U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended June 30, 2003
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ____________ to ______________
For the Period Ended June 30, 2003
Commission file number 000-33415
CYBERLUX CORPORATION
(Name of Small Business Issuer in Its Charter)
Nevada 91-2048178
(State of Incorporation) (IRS Employer Identification No.)
50 Orange Road
PO Box 2010
Pinehurst, NC 28370
(Address of Principal Executive Offices)
(910) 235-0066
Issuer's Telephone Number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
---------- -----------
As of June 30, 2003 the Company had 7,587,849 shares of its par value $0.001
common tock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
================================================================================
CYBERLUX CORPORATION
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Index iii
Page No.
--------
Condensed Balance Sheets at June 30, 2003 and December 31, 2002 F-4
Condensed Statement of Losses for the three months June 30, 2003 and June 30, 2002 ,
Six months ended June 30, 2003 and June 30, 2002 and the Period May 17, 2000 (Date of F-5
Inception) Through June 30, 2003
Condensed Statement of Deficiency in Stockholders' Equity for the Period May 17, 2000
(Date of Inception) Through June 30, 2003 F-6
Condensed Statement of Cash Flows for the three months ended June 30, 2003 and June 30,
2002 , Six months ended June 30, 2003 and 2002 and the Period May 17, 2000 (Date of F-7
Inception) Through June 30, 2003
Notes to Financial Statements F-8 to F-18
Item 2. Management's Discussion and Analysis or Plan of Operations 4
Item 3. Controls and Procedures 6
PART II. OTHER INFORMATION 7
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
F-2
Item 1. Financial Statements
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS
JUNE 30, 2003
FORMING A PART OF QUARTERLY REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
CYBERLUX CORPORATION
F-3
CYBERLUX CORPORATION
Index to Financial Statements
-------------------------------------------------------------------------------
Condensed Balance Sheets at June 30, 2003 and December 31, 2002 F-3
Condensed Statement of Losses for the three months ended June 30, 2003 and June 30, 2002 F-4
, six months ended June 30, 2003 and June 30, 2002 and the Period May 17, 2000 (date
of inception) through June 30, 2003
Condensed Statement of Cash Flows for the six months ended June 30, 2003 and 2002 and F-5 TO F-6
the Period May 17, 2000 (date of inception) through June 30, 2003
Condensed Statement of Stockholders' Equity for the Period May 17, 2000 (date of F-7
inception) through June 30, 2003
Notes to Financial Statements F-8 TO F-9
F-4
CYBERLUX CORPORATION
(A Development Stage Company)
CONDENSED BALANCE SHEETS
June 30, 2003 December 31,
(Unaudited) 2002
----------- ( Audited)
-----------
ASSETS
Current Assets:
Cash and equivalents $ 1,875 $ 26,086
Prepaid design services -- 20,000
Total current assets $ 1,875 $ 46,086
=========== ===========
Property and Equipment-net of accumualated depreciation of $ 69,194 79,443
33,300 and $ 23,051 respectively
Other assets
Prepaid expenses -- --
Deposits 8,614 8,614
8,614 8,614
----------- -----------
Total Assets $ 79,683 $ 134,143
=========== ===========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current Liabilities:
Short term notes payable $ 325,000 $ 365,000
Short term notes payable-shareholders 183,045 123,545
Management fees payable-related party 819,508 546,508
Accrued interest 50,277 44,427
Other accrued liabilities 241,430 95,971
----------- -----------
Total current liabilities 1,619,260 1,175,451
----------- -----------
Commitments and contingencies --
DEFICIENCY IN STOCKHOLDERS' EQUITY
(NOTE C)
Preferred Stock, $.001 par value per share;
5,000,000 shares authorized, none issued and outstanding -- --
Common Stock, $.001 par value per share, 20,000,000 shares
authorized, 7,587,849 and 6,628,396 shares issued and
outstanding at June 30, 2003 and December 31, 2002 7,588 6,628
respectively
Additional paid in capital 1,078,913 745,593
Subscription receivable -- (2,500)
----------- -----------
Deficit accumulated during development stage (2,626,078) (1,791,029)
----------- -----------
Deficiency in stockholder's equity (1,539,577) (1,041,308)
----------- -----------
Total $ 79,683 $ 134,143
=========== ===========
F-5
(See accompanying notes to financial statements)
CYBERLUX CORPORATION
(A Development Stage Company)
CONDENSED STATEMENT OF LOSSES
( UNAUDITED )
For the
For three For three For the six For the six period May 17,2000
months ended months ended months June months June (date of inception)
June 30, 2003 June 30, 2002 30, 2003 30, 2002 through June 30, 2003
----------- ----------- ----------- ----------- -----------
Revenues: $ -- $ -- $ -- $ -- $ --
Costs and expenses:
General and administrative 356,937 119,895 560,866 217,252 2,128,970
Depreciation and Amortization 230,124 23,844 235,249 46,624 314,549
----------- ----------- ----------- ----------- -----------
Total costs and expenses 587,061 143,739 796,115 263,876 2,443,519
Other income and (expenses):
Interest Income -- -- -- -- 40
Interest Expenses (18,017) (15,397) (38,934) (26,625) (182,599)
----------- ----------- ----------- ----------- -----------
Loss from operations (605,078) (159,136) (835,049) (290,501) (2,626,078)
Income (taxes) benefit -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss $ (605,078) $ (159,136) $ (835,049) $ (290,501) $(2,626,078)
=========== =========== =========== =========== ===========
Loss per common share (basic and $ (0.09) $ (0.03) $ (0.12) $ (0.05) $ (0.34)
=========== =========== =========== =========== ===========
assuming dilution)
Weighted average shares outstanding 6,946,684 6,187,396 6,946,684 6,169,896 6,946,684
=========== =========== =========== =========== ===========
F-6
(See accompanying notes to financial statements)
CYBERLUX CORPORATION
( A Development Stage Company)
CONDENSED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 17, 2000
(DATE OF INCEPTION) THROUGH JUNE 30, 2003
(Unaudited)
Common Stock
Stock Additional Subscription
Shares Amount Paid in Capital Receivable
--------- ----------- --------------- -------------
Common shares issued in May, 2000 to founders in 1,640,000 $ 1,640 $ 560
exchange for cash at $. 001 per share
Common shares issued in May, 2000 in exchange for for 750,000 $ 750 $ 68,003
research and development services valued at $.09 per
share
Common shares issued in May, 2000 in exchange for 875,000 875 35,710
services valued @ $. 05 per share
Common shares issued in July, 2000 in exchange for 288,000 288 39,712
convertible debt at $ .15 per share
Capital contributed by principal shareholders -- -- 16,000
Common shares issued in November , 2000 for cash in 640,171 640 95,386
connection with private placement at $. 15 per share
Common shares issued in November, 20000 in exchange for 122,795 123 18,296
services valued @ $. 15 per share hares issued for
consulting services
Net (loss) -- -- -- --
--------- ----------- --------------- -------------
Balance, December 31, 2000 4,315,966 $ 4,316 $ 273,667 --
Common shares issued in January , 2001 in exchange for 698,782 699 104,118
convertible debt at $ .15 per share
Stock options issued in May, 2001, valued at $. 15 per 52,500
option, in exchange for services
Warrant issued in May 2001, valued at $. 15 per warrant, -- -- 75,000
in exchange for placement of debt
Common shares issued in September , 2001 for cash in 3,000 3 447
connection with excercise of warrant at $.15 per share
Common shares issued in September , 2001 for cash in 133,000 133 13,167
connection with excercise of warrant at $.10 per share
Common shares issued in November , 2001 for cash in 500,000 500 --
connection with excercise of warrant at $.0001 per share
Common shares issued in November , 2001 for cash in 350,000 350 --
connection with excercise of options at $.0001 per share
Common shares issued in December , 2001 in exchange for 133,961 134 66,847
convertible debt at $ .50 per share
Common shares issued in December , 2001 in exchange 17,687 18 8,825
for debt at $ .50 per share
Net (loss) -- -- (636,274)
--------- ----------- --------------- -------------
Balance, December 31, 2001 6,152,396 $ 6,152 $ 594,571 --
Common shares issued in May, 2002 in exchange for 70,000 70 48,930
services valued at $. 70 per share
Common shares issued in Nov, 2002 in exchange for 150,000 150 37,350
services valued at $0.25 per share
Common shares issued in Dec. 2002 as rights offering at 256,000 256 63,744
$0.25 per share
Subscription Receivable for 10,000 shares issued (2,500)
Net loss -- -- --
--------- ----------- --------------- -------------
Balance at December 31, 2002 6,628,396 $ 6,628 $ 745,593 $ (2,500)
Common shares issued in March, 2003 for cash in 250,000 250
connection with exercise of options at $0.001 per share
Funds received for stock subscription 2,500
Common Shares issued to Cornell Capital Partners in 300,000 300 224,700
March, 2003 in connection with Loan Commitment valued at
$0.75 per share
Common shares issues in March, 2003 in exchange for 13,333 14 9,987
services valued at $0.75 per share
Net Loss -- -- -- --
--------- ----------- --------------- -------------
Balance, March 31, 2003 7,191,729 $ 7,192 $ 980,280 $ --
Robrady Design Note was converted into 196,120 Shares @ 196,120 196 48,833
.25 Per share
Common Shares issued to Mark Schmidt for services in 200,000 200 49,800
June, 2003. The 200,000 shares were issued at $0.25 per
share
Net Loss -- -- -- --
--------- ----------- --------------- -------------
Balance, June 30, 2003 7,587,,849 7,588 $ 1,078,913 $ --
Deficiency
Accumulated Total in
During Stockholders'
Development Stage Equity
-------------- ------------
Common shares issued in May, 2000 to founders in $ 2,200
exchange for cash at $. 001 per share
Common shares issued in May, 2000 in exchange for for $ 68,753
research and development services valued at $.09 per
share
Common shares issued in May, 2000 in exchange for 36,585
services valued @ $. 05 per share
Common shares issued in July, 2000 in exchange for 40,000
convertible debt at $ .15 per share
Capital contributed by principal shareholders 16,000
Common shares issued in November , 2000 for cash in 96,026
connection with private placement at $. 15 per share
Common shares issued in November, 20000 in exchange for 18,419
services valued @ $. 15 per share hares issued for
consulting services
Net (loss) (454,651) (454,651)
-------------- ------------
Balance, December 31, 2000 $ (454,651.00) $(176,668.00)
Common shares issued in January , 2001 in exchange for -- 104,817
convertible debt at $ .15 per share
Stock options issued in May, 2001, valued at $. 15 per -- 52,500
option, in exchange for services
Warrant issued in May 2001, valued at $. 15 per warrant, -- 75,000
in exchange for placement of debt
Common shares issued in September , 2001 for cash in -- 450
connection with excercise of warrant at $.15 per share
Common shares issued in September , 2001 for cash in -- 13,300
connection with excercise of warrant at $.10 per share
Common shares issued in November , 2001 for cash in -- 500
connection with excercise of warrant at $.0001 per share
Common shares issued in November , 2001 for cash in -- 350
connection with excercise of options at $.0001 per share
Common shares issued in December , 2001 in exchange for -- 66,981
convertible debt at $ .50 per share
Common shares issued in December , 2001 in exchange -- 8,843
for debt at $ .50 per share
Net (loss) (636,274) (636,274)
-------------- ------------
Balance, December 31, 2001 $ (1,090,925) $ (490,202)
Common shares issued in May, 2002 in exchange for -- 49,000
services valued at $. 70 per share
Common shares issued in Nov, 2002 in exchange for 37,500
services valued at $0.25 per share
Common shares issued in Dec. 2002 as rights offering at 64,000
$0.25 per share
Subscription Receivable for 10,000 shares issued (2,500)
(700,104) (700,104)
Net loss
-------------- ------------
Balance at December 31, 2002 $ (1,791,029) $(1,041,308)
Common shares issued in March, 2003 for cash in 250
connection with exercise of options at $0.001 per
share
Funds received for stock subscription 2,500
Common Shares issued to Cornell Capital Partners in 225,000
March, 2003 in connection with Loan Commitment valued at
$0.75 per share
Common shares issues in March, 2003 in exchange for 10,001
services valued at $0.75 per share
Net Loss (229,971) (229,971)
-------------- -----------
Balance, March 31, 2003 $ (2,021,000) $(1,033,528)
Robrady Design Note was converted into 196,120 Shares @ 49,029
..25 Per share
Common Shares issued to Mark Schmidt for services in 50,000
June, 2003. The 200,000 shares were issued at $0.25 per
share
Net Loss (605,078) (605,078)
-------------- -----------
Balance, June 30, 2003 $ (2,626,078) $(1,539,577)
F-7
(See accompanying notes to financial statements)
CYBERLUX CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
( UNAUDITED )
For the period May
For Six For the Six 17, 2000 (Date of
Months ended months ended inception) to June
June 30, 2003 June 30, 2002 30, 2003
----------- ----------- -----------
Cash flows from operating activities
Net Loss $ (835,049) $ (290,501) $(2,626,078)
Depreciation and amortization 235,249 46,624 333,299
Stock issued for accrued interest on notes payable 9,030 -- 9,030
Write off extension of loan expenses -- -- 25,000
Stock options issued for consulting services -- -- 107,502
Shares issued for consulting services 60,000 49,000 147,498
Shares issued for research and development -- -- 68,753
Changes in assets and liabilities
Increase in deposits -- (1,795) (8,614)
Decrease in other current assets 20,000 7,412 48,185
Increase in accrued interest 5,852 10,008 50,277
Increase in management fee payable-related party 273,000 117,002 819,508
Increase in other accrued liabilities 145,457 -- 241,430
----------- ----------- -----------
Net cash used in operating activities (86,461) (62,251) (784,210)
Cash flows used in investing activities
Purchase of Property and Equipments -- (59,935) (102,494)
----------- ----------- -----------
Net cash used in investing activities -- (59,935) (102,494)
Cash Provided Financing Activities
Proceeds from short term notes payable net -- 75,000 80,000
Proceeds from note payable-net -- -- 432,455
Proceeds from short term notes payable-shareholders 59,500 17,300 183,045
Capital contributed by shareholders -- -- 16,000
-----------
Receipts from subscription receivable 2,500 -- 2,500
-----------
Issuance of common stock 250 -- 174,576
----------- ----------- -----------
Net cash provided financing activities 62,250 92,300 888,576
Increase (decrease) in cash and cash equivalents (24,211) (29,886) 1,875
Cash and cash equivalents, beginning of year / period 26,086 30,602 --
----------- ----------- -----------
Cash and cash equivalents, end of the year / period $ 1,875 $ 716 $ 1,875
Supplemental Information:
Cash paid during the period for interest $ 18,202 $ 15,397 $ 37,354
Cash paid during the period for taxes -- -- --
F-8
(See accompanying notes to financial statements)
CYBERLUX CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
( UNAUDITED )
For the period May
For six For the six 17, 2000 (Date of
months ended months ended inception) to June
June 30, 2003 June 30, 2002 30, 2003
-------------- ------------- ------------------
Non cash disclosures :
Shares issued for research and development and -- -- 106,253
consulting
Shares issued for conversion of debt 9,030 49,030 269,475
Warrants issued in connection with financing -- -- 75,000
Options issued in connection with services -- -- 52,500
Shares issued in connection with loan commitment -- -- 300,000
Shares issued in connection with services 60,000 50,000 118,535
F-9
(See accompanying notes to financial statements)
CYBERLUX CORPORATION
(A Development Stage Company)
Notes to Condensed Financial Statements
( Unaudited )
NOTE A-SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments ( consisting of normal recurring
accruals ) considered necessary for a fair presentation have been included.
Accordingly, the results from operations for the six months period ended June
30, 2003, are not necessarily indicative of the results that may expected for
the year ending December 31, 2003. The unaudited condensed financial statements
should be read in conjunction with the December 31, 2002 financial statements
and footnotes thereto included in the Company's SEC Form 10 QSB.
Business and Basis of Presentation
Cyberlux Corporation ("Company") was formed on May 17, 2000 under the laws of
the state of Delaware. The Company is a development stage enterprise, as defined
by Statement of Financial Accounting Standards No. 7 ("SFAS No. 7") and its
efforts have been principally devoted to seeking profitable business
opportunities. . From its inception through the date of these financial
statements the Company has recognized limited revenues and has incurred
significant operating expenses. Consequently, its operations are subject to all
risks inherent in the establishment of a new business enterprise. For the period
from inception through June 30, 2003, the Company has accumulated losses of $
2,626,078.
Reclassification
Certain prior period amounts have been reclassified for comparative purposes.
New Accounting Pronouncements
Effective January 1, 2002, the Company adopted SFAS No.142. Under the new rules,
the Company will no longer amortize goodwill and other intangible assets with
definitive lives, but such assets will be subject to periodic testing for
impairment. On an annual basis, and when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write downs to be included in results from operations may be
necessary. SFAS No.142 also requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. Any goodwill
impairment loss recognized as a result of the transitional goodwill impairment
test is recorded as a cumulative effect of a change in accounting principle. The
adoption of SFAS 142 had no material impact on the Company's condensed financial
statements.
CYBERLUX CORPORATION
(A Development Stage Company)
Notes to Condensed Financial Statements
( Unaudited )
New Accounting Pronouncements ( Continued )
SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company expects that the provisions of SFAS No. 143 will not have
a material impact on its consolidated results of operations and financial
position upon adoption. The Company plans to adopt SFAS No. 143 effective
January 1, 2003.
SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS No. 144
superseded Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". The Company adopted
SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 had no
material impact on Company's consolidated financial statements.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that a similar to sale-leaseback
transactions. The Company does not expect the adoption to have a material impact
to the Company's financial position or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company does not expect the adoption to have a material impact to the Company's
financial position or results of operations.
CYBERLUX CORPORATION
(A Development Stage Company)
Notes to Condensed Financial Statements
( Unaudited )
New Accounting Pronouncements ( Continued )
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer relationship
intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions are
effective for acquisitions for which the date of acquisition is on or after
October 1, 2002. The provisions related to accounting for the impairment or
disposal of certain long-term customer-relationship intangible assets are
effective on October 1, 2002. The adoption of this Statement did not have a
material impact to the Company's financial position or results of operations as
the Company has not engaged in either of these activities.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", which amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of Statement
148 are effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The adoption of this
statement did not have a material impact on the Company's financial position or
results of operations as the Company has not elected to change to the fair value
based method of accounting for stock-based employee compensation.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company does not expect the
adoption to have a material impact to the Company's financial position or
results of operations.
CYBERLUX CORPORATION
(A Development Stage Company)
Notes to Condensed Financial Statements
( Unaudited )
In April 2003, the FASB issued Statement No.149, " Amendment of Statement of 133
on Derivative Instruments and Hedging Activities ", which amends Statement 133,
Accounting for Derivative Instruments and Hedging Activities. The adoption of
this statement did not have a material impact on the Company's financial
position.
In May 2003, the FASB issued Statement No. 150, " Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. The
adoption of this statement did not have a material impact on the Company's
financial position.
Prepaid Design services
On May 20, 2003, the Company expensed $ 20,000 design services expenses
previosuly paid to Robrady.
Short term note Payable
On May 20, 2003, the Company retired note payable and interest accrued thereon
till that date to Robrady and paid 196,120 common stock at $ 0.25 per share
totaling to $49,030.
The Company currently is in default of repayment of note payable $ 195,000 to
OneCap and the creditor has not waived the Note.
Common stock
On May 20, 2003, the Company issued 196,120 shares @ $ 0.25 per share to Robrady
Design to convert note payable $ 49,030 including Interest and Principal.. The
Company valued the shares issued at approximately $0.25 per share, which
represents the fair value of the services received which did not differ
materially from the value of the stock issued.
On June 10, 2003, Mark D. Schmidt was issued 200,000 shares @ $0.25 in
connection with the terms and conditions of his employment agreement with the
Company for $50,000. This was the date at which a commitment for performance by
the counter party to earn the equity instrument was reached. The Company valued
the shares issued at approximately $0.25 per share, which presents the fair
value of the services received which did not differ materially from the value of
the stock issued.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. There are several important factors that could cause actual results
to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. The Company has sought to
identify the most significant risks to its business, but cannot predict whether
or to what extent any of such risks may be realized nor can there be any
assurance that the Company has identified all possible risks that might arise.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company's stock. The following
discussion and analysis should be read in conjunction with the financial
statements of the Company and notes thereto. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment from our Management.
General Overview
The Company is in the development stage and its efforts have been principally
devoted to designing, developing manufacturing and marketing advanced lighting
systems that utilize white (and other) light emitting diodes as illumination
elements.
On March 15, 2003, we signed an agreement with Cornell Partners, LP for a
$10,000,000 Equity Line of Credit investment. Cornell Capital is a domestic
hedge fund, which makes investments in small to mid sized publicly traded
companies. Under the Equity Line Agreement, we have the right, but not the
obligation to require Cornell Capital to puvchase shares of common stock up to a
maximum amount over a 24 month period.
In March 2003, we made application to the National Association of Securities
Dealers, Inc. for listing on the Over the Counter Bulletin Board and to obtain a
trading symbol. The application is pending.
On March 9, 2003, we signed an agreement with Howard, Merrell & Partners
("HMP"), an Interpublic Company, located in Raleigh, North Carolina. Under the
one year agreement, HMP will provide consumer research, advertising and other
marketing support for us.
Results of Operations
The Company is in the development stage and is seeking to develop, manufacture
and market advanced lighting systems that utilize white (and other) light
emitting diodes as illumination elements. The risks specifically discussed are
not the only factors that could affect future performance and results. In
addition the discussion in this quarterly report concerning our business our
operations and us contain forward-looking statements. Such forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements. We do not have a
policy of updating or revising forward- looking statements and thus it should
not be assumed that silence by our Management over time means that actual events
or results are occurring as estimated in the forward-looking statements herein.
As a result of limited capital resources and no revenues from operations from
its inception, the Company has relied on the issuance of equity securities to
non-employees in exchange for services. The Company's management
1
enters into equity compensation agreements with non-employees if it is in the
best interest of the Company under terms and conditions consistent with the
requirements of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation. In order conserve its limited operating capital resources,
the Company anticipates continuing to compensate non-employees for services
during the next twelve months. This policy may have a material effect on the
Company's results of operations during the next twelve months.
Revenues
We have generated no operating revenues from operations from our inception. We
believe we will begin earning revenues from operations in our second year of
actual operation as the Company transitions from a development stage company to
that of an active growth and acquisition stage company. On July 19, 2002, we
developed a web site (www.cyberlux.com) which gives us the ability to offer our
products over the internet.
Costs and Expenses
From our inception through June 30, 2003, we have not generated any revenues
from operations. We have incurred losses of $ 2,626,078 during this period.
These expenses were associated principally with equity-based compensation to
employees and consultants, product development costs and professional services.
Liquidity and Capital Resources
As of June 30, 2003, we had a working capital deficit of $1,617,385. As a result
of our operating losses from our inception through June 30, 2003, we generated a
cash flow deficit of $784,210 from operating activities. Cash flows used in
investing activities was $ 102,494 during the period May 17, 2000 (date of
Company's inception) through June 30, 2003. We met our cash requirements during
this period through the private placement of $ 177,076 of common stock, $
512,455 from the issuance of notes (net of repayments and costs), $183,045 from
the issuance of notes payable to Company officers and shareholders (net of
repayments ), and $16,000 capital contributed by the Company's principal
shareholders.
While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development. We have a
financing commitment in the form of an equity line of credit from Cornell
Capital to provide the necessary working capital.
By adjusting its operations and development to the level of capitalization ,
management believes it has suffucient capital resources to meet projected cash
flow deficits through the next twelve months . However, if thereafter, we are
not successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations , liquidity and
financial condition.
The Company's independent certified public accountant has stated in his report
included in the Company's December 31, 2002 Form 10-KSB, as amended, that the
Company has incurred operating losses in the last two years, and that the
Company is dependent upon management's ability to develop profitable operations.
These factors among others may raise substantial doubt about the Company's
ability to continue as a going concern.
Payment of $195,000 Note Due in June 2003. 3,265,000 shares of the Company's
common stock owned by its principal shareholders and officers have been pledged
as collateral for a loan of $170,000 to OneCap, Inc. Payment of the loan was due
and payable in October 2002. On December 31, 2002, the Company extended the loan
payment period to June 2003 and the interest rate was increased to 18% per annum
payable monthly. The Company also incurred $25,000 loan extension charges which
were charged to interest expenses and the loan was increased to $195,000. The
Company currently is in default of repayment and OneCap has not waived the Note.
The Company is seeking interim financing in conjunction with its pending
$10,000,000 Equity Line of Credit with Cornell Partners, LP. One of the uses of
this
2
interim financing is to pay off the Note to OneCap. If the Company is unable to
secure this interim financing, this could seriously affect its operations.
Product Research and Development
We anticipate performing further research and development for our exiting
products during the next twelve months. Those activities include a Lazer Safety
Light, Little Lamp Nursery Lamp, Power Outage Adapter, FailSafe Spot & Lamp and
CampLamp Lantern. These projected expenditures are dependent upon our generating
revenues and obtaining sources of financing in excess of our existing capital
resources. There is no guarantee that we will be successful in raising the funds
required or generating revenues sufficient to fund the projected costs of
research and development during the next twelve months.
Acquisition of Plant and Equipment and Other Assets
We do not anticipate the sale of any material property , plant or equipment
during the next 12 months. We do not anticipate the acquisition of any material
property, plant or equipment during the next 12 months.
Number of Employees
From our inception through the period ended June 30, 2003, we have relied on the
services of outside consultants for services and have five (5) employees. In
order for us to attract and retain quality personnel, we anticipate we will have
to offer competitive salaries to future employees. We anticipate that it may
become desirable to add additional full and or part time employees to discharge
certain critical functions during the next 12 months. This projected increase in
personnel is dependent upon our ability to generate revenues and obtain sources
of financing. There is no guarantee that we will be successful in raising the
funds required or generating revenues sufficient to fund the projected increase
in the number of employees. As we continue to expand, we will incur additional
cost for personnel.
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
Cautionary Factors that May Affect Future Results
Our annual report on December 31, 2002 Form 10-KSB, as amended, includes a
detailed list of cautionary factors that may affect future results. Management
believes that there have been no material changes to those factors listed,
however other factors besides those listed could adversely affect us. That
annual report can be accessed on EDGAR.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange act reports is recorded,
processed , summarized and reported within the time periods specified in the
SEC's rules and forms and that such information is accumulated and communicated
to our management, including our chief executive officer and chief financial
officer, as appropriate , to allow timely decisions regarding required
disclosure. Managment necessarily applied its judgement in assessing the costs
and benefits of such controls and procedures , which , by their nature, can
provide only reasonable assurance regarding management's control objectives.
We have carried out an evaluation, under the supervision and with the
participation of our management, including our chief executive officer and chief
financial officer of the effectiveness of the design and operation of our
disclosure controls and procedures as of a date within 90 days prior to the
filing date of
3
this quarterly report ( the Evaluation date )
Based upon that evaluation , the chief executive officer and chief financial
officer concluded that our disclosure controls and procedures were effective as
of the evaluation date.
(a) Changes in internal controls
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
evaluation date.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Item 3: Legal Proceedings in our annual report on Form 10-KSB for the year
ended 12/31/02 for a description of current legal proceedings. There have been
no material changes width respect to legal proceedings since that report was
filed.
Item 2. Changes in Securities and Use of Proceeds.
On May 20, 2003, the Company issued 196,120 shares @ $ 0.25 per share to Robrady
Design to convert note payable $ 49,030 including Interest and Principal.
On June 10, 2003, Mark D. Schmidt was issued 200,000 shares @ $0.25 in
connection with the terms and conditions of his employment agreement with the
Company.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on From 8-K
(a) Exhibits
4
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
10.10 Executive Employment Agreement of Mark D. Schmidt
99.1 Certification of Donald F. Evans (Filed herewith)
99.2 Certification of David D. Downing (Filed herewith)
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cyberlux Corporation
(Registrant)
Date: August 14, 2003
/s/ Donald F. Evans
-------------------
Donald F. Evans
President and Chairman of the Board
================================================================================
5
CERTIFICATIONS
I, Donald F. Evans, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cyberlux
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14 for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions, with regard to significant deficiencies and
material weaknesses.
Date: August 14, 2003
/s/ Donald F. Evans
------------------------------
Donald F. Evans
President and Chief Executive Officer
6
CERTIFICATIONS
I, David D. Downing, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cyberlux Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14 for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions, with regard to significant deficiencies and material weaknesses.
Date: August 14, 2003
/s/ David D. Downing
------------------------------
David D. Downing
Treasurer and Chief Financial Officer
7
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cyberlux Corporation (the Company) on
Form 10-QSB for the period ending June 30, 2003, as filed with the Securities
and Exchange Commission on the date hereof (the Report), I, Donald F. Evans,
President and Chief Executive Officer, certify, pursuant to 18 U.S.C. ss.1350,
as adopted pursuant to ss.906 of the Sarbanes-Oxley Act, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Donald F.. Evans
--------------------
Donald F. Evans
President and Chief Executive Officer
August 14, 2003
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cyberlux Corporation(the Company) on
Form 10-QSB for the period ending June 30, 2003, as filed with the Securities
and Exchange Commission on the date hereof (the Report), I, David D. Downing,
Chief Financial Officer, certify, pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to ss.906 of the Sarbanes-Oxley Act, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ David D. Downing
--------------------
David D. Downing
Treasurer and Chief Financial Officer
August 14, 2003