL 1 – CHANGE COMPANY’S STATE OF INCORPORATION FROM CALIFORNIA TO DELAWARE	12
Mechanics of Reincorporation	12
Principal Reasons for Reincorporation	14
Principal Disadvantages Imposed on Shareholders as a Result of the Reincorporation in Delaware	20
Comparison of Corporation Laws of California and Delaware	20
Application of the CGCL to Delaware Corporations	26
Federal Income Tax Considerations	27
Accounting Consequences	28
Regulatory Approval	28
PROPOSAL 2 – INCREASE IN AUTHORIZED COMMON STOCK	29
PROPOSAL 3 – AUTHORIZATION OF “BLANK-CHECK” PREFERRED STOCK	30
PROPOSAL 4 – INCREASE AUTHORIZED NUMBER OF DIRECTORS	31
PROPOSAL 5 – ELIMINATE CUMULATIVE VOTING RIGHTS	32
PROPOSAL 6 – AUTHORIZE BOARD TO CHANGE AUTHORIZED NUMBER OF DIRECTORS	33
PROPOSAL 7 – AUTHORIZE BOARD TO FILL DIRECTOR VACANICIES CREATED BY STOCKHOLDER REMOVAL	34
PROPOSAL 8 – PERMIT NON-UNANIMOUS WRITTEN CONSENT OF STOCKHOLDERS TO ELECT DIRECTORS	35
PROPOSAL 9 – ELECTION OF DIRECTORS	36
Information with Respect to Nominees	36
DIRECTORS AND EXECUTIVE OFFICERS	37
Biographies
Family Relationships	39
Involvement in Certain Legal Proceedings	39
Compensation of Directors	40
EXECUTIVE COMPENSATION	41
Summary of Compensation	41
Discussion of Compensation	42
Outstanding Equity Awards at Fiscal Year-End	43
Employment Agreements, Termination of Employment and Change-in-Control Arrangements	43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	45
PROPOSAL 10 – RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS	47

April __, 2010	By Order of the Board of Directors
	Kevin Harris, Secretary/Chief Financial Officer