As filed with the Securities and Exchange Commission
on August 27, 2003 Registration No. _________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CYBERLUX CORPORATION
(Name of registrant as specified in its charter)
NEVADA 3674 91-2048978
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
50 Orange Road, PO Box 2010 R/A's of America
Pinehurst, North Carolina 28370 PO Box 2259
(910) 235-0066 Minden, Nevada 89423
(702) 888-2002
(Address and telephone number (Name, address, and telephone
of principal executive offices) number of agent for service)
Copies to:
John W. Ringo, Esq.
Attorney at Law
241 Lamplighter Lane
Marietta, GA 30067
Telephone: (770) 952-1904
Facsimile: (770) 952-0894
Approximate date of commencement of proposed sale of the securities to the
public: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier of the effective registration
statement for the offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of maximum maximum Amount
each class Amount offering aggregate of
of securities to be price per offering Registration
to be registered registered share(1) price Fee (2)
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Common stock, 42,713,763 $ 0.75 $32,035,322.25 $ 2,591.66
$.001 par value to be sold
by selling shareholders
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TOTAL 42,713,763 $ 0.75 $32,035,322.25 $ 2,591.66
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. There is no present
public market for the shares and an arbitrary offering price of $0.75 was chosen
for purposes of calculating the registration fee.
(2) Calculated using $80.90 per million dollars.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state in which the offer
or sale is not permitted.
ii
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED August 27, 2003
CYBERLUX CORPORATION
42,7 13,763 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 42,7 13,763 shares of Cyberlux's
common stock by certain persons who are, or will become, stockholders of
Cyberlux. Please refer to "Selling Stockholders" beginning on page 10. Of that
total, a single stockholder will sell up to 40,000,000 shares of common stock in
this offering that it will receive pursuant to an Equity Line of Credit.
Cyberlux is not selling any shares of common stock in this offering and
therefore will not receive any proceeds from this offering. We will, however,
receive proceeds from the sale of common stock under the Equity Line of Credit.
All costs associated with this registration will be borne by us.
The selling stockholders consist of:
Cornell Capital Partners, L.P., which intends to sell up to 40,000,000
shares of common stock to be purchased under an Equity Line of Credit
Agreement, dated March 15, 2003. Pursuant to that Agreement, Cornell
Capital Partners, L.P. was issued 300,000 shares of common stock as a
commitment fee.
Westrock Advisors, Inc. which intends to sell up to 13,333 shares of
common stock to be purchased under a Placement Agent Agreement, dated
March 15, 2003.
Other selling stockholders, which intend to sell up to 2,400,430
shares of common stock currently outstanding.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the sale of common stock under the
Equity Line of Credit Agreement. Cornell Capital Partners, L.P, will pay
Cyberlux 100% of the market price of our common stock (pursuant to the Equity
Line of Credit Agreement). Cyberlux has agreed to pay Cornell Capital Partners,
L.P. a underwriting discount equal to 5% of each advance under the Equity Line
of Credit Agreement.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 5.
With the exception of Cornell Capital Partners, L.P., which is an "underwriter"
within the meaning of the Securities Act of 1933, no other underwriter or person
has been engaged to facilitate the sale of shares of common stock in this
offering. This offering will terminate 24 months after the accompanying
registration statement is declared effective by the Securities and Exchange
Commission. None of the proceeds from the sale of stock by the selling
stockholders will be placed in escrow, trust or any similar account.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is August 27, 2003.
iii
TABLE OF CONTENTS
Page
------
PROSPECTUS SUMMARY ............................................................ 5
THE OFFERING .................................................................. 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION .................................... 9
RISK FACTORS .................................................................. 10
FORWARD-LOOKING STATEMENTS .................................................... 16
SELLING STOCKHOLDERS .......................................................... 17
USE OF PROCEEDS ............................................................... 19
DILUTION ...................................................................... 19
EQUITY LINE OF CREDIT ......................................................... 19
PLAN OF DISTRIBUTION .......................................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION .......................................................... 22
DESCRIPTION OF BUSINESS ....................................................... 25
MANAGEMENT .................................................................... 31
DESCRIPTION OF PROPERTY ....................................................... 36
LEGAL PROCEEDINGS ............................................................. 6
PRINCIPAL SHAREHOLDERS ........................................................ 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................ 40
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS ................................... 40
DESCRIPTION OF SECURITIES ..................................................... 40
EXPERTS ....................................................................... 40
LEGAL MATTERS ................................................................. 42
AVAILABLE INFORMATION ......................................................... 42
FINANCIAL STATEMENTS .......................................................... F-1
--------------------------------------------------
iv
We intend to distribute to our shareholders annual reports containing audited
financial statements. Our audited financial statements for the fiscal year
December 31, 2002, were contained in our Annual Report on Form 10-KSB.
As used in this prospectus, the terms "we," "us," "our," "the Company," and
"Cyberlux" mean Cyberlux Corporation, a Nevada corporation. The term "selling
shareholder" means Cornell Capital Partners, L.P., and other selling
shareholders of Cyberlux (all of whom are identified in this Registration
Statement) all of which are offering to sell their shares of Cyberlux common
stock which are being registered through this prospectus. The term "common
stock" means our common stock, par value $0.001 per share and the term "shares"
means the shares of common stock being registered by us through this prospectus.
The information in this prospectus is qualified in its entirety by reference to
the entire prospectus. Consequently, this prospectus, which is contained as part
of this registration statement, must be read in its entirety. This is especially
important in light of material subsequent events disclosed. Information may not
be considered or quoted out of context or without referencing other information
contained in this report necessary to make the information considered, not
misleading.
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different. This prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities covered by this
prospectus in any state or other jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such state or jurisdiction.
Neither the delivery of this prospectus nor any sales made hereunder shall,
under any circumstances, create an implication that there has been no change in
our affairs since the date hereof.
PROSPECTUS SUMMARY
The following is only a summary of the information, financial statements and the
notes included in this prospectus. You should read the entire prospectus
carefully, including "Risk Factors" and our Financial Statements and the notes
to the Financial Statements before making any investment decision.
OUR COMPANY
CYBERLUX CORPORATION (we, the "Company" or "Cyberlux") is a Nevada corporation
and was incorporated on May 17, 2000. Our articles were amended on April 3,
2003, to authorize us to issue up to 100,000,000 shares of common stock at a par
value of $0.001 per share and 5,000,000 shares of preferred stock at a par value
of $0.001 per share.
Our management founded the Company to design, develop, manufacture, market and
sell advanced lighting systems that utilize white (and other) light emitting
diodes as illumination elements. The business of the Company is conducted
through outsource relationships with specific professionals who are engaged
based upon tasks in which they are credentialed specialists. Management decided
from the outset that skills in industrial design, electrical engineering,
injection mold development, packaging, product assembly, testing and delivery
functions would, from an economic perspective, be best conducted through
contract relationships with professional firms rather than through a large,
diverse employee base. Although the diode illumination industry is in its
infancy, these lighting systems offer the potential to make continued
advancements in illumination technology. Light emitting diodes (LEDs) consume
90% less energy than their incandescent counterparts to produce a comparable
lumen output. Fluorescent tubes are similar to incandescent bulbs in life light
by virtue of the fact that both elements burn. Diodes do not burn. Instead,
diodes convert electrical current to electromagnetic energy that produces light
without heat. A lumen is a unit of measure used to determine light intensity. We
believe that in electrochemical (battery powered) applications, this decrease in
energy consumption positions our lighting solutions as a much more durable and
reliable lighting source than other alternatives. In standard electrical current
applications, the calculated life of diodes as lighting elements is over ten
years versus hours for traditiona1 incandescent or fluorescent bulbs. The
performance characteristics of diminutive energy consumption and extended life
have prompted LED implementation in traffic lights and brake lights, and to a
lesser degree in our area of focus, diode illumination.
Our principal place of business is located at 50 Orange Road, PO Box 2010,
Pinehurst, North Carolina 28370 and our telephone number at that address is
(910) 235-0066.
5
THE OFFERING
This offering relates to the sale of common stock by certain persons who are, or
will become, stockholders of Cyberlux. The selling stockholders consist of:
Cornell Capital Partners, L.P., which intends to sell up to 40,000,000
shares of common stock to be issued under an Equity Line of Credit
Agreement, dated March 15, 2003. Pursuant to that Agreement, Cornell
Capital Partners, L.P. was issued 300,000 shares of common stock as a
commitment fee.
Westrock Advisors, Inc. which intends to sell up to 13,333 shares of
common stock to be purchased under a Placement Agent Agreement, dated
March 15, 2003.
Other selling stockholders, who intend to sell up to 2,440,430 shares
of common stock purchased in private offerings and pursuant to a loan
agreement.
Pursuant to the Equity Line of Credit, we may, at our discretion, periodically
issue and sell to Cornell Capital Partners, L.P. shares of common stock for a
total purchase price of $10 million. Cornell Capital Partners, L.P. will
purchase the shares of common stock for 100% of the lowest closing bid price of
our common stock during the 5 trading days immediately following notice of its
intent to make an Equity Line draw. Cornell Capital Partners, L.P. intends to
sell any shares purchased under the Equity Line of Credit at the then prevailing
market price. We also issued 13,333 shares of common stock to Westrock Advisors,
Inc. Westrock will serve as the placement agent to act as our exclusive agent in
connection with the Equity Credit Line. Among other things, this prospectus
relates to the shares of common stock to be issued under the Equity Line of
Credit.
COMMON STOCK OFFERED 42, 713,763 shares by selling stockholders
COMMON STOCK OUTSTANDING BEFORE THE OFFERING(1) 7,587,849 shares
COMMON STOCK OUTSTANDING AFTER THE OFFERING (2) 50,301,612 shares
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of stock by any
of the selling stockholders. Any proceeds we receive from the sale
of common stock under the Equity Line of Credit will be used for
general working capital purposes. See "Use of Proceeds."
RISK FACTORS
The securities offered hereby involve a high degree of risk and
immediate substantial dilution and should not be purchased by
investors who cannot afford the loss of their entire investment. See
"Risk Factors" and "Dilution."
DIVIDEND POLICY
We do not intend to pay dividends on our common stock. We plan to
retain any earnings for use in the operation of our business and to
find future growth.
OVER-THE-COUNTER
BULLETIN BOARD SYMBOL CYBL
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(1) Based on shares outstanding as of August 27, 2003.
(2) Includes 40,000,000 shares registered by this prospectus to be issued under
the equity line of credit
6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following is a summary of our Financial Statements, which are included
elsewhere in this prospectus. You should read the following data together with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of this prospectus as well as with our Financial Statements
and the notes therewith.
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THE YEAR
ENDED
December 31, 2002
STATEMENT OF OPERATION DATA:
Revenues $ --
Cost of Goods Sold --
Management and consulting fees - related party 350,504
General and administrative expenses 179,162
Total operating expenses 603,184
(Loss) from operations (603,184)
Net (loss) (700,104)
Net loss per share - basic and diluted $ (.11)
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BALANCE SHEET DATA:
DECEMBER 31,
2002
(Audited)
Cash $ 26,086
Prepaid design services 20,000
Accounts Receivable
Total Current Assets 46,086
===========
Fixed Assets (Net of accumulated depreciation of $23,050) 79,443
Other Assets:
Deposit 8,614
-----------
Total Assets $ 134,143
===========
Current Liabilities $ 44,427
Accrued Interest 95,971
Other Accrued Liabilities
Management fees payable - related party 546,508
Short-term notes payable - shareholders 123,545
Short-term notes payable 365,000
-----------
Total current liabilities $ 1,175,451
Common stock 6,628
Additional paid-in capital 745,593
Subscription receivable (2,500)
(Deficit)accumulated during development stage (1,791,029)
-----------
Total Deficiency stockholders' equity (1,041,308)
-----------
$ 134,143
===========
7
RISK FACTORS
THE SECURITIES OFFERED ARE HIGHLY SPECULATIVE. YOU SHOULD PURCHASE THEM ONLY IF
YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT IN US. YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS ALL OTHER INFORMATION IN THIS
PROSPECTUS.
CERTAIN IMPORTANT FACTORS MAY AFFECT OUR ACTUAL RESULTS AND COULD CAUSE THOSE
RESULTS TO DIFFER SIGNIFICANTLY FROM ANY FORWARD-LOOKING STATEMENTS MADE IN THIS
PROSPECTUS OR OTHERWISE MADE BY US OR ON OUR BEHALF. FOR THIS PURPOSE, ANY
STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF HISTORICAL
FACT SHOULD BE CONSIDERED TO BE FORWARD-LOOKING STATEMENTS. WORDS SUCH AS "MAY,"
"EXPECT," "BELIEVE," "ANTICIPATE," "INTEND," "COULD," "ESTIMATE," OR "CONTINUE"
OR THE NEGATIVES OF THOSE WORDS, IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE
STATEMENTS AS TO OUR INTENT, BELIEF OR EXPECTATIONS. THESE FORWARD- LOOKING
STATEMENTS ARE SUBJECT TO THE RISKS DETAILED BELOW OR ELSEWHERE IN THIS
PROSPECTUS, OR DETAILED FROM TIME TO TIME IN OUR FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION. SEE "RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS" ON
PAGE 18.
INVESTORS SHOULD ASSUME THAT, EVEN IF NOT SPECIFICALLY STATED WITHIN THIS
DOCUMENT, IF ANY OF THE FOLLOWING RISKS ACTUALLY MATERIALIZE, OUR BUSINESS,
FINANCIAL CONDITION OR RESULTS OF FUTURE OPERATIONS COULD BE MATERIALLY AND
ADVERSELY AFFECTED. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
Risk related to our business
We have historically lost money and losses may continue in the future
We have a history of losses. We have incurred an operating loss since inception
and had an accumulated deficit of $1,791,029 as of December 31, 2002. We
incurred a net loss of $(700,104) or $(.11) per share for the year ended
December 31, 2002. Future losses are likely to continue unless we successfully
implement our revised business plan. Our independent auditors have noted that
due to the substantial losses incurred during fiscal year 2002 and 2001, a
working capital deficit as well as a stockholders deficit of $(1,041,308)raise
substantial doubts about our ability to continue as a going concern. Our ability
to continue as a going concern will be dependent upon our ability to draw down
the Equity Credit Line we have established with Cornell Capital Partners. If we
incur any problems in drawing down our credit line, we may experience
significant liquidity and cash flow problems. No assurances can be given that we
will be successful in reaching or maintaining profitable operations. If we are
not successful in reaching and maintaining profitable operations we may not be
able to attract sufficient capital to continue our operations. Our inability to
obtain adequate financing will result in the need to curtail business operations
and will likely result in a lower stock price.
We may need to raise additional capital to finance operations
We have relied on significant external financing to fund our operations. Such
financing has historically come from a combination of borrowing from third
parties and funds provided by certain officers and directors. We will need to
raise additional capital to fund our anticipated operating expenses and future
expansion. Among other things, external financing may be required to cover our
operating costs. We cannot assure you that financing whether from external
sources or related parties will be available if needed or on favorable terms.
The sale of our common stock to raise capital may cause dilution to our existing
shareholders. Our inability to obtain adequate financing will result in the need
to curtail business operations. Any of these events would be materially harmful
to our business and may result in a lower stock price.
8
We have been the subject of a going concern opinion from our independent
auditors, which means that we may not be able to continue operations unless we
obtain additional funding
Our independent auditors have added in their audit reports for December 31, 2002
and 2001 a going concern statement. Our ability to continue as a going concern
depends on our ability to obtain additional funding. Our inability to obtain
adequate financing will result in the need to curtail business operations and
you could lose your entire investment. Our financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Our common stock is deemed to be "Penny Stock" which may make it more difficult
for investors to sell their shares due to suitability requirements
Our common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are
stock:
With a price of less than $5.00 per share;
That are not traded on a "recognized" national exchange;
Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00
per share); or
In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last three
years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.
We could fail to attract or retain key personnel which c ould cause time away
from operations to recruit and train replacements
Our success largely depends on the efforts and abilities of our key executives
and consultants, including Donald F. Evans, our President. The loss of the
services of Mr. Evans could materially harm our business because of the cost and
time necessary to recruit and train a replacement. Such a loss would also divert
management attention away from operational issues. We do not presently maintain
a key-man life insurance policy on Mr. Evans.
We may be unable to manage growth which could prevent our business from growing
Successful implementation of our business strategy requires us to manage our
growth. Growth could place an increasing strain on our management and financial
resources. To manage growth effectively, we will need to:
Implement changes in certain aspects of our business;
Enhance our information systems and operations to respond to increased
demand;
Attract and retain qualified personnel; and Develop, train and manage
an increasing number of management-level and other employees.
If we fail to manage our growth effectively, our business, financial condition
or operating results could be materially harmed, and our stock price may
decline.
9
Possible issuance of preferred stock could limit rights of holders of common
stock
Our Certificate of Incorporation authorizes the issuance of up to 5,000,000
shares of preferred stock, $0.001 par value per share ("Preferred Stock"), with
designations rights, and preferences determined from time to time by our Board
of Directors. Accordingly, our Board of Directors is empowered, without
stockholder approval, to issue Preferred Stock with dividends, liquidation,
conversion, voting, or other rights that could adversely affect the voting power
or other rights of the holders of our common stock. In the event of issuance,
the Preferred Stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the company.
Limited operating history anticipated losses; uncertainty of future results
We were incorporated in May, 2000 and therefore have a limited operating history
upon which an evaluation of our Company and our prospects can be based. Our
prospects must be evaluated with a view to the risks encountered by a company in
an early stage of development, particularly in light of the uncertainties
relating to the new and evolving products and methods which we intend to develop
and market, and the acceptance of our business model. We will be incurring costs
to: (i) design, develop, manufacture and market our products; (ii) to establish
distribution relationships; and (iii) to build an organization. To the extent
that such expenses are not subsequently followed by commensurate revenues, our
business, results of operations and financial condition will be materially
adversely affected. We, therefore, cannot insure that we will be able to
immediately generate sufficient revenues. We expect negative cash flow from
operations to continue for the next 12 months as we continue to develop and
market our business. If cash generated by operations is insufficient to satisfy
our liquidity, we may be required to sell additional equity or debt securities.
The sale of additional equity or convertible debt securities would result in
additional dilution to our stockholders. Our initial operations may not be
profitable, since time will be required to build our business to the point that
our revenues will be sufficient to cover our total operating costs and expenses.
Our reaching a sufficient level of sales revenues will depend upon a large
number of factors, including availability of sufficient working capital, the
number of customer we are able to attract, and the costs of manufacturing and
distributing our products.
Liquidity and working capital risks; Need for additional capital to finance
growth and capital requirements
We have had limited working capital and we are relying upon notes (borrowed
funds) to operate. We may seek to raise capital from public or private equity or
debt sources to provide working capital to meet our general and administrative
costs until net revenues make the business self-sustaining. We cannot guarantee
that we will be able to raise any such capital on terms acceptable to us or at
all. Such financing may be upon terms that are dilutive or potentially dilutive
to our stockholders. If alternative sources of financing are required, but are
insufficient or unavailable, we will be required to modify our growth and
operating plans in accordance with the extent of available funding.
New business which could limit our ability to generate revenues and prevent our
business from growing
We are a new business and you should consider factors which could adversely
affect our ability to generate revenues, which include, but are not limited to,
maintenance of positive cash flow, which depends on our ability both to raise
capital and to obtain additional financing as required, as well as the level of
sales revenues.
Lack of independent directors which could prevent potential for conflicts of
interest
We cannot guarantee that our Board of Directors will have a majority of
independent directors in the future. In the absence of a majority of independent
directors, our executive officers, who are also principal stockholders and
directors, could establish policies and enter into transactions without
independent review and approval thereof. This could present the potential for a
conflict of interest between the Company and its stockholders generally and the
controlling officers, stockholders or directors.
Limitation of liability and indemnification of officers and directors
Our officers and directors are required to exercise good faith and high
integrity in our Management affairs. Our Articles of Incorporation provide,
however, that our officers and directors shall have no liability to our
shareholders for losses sustained or liabilities incurred which arise from any
transaction in their respective managerial capacities unless
10
they violated their duty of loyalty, did not act in good faith, engaged in
intentional misconduct or knowingly violated the law, approved an improper
dividend or stock repurchase, or derived an improper benefit from the
transaction. Our Articles and By-Laws also provide for the indemnification by us
of the officers and directors against any losses or liabilities they may incur
as a result of the manner in which they operate our business or conduct the
internal affairs, provided that in connection with these activities they act in
good faith and in a manner that they reasonably believe to be in, or not opposed
to, the best interests of the Company, and their conduct does not constitute
gross negligence, misconduct or breach of fiduciary obligations. To further
implement the permitted indemnification, we have entered into Indemnity
Agreements with our officers and directors.
Continued control by current officers and directors and therefore you will have
no voice in management
The present officers and directors own approximately 42.3% of the outstanding
shares of Common Stock, and therefore are in a position to elect all of our
Directors and otherwise control the Company, including, without limitation,
authorizing the sale of equity or debt securities of the Company, the
appointment of officers, and the determination of officers' salaries.
Shareholders have no cumulative voting rights. (See Security Ownership of
Certain Beneficial Owners and Management)
Delays in the introduction of of our products have hampered our growth We have
experienced numerous delays in the introduction of our initial product, the Home
Safety Light. These delays have been caused by certain requirements from various
retailers such as seasonal schedules to review certain products, changes in
personnel who review the products, problems with pricing and packaging.
Dependence on independent parties to produce our products could affect our
production and sales capabilities
We have out sourced the design, engineering, production, assembly, marketing and
sale of our product through contractual arrangements with independent
professional firms. Although the design, engineering, production and assembly
contractors are shareholders in the Company, the loss of one or all of these
firms could seriously affect our production and sales capabilities.
Inability to make payment of $195,000 note due in June 2003 could seriously
affect our operations.
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 is due and payable in October 2002. On
December 31, 2002, the company extended the loan repayment period to June , 2003
and the interest rate was increased to 18% per annum payable monthly . The
company also incurred $ 25,000 loan entension 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 loan. 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 interim
financing is to pay off the loan to OneCap. If the Company is unable to pay off
the loan or to obtain an extension on the loan, this could seriously affect the
Company's operations.
Material litigation
On April 18, 2001, we filed a civil complaint against Light Technology, Inc. and
others. Light Technology has filed a counterclaim (See "Legal Proceedings", page
30). Although we are of the opinion that we have meritorious claims against the
defendants, a ruling against us could have serious financial consequences.
Our common stock may be affected by limited trading volume and may fluctuate
significantly
Prior to this offering, there has been a limited public market for our common
stock and there can be no assurance that an active trading market for our common
stock will develop. As a result, this could adversely affect our shareholders'
ability to sell our common stock in short time periods, or possibly at all. Our
common stock has experienced, and is likely to experience in the future,
significant price and volume fluctuations which could adversely affect the
market price of our common stock without regard to our operating performance. In
addition, we believe that factors such as quarterly fluctuations in our
financial results and changes in the overall economy or the condition of the
financial markets could cause the price of our common stock to fluctuate
substantially.
11
Potential inability of officers to devote sufficient time to the operations of
the business could affect the Company`s growth
Although we have five (5) employees who consider themselves full time employees,
none have been paid salaries from the inception of the Company. They continue to
pursue other sources of income and may not be able to devote sufficient time to
the operations of the business.
Our equity credit line agreement could have an adverse effect on our ability to
make acquisitions with our common stock.
We cannot predict the actual number of shares of common stock that will be
issued pursuant to the Equity Line of Credit Agreement, in part, because the
purchase price of the shares will fluctuate based on prevailing market
conditions and we have not determined the total amount of advances we intend to
draw. It may be necessary for our shareholders to approve an increase in our
authorized common stock for us to register additional shares of common stock in
order to have sufficient authorized shares available to make acquisitions using
our common stock. As we issue shares of common stock pursuant to the Equity
Credit Line Agreement, we may not have sufficient shares of our common stock
available to successfully attract and consummate future acquisitions.
We may not be able to access sufficient funds under the equity credit line when
needed
We are dependent upon external financing to fund our operations. Our financing
needs are expected to be provided, in large part, by the Equity Credit Line.
However, no assurances can be given that such financing will be available in
sufficient amounts. We are entitled to advances of $440,000 in the aggregate, in
the first 30 calendar days period after the effective date of the Registration
Statement. The amount of each subsequent advance received by us is subject to an
aggregate maximum advance of $440,000 in any 30 day calendar period.
We do not anticipate paying cash dividends
We have not paid any cash dividends on our capital stock and we anticipate that
our future earnings, if any, will be retained for use in the business, or for
other corporate purposes. It is not anticipated that any cash dividends on the
common stock will be paid in the foreseeable future. See "Dividend Policy" and
"Description of Securities."
Risks related to this offering
Future sales by our stockholders may adversely affect our ability to raise funds
in new stock offerings
Sales of our common stock in the public market following this offering could
lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all.
Of the 7,587,849 shares of common stock outstanding as of August 27, 2003,
762,966 are freely tradable without restriction. The remaining 6,824,883 shares
of common stock held by existing stockholders are "restricted securities" and
may be resold in the public market only if registered or pursuant to an
exemption from registration. Some of these shares may be resold under Rule 144.
Immediately following the effective date of this prospectus, including the
shares to be issued to Cornell Capital Partners, L.P., common stock will be
freely tradable without restriction, unless held by our "affiliates."
Upon completion of this offering, and assuming all shares registered in this
offering are resold in the public market, there will be an additional 42,713,763
shares of common stock outstanding. All of these shares of common stock may be
immediately resold in the public market upon effectiveness of the accompanying
registration statement and the sale to the investor under the terms of the
Equity Line of Credit agreement.
Existing shareholders will experience significant dilution of shares under the
equity credit line
The sale of shares pursuant to the Equity Line of Credit will have a dilutive
impact on our stockholders. As a result, our net income per share could decrease
in future periods, and the market price of our common stock could decline. In
addition, the
12
lower our stock price is the more shares of common stock we will have to issue
under the Equity Line of Credit to draw down the full amount. If our stock price
is lower, then our existing stockholders would experience greater dilution.
The selling stockholders intend to sell their shares of common stock in the
market, which sales may cause our stock price to decline
The selling stockholders intend to sell in the public market the shares of
common stock being registered in this offering. That means that up to 42,713,763
shares of common stock, the number of shares being registered in this offering,
may be sold. Such sales may cause our stock price to decline.
Our common stock has been relatively thinly traded and we cannot predict the
extent to which a trading market will develop
Before this offering, our common stock has traded on the Over-the-Counter
Bulletin Board. Our common stock is thinly traded compared to larger more widely
known companies in our industry. Thinly traded common stock can be more volatile
than common stock trading in an active public market. We cannot predict the
extent to which an active public market for the common stock will develop or be
sustained after this offering.
The sale of material amounts of common stock under the accompanying registration
statement could encourage short sales by third parties
The significant downward pressure on our stock price caused by the sale of a
significant number of shares under the Equity Line of Credit could cause our
stock price to decline, thus allowing short sellers of our stock an opportunity
to take advantage of any decrease in the value of our stock. Cornell Capital
Partners can cover any short positions only with shares received from us under
the Equity Line of Credit.
The issuance of shares of common stock under this offering could result in a
change of control
We are registering 42,713,763 shares of common stock in this offering. These
shares represent 42.7 1% of our authorized capital stock and 47.50% of our
issued and outstanding common stock, and we anticipate all such shares will be
sold in this offering. If all or a significant block of these shares are held by
one or more shareholders working together, then such shareholder or shareholders
would have enough shares to exert significant influence on Cyberlux in an
election of directors.
We may not be able to access sufficient funds under the equity line of credit
when needed
We are dependent on external financing to fund our operations. Our officers have
loaned us money to cover our short-term working capital requirements. As of
December 31, 2002, the balance due to the officers is $123,545. We expect that
the equity line of credit will meet our financing needs in large part. However,
no assurances can be given that such financing will be available in sufficient
amounts or at all when needed, in part, because the amount of financing
available will fluctuate with the price and volume of our common stock. As the
price and volume decline, then the amount of financing available under the
Equity Line of Credit will decline.
13
FORWARD-LOOKING STATEMENTS
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements regarding
management's plans and objectives for future operations including plans and
objectives relating to our planned marketing efforts and future economic
performance. The forward-looking statements and associated risks set forth in
this prospectus include or relate to, among other things, (a) our projected
sales and profitability, (b) our growth strategies, (c) anticipated trends in
our industry, (d) our ability to obtain and retain sufficient capital for future
operations, (e) our ability to achieve adequate intellectual property protection
for our future products and (f) our anticipated needs for working capital. These
statements may be found under "Management's Discussion and Analysis or Plan of
Operations" and "Business," as well as in this prospectus generally. Actual
events or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including, without limitation, the
risks outlined under "Risk Factors" and matters described in this prospectus
generally. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this prospectus will in fact
occur.
The forward-looking statements herein are based on current expectations that
involve a number of risks and uncertainties. Such forward-looking statements are
based on assumptions that that demand for our products will significantly
increase, that our President will remain employed as such, that our forecasts
accurately anticipate market demand, and that there will be no material adverse
change in our operations or business or in governmental regulations affecting us
or our manufacturers and/or suppliers. The foregoing assumptions are based on
judgments with respect to, among other things, future economic, competitive and
market conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Accordingly, although we believe that the assumptions underlying the
forward-looking statements are reasonable, any such assumption could prove to be
inaccurate and therefore there can be no assurance that the results contemplated
in forward-looking statements will be realized. In addition, as disclosed
elsewhere in the "Risk Factors" section of this prospectus, there are a number
of other risks inherent in our business and operations which could cause our
operating results to vary markedly and adversely from prior results or the
results contemplated by the forward-looking statements. Growth in absolute and
relative amounts of cost of goods sold and selling, general and administrative
expenses or the occurrence of extraordinary events could cause actual results to
vary materially from the results contemplated by the forward-looking statements.
Management decisions, including budgeting, are subjective in many respects and
periodic revisions must be made to reflect actual conditions and business
developments, the impact of which may cause us to alter marketing, capital
investment and other expenditures, which may also materially adversely affect
our results of operations. In light of significant uncertainties inherent in the
forward-looking information included in this prospectus, the inclusion of such
information should not be regarded as a representation by us or any other person
that our objectives or plans will be achieved.
Some of the information in this prospectus contains forward-looking statements
that involve substantial risks and uncertainties. Any statement in this
prospectus and in the documents incorporated by reference into this prospectus
that is not a statement of an historical fact constitutes a "forward-looking
statement". Further, when we use the words "may", "expect", "anticipate",
"plan", "believe", "seek", "estimate", "internal", and similar words, we intend
to identify statements and expressions that may be forward- looking statements.
We believe it is important to communicate certain of our expectations to our
investors. Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions that could cause our future
results to differ materially from those expressed in any forward-looking
statements. Many factors are beyond our ability to control or predict. You are
accordingly cautioned not to place undue reliance on such forward-looking
statements. We have no obligation or intent to update publicly any forward-
looking statements whether in response to new information, future events or
otherwise. Important factors that may cause our actual results to differ from
such forward-looking statements include, but are not limited to, the risk
factors discussed below. Before you invest in our common stock, you should be
aware that the occurrence of any of the events described under "Risk Factors"
below or elsewhere in this prospectus could have a material adverse effect on
our business, financial condition and results of operation. In such a case, the
trading price of our common stock could decline and you could lose all or part
of your investment.
14
SELLING STOCKHOLDERS
The following table presents information regarding the selling stockholders.
Pursuant to the Equity Line of Credit, Cornell Capital Partners, L.P. has agreed
to purchase up to $10.0 million of common stock from us. None of the selling
stockholders have held a position or office, or had any other material
relationship, with Cyberlux , except as follows:
Cornell Capital Partners, L.P. is the investor under the Equity Line
of Credit. All investment decisions of Cornell Capital Partners are
made by its general partner, Yorkville Advisors, LLC. Mark Angelo, the
managing member of Yorkville Advisors makes the investment decisions
on behalf of Yorkville Advisors. Neither Cornell Capital Partners,
L.P. nor its agents has a short position or has had a short position
at any time since the Equity Line of Credit was executed on May 15,
2003.
Westrock Advisors, Inc. is a registered broker/dealer that has been
retained by us. It has provided advice to us in connection with the
Equity Line of Credit. For its services, Westrock Advisors, Inc.
received a fee of 13,333 shares of Cyberlux's common stock, which is
equal to $10,000 on March 15. 2003. Greg Martino, President of
Westrock Advisors, Inc., makes the investment decisions on behalf of
Westrock Advisors.
Percentage of
Outstanding
Shares Shares Shares to be Percentage
Beneficially Beneficially Acquired Ownership
Selling Owned Before Owned Before Under the After
Stockholder Offering (1) Offering (2) Line of Credit Offering
-----------------------------------------------------------------------------------------------------------
Cornell Capital
Partners, L.P (3) 300,000 4.3% 40,000,000 86.33%
Westrock Advisors, 13,333 0 *
Inc.
Gary Frey 250,000 3.8% 0 *
OneCap, Inc. 250,000 3.8% 0 *
Carothers H. Evans 140,000 2.1% 0 *
Heidi H. Evans 25,000 * 0 *
John S. Evans 50,000 * 0 *
Katherine D. Evans 50,000 * 0 *
Mary Margaret Evans** 100,000 1.5% 0 *
David S. Goodman 5,000 * 0 *
Rufus Sherill 10,000 * 0 *
John W. Walker 20,000 * 0 *
Sidney T. Walker, III 5,000 * 0 *
Jake Zapalac 5,000 * 0 *
Advanced Alloys, Inc. 34,109 * 0 *
15
Percentage of
Outstanding
Shares Shares Shares to be Percentage
Beneficially Beneficially Acquired Ownership
Selling Owned Before Owned Before Under the After
Stockholder Offering (1) Offering (2) Line of Credit Offering
-----------------------------------------------------------------------------------------------------------
Ray L. Jennings 73,284 1.1% 0 *
Katherine H. Vaughn 33,284 * 0 *
E.W. and Thomas H
Parry 33,284 * 0 *
Donna Mondik 2,132 * 0 *
Merritt and Elizabeth
Downing 3,837 * 0 *
Donald A. Duquette 2,219 * 0 *
Craig and Stacey Orr 4, 203 * 0 *
Ray L. and Dolores
Jennings 4,236 * 0 *
Adam D. Haas 4,530 * 0 *
Amy Elizabeth Haas 4,530 * 0 *
Robert A. and Joy L
Kerr 4,000 * 0 *
Erik A. and Marlene
Kerr 4,000 * 0 *
Brian and Heather
Matthews 4,000 * 0 *
Frank and Connie
Yankovitch 10,000 * 0 *
David and Rose
Kowcheck 8,000 * 0 *
David A. Kowcheck 40,000 * 0 *
Harry R. and Nancy
Johnston 4,000 * 0 *
SueAnn Schatz 4,000 * 0 *
Joan K. Haas 20,000 * 0 *
Brian Scott 10,000 * 0 *
Eric M. Oliver 10,000 * 0 *
B.E. Coone 20,000 * 0 *
Tammy L. Oliver 10,000 * 0 *
Christine Frost 10,000 * 0 *
Thomas W. Parry 10,000 * 0 *
16
* Less than 1%.
** Mary Margaret Evans is the wife of Donald F. Evans
(1) Percentage of outstanding shares is based on 7,587,849 shares of common
stock outstanding as of August 22, 2003, together with the shares of common
stock that may be purchased by Cornell Capital Partners, L.P. from us under
the Equity Line of Credit. The shares to be issued to Cornell Capital
Partners, L.P. under the Equity Line of Credit are treated as outstanding
for the purpose of computing Cornell Capital Partners, L.P.'s percentage
ownership.
(2) On March 15, 2003, Cornell Capital Partners, L.P. received 300,000 shares
as a commitment fee pursuant to the Equity Line of Credit.
(3) 40,300,000 total shares are to be registered for Cornell Capital Partners,
L.P.
DETERMINATION OF OFFERING PRICE
The price at which the shares may actually be sold will be determined by the
market price of the common stock as of the date of sale (as defined in the
Equity Line of Credit Agreement).
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by certain selling stockholders. There will be no
proceeds to us from the sale of shares of common stock in this offering.
However, we will receive the proceeds from the sale of shares of common stock to
Cornell Capital Partners, L.P. under the Equity Line of Credit, which we intend
to use for general working capital purposes, including, among other things,
funding anticipated future acquisitions. The purchase price of the shares
purchased under the Equity Line of Credit will be equal to 100% of the lowest
closing bid price of our common stock on the Over-the-Counter Bulletin Board for
the 5 consecutive trading days immediately following the advance date (as
defined in the Equity Line of Credit Agreement).
If we are able to draw down the full amount of the equity line of credit, we
will receive net proceeds of $9,500,000.
DIVIDEND POLICY
It is our present policy not to pay cash dividends and to retain future earnings
for use in the operations of the business and to fund future growth. Any payment
of cash dividends in the future will be dependent upon the amount of funds
legally available, our earnings, financial condition, capital requirements and
other factors that the Board of Directors may think are relevant. We do not
contemplate or anticipate paying any dividends on the common stock in the
foreseeable future.
DILUTION
The net tangible book value of Cyberlux as of December 31, 2002 was ($1,041,308)
or ($.14) per share of common stock outstanding as of April 25, 2003. Net
tangible book value is determined by dividing the tangible book value of
Cyberlux(total tangible assets less total liabilities) by the number of
outstanding shares of our common stock. Since this offering is being made solely
by the selling stockholders and none of the proceeds will be paid to Cyberlux ,
our net tangible book value will be unaffected by this offering. Our net
tangible book value, however, will be impacted by the common stock to be issued
under the Equity Line of Credit. The amount of dilution will depend on the
offering price and number of shares to be issued under the Equity Line of
Credit.
EQUITY LINE OF CREDIT
Pursuant to the Equity Line of Credit, we may, at our discretion, periodically
issue and sell up to 40,000,000 shares of common stock for a total purchase
price of $10 million. If we request an advance under the Equity Line of Credit,
Cornell Capital Partners, L.P. will purchase shares of common stock of our
Company for 100% of the lowest closing bid price on the Over-the-Counter
Bulletin Board or other principal market on which our common stock is traded for
the 5 days
17
immediately following the advance notice date. Cornell Capital Partners, L.P.
intends to sell any shares purchased under the Equity Line of Credit at the
market price. This prospectus primarily relates to the shares of common stock to
be issued to Cornell Capital Partners, L.P. under the Equity Line of Credit.
Cornell Capital Partners, L.P. cannot transfer its interest in the Equity Line
of Credit to any other person.
The effectiveness of the sale of the shares under the Equity Line of Credit is
conditioned upon us registering the shares of common stock with the Securities
and Exchange Commission.
ADVANCES. Pursuant to the Equity Line of Credit, we may periodically sell shares
of common stock to Cornell Capital Partners, L.P. to raise capital to fund our
working capital needs. The periodic sale of shares is known as an advance.
Cornell Capital will retain 5% of each Equity Credit Line Advance.
MECHANICS. We may, at our discretion, request advances from Cornell Capital
Partners, L.P. by written notice, specifying the amount requested up to the
maximum advance amount. A closing will be held 7 trading days after such written
notice at which time we will deliver shares of common stock and Cornell Capital
Partners, L.P. will pay the advance amount. We have the ability to determine
when and if we desire to draw an advance.
COMMITMENT PERIOD. We may request an advance at any time during the commitment
period. The commitment period begins on the date the Securities and Exchange
Commission first declares the accompanying registration statement effective. The
commitment period expires on the earliest to occur of (i) the date on which
Cornell Capital Partners, L.P. has made advances totaling $10.0 million or (ii)
two years after the effective date of the accompanying registration statement.
MAXIMUM ADVANCE AMOUNT. We may not request advances in excess of a total of
$10.0 million. The maximum amount of each advance is equal to $440,000.00 per
Advance Notice. In addition, in no event shall the number of shares issuable to
the Investor cause the investor to own in excess of 9.9% of the then outstanding
shares of common stock of the Company.
NUMBER OF SHARES TO BE ISSUED. We cannot predict the actual number of shares of
common stock that will be issued pursuant to the Equity Line of Credit, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and we have not determined the total amount of advances we
intend to draw. Nonetheless, we can estimate the number of shares of common
stock that will be issued using certain assumptions. Assuming we drew down the
entire $10.0 million available under the Equity Line of Credit in a single
advance (which is not permitted under the terms of the Equity Line of Credit)
and the purchase price was equal to $1.00 per share, then we would issue 40
million shares of common stock to Cornell Capital Partners, L.P. These shares
would represent 84.71% of our outstanding capital stock upon issuance. You
should be aware that there is an inverse relationship between our stock price
and the number of shares to be issued under the Equity Line of Credit. That is,
as our stock price declines, we would be required to issue a greater number of
shares under the Equity Line of Credit for a given advance. This inverse
relationship is demonstrated by the following table, which shows the number of
shares of our common stock to be issued to Cornell Capital Partners, LP, under
the Equity Line of Credit, at various prices.
Purchase Price $ 0.25 $ 0.50 $ 1.00
Number of Shares required
to draw full draw down
equity line of credit (1) 40,000,000 20,000,000 10,000,000
Total Outstanding(2): 47,218,396 27,218,396 17,218,396
Percent Outstanding(3): 84.71% 73.48% 58.08%
(1) Represents the number of shares of common stock to be issued to Cornell
Capital Partner, LP under each scenario as a percentage of the total amount
outstanding under such scenario.
(2) Represents the total number of shares of common stock outstanding after the
issuance of the shares to Cornell Capital Partner, LP.
(3) Represents the shares of common stock to be issued as a percentage of the
total number shares outstanding.
18
In addition to showing the inverse relationship, the above table also shows that
the issuance of shares under the Equity Line of Credit may result in a change of
control. If all or a significant block of these shares are held by one or more
shareholders working together, then such shareholder or shareholders would have
enough shares to assume control of Cyberlux by electing its or their own
directors.
In addition, in connection with the Equity Line of Credit, we issued 300,000
shares of our common stock to Cornell Capital Partners, L.P as a commitment fee
and 13,333 shares of our common stock to Westrock Advisors, Inc. as a placement
agent fee.
REGISTRATION RIGHTS. We granted to Cornell Capital Partners, L.P. certain
registration rights. The registration statement accompanying this prospectus
will register such shares upon effectiveness. The cost of this registration will
be borne by us.
NET PROCEEDS. We cannot predict the total amount of proceeds to be raised in
this transaction, in part, because we have not determined the total amount of
the advances we intend to draw. However, we expect to incur expenses of
approximately $30,000 consisting primarily of professional fees incurred in
connection with registering 42,740,430 shares in this offering. In addition, we
are obligated to pay an underwriting discount to Cornell Capital equal to 5% of
each advance.
USE OF PROCEEDS. We intend to use the net proceeds received under the Equity
Line of Credit for general corporate purposes. Please see "Use of Proceeds."
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution of
Cyberlux 's common stock owned by the selling stockholders may be effected
directly to purchasers by the selling stockholders or by pledgees, donees,
transferees or other successors in interest, as principals or through one or
more underwriters, brokers, dealers or agents from time to time in one or more
transactions (which may involve crosses or block transactions) (i) on the
over-the-counter market or in any other market on which the price of Cyberlux 's
shares of common stock are quoted or (ii) in transactions otherwise than on the
over-the-counter market or in any other market on which the price of Cyberlux 's
shares of common stock are quoted. Any of such transactions may be effected at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at varying prices determined at the time of sale or at
negotiated or fixed prices, in each case as determined by the selling
stockholders or by agreement between the selling stockholders and underwriters,
brokers, dealers or agents, or purchasers. If the selling stockholders effect
such transactions by selling their shares of Cyberlux 's common stock to or
through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders or commissions from purchasers of
common stock for whom they may act as agent (which discounts, concessions or
commissions as to particular underwriters, brokers, dealers or agents may be in
excess of those customary in the types of transactions involved). The selling
stockholders and any brokers, dealers or agents that participate in the
distribution of the common stock may be deemed to be underwriters, and any
profit on the sale of common stock by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the sale of common stock under the
Equity Line of Credit agreement. Cornell Capital Partners, L.P. will pay our
Company 100% of the lowest closing bid price of Cyberlux 's common stock on the
Over-the-Counter Bulletin Board or other principal trading market on which our
common stock is traded for the 6 days immediately following the advance date. On
each Advance Date, we shall pay to Cornell Capital Partners, L.P., 5% of each
Advance as an underwriting discount.
Under the securities laws of certain states, the shares of common stock may be
sold in such states only through registered or licensed brokers or dealers. We
will inform the selling stockholders that any underwriters, brokers, dealers or
agents effecting transactions on behalf of the selling stockholders must be
registered to sell securities in all fifty states. In addition,
19
in certain states the shares of common stock may not be sold unless the shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and sale of
the shares of common stock to the public hereunder other than commissions, fees
and discounts of underwriters, brokers, dealers and agents. We have agreed to
indemnify the selling stockholders and their controlling persons against certain
liabilities, including liabilities under the Securities Act. We estimate that
the expenses of the offering to be borne by us will be approximately $30,000, a
commitment fee of 300,000 shares of our common stock, a placement fee of 13,333
shares of our common stock and a 5% underwriters discount of the gross proceeds
received under the Equity Line of Credit. We will not receive any proceeds from
the sale of any of the shares of common stock by the selling stockholders. We
will, however, receive proceeds from the sale of common stock under the Equity
Line of Credit.
The selling stockholders should be aware that the anti-manipulation provisions
of Regulation M under the Exchange Act will apply to purchases and sales of
shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Registration M, the selling shareholders or their agents
may not bid for, purchase, or attempt to induce any person to bid for or
purchase, shares of common stock of Cyberlux while such selling shareholders are
distributing shares covered by this prospectus. Accordingly, except as noted
below, the selling shareholders are not permitted to cover short sales by
purchasing shares while the distribution is taking place. Cornell Capital
Partners can cover any short positions only with shares received from Cyberlux
under the Equity Line of Credit. We will advise the selling stockholders that if
a particular offer of common stock is to be made on terms constituting a
material change from the information set forth above with respect to the Plan of
Distribution, then to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the Securities and
Exchange Commission.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF CYBERLUX AND THE NOTES THERETO APPEARING ELSEWHERE IN
THIS FILING. STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION AND ELSEWHERE IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF HISTORICAL
OR CURRENT FACT CONSTITUTE "FORWARD-LOOKING STATEMENTS."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
When used in this Form SB-2 and in our future filings with the Securities and
Exchange Commission, the words or phrases will likely result, management
expects, or we expect, will continue, is anticipated, estimated or similar
expressions are intended to identify forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward-looking statements,
each of which speak only as of the date made. These statements are subject to
risks and uncertainties, some of which are described below. Actual results may
differ materially from historical earnings and those presently anticipated or
projected. We have no obligation to publicly release the result of any revisions
that may be made to any forward-looking statements to reflect anticipated events
or circumstances occurring after the date of such statements.
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.
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.
20
COSTS AND EXPENSES
From our inception through December 31, 2002, we have not generated any
revenues. We have incurred losses of $1,791,029 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 December 31, 2002, we had a working capital deficit of $1,129,365. As a
result of our operating losses from our inception through December 31, 2002, we
generated a cash flow deficit of $697,746 from operating activities. Cash flows
used ininvesting activities was $102,494 during the period May 17, 2000 (date of
Company's inception) through December 31, 2002 . We met our cash requirements
during this period through the private placement of $174,326 of common stock,
$512,455 from the issuance of notes (net of repayments and costs), $123,545 from
the issuance of notes payable to Company officers and 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 are seeking
financing in the form of equity in order to provide the necessary working
capital. We currently have no commitments for financing. There is no guarantee
that we will be successful in raising the funds required.
By adjusting its operations and development to the level of capitalization ,
management belives 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.
AUDITORS' OPINION EXPRESSES DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN:
The indenpendent auditors report on the company's December 31, 2002 financial
statements included in this Form states that the Company's recurring losses
raise substantial doubts about the Company's ability to continue as a going
concern.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141), and Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142). The FASB also issued
Statement of Financial Accounting Standards No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets" (SFAS No. 143), and
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) in August and
October 2001, respectively.
SFAS No. 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method. The adoption of SFAS No. 141 had no material impact
on the Company's consolidated financial statements.
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 indefinite 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 will be recorded as a cumulative effect of a change in
accounting principle no later than the end of fiscal year 2002. The adoption of
SFAS No. 142 had no material impact on the Company's consolidated financial
statements
21
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 Extinguishments 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.
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
22
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.
PRODUCT RESEARCH AND DEVELOPMENT
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 OR DISPOSITION OF PLANT AND EQUIPMENT
We do not anticipate the sale of any significant property, plant or equipment
during the next twelve months. We do not anticipate the acquisition of any
significant property, plant or equipment during the next 12 months.
NUMBER OF EMPLOYEES
From our inception through the period ended December 31, 2002, we have relied on
the services of outside consultants for services and currently have five (5)
full time employees. In order for us to attract and retain quality personnel, we
anticipate we will have to offer competitive salaries to future employees. We do
not anticipate our employment base will significantly change during the next 12
months. As we continue to expand, we will incur additional cost for personnel.
This projected increase in personnel is dependent upon our generating revenues
and obtaining 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.
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.
23
DESCRIPTION OF BUSINESS
OUR BUSINESS
PRINCIPAL PRODUCTS AND PRINCIPAL MARKETS
Cyberlux is a Nevada corporation (hereinafter "Cyberlux" or "the Company") that
was incorporated on May 17, 2000 and is capitalized with 100 million common
shares and 5 million preferred shares. The Company was founded to design,
develop, manufacture, market and sell advanced lighting systems that utilize
Gallium Nitride light emitting diodes as illumination elements. White diodes are
a relatively new phenomenon that offer major advances in illumination
technology. The Cyberlux Gallium Nitride diodes consume 92% less energy than
incandescent or fluorescent counterparts to produce comparable lumen output. In
electrochemical (battery powered) applications, this remarkable diminution of
energy consumption position the Company's optoelectronic lighting solutions as
much more durable and far more reliable than other interim lighting
alternatives. In standard AC electrical applications, the calculated life of GaN
diodes as lighting elements is over 20 years versus 750 hours for traditional
incandescent bulbs. These exceptional performance characteristics, diminutive
energy consumption and extended life, have prompted GaN diode implementation in
traffic lights and automotive brake lights, but have not yet significantly
occurred in the Company's area of focus, diodal illumination (tm).
Cyberlux has successfully introduced its first product entry, the "Cyberlux Home
Safety Light" (HSL), through its web site, www.cyberlux.com. The Company's
production strategy has required the identification, qualification and
engagement of a variety of talents in industrial design, integrated circuit
board production, multi-cavity steel injection mold fabrication, component part
assembly, performance testing and packaging to fulfill the tasks associated with
finished goods delivery. The initial production of 10,000 HSLs was completed in
early October 2002 and has successfully demonstrated the Company's ability to
sustain volume production standards for up to 80,000 units per month at its
assembly and distribution center in Shelbyville, Illinois.
We are now positioned to broaden our product line consistent with emerging
breakthroughs in optoelectronic technology and expand our marketing activity
into various channels of retail and institutional sales. These recently achieved
advances enable substantial cost savings in production as they enhance product
performance and readily discernible value to the consumer. The product line (see
"Product Development"), Lazer Safety Light; Little Lamb Nursery Lamp;
PowerOutage Adapter; Failsafe Spot & Lamp; and CampLamp, are fixtures that
employ single use standard alkaline or lithium ion constant charge reusable
batteries in different applications. The design of products is consistent with
findings of market research conducted by Howard, Merrell & Partners (HM&P), a
member firm of InterPublic Group (IPG, NYSE) wherein certain categories of
emergency lighting or interim lighting products were either underserved or
non-existent due to the inherent inefficiency of incandescent and fluorescent
lighting elements. These fixtures express superior characteristics in
brightness, vastly extended light life and durability through diodal
illuminationtm, an optoelectronic descriptor trademarked by Cyberlux.
During the early stages of research for long-term interim light solutions, all
experimentation was confined to incandescent, fluorescent and, to a more limited
extent, fiber optics as illumination sources. The recurring problem with these
lighting elements was the grossly inefficient use of electrical energy (in an
incandescent bulb, 95% of the electrical energy consumed is dissipated as
radiant heat, not light). The discovery of the bright white Gallium Nitride
(GaN) diode provided the solution to energy efficiency necessary to produce the
long-term interim light source that was to be the objective of the Company's
product development activities. Unlike light bulbs that are brittle glass globes
surrounding a fragile wire filament in a vacuum, light emitting diodes are
extraordinarily efficient solid state semiconductors that are practically
indestructible. Diodes are manufactured from chemical compounds mixed with
phosphors which transform electrical energy to visible light without heat. When
electrical current is applied to a diode, the energy creates electromagnetic
radiation which occurs as light. The Spartan characteristics of GaN diodes with
their frugal demand for energy (92% less energy to produce equal or superior
brightness to that of a bulb) create opportunity to manage energy through
Cyberlux patented circuitry to produce a family of superior products.
24
The Home Safety Light (illustrations at www.cyberlux.com) is an efficient
portable fixture that provides a full week of light from one set of AA
batteries. Any other portable light will require over 20 sets of replacement
batteries to produce comparable light life which suggests that the Home Safety
Light (HSL) pays for itself at initial purchase. The Lazer Safety Light and
Little Lamb Nursery Lamp are modifications of the HSL. The PowerOutage Adapter,
the FailSafe portable spot/lamp; and the CampLamp Lantern are the next product
introductions followed by hard-wired systems that will transcend the performance
and efficiency of existing emergency lighting products at a significant
reduction in initial cost and recurring expense for maintenance of incandescent
products.
DISTRIBUTION METHODS OF OUR PRODUCTS
Consistent with our sales objectives, the reliable manufacture of proprietary
component parts and assembly of finished products required exacting coordination
of resources to provide detailed working drawings to tool manufacturers for
injection molded parts and optics; precise circuitry diagrams to receive diodes,
resistors and capacitors into the electronics platform; source identification
for volume supplies of batteries and diodes; packaging considerations for
presentation of product and corresponding dimensions of containment's for
shipping and display; and an experienced contract assembly organization with an
extensive infrastructure capable of collation and inventory of all component
parts.
During the Fall of 2000, we identified Shelby County Community Services (SCCS),
Shelbyville, Illinois, as a contract manufacture and assembly organization that
was well positioned to meet the requirements proposed by the Company. SCCS has
over a decade of successful performance on behalf of Fortune 100 companies and
represented the quality of management, performance and fiscal stability that we
sought to employ in the production process. SCCS is a not-for-profit
organization that provides job training for handicapped workers and supplements
its workforce with underemployed farm labor. It is generously supported by State
and Federal programs to ensure competitiveness.
Wehave a Proprietary Product Manufacturing Agreement with SCCS that provides
for SCCS to purchase all of the component parts for our products; conformance of
parts acquired to Cyberlux specifications; exact assembly of parts in accordance
with schematics; verified accountable tests of each unit prior to packaging;
individual packaging; finished goods inventory warehousing; palletized shipping
containment's per purchase orders; and loading for shipment FOB Shelbyville.
SCCS is paid 112% of component cost to cover assembly, packaging and
warehousing.
The www.Cyberlux.com internet site is serviced by SCCS through a fulfillment
operations agreement whereby SCCS receives a daily batched summary of internet
sales through an email link established by Cyberlux and United Parcel Service.
The Cyberlux/UPS software validates the address of the customer and advises
shipping mode (next day, two day or ground), computes shipping and handling
charges then prints the appropriate waybill at the shipping office of SCCS.
Packages are shipped within 24 hours of receipt of the email summary of business
for the preceding day's orders.
SCCS coordinates materials inventory with Cyberlux approved vendors based upon
purchase orders or blanket orders for products. Robrady Design, Inc., the
Company's industrial design firm, is instrumental in providing detailed working
drawings for injection molded parts to tool manufacturers in the US and abroad.
Similarly, the Company's proprietary circuitry design is managed by the
engineering firm of ICT, Inc. in Casey, Illinois. ICT, Inc., an international
engineering firm, is well positioned to manufacture the electronic platforms to
precise specifications. Although the boards are rigidly tested prior to shipment
to Shelbyville, SCCS tests each board on receipt consistent with the quality
assurance protocols established by Cyberlux. The initial production capacity at
SCCS is 80,000 product units per month which can be increased by 50% consistent
with a four month lead time to undertake expansion of facilities.
SCCS will continue to serve as the warehousing and distribution center for
Cyberlux products, such as the PowerOutage Adapter, FailSafe Spot/Lamp and
CampLamp Lantern, which are to be manufactured abroad. The SCCS center will
coordinate customs protocols and manage incoming inventories.
25
The Company, through its agreements with Shelby County Community Services
(SCCS), has successfully implemented its internet order fulfillment operation,
the Cyberlux Distribution Center, which services all product sales generated
from its web site, www.cyberlux.com, at the SCCS complex in Shelbyville,
Illinois. The system was designed internally under the supervision of Cyberlux
Senior Vice President, Al Ninneman, who worked with the ecommerce professionals
at United Parcel Service (UPS) to perfect the customized billing and delivery
service. The Cyberlux software verifies ZIP code and credit card information;
records delivery selection (UPS overnight, second day air or ground); calculates
the delivery charge by destination; batches orders daily; and prints the
delivery way bills at the Distribution Center for shipment the day following
receipt of the order. SCCS and Cyberlux share the handling charge of $2 per
order equally.
Although the internet site and its fulfillment system is designed to receive and
process orders in volume, the linkage of the site to the Weather Channel (and
other referring sources) is not yet in place. The Weather Channel has proposed
an advertising position for the Home Safety Light wherein 10 million impressions
per month will be guaranteed, but the cost of the exposure is $10 thousand per
month. Cyberlux intends to pursue the relationship with the Weather Channel and
others relative to direction of traffic to its web site after the Company is in
a position to fund selective media buys through a contract relationship with
Howard, Merrell & Partners. Selection of media exposures is an important part of
the marketing campaign, but equally important is the development of compelling
messages and images that inspire consumer interest in Cyberlux products. The
Company has worked with Howard, Merrell & Partners (HM&P), a member firm of the
InterPublic Group (IPG, NYSE), that specializes in market research/analysis,
brand creation, creative imaging, messaging and media purchase management.
HM&P's market analysis indicates a dominant role for diodal illuminationtm in
the safety lighting category.
The objective is a marketing program that quickly demonstrates the superiority
of Cyberlux products to any incandescent bulb product on the market today,
whether battery powered or hard wired, and the cost-effectiveness of Cyberlux
diodal illuminationtm based upon light life and energy efficiency. HM&P sees
broad opportunities to position Cyberlux as the brand leader in diodal
illuminationtm through specific illustrations in which the Company's technology
provides superior value over the "burning" light bulb.
Equally important in product and/or brand launch is the management of a "go to
market" strategy. Cyberlux has engaged CMG Partners (CMGP) to coordinate product
launch into a variety of sales channels. CMGP has broad based experience in both
the US and UK in telecom (Nextel, BT Cellnet, MCI), Internet (Verisign) and
technology introductions. The role of CMGP is to integrate marketing, sales,
product and customer support activities and messages to optimize customer
acquisition and retention. CMGP will serve as the liaison for the preparation
and delivery of selling materials to the individual selling firms and an
information conduit to management for production and finished goods inventory
issues.
Cyberlux has retained three experienced technology product sales firms,
Smart Products, Inc., Westwood, NJ; A. Calvert & Company, LLC, Canton, OH; and
Brand & Associates, Dallas, TX to represent its product line over the range of
channels addressed for distribution. The individual firms have been selected
based upon established relationships with certain retail channels and proven
track records of sales to those retailers assigned. A. Calvert & Company, in
addition to its market segment of baby product retailers and On-Air sales
(Calvert represents Cyberlux to QVC), is a highly successful retail packaging
design firm. Detailed information on each of the sales firms is contained in
Exhibit A of this document entitled Cyberlux Corporation, Strategic Partners.
RESEARCH AND DEVELOPMENT ACTIVITIES
HOME SAFETY LIGHT (Market Title)
The Home Safety Light was designed to provide up to a full week of light from
one set of 8 AA batteries. The portable elliptical fixture contains an array of
6 white Nichia diodes and 4 amber diodes which are controlled through a circuit
board that provides three alternative levels of light intensity. The parabolic
reflector manages light output from the inverted diode array to broadcast a
blanket of light capable of total illumination of a room, corridor, stairwell or
other strategic location.
LAZER SAFETY LIGHT (Production Title)
The Lazer Safety Light is similar in form and function to the Home Safety Light,
but has an entirely new electrical system
26
that employs a miniature square circuit board controller which powers the
fixture with only 2 C batteries. The 10 diodes mounted in the Home Safety Light
are displaced by 1 Ultra Bright Lumileds diode inversely centered to provide a
blanket of light with more intensity than its predecessor. The new circuitry,
with pulse width modulation, and the newly developed diodal lighting element
reduce production cost of the fixture by 47% of the cost of the original Home
Safety Light.
LITTLE LAMB NURSERY LAMP (Production Title)
The "Little Lamb" is a packaging differentiation which will use the Lazer Safety
Light in form and function. The fixture is, through its softly illustrated
package, dedicated to a multi-faceted implementation in infant care which market
research has defined as a particularly desirable application for the product. It
is to be featured in baby product stores, mass merchants and through On-Air
channels. Consumer experience with the Home Safety Light identified the absence
of heat, the three levels of light, portability and longevity of performance as
the desirable features most often associated with the use of the light during
episodes of infant care.
POWEROUTAGE ADAPTER (Production Title)
The PowerOutage Adapter transforms existing electrical wall outlets into an
emergency lighting system for homes, hospitals, hotels, nursing homes and
businesses. The fixture, designed as a replacement outlet, simply plugs into an
existing dual outlet after removal of its face plate. The adapter, which
continues to function as an electrical outlet, however, contains a constant
charge lithium ion battery; a motion sensor that provides a low level of light
for darkened room or corridor transit; a loss of power sensor that activates a
high level of light when electrical service is disrupted to broadcast a wash of
light up its attendant wall which then reflects bright white light from the
overhead ceiling; and a photoelectric cell which detects daylight or powered
light in the space to prevent unnecessary performance. Market research suggests
that the "Adapter" can become a "Standard of Safety" in institutions
(particularly patient care facilities and hotels) which will endorse its
economical implementation by home owners, educational institutions and
businesses. The fixture will first be marketed through institutional sales
channels.
FAILSAFE SPOT & LAMP (Production Title)
The FailSafe fixture is designed with a unique lens head that may be extended
and rotated 180 degrees to perform as a table lamp. The lens head has an opaque
surround that may be snapped out above the reflector to simulate the shade of a
lamp. This fixture contains a constant charge lithium ion battery and
retractable outlet inserts which fold into the base when it is removed from an
electrical wall outlet. The FailSafe contains a motion sensor which produces a
low level of light for darkened room or corridor transit from its constant
charge location in a strategically located wall outlet. The design form provides
a hand-held base that offers the alternatives of use as a powerful "flashlight"
or as a table lamp that will provide over a full week of light from its lithium
ion battery. The battery returns to "full charge" after the fixture is
reinstalled into a wall outlet.
CAMPLAMP LANTERN (Production Title)
The CampLamp is designed to be a superior alternative to the venerable "Coleman
Lantern" that has served as a utility gas and mantle light for over fifty years.
Unlike the Coleman version, however, the CampLamp does not generate heat or
noxious emissions and eliminates the safety threats of combustible fuel and
burning elements. The fixture features a tri-parted mirrored reflector system
that, when all of the three elements are engaged, broadcasts a blanket of light
over 360 degrees. The circuitry design provides a rheostat control system and
pulse width modulation to extend battery life to over fifty hours. The reflector
design provides directional light alternatives in 90 degree increments which,
when combined with the rheostat, offers more utility options than a traditional
lantern. The fixture will be marketed through recreational sales channels, home
improvement stores and to government agencies.
27
INDUSTRY BACKGROUND
Our Company was born from an investigative research study designed to identify a
new approach to the development of an electrochemical (battery powered),
portable, interim lighting system capable of providing safe illumination for
extended periods of time to property owners deprived of electrical service
caused by power outages. Although power outages have come to be a recurring
phenomenon due to anomalies in electrical service distribution networks, the
focus of the initial study was on disruptions caused by severe storm activity
along the Atlantic and Gulf States' coastlines and the corresponding affected
inland electrical grids. The National Weather Service labels annual storm
activity as the Hurricane Season, which is officially monitored from June 1st to
November 30th each year. Other deficiency outages not related to weather have
been labeled by the press as rolling blackouts.
The loss of electrical power related to tropical and subtropical storms can be
wide spread and cover extensive regional segments surrounding the matrix of the
storm. It is the pervasive incidence of power outages that identified the need
for a reliable, durable, safe and economical interim lighting system for
property owners and the general population in areas affected by these seasonally
severe weather systems. The research conducted to identify an optimum interim
lighting system led to the discovery of a new illumination technology
(optoelectronics). We plan to implement this technology through the development
of diode illumination fixtures for domestic, commercial and industrial
applications. Management has identified several opportunities, which are
discussed in Section (10) Research and Development Activities below, where our
optoelectronic technology can be introduced as a cost effective solution for
antiquated, expensive and unreliable lighting systems currently in use. The
introduction of our Cyberlux Home Safety Light is an example of our advanced
illumination technology. We hope that this will establish us as an innovative
leader in the industry.
REGULATION
Our advertising and sales practices concerning the Home Safety Light and the
Wireless Interim Lighting Systems are regulated by the Federal Trade Commission
and state consumer protection laws. Such regulations include restrictions on the
manner that we promote the sale of our products. We believe we are in material
compliance with such regulations.
EFFECT OF EXISTING OR PROBABLE GOVERNMENT REGULATIONS
We believe that we will be able to comply in all material respects with laws and
regulations governing the conduct of business operations in general. We are not
aware of any pending government regulations that may adversely affect our
business.
EMPLOYEES
We currently have five (5) full time employees. Our employees are primarily at
the executive level based upon our role in coordination of outsource contracts
for manufacturing and other production considerations. Currently, there exist no
organized labor agreements or union agreements between Cyberlux and our
employees. However, we have employment agreements with the following executive
officers: Donald F. Evans, President, Mark D. Schmidt, Executive Vice President,
Alan H. Ninneman, Senior Vice President John W. Ringo, Secretary and Corporate
Counsel and David D. Downing, Treasurer and CFO. We believe that our relations
with our employees are good.
DEPENDENCE ON KEY PERSONNEL
The success of our Company depends upon the efforts, abilities and expertise of
our executive officers and other key employees, including our Chief Executive
Officer, Chief Operating Officer, Senior Vice President for Operations,
Treasurer/Chief Financial Officer and Secretary/Corporate Counsel. The loss of
the services of such individuals and/or other key individuals could have a
material adverse effect on our operations.
28
DEPENDENCE ON KEY CUSTOMERS
The Company is currently not dependent on any single customer for a significant
portion of its annual sales.
MAJOR SUPPLIERS
The Company is currently not dependent on any major suppliers. The Company does
rely on its investor and lender relationships as a source of capital for its
operations.
COMPLIANCE WITH COST OF ENVIRONMENTAL REGULATIONS
The Company currently has no costs associated with compliance with environmental
regulations. However, there can be no assurances that the Company will not incur
such costs in the future.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of our
executive officers or directors.
NAME AGE POSITION APPOINTED
------ --- -------- ---------
Donald F. Evans 67 President & Chairman of the Board May 19, 2000
Mark D. Schmidt 38 Executive Vice President, COO & Director May 1, 2003
John W. Ringo 58 Secretary, Corporate Counsel & Director May 19, 2000
Alan H. Ninneman 59 Senior Vice President & Director May 19, 2000
David D. Downing 52 Treasurer & CFO May 19, 2000
29
WORK EXPERIENCE
Donald F. Evans, President, Chairman of the Board - Mr. Evans graduated from the
University of North Carolina, Chapel Hill, NC with a BS Degree in Economics. Mr.
Evans represented the investment interest of Research Econometrics in Waste
Reduction Products Corporation, a privately held North Carolina corporation from
June of 1996 to until March of 1999. Mr. Evans served on the Board of that
Company and as its representative for product sales to the U.S. Department of
Defense. On March 19, 1999, Research Econometrics sold its interest in Waste
Reduction Products Corporation and on April 1, 1999, he began an investigative
research study on behalf of Research Econometrics into the feasibility of a
long-term electrochemical interim lighting system. The resulting study
identified the feasibility of white diodes as lighting elements which, when
managed by solid state circuitry, would provide a reliable source (over
forty-two hours from one battery pack) lighting solution to homeowners or
businesses during extended power outages. The study provided the performance
specifications and methods for the development of the light which led to the
formation of Cyberlux Corporation in May 2000 as the business management entity
for the project. Mr. Evans has served as the CEO of Cyberlux since its
inception.
Mark D. Schmidt, Executive Vice President, COO & Director. Mr. Schmidt graduated
Summa Cum Laude with a Bachelor of Science Degree in Engineering from North
Carolina State University and earned an MBA Degree from the Fuqua School of
Business at Duke University. Mr. Schmidt is a former IBM executive with over 15
years of consumer marketing, business management and venture startup experience.
He is a recognized technology product marketing & sales expert who was
responsible for the global market launch of the IBM Valuepoint and IBM Aptiva
personal computer products as well as multiple accessories, services and home
networking products. He has held positions responsible for product development,
manufacturing, marketing, sales, strategic partnerships and worldwide channel
development.
John W. Ringo, Secretary, Corporate Counsel & Director - Mr. Ringo graduated
from the University of Kentucky. Lexington. KY with a BA Degree in Journalism
Subsequently, he received a Juris Doctor Degree from the University of Kentucky
College of Law. Since 1990, he has been engaged in private practice in Marietta,
GA specializing in corporate and securities law. He is a former Staff Attorney
with the U. S. Securities and Exchange Commission, a member of the Bar of the
Supreme Court of the United States, the Kentucky Bar Association and the Georgia
Bar Association. Mr. Ringo is a founder of Cyberlux and has served as Secretary
and General Counsel since its inception.
Alan H. Ninneman, Senior Vice President & Director - Mr. Ninneman attended Elgin
Community College, Elgin, IL and subsequently majored in business administration
at Southern Illinois University, Carbondale, IL. Mr. Ninneman was a senior
support analyst for Tandem Computer, San Jose, California from 1982 to 1985;
senior business analyst at Apple Computer, Cupertino, California from 1985 to
1987; Director of Operations at Scorpion Technologies, Inc., San Jose,
California; and CEO of City Software, Inc., Albuquerque, New Mexico from 1992
until becoming a founder of Cyberlux in May 2000.Mr. Ninneman is responsible for
the Company's operations systems.
David D. Downing, Treasurer & CFO - Mr. Downing graduated from Grove City
College, Grove City, PA with a BA Degree in Accounting. Mr. Downing joined
Marietta Industrial Enterprises, Inc., Marietta, Ohio in November 1991 as its
Chief Financial Officer. He was elected to the Board of Directors of that
Company in January 1994. He has been a Director of American Business Parks,
Inc., Belpre, Ohio since January 1998 and served as a director of Agri-Cycle
Products, Inc. from May 1998 until April 2001. He is a founder of Cyberlux and
served as its Treasurer since its inception.
EXECUTIVE COMPENSATION: EMPLOYMENT AGREEMENTS
Although the Company has employment agreements with Messrs. Evans, Schmidt,
Ringo,Ninneman and Downing which call for compensation as listed below, no
salaries have been paid during the development stage. These officers have agreed
to receive accrued management fees in the form of bonus payments after revenues
are available from product sales. No officer or director has received any
compensation as of yet until such time as we begin generating revenues. However,
the following table sets forth the annual compensation due our executives that
has accrued based on the inability of the Company to meet the obligation.
30
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted Securities LTIP All Other
Name and Principle Salary Compensation Stock Underlying Payouts Compensation
Position Year ($) Bonus($) ($) Award(s)($) Options/SARs(#) ($) ($)
2000 $28,500 $0 $0
Donald F. Evans, 2001 $98,004 $0 $0 $0 200,000 shs/common
President CEO 2002 $98,004 $0 $0 $0
Director $0 $0 $0
John W. Ringo, 2000 $13,000 $0 $0 $0 $0 $0
Secretary and 2001 $69,000 $0 $0 $0 150,000 shs/common
Director 2002 $69,000 $0 $0 $0
Alan H. Ninneman, 2000 $15,000 $0 $0 $0 $0 $0
Senior VP and 2001 $78,000 $0 $0 $0 150,000 shs/common
Director 2002 $78,000 $0 $0 $0
David D. Downing, 2000 $0 $0 $0 $0 $0 $0
Treasurer and CFO 2001 $0 $0 $0 $0 100,000 shs/common
2002 $0 $0 $0 $0
Footnotes to Executive Compensation:
o No officer has been paid a salary since our inception as a capital
conservation measure designed to invest all available funds into the development
of our products. Annual compensation began accruing in the form of management
fees as of July 2000. The compensation indicated in the table is the annualized
amount of salary to be paid the respective officers in accordance with their
employment agreements. Salary accruals for Mr. Evans began in July 2000 at
$3,000 per month through September 2000 and $6,500 per month from October to
December 2000. Salary accruals for Messrs. Ninneman and Ringo began in September
2000 at $3,000 each for September and October 2000, followed by $4,500 in
November and December for Mr. Ninneman and $3,500 in November and December for
Mr. Ringo. From 2001 forward, salaries have accrued in accordance with the
annualized salaries outlined in the table. Pursuant to their employment
agreements, Messrs Evans, Ninneman and Ringo are to receive monthly salaries of
$8,167, $6,500, and $5,750 respectively. The salary accruals are non-interest
bearing obligations of the Company that are to be retired from revenues when
product sales begin.
o Salary accruals in the form of management fees for Messrs. Evans, Ninneman and
Ringo for the year 2000 were $28,500, $15,000 and $13,000 respectively. Salary
accruals for Messrs. Evans, Ninneman and Ringo for the year 2001 were $98,004,
78,000 and 69,000 respectively. In November 2001, Messrs. Evans, Ninneman and
Ringo were paid $5,000 each. Salary accruals for Messrs. Evans, Ninneman and
Ringo for the years 2001 and 2002 were $98,004, $78,000 and 69,000 respectively.
On January 1, 2003, the employment agreements of Messrs. Evans, Ninneman and
Ringo were amended to increase their annual salaries to $180,000, $102,000 and
$102,000, respectively. On that same date, David D. Downing entered in to an
employment agreement in which he will be paid an annual salary of $102,000. On
May 1, 2003, Mark D. Schmidt entered into an employment agreement in which he
will be paid an annual salary of $180,000.
o Compensation to officers has been deferred as a capital conservation measure
designed to invest available funds into development of saleable products.
o Management's salaries will be based upon the performance of the Company.
Management's performance bonuses will be decided by a majority of the Board of
Directors of the Company and may be increased by the Board of Directors from
year to year consistent with goals established by the Board to the benefit of
shareholders.
31
o Members of the Company's Board of Directors will serve until the next annual
meeting of the stockholders and until their successors are duly elected and
qualified, unless earlier removed as provided in the Bylaws of the Company.
Executive officers serve at the pleasure of the Board of Directors.
32
COMPENSATION OF DIRECTORS
There are no arrangements made to compensate any director for services as a
director. Such arrangements for compensation of directors for services will
commence once we begin earning revenues.
STOCK OPTION GRANTS IN THE PAST FISCAL YEAR
STOCK OPTION PLAN
The Company has created an Employee Stock Option Plan for incentive/retention of
current key employees and as an inducement to employment of new employees. The
plan, which sets aside 600,000 shares of common stock for purchase by employees,
was made effective in the second quarter by the Board of Directors. Cyberlux
will not issue options or warrants to any employee or affiliate with an exercise
price of less than 85% of the fair market value of the Common Stock on the date
of the grant.
==============================================================================================================================
Option/SAR Grants in Last Fiscal Year
==============================================================================================================================
Individual Grants
==============================================================================================================================
(a) (b) (c) (d) (e)
==============================================================================================================================
Name Number of Securities Underlying % of Total Options/SARs Granted to Exercise or Base Expiration
Options/SARs Granted (#) Employees in Fiscal Year Price ($/Sh) Date
==============================================================================================================================
Donald F. Evans 100,000 16.7% $0.001/sh 2011
==============================================================================================================================
John W. Ringo 100,000 16.7% $0.001/sh 2011
==============================================================================================================================
Alan H. Ninneman 100,000 16.7% $0.001/sh 2011
==============================================================================================================================
David D. Downing 50,000 8.3% $0.001/sh 2011
==============================================================================================================================
======================================================================================================================
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
======================================================================================================================
(a) (b) (c) (d) (e)
======================================================================================================================
Number of Securities Underlying
Shares Unexercised Options/SARs at Value of Unexercised In-the Money
Acquired on Value FY-End (#) Options/SARs at FY-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
======================================================================================================================
Donald F. Evans 100,000 $14,900 100,000 shs $ 14,900
======================================================================================================================
John W. Ringo 50,000 $ 7,450 50,000 shs $ 7,450
======================================================================================================================
Alan H. Ninneman 50,000 $ 7,450 50,000 shs $ 7,450
======================================================================================================================
David D. Downing 50,000 $ 7,450 50,000 shs $ 7,450
======================================================================================================================
33
On January 3, 2003, our Board approved a 2003 Incentive Stock Option Plan which
will provide 2,000,000 shares of common stock to underwrite options and declared
the current eligible participants as follows:
Donald F. Evans 600,000 shares
David D. Downing 250,000 shares
John W. Ringo 200,000 shares
Alan H. Ninneman 200,000 shares
Mark D. Schmidt 450,000 shares
Open 300,000 shares
DESCRIPTION OF PROPERTY
Our corporate headquarters are located at 50 Orange Road, Pinehurst, North
Carolina 28374. The office space is defined as the 12' by 14' office located at
the northeast corner of the property situated at 50 Orange Road, Pinehurst,
North Carolina 28374 and adjacent common spaces consisting of restroom
facilities, storage closets and conference room access. Equipment consists of
two telephone units; two calculators; one HP printer, copier, fax; one IBM
typewriter; one IBM computer with CTX color monitor and Logitech keyboards.
Furniture and fixtures consist of two leather executive swivel chairs; two
executive desks; two 2 drawer file cabinets; one lateral file cabinet; one
cherry wood storage cabinet; one steel typewriter table; two brass banker's
lamps, two extended halogen task lamps and various desk top appurtenances.
Research Econometrics, LLP, provides these facilities to Cyberlux at a cost of
$650 per month. The managing partner of Research Econometrics, LLP, Carothers H.
Evans, is the son of Donald F. Evans, president of Cyberlux. The leasing terms
represent a fully negotiated contract price between two related parties at an
arms length transaction. According to the Sublease Agreement, as of July 1, 2000
the space is rented on a month-to-month basis continuing until such use and
enjoyment is terminated by either party on thirty days notice in writing. Our
management believes that suitable expansion space is available to meet our
future needs at commercially reasonable terms, if required.
LEGAL PROCEEDINGS
On April 18, 2001, Cyberlux filed a civil complaint against Light Technology,
Inc., Ervin J. Rachwal, Safe-Light Industries, LLC a/k/a JFER Innovations Group,
LLC, James Meyer and John Fleming alleging fraud, breach of contract, monies
lent, misappropriation of trade secrets, conspiracy and sought injunctive relief
against the defendants to prevent them from misappropriating trade secrets as
well as to recover monetary damages
On May 11, 2001, the Court granted a temporary injunction against the
Defendants.
On June 5, 2001, the Defendants filed their Answer denying the allegations of
the Complaint and filed a counterclaim alleging fraud, violation of Trade Secret
Act, breach of contract and money lent.
On January 18, 2002, the Court granted the Defendants' Motion to Dissolve the
Injunction.
On January 28, 2002, Cyberlux filed a Motion for Rehearing or Clarification of
the Motion to Dissolve.
A hearing on the Cyberlux Motion for Rehearing or Clarification of the Motion to
Dissolve was scheduled for March 18, 2002, but was cancelled by the Court and
has not been rescheduled. The injunction still remains in effect until the Court
rules on this Motion.
Background:
Cyberlux came into contact with Light Technology, Inc. (LTI) and Rachwal in
early 2000. We were seeking someone with the knowledge and expertise to assist
us in the development of an emergency light using white LEDs. LTI and Rachwal
represented that they they had such knowledge and expertise and could finalize
the development of the Cyberlux emergency light by September 30, 2000 so that we
could begin manufacturing and selling the emergency light by November 2000.
Rachwal and LTI also advised us that we could acquire all the assets of LTI and
the rights to LTI's
34
flashlight which also used white LEDs provided Rachwal was made an officer and
director of Cyberlux as well as be in charge of design work for the Company.
In order to evaluate this offer, we requested accounting and financial records
to verify the representations of LTI and Rachwal and to attempt to ascertain the
value of LTI. Despite repeated attempts, LTI and Rachwal were unable to provide
adequate, verifiable financial records. Nonetheless, in order allow LTI and
Rachwal to proceed with the development of the emergency light in order to meet
the November shipping deadline, Cyberlux and LTI entered into a Letter of Intent
on June 12, 2000. This Letter of Intent also contained a confidentiality clause
protecting our interests. Pursuant to the Letter of Intent we paid LTI $100,000
to develop a prototype of an emergency storm light and possible acquisition of
the assets of LTI based upon an independent evaluation of the of the worth of
the assets. We hired the Sarasota CPA firm, Kerkering, Barbario & Co. to
independently do an evaluation of the LTI assets. Kerkering, Barbario came to
the conclusion that LTI had no verifiable assets of any value. Furthermore, LTI
never developed and produced a working model of the emergency storm light. We
incurred meeting and travel expenses of $36,401 associated with LTI during the
period June through December 2000. $43,699 was expended for marketing expense in
anticipation of the promised delivery of the light. We also made loans to
defendant Safe-Light in the Amount of $13,188 to assist in development and
marketing of its products based upon representation that the assets of
Safe-Light would be acquired by us.
We instituted our complaint against the defendants when we learned, through a
local newspaper article that LTI and Safe-Light had merged and had developed an
emergency light. We had confidentiality rights with both companies. The
defendants breached their contracts with us by misappropriating trade secrets
and we are seeking monetary damages as well injunctive relief to prevent them
from capitalizing on the misappropriation of trade secrets. Despite the news
article in which Rachwal announced that LTI had developed an emergency light, he
did not object to the injunction stating that he did not have such a light.
There is no similarity between our product, the Home Safety Light, and LTI's
product, known as the Pal Light. Our product, which is described in detail in
the business section, has 10 diodes and provides a blanket of light to light up
a room in the event of a power outage. The LTI product is a small flashlight
that uses one diode. The two products are not in the same category.
Defendant LTI claims that we breached the contract terms of the letter of intent
and joint venture agreement by failing to maintain confidential disclosed to us
and intentionally disclosing confidential information to third parties. Despite
receiving $100,000 from us defendants claim we failed to fund the development of
the Light and claim that we owe them in excess of $100,000 by breaching the
letter of intent and joint venture agreement. Further, defendants claim we
failed to pay fees set forth in the licensing agreement notwithstanding that the
condition precedent to pay said fees (the successful completion of a private
placement by us, which was subsequently withdrawn due to market conditions).
Defendant Safe-Light allege that we requested that they assist us in raising
funding for the products discussed in the complaint. We actually loaned them
funds for the development of their barricade light.
In the event that LTI and Rachwal are successful in their claims, we would still
be able to sell our product since we have patent applications pending to protect
our product.
The Company intends to fully prosecute the Company's claims and actions against
the Defendants. The Company denies the Defendants allegations alleged against
the Company in their counterclaim. This litigation is still in the discovery
stage and the ultimate outcome cannot presently be determined.
COURT: Circuit Court of the Twelfth Judicial District In and For Sarasota County, Florida.
-----
CASE NAME: Cyberlux Corporation, Plaintiff v. Ervin J. Rachwal, Light Technology, Inc., Safe-Light
--------- Industries, LLC a/k/a JFER Innovations Group, LLC, James Meyer and John Fleming.
CASE NUMBER: 2001 CA 005309 NC Div. C.
-----------
35
PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of April 29, 2003, certain
information regarding the beneficial ownership of our common stock by:
1. Each person who is known us to be the beneficial owner of more than 5% of
the common stock,
2. Each of our director and executive officers and
3. All of our directors and executive officers as a group.
Except as otherwise indicated, the persons or entities listed below have
sole voting and investment power with respect to all shares of common stock
beneficially owned by them, except to the extent such power may be shared with a
spouse. No change in control is currently being contemplated.
Name and Address of Shares Percentage of
Beneficial Owner Beneficially Shares
Owned Outstanding
Donald F. Evans 1,455,000 19.1%
Fifty Orange Road
Pinehurst, NC 28374
David D. Downing 500,000 6.6%
100 Country Meadow Drive
Marietta, OH 45750
Alan H. Ninneman 650,000 8.6%
204 Chaparral Loop, SE
Rio Rancho, NM 87124
John W. Ringo
241 Lamplighter Lane 450,000 5.9%
Marietta, GA 30067
Mark D. Schmidt 200,000 2.6
60 Kimberly Drive
Durham, NC 27707
Total ownership by our officers and
directors (five individuals) 3,255,000 42.8%
--------- -----
Footnotes:
36
1. Mr. Evans was issued 875,000 shares individually in connection with his
founding of Cyberlux Corporation and assignment of his patent for the
Electrochemical Portable Power and Lighting System to the Company. Research
Econometrics was issued 750,000 shares in connection with an assignment of all
of its interests derived from its funding of the initial development of the
long-tern interim lighting system. The Research Econometric shares were
distributed to the partners in this venture and, as one of the partners, Mr.
Evans received 380,000 of the partnership's 750,000 shares.
2. 380,000 shares received by Mr. Evans pursuant to the distribution of Research
Econometrics shares are common stock of the Company owned by him individually.
The balance of the Research Econometric shares were distributed to ten other
individual partners no one of whom owns an amount approaching 5% of the shares
outstanding.
3 There is no voting trust among any of the shareholders , officers or
directors. Pursuant to the Incentive Stock Option Plan, officers of the Company,
Messrs. Evans, Ringo, Ninneman and Downing were vested with 350,000 options,
which they exercised in November 2001 at par. In January 2002, Messrs. Evans,
Ringo, Ninneman and Downing were each vested with 50,000 options for the fiscal
year ended 2001. In January 2003, Mr. Evans was vested with 50,000 options for
the fiscal year 2001. These options are reflected in the individual's share
ownership in the table.
37
PERSONS SHARING OWNERSHIP OF CONTROL OF SHARES
No person other than Donald F. Evans, David D. Downing, Alan H. Ninneman, and
John Ringo owns or shares the power to vote 5% or more of our securities.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a sub-lease agreement with Research Econometrics, LLP,
which provides the Company the ability to continue the research and development
efforts of the Electrochemical Portable Power Plant and Lighting System. The
agreement is on a month-to-month basis. Total rental expense for the for the
year ended December 31, 2001,was $15,806, and for the period ending December 31,
2000 was $10,606. Mr. Evans was the partner in Research Econometrics who
undertook the investigative research study designed to determine the feasibility
of an electrochemical (battery powered) interim lighting system that could
provide long-term solutions to property owners during extended power outages.
The study confirmed the feasibility of such a system consistent with an
application of new technologies that, when combined, provided extended life to
existing battery resources. He began the study with an investigation of the
incidence of power outage attributable to severe storm activity along the east
coast and west along the gulf coast states of the United States.
The agreement with Research Econometrics, therefore, is one whereby the light
design system perfected by Research Econometrics was assigned as the foundation
of the newly created Cyberlux Corporation.
We issued certain management fees which were for accrued salaries for Messrs.
Evans, Ninneman and Ringo consistent with employment agreements. These fees are
in the form of non interest bearing promissory notes. Salary accruals in the
form of management fees for Messrs. Evans, Ninneman and Ringo for the year 2000
were $28,500, $15,000 and $13,000 respectively. Salary accruals for Messrs.
Evans, Ninneman and Ringo for the years 2001 and 2002, were $121,504, 77,000 and
88,000 respectively.
Promissory notes were issued to certain officers for loans to the Company for
working capital. These Notes are listed as payable upon demand and accrue
interest at 12% per annum. Don F. Evans, David D. Downing, Alan H. Ninneman and
a former officer loaned $30,500, $58,000, $5,245 and $5,000, respectively.
The terms of transactions in this section are as fair to the Company as any
transactions that could have been made with unaffiliated parties.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Our common stock has been listed on the NASDAQ OTC Electronic Bulletin Board
sponsored by the National Association of Securities Dealers, Inc. under the
symbol "CYBL" since July 11, 2003. On August 26, 2003, the closing bid price as
reported by the Electronic Bulletin Board was $0.25. As of August 26, 2003, we
believe there were approximately 153 holders of record of our common stock.
DESCRIPTION OF SECURITIES
COMMON STOCK
Our Articles of Incorporation authorize the issuance of 100,000,000 shares of
common stock, $0.001 par value per share. Of this amount, 7,587,849 are
currently issued and outstanding. The following description is a summary of the
capital
38
stock of Cyberlux and contains the material terms of the capital stock.
Additional information can be found in Cyberlux 's Articles of Incorporation and
Bylaws.
Each holder of our common stock is entitled to one vote per share of common
stock standing in such holder's name on our records on each matter submitted to
a vote of our stockholders, except as otherwise required by law. Holders of our
common stock do not have cumulative voting rights so that the holders of more
than 50% of the combined shares of our common stock voting for the election of
directors may elect all of the directors if they choose to do so and, in that
event, the holders of the remaining shares of our common stock will not be able
to elect any members to our board of directors. Holders of our common stock are
entitled to equal dividends and distributions, per share, when, as and if
declared by our board of directors from funds legally available. Holders of our
common stock do not have preemptive rights to subscribe for any of our
securities nor are any shares of our common stock redeemable or convertible into
any of our other securities. If we liquidate, dissolve or wind up our business
or affairs, our assets will be divided up pro-rata on a share-for-share basis
among the holders of our common stock after creditors and preferred
shareholders, if any, are paid.
PREFERRED STOCK
Our Articles of Incorporation authorize the issuance of 5,000,000 Shares of
preferred stock, $0.001 par value per share, the designation and rights of which
are to be determined by our Board of Directors. None of the shares of Preferred
Stock are issued and outstanding.
Our Board of Directors has authority, without action by the shareholders, to
issue all or any portion of the authorized but unissued preferred stock in one
or more series and to determine the voting rights, preferences as to dividends
and liquidation, conversion rights, and other rights of such series. We consider
it desirable to have preferred stock available to provide increased flexibility
in structuring possible future acquisitions and financing and in meeting
corporate needs which may arise. If opportunities arise that would make
desirable the issuance of preferred stock through either public offering or
private placements, the provisions for preferred stock in our Articles of
Incorporation would avoid the possible delay and expense of a shareholder's
meeting, except as may be required by law or regulatory authorities. Issuance of
the preferred stock could result, however, in a series of securities outstanding
that will have certain preferences with respect to dividends and liquidation
over the common stock which would result in dilution of the income per share and
net book value of the common stock. Issuance of additional common stock pursuant
to any conversion right which may be attached to the terms of any series of
preferred stock may also result in dilution of the net income per share and the
net book value of the common stock. The specific terms of any series of
preferred stock will depend primarily on market conditions, terms of a proposed
acquisition or financing, and other factors existing at the time of issuance.
Therefore, it is not possible at this time to determine in what respect a
particular series of preferred stock will be superior to our common stock or any
other series of preferred stock which we may issue. Our Board of Directors may
issue additional preferred stock in future financing, but has no current plans
to do so at this time.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
stock. We intend to furnish holders of our common stock annual reports
containing audited financial statements and to make public quarterly reports
containing unaudited financial information.
WARRANTS
We do not have any warrants outstanding.
TRANSFER AGENT
The transfer agent for the common stock is Pacific Stock Transfer Company and
its telephone number is (702) 361-3033.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as well as our By-Laws provide for the
indemnification of directors, officers, employees and agents of the corporation
to the fullest extent provided by the Corporate Law of the State of Nevada, as
well as is described in the Articles of Incorporation and the By-Laws. These
sections generally provide that the Company may indemnify any person who was or
is a party to any threatened, pending or completed action, suit or proceeding
whether civil, criminal,
39
administrative or investigative except for an action by or in right of the
corporation by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation. Generally, no indemnification may be made
where the person has been determined to be negligent or guilty of misconduct in
the performance of his or her duties to the Company. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or controlling persons of Cyberlux, pursuant to the foregoing
provisions, or otherwise, we have been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION
AUTHORIZED AND UNISSUED STOCK. The authorized but unissued shares of our common
and preferred stock are available for future issuance without our shareholders'
approval. These additional shares may be utilized for a variety of corporate
purposes including but not limited to future public or direct offerings to raise
additional capital, corporate acquisitions and employee incentive plans.
EXPERTS
The financial statements of Cyberlux incorporated herein have been so
incorporated in reliance upon the report of Russell Bedford Stefanou
Mirchandani, LLP, independent certified public accountants, given upon their
authority as experts in auditing and accounting (which contains an explanatory
paragraph regarding Cyberlux 's ability to continue as a going concern).
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On July 17, 2002, G. Brad Beckstead ("Beckstead"), resigned as the Company's
certifying accountant. Beckstead's reports on the Company's financial statements
for the years ended December 31, 2001 and 2000 did not contain an adverse claim
or disclaimer of opinion; however, the audit report for the years ended December
31, 2001 and 2000 contained an explanatory paragraph regarding the substantial
doubt about the Company's ability to continue as a going concern. The decision
to change its certifying accountant was approved by the Company's Board of
Directors. During the year ended December 31, 2001 and the period May 17, 2000
(date of inception) through December 31, 2001, and the subsequent interim period
through July 17, 2002, the Company has not had any disagreements with Beckstead
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
The Company engaged Russell Bedford Stefanou Mirchandani LLP ("Russell Bedford
Stefanou Mirchandani") as its certifying accountant as of August 23, 2002 for
the Company's fiscal year ending December 31, 2002. The Company had not
consulted with Russell Bedford Stefanou Mirchandani prior to Russell Bedford
Stefanou Mirchandani's retention on either application of accounting principles
or the type of opinion Russell Bedford Stefanou Mirchandani might render on the
Company's financial statements.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for us by John W. Ringo, Attorney at Law, Marietta, Georgia. Mr. Ringo is
secretary, corporate counsel, a director and shareholder of the Company.
AVAILABLE INFORMATION
We have filed a registration statement under the Securities Act with respect to
the securities offered hereby with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. This prospectus, which is a part of the registration
statement, does not contain all of the information contained in the registration
statement and the exhibits and schedules thereto, certain items of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to Cyberlux Corporation and the securities
offered hereby, reference is made to the registration statement, including all
exhibits and schedules thereto, which may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N. W.,
Room 1024, Washington, D. C. 20549. You may obtain
40
information on the operation of the public reference facilities by calling the
Commission at 1-800-SEC-0330. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the registration statement, each such statement being qualified
in its entirety by such reference. We will provide, without charge upon oral or
written request of any person, a copy of any information incorporated by
reference herein. Such request should be directed to us at Cyberlux Corporation,
PO Box 2010, 50 Orange Road, Pinehurst, North Carolina 28370, Attention: Donald
F. Evans, President. We will file reports and other information with the
Commission. All of such reports and other information may be inspected and
copied at the Commission's public reference facilities described above. The
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. The address of such site is http://www.sec.gov. In addition, we
make available to our shareholders annual reports, including audited financial
statements, unaudited quarterly reports and such other reports as we may
determine.
41
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2002 AND 2001
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
CYBERLUX CORPORATION
F-1
CYBERLUX CORPORATION
INDEX TO FINANCIAL STATEMENTS
================================================================================================================
Page
================================================================================================================
Report of Independent Certified Public Accountants F-3
================================================================================================================
Balance Sheet at December 31, 2002 F-4
================================================================================================================
Statements of Losses for the Years ended December 31, 2002 and 2001 and for the Period F-5
May 17, 2000 (Date of Inception) through December 31, 2002
================================================================================================================
Statement of Deficiency in Stockholders' Equity for the Period May 17, 2000 (Date of F-6 - F-8
Inception) through December 31, 2002
================================================================================================================
Statements of Cash Flows for the Years ended December 31, 2002 and 2001 and for the F-9 - F10
Period May 17, 2000 (Date of Inception) through December 31, 2002
================================================================================================================
Notes to Financial Statements F-11 - F-30
================================================================================================================
F-2
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
------------------------------------------------
Board of Directors
Cyberlux Corporation
50 ORANGE ROAD, PO BOX 2010, PINEHURST, NORTH CAROLINA 28370-2010
We have audited the accompanying balance sheet of Cyberlux Corporation (the
"Company"), a development stage company, as of December 31, 2002 and the related
statements of losses, deficiency in stockholders' equity, and cash flows for the
year ended December 31, 2002 . The company's financial statements as of December
31, 2001 were audited by another auditor whose reports, dated June 14, 2002 and
December 10, 2002, on those statements included an explanatory paragraph that
described the uncertainty regarding the company's ability to continue as a going
concern. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based upon our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cyberlux Corporation as of
December 31, 2002 and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America. We express no opinion on the cumulative period
from inception through December 31, 2001.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses since its inception. This raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to this matter are described in Note I. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
New York, New York
April 4, 2003
F-3
CYBERLUX CORPORATION
(A Development Stage Company)
Balance Sheet
December 31, 2002
ASSETS
Current Assets:
Cash $ 26,086
Prepaid design services 20,000
Total Current Assets $ 46,086
Fixed assets (Net of accumulated depreciation of $23,050) 79,443
Other Assets:
Deposit 8,614
$ 134,143
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current Liabilities:
Accrued interest $ 44,427
Other accrued liabilities 95,971
MANAGEMENT FEES PAYABLE - RELATED PARTY (NOTE E) 546,508
Short-term notes payable - shareholders (Note E) 123,545
Short-term notes payable (Note B) 365,000
Total Current Liabilities 1,175,451
Commitments and contingencies (Note F)
DEFICIENCY IN STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 5,000,000
shares authorized, no shares issued and Outstanding --
Common stock, $0.001 par value, 20,000,000
authorized; 6,628,396 shares issued and outstanding 6,628
Additional paid-in capital 745,593
Subscription receivable (2,500)
(Deficit) accumulated during development stage (1,791,029)
TOTAL DEFICIENCY STOCKHOLDERS' EQUITY (1,041,308)
$ 134,143
F-4
CYBERLUX CORPORATION
(A Development Stage Company)
Statement of Losses
Year ended Year ended May 17,2000
December 31, December 31, (inception) to
2002 2001 December 31,
---- ---- 2002
----
Revenues $ $ $
Cost of goods sold --
GROSS PROFIT (LOSS ) --
OPERATING EXPENSES:
Marketing and advertising expense 8,500 74,535 127,048
Depreciation and Amortization expenses 63,768 14,856 79,300
Organizational expenses -- -- 25,473
Research and development costs 1,250 85,500 244,064
Management and consulting fees -
related party 350,504 263,088 767,322
General and administrative expenses 179,162 153,994 404,197
TOTAL OPERATING EXPENSES 603,184 591,973 1,647,404
(LOSS) FROM OPERATIONS (603,184) $ (591,973) $(1,647,404)
OTHER INCOME (EXPENSES):
Interest (expenses) (96,920) (44,301) (143,665)
Interest income -- -- 40
Income (tax) benefit -- -- --
NET (LOSS) $ $ $
(700,104) (636,274) (1,791,029)
(Loss) per common share
(basic and assuming dilution) (.11) (.13) (.28)
Weighted average shares outstanding 6,241,585 5,061,350 6,241,585
F-5
CYBERLUX CORPORATION
(A Development Stage Company)
Statement of Deficiency in
Stockholders Equity For the period ended May
17,2000 (Date of Inception) to December 31,2002
Accumu-
Stock lated
Additional subscrip- Develop-
Preferred Stock Common Stock Paid in tion ment
Shares Amount Shares Amount Capital receivable Stage Total
Common shares issued in May 2000 to
Founders in exchange for cash at $.001
per share - - 1,640,000 $1,640 $ 560 - - 2,200
Common shares issued in May 2000 for
research and development services valued
at $0.09 per share 750,000 750 68,003 - - 68,753
Common shares issued in May 2000 in
exchange for services valued at $ 0.05
per share 875,000 875 35,710 - - 36,585
Common shares issued in July 2000 in
exchange for convertible debt at $ 0.15
per share 288,000 288 39,712 - - 40,000
Capital contributed by principal
shareholders 16,000 - - 16,000
Common shares issued in November,2000
for cash in connection with private
placement at $0.15 per share 640,171 640 95,386 - - 96,026
Common shares issued in November,2000 in
exchange for services valued at $ 0.15
per share for consulting services 122,795 123 18,296 - - 18,419
Net (loss) - - - - (454,651) (454,651)
--------- ---------
BALANCE, DECEMBER 31, 2000 4,315,966 4,316 273,667 - (454,651) (176,668)
Common shares issued in January, 2001 in
exchange for convertible debt at $0.15
per share 698,782 699 104,118 - - 104,817
Stock options issued in May, 2001 valued
at $0.15 per option, in exchange for
services 52,500 52,500
Common shares issued in September 2001
for cash in connection with exercise of
warrant of $0.15 per share 3,000 3 447 - - 450
Common shares issued in September 2001
for cash in connection with exercise of
warrant at $0.10 per share 133,000 133 13,167 - - 13,300
Common shares issued in October 2001
valued at $ 0.15 per warrant., in
exchange for placement of debt - - 75,000 - - 75,000
Common shares issued in November 2001
for cash in connection with exercise of
warrant at $0.001 per share 500,000 500 - - - 500
F-6
CYBERLUX CORPORATION
(A Development Stage Company)
Statement of Deficiency in
Stockholders Equity For the period ended May
17,2000 (Date of Inception) to December 31,2002
Deficit
Accumulated
Additional Stock During
Preferred Stock Common Stock Paid in subscription Development
Shares Amount Shares Amount Capital receivable Stage Total
Common shares issued in 350,000 350 - - - 350
November 2001 for cash in
connection with exercise of
options at 0.001 per share
Common shares issued in 133,961 134 66,847 - - 66,981
December 2001 in exchange for
convertible debt at $0.50 per
share
Common shares issued in 17,687 18 8,825 - - 8,843
December 2001 in exchange for
debt at $0.50 per share
NET LOSS (636,274) (636,274)
BALANCE, DECEMBER 31, 2001 6,152,396 6,152 594,571 - (1,090,925) (490,171)
Common shares issued in May 70,000 70 49,928 - - 49,998
2002, in exchange for services
valued at $0.70 per share
Common shares issued in Nov. 150,000 150 37,350 - - 37,500
2002 in exchange for services
vakued at $0.25 per share
Common shares issued in Dec 256,000 256 63,744 - - 64,000
2002 as rights offering at
$0.25 per share
Subscription Receivable for - - (2,500) -
10,000 shares issued (2,500)
NET LOSS - - - (700,104) (700,104)
BALANCE, DECEMBER 31, 2002 6,628,396 6,628 745,593 (2,500) (1,791,029) (1,041,308)
F-7
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CASHFLOWS
May 17, 2000
Year ended (inception) to
December 31, December 31,
2002 2001 2002
---- ---- ----
Cash flows from operating activities
Net (loss) $(700,104) $(636,274) $(1,791,029)
Depreciation and Amortization 82,518 14,856 98,050
Write off Extension of loan exps 25,000 -- 25,000
Stock options issued for consulting services -- 52,500 107,504
Shares issued for consulting services 87,498 87,498
Shares issued for research and development -- -- 68,753
Adjustments to reconcile net (loss) to cash
(used) by operating activities:
(Increase) in deposit (1,795) (5,000) (8,614)
Increase in accrued interest 28,409 14,751 44,427
Decrease in other assets, net 6,812 21,373 28,185
Increase in other accrued liabilities 92,722 3,250 95,972
Increase in management fees payable 260,004 230,004 546,508
--------- --------- -----------
NET CASH (USED) BY OPERATING ACTIVITIES (118,936) (304,540) (697,746)
Cash flows from investing activities:
Purchase of fixed assets, net (52,880) (45,400) (102,494)
--------- --------- -----------
NET CASH ( USED IN )INVESTING ACTIVITIES (52,880) (45,400) (102,494)
Cash flows from financing activities: -- --
Proceeds from short-term notes payable, net 80,000 -- 80,000
Proceeds from notes payable, net -- 260,000 432,455
Proceeds from short-term notes payable - shareholders 25,800 84,245 123,545
Donated capital -- -- 16,000
Insurance of common stock 61,500 14,600 174,326
--------- --------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 167,300 358,845 825,326
--------- --------- -----------
NET ( DECREASE )INCREASE IN CASH (4,516) 8,905 26,086
CASH - BEGINNING 30,602 21,697 --
--------- -----------
Cash - ending $ 26,086 $ 30,602 $ 26,086
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 49,475 $ -- $ 50,677
Income taxes paid -- -- --
Non cash investing and financing activities
Shares issued for R&D and consulting services 37,500 -- 106,253
Shares issued in exchange of debt -- 180,641 220,641
Warrents issued in connection with financing stock -- 75,000 75,000
Options issued in connection with services rendered -- 52,500 52,500
Shares issued in connection with services 49,998 -- 105,002
F-8
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE A-SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
BUSINESS AND BASIS OF PRESENTATION
Cyberlux Corporation (the "Company") is incorporated under the laws of the State
of Nevada. The Company is in the development stage as defined under Statement on
Financial Accounting Standards No. 7, Development Stage Enterprises ("SFAS No.
7") and is seeking to develop, manufacture and market long-term portable
lighting products for commercial and industrial us. To date the Company has
generated no revenues, has incurred expenses, and has sustained losses.
Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise. For the period from inception
through December 31, 2002, the Company has accumulated losses of $1,791,029.
REVENUE RECOGNITION
The Company will follow policy of recognizing subscriber fee income as revenue
in the period the services are provided and the products shipped.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company maintains a cash balance in a non-interest-bearing account that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents. There
are no cash equivalents as of December 31, 2002 and 2001 respectively.
F-9
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE A-SUMMARY OF ACCOUNTING POLICIES ( CONTINUED )
FIXED ASSETS
Property and equipment are recorded at cost. Minor additions and renewals are
expensed in the year incurred. Major additions and renewals are capitalized and
depreciated over their estimated useful lives. Depreciation is calculated using
the straight-line method over the estimated useful lives
ADVERTISING COSTS
The Company expenses all costs of advertising as incurred. Advertising costs
totaled $8,500 and $74,535 in 2002 and 2001, respectively.
IMPAIRMENT OF LONG LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should an impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2002 and
2001. The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments include
cash and accounts payable. Fair values were assumed to approximate carrying
values for cash and payables because they are short term in nature and their
carrying amounts approximate fair values or they are payable on demand.
STOCK-BASED COMPENSATION:
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary charge to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to
F-10
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE A-SUMMARY OF ACCOUNTING POLICIES
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 Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in APB Opinion No. 25 and related interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the fair market value of the Company's stock at the date of the grant
over the exercise price of the related option. The Company has adopted the
annual disclosure provisions of SFAS No. 148 in its financial reports for the
year ended December 31, 2002 and will adopt the interim disclosure provisions
for its financial reports for the quarter ended March 31, 2003.
LOSS PER SHARE
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS #128) Earnings Per Share. Basic loss per
share is computed by dividing losses available to common stockholders by the
weighted average number of common shares outstanding during the period.
SEGMENT REPORTING
The Company follows Statement of Financial Accounting Standards No. 130,
Disclosures About Segments of an Enterprise and Related Information. The Company
operates as a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
INCOME TAXES
The Company follows Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes (SFAS No. 109) for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability during
each period. If available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of change.
F-11
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE A-SUMMARY OF ACCOUNTING POLICIES
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse
RECENT PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS No.
141), and Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS No. 142). The FASB also issued Statement of
Financial Accounting Standards No. 143, "Accounting for Obligations Associated
with the Retirement of Long-Lived Assets" (SFAS No. 143), and Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144) in August and October 2001,
respectively.
SFAS No. 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method. The adoption of SFAS No. 141 had no material impact
on the Company's consolidated financial statements.
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 indefinite 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 will be recorded as a cumulative effect of a change in
accounting principle no later than the end of fiscal year 2002. The adoption of
SFAS No. 142 had no material impact on the Company's consolidated financial
statements.
F-12
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE A-SUMMARY OF ACCOUNTING POLICIES
RECENT 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.
F-13
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE A-SUMMARY OF ACCOUNTING POLICIES
RECENT 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
F-14
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE A-SUMMARY OF ACCOUNTING POLICIES
RECENT PRONOUNCEMENTS (CONTINUED)
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.
NOTE B - NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes payable at December 31, 2002 are as follows:
10 % convertible note payable, unsecured and due September, 2003; accrued and unpaid interest due at
maturity ; Noteholder has the option to convert unpaid note principal together with accrued and unpaid
interest to the Company's common stock at a rate of $ .50 per share. $ 2,500
10 % convertible notes payable, unsecured and due March , 2003; accrued and unpaid interest due at
maturity; Noteholder has the option to convert unpaid note principal together with accrued and unpaid
interest to the Company's common stock at a rate of $ 1.00 per share. 7,500
10 % convertible notes payable, unsecured and due March , 2003; accrued and unpaid interest due at
maturity; Noteholders has the option to convert unpaid note principal together with accrued and unpaid
interest to the Company's common stock at a rate of $ .50 per share. 25,000
10 % notes payable, unsecured and due March , 2003; accrued and unpaid interest due at maturity;
Noteholders has the option to convert unpaid note principal together with accrued and unpaid interest to
the Company's common stock at a rate of $ 1.00 per share. 10,000
10 % notes payable, unsecured and due March , 2003; accrued and unpaid interest due at maturity;
Noteholders has the option to convert unpaid note principal together with accrued and unpaid interest to
the Company's common stock at a rate of $ 1.00 per share. 40,000
F-15
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE A-SUMMARY OF ACCOUNTING POLICIES
NOTE B - NOTES PAYABLE AND CONVERTIBLE DEBENTURES
( CONTINUED )
-------------
18% note payable , interest payable monthly and due June, 2003; note secured by Company's assets and
pledge of 3,265,000 shares of the Company's common stock owned by Company's principal shareholders and
officers; Noteholder has the option to convert unpaid note principal together with accrued and unpaid
interest to the Company's common stock at the lower of $ .15 per share or a price per share equal to 85 %
of the average daily bid price over the ten preceding days prior to the date of conversion. 195,000
10% Convertible note payable , unsecured and due October 2003; accrued and unpaid interest due at maturity;
Noteholder has the option to convert unpaid note principal together with accrued and unpaid interest to
the Company's common stock at $ .25 per share. 75,000
10% convertible note payable , unsecured and due October 2003 ; accrued and unpaid interest due at
maturity; Noteholder has the option to convert unpaid note principal together with accrued and unpaid
interest to the Company's common stock at the lower of $ .50 per share. 5,000
10 % note payable, unsecured , accrued and unpaid interest and principal payable on demand. 5,000
-----
365,000
Less: current portion (365,000)
---------------
Total $ -
Total interest expense at December 31,2002 and 2001 of $96,920 and $44,301 includes a loan origination fee of $43,750 and $17,500
respectively.
F-16
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE C - STOCKHOLDER'S EQUITY
The Company has authorized 20,000,000 shares of common stock, with a par value
of $.001 per share. The Company has also authorized 5,000,000 shares if
preferred stock, with a par value of $.001 per share. During May, 2000, the
Company issued 1,640,000 shares of its common stock to its founders in exchange
for cash of $2,200.
During May 2000, the Company issued 750,000 shares of its common stock in
exchange for research and development and organizational costs paid for by
Research Econometrics, LLP the totaling $68,753. The stock issued was valued at
approximately $.09 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.
During May 2000, the Company issued 875,000 shares of its common stock to an
officer of the Company for consulting services valued at $36,585. The stock
issued was valued at approximately $.05 per share, which represents the fair
value of the stock issued, which did not differ materially from the value of the
services rendered. In May, 2000 the Company issued $40,000 of notes payable
convertible into the Company's common stock at a price equal to $.15 per share .
In July 2000, the holders of the notes payable elected to convert $ 40,000 of
the notes , plus accrued interest , in exchange for 288,000 shares of the
Company's common stock.
In November , 2000 the Company issued 640,171 shares of common stock in exchange
for $ 96,026 in connection with a private placement memorandum, net of costs.
During November 2000, the Company issued 122,795 shares of its common stock in
exchange for services totaling $18,419. The stock issued was valued at
approximately $.15 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.
In January 2001, holders of the Company's convertible notes payable elected to
convert $104,817 of debt in exchange for 698,782 shares of the Company's common
stock .
F-17
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE C - STOCKHOLDER'S EQUITY (CONTINUED)
In May, 2001, the Company granted certain officers of the Company options to
purchase 350,000 shares the Company's common stock at its par value for services
rendered.. The options issued were valued at $ .15 per share, or $52,500 which
represents the fair value of the option issued, which did not differ materially
from the value of the services received. In November, 2001, the officers elected
to exercise their options to purchase the stock for $350.
In connection with the placement of the Company's Note Payable in October, 2001,
the Company issued warrants to purchase 500,000 shares of the Company's common
stock at par value to the holders of the Note. The warrant agreement expires
October 22, 2004, and is callable upon election by the Company. The 500,000
warrants are valued at $0.15 per warrant, or $75,000, which represents the fair
value of the warrants issued and is being amortized over the life of the loan.
The warrant was exercised in November 2001. Amortization expense of $ 50,000 and
$12,500 was charged to operations in 2002 and 2001, respectively.
During the year ended December 31, 2001, certain warrant holders elected to
convert their warrants to 636,000 shares of the Company's $0.001 par value
common stock for cash of $ 14,250. In December 2001, holders of the Company's
convertible notes payable elected to convert $ 75,824 of debt in exchange for
151,648 shares of the Company's common stock.
During May 2002, the Company issued 70,000 shares of its common stock in
exchange for services totaling $49,998. The stock issued was valued at
approximately $.70 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.
During November 2002, the Company issued 150,000 shares of its common stock in
exchange for services totaling $ 37,500. The stock issued was valued at
approximately $.25 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.
In December , 2002 the Company issued 256,000 shares of common stock in exchange
for $ 64,000 for cash in connection with a private placement memorandum, net of
costs.
F-18
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE D - RELATED PARTY TRANSACTIONS
The Company entered into a sub-lease agreement with Research Econometrics, LLP,
which provides the Company the ability to continue the research and development
efforts of the Electrochemical Portable Power Plant and Lighting System. The
agreement is on a month-to-month basis. Total rental expense for the years
ending December 31, 2002 and 2001 was $13,185 and $15,806, respectively.
The Company incurred management fees to its officers totaling $350,504 and
$263,088 during the years ended December 31, 2002 and December 31, 2001,
respectively. Unpaid management fees aggregate $546,508 as of December 31, 2002.
From time to time, the Company's principal officers have advanced funds to the
Company for working capital purposes in the form of unsecured promissory notes
accruing interest at 12% per annum. As of December 31, 2002 , the balance due to
the officers is $ 123,545.
NOTE E-COMMITMENTS AND CONTINGENCIES
CONSULTING AGREEMENTS
The Company has consulting agreements with outside contractors, certain of whom
are also Company stockholders. directors and officers. The Agreements are
generally for a term of 12 months from inception and renewable automatically
from year to year unless either the Company or Consultant terminates such
engagement by written notice.
NOTE F-LOSSES PER SHARE
The following table presents the computation of basic and diluted losses per
share:
2002 2001
Net loss available to Common stockholders $(700,104) $(636,274)
Basic and diluted earning (loss) per share (0.11) (0.13)
Weighted average common shares outstanding 6,241,585 5,061,350
F-19
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE G - INCOME TAXES
The Company has adopted Financial Accounting Standards No. 109, which requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of events that have been included in the financial statement or
tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant. At December 31, 2002, the Company has available for federal
income tax purposes a net operating loss carryforward of approximately $
1,791,000, expiring in the year 2022, that may be used to offset future taxable
income. The Company has provided a valuation reserve against the full amount of
the net operating loss benefit, since in the opinion of management based upon
the earnings history of the Company, it is more likely than not that the
benefits will not be realized.
Components of deferred tax assets as of December 31, 2002 are as follows:
Non current:
Net operating loss carry forward $ 610,000
Valuation allowance $ (610,000)
--------------
Net deferred tax asset $ -
The realization of these net operating loss carry forwards is dependent upon
generating taxable income prior to the related year of expiration. The amount of
carry forward that may be utilized in any future tax year may also be subject to
certain limitations, including limitations as a result of certain stockholder
ownership changes in which may be beyond the control of the Company
NOTE I- GOING CONCERN MATTERS
The accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the accompanying financial statements
during the years ended December 31, 2002 and 2001, the Company incurred losses
from operations of $700,104 and $636,274, respectively. These factors among
others may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time.
F-20
CYBERLUX CORPORATION
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE I- GOING CONCERN MATTERS ( CONTINUED )
The Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance the
Company will be successful in its effort to secure additional equity financing.
If operations and cash flows continue to improve through these efforts,
management believes that the Company can continue to operate. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems.
The Company's existence is dependent upon management's ability to develop
profitable operations and resolve it's liquidity problems. Management
anticipates the Company will attain profitable status and improve its liquidity
through the continued developing, marketing and selling of its services and
additional equity investment in the Company. The accompanying financial
statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.
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-21
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
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, 100,000,000 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
=========== ===========
(See accompanying notes to financial statements)
F-6
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 30, months June (date of inception)
June 30, 2003 June 30, 2002 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
assuming dilution) $ (0.09) $ (0.03) $ (0.12) $ (0.05) $ (0.34)
=========== =========== =========== =========== =============
Weighted average shares outstanding 6,946,684 6,187,396 6,946,684 6,169,896 6,946,684
=========== =========== =========== =========== =============
(See accompanying notes to financial statements)
F-4
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 Additional
Stock Paid in Stock
Capital Subscription
Shares Amount 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
Deficiency
Accumulated During
Development Stage
Total in
Stockholders' 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
(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
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) -- -- -- --
--------- --------- ----------- --------
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
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 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 $ --
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-5
(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 -- -- --
(See accompanying notes to financial statements)
F-6
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
( UNAUDITED )
For six For the six For the period May
months ended months ended 17, 2000 (Date of
June 30, 2003 June 30, 2002 inception) to June
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
(See accompanying notes to financial statements)
F-7
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.
F-8
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.
F-9
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.
F-10
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.
F-11
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Cyberlux's bylaws provide that we have the power to indemnify any officer or
director against damages if such person acted in good faith and in a manner the
person reasonably believed to be in the best interests of our Company. No
indemnification may be made (i) if a person is adjudged liable unless a Court
determines that such person is entitled to such indemnification, (ii) with
respect to amounts paid in settlement without court approval or (iii) expenses
incurred in defending any action without court approval.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered. All expenses will be paid by Cyberlux.
Securities and Exchange Commission Registration Fee $ 2,592
Printing and Engraving Expenses $ 100
Accounting Fees and Expenses $ 1,500
Legal Fees and Expenses $20,000
Blue Sky Qualification Fees and Expenses $ 1,000
Miscellaneous $ 2,000
-------
TOTAL $27,192
=======
42
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion describes all the securities we have sold within the
past three fiscal years. On May 17, 2000, we were incorporated under the laws of
the State of Nevada as Cyberlux Corporation. We are authorized to issue
20,000,000 shares of common stock, par value $0.001 and 5,000,000 shares of
preferred stock, par value $0.001.
On May 19, 2000, we issued 1,640,000 shares of our common stock, with par value
of $0.001 per share to nine founding individuals which were fully paid and
non-assessable in exchange for cash of $2,200. All Shares issued by the Company
were issued in accordance with Section 4(2) of the Securities Act of 1933, as
amended (the Securities Act).
During May 2000, we issued 750,000 shares of our $0.001 par value common stock
in exchange for research and development costs paid by Research Econometrics,
LLP in the amount of $68,753. The shares were issued in accordance with Section
4(2) of the Securities Act. No broker or dealer was involved in the transaction
and no discounts or commissions were paid.
During May 2000, the Company issued 875,000 shares of its $0.001 par value
common stock to Donald F. Evans in exchange for consulting services valued at
$36, 585. The shares were issued in accordance with Section 4(2) of the
Securities Act. No broker or dealer was involved in the transaction and no
discounts or commissions were paid.
During May 2000, we issued 288,000 shares of our $0.001 par value common stock
in exchange for convertible debentures in the amount of $40,000 in accordance
with Section 4(2) of the Securities Act.. The shares were issued in accordance
with Section 4(2) of the Securities Act. No broker or dealer was involved in the
transaction and no discounts or commissions were paid.
On November 30, 2000, we completed a public offering of shares of common stock
in accordance with Regulation D, Rule 504 of the Securities Act of 1933, as
amended, and the registration by qualification of the offering in the State of
Nevada and the State of Arkansas. This offering was conducted on a best efforts
basis and was not underwritten. We sold 640,171 shares of common stock, par
value, at a price of $0.15 per share to 51 unaffiliated shareholders of record,
none of whom were or are our officers or directors. The offering was sold for
$96,026 in cash.
During November 2000, 122,795 shares of common stock were issued to a consulting
firm in services rendered valued at $18,419. The shares were issued in
accordance with Section 4(2) of the Securities Act. No broker or dealer was
involved in the transaction and no discounts or commissions were paid.
Listed below are the requirements set forth under Regulation D, Rule 504 and the
facts, which support the availability of Rule 504 to this offering:
Exemption
Offers and sales of securities that satisfy the conditions in paragraph (b) of
this Rule 504 by an issuer that is not:
o Subject to the reporting requirements of section 13 or 15(d) of the
Exchange Act;
o An investment company; or
o A development stage company that either has no specific business plan or
purpose or has indicated that its business plan is to engage in a merger or
acquisition with an unidentified company or companies, or other entity or
person, shall be exempt from the provision of section 5 of the Act under section
3(b) of the Act.
43
At the time of the offering, we were not subject to the reporting requirements
of Section 13 or Section 15(d) of the Exchange Act. Further, we have never been
considered to be an investment company. In addition, we have continuously
pursued our specific business plan of developing and manufacturing
optoelectronic products.
Conditions to be met
General Conditions - To qualify for exemption under this Rule 504,
offers and sales must satisfy the terms and conditions of Rule 501 and Rule 502
(a), (c) and (d), except that the provisions of Rule 502 (c) and (d) will not
apply to offers and sales of securities under this Rule 504 that are made:
1. In one or more states that provide for the registration of the securities
that require the filing and delivery to investors of a prospectus before sale,
and are made in accordance with those state provisions;
2. In one or more states that have no provision for the registration of the
securities or the filing or delivery of a disclosure document before sale, if
the securities have been registered in at least one state that provides for such
registration, public filing and delivery before sale, offers and sales are made
in that state in accordance with such provisions, and the disclosure document is
delivered before sale to all purchasers; or
3. Exclusively according to state law exemptions from registration that permit
general solicitation and general advertising so long as sales are made only to
accredited investors as defined in Rule 501(a).
On August 21, 2000, we were issued a notice of effectiveness by the State of
Nevada, in response to our application for registration by qualification in that
state. The application for registration by qualification was filed in accordance
with the provisions of NRS 90.490, which requires the public filing and delivery
to investors of a disclosure document before sale.
On October 31, 2000, we were issued a notice of effectiveness by the State of
Arkansas, in response to our application for registration by qualification in
that state. The application for registration by qualification was filed pursuant
to Arkansas Code Ann. Section 23-42-503(b) and Rule 503.01(B)(1) of the Rules of
the Commissioner, which requires the public filing and delivery to investors of
a disclosure document before sale. This offering was conducted exclusively in
the states of Nevada and Arkansas.
Proceeds of the Offering - The aggregate offering price for an offering of
securities under this Rule 504, as defined in Rule 501(c), shall not exceed
$1,000,000, less the aggregate offering price for all securities sold within the
twelve months before the start of and during the offering of securities under
this Rule 504, in reliance on any exemption under section 3(b), or in violation
of section 5(a) of the Securities Act. The aggregate offering price was
$345,000, of which $96,026 was sold.
In January 2001, holders of the Company's convertible notes payable elected to
convert $104,817 of debt in exchange for 698,782 shares of the Company's $0.001
par value common stock in accordance with Section 4(2) of the Securities Act.
In September 2001, we issued 136,000 shares of our $0.001 par value common stock
in exchange for cash of $13,750. The shares were issued in accordance with
Section 4(2) of the Securities Act.
On October 18, 2001, the Company entered into a loan agreement with OneCap, Inc.
in which it borrowed $170,000 for the purpose of financing for tooling,
circuitry and registration costs for public listing of the Company's stock. The
term of the loan is for one year and the interest rate is 13% per annum. Under
the terms of the agreement, the Company issued a promissory note secured by
assets of the Company and founders stock which were placed into an escrow
account. The Company also issued OneCap a warrant to purchase 500,000 shares of
its $0.001 par value common stock at par. On December 31, 2002, the company
extended the loan repayment period to June , 2003 and the interest rate was
increased to 18% per annum payable monthly . The company also incurred $ 25,000
loan entension charges which were charged to interest expenses and the loan was
increased to $ 195,000.
44
On October 18, 2001, the Company entered into a loan agreement with OneCap, Inc.
in which it borrowed $170,000 for the purpose of financing for tooling,
circuitry and registration costs for public listing of the Company's stock. The
term of the loan is for one year and the interest rate is 13% per annum. Under
the terms of the agreement, the Company issued a promissory note secured by
assets of the Company and founders stock which were placed into an escrow
account. The Company also issued OneCap a warrant to purchase 500,000 shares of
its $0.001 par value common stock at par.
During November 2001, officers of the Company elected to exercise their options
to purchase 350,000 shares of its $0.001 par value common stock for cash of
$350.
During the year ended December 31, 2001, certain warrant holders elected to
convert their warrants to 636,000 shares of the Company's $0.001 par value
common stock for cash of $14,250.
In December 2001, the Company issued 151,648 shares of its $0.001 par value
common stock in exchange for convertible debentures in the amount of $75,824.
The shares were issued in accordance with Section 4(2) of the Securities Act. No
broker or dealer was involved in the transaction and no discounts or commissions
were paid.
On May 29, 2002, the Company issued 70,000 shares of its $0.001 par value common
stock to an individual for services rendered valued at $49,000. The shares were
issued in accordance with Section 4(2) of the Securities Act. No broker or
dealer was involved in the transaction and no discounts or commissions were
paid.
During November 2002, the company issued 150,000 shares of its common stock in
exchange for services totalling $ 37,500. The stock issued was valued at $ 0.25
per share, which represents the fair value of the stock issued, which did not
differ materially from the value of the services rendered.
In December 2002, the company issued 256,000 shares of common stock for cash $
64,000 in connection with a private placement memorandum, net of costs.
On March 15, 2003, the Company issued 300,000 shares of common stock as a
commitment fee pursuant to an equity line of credit to Cornell Capital Partners,
L.P. and 13,333 shares of common stock to Westrock Advisors pursuant to a
placement agent agreement.
On May 20, 2003, the Company issued 196,120 shares of common stock @ $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.
There have been no other issuances of common or preferred stock.
ITEM 27. INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.a [1] Articles of Incorporation of Cyberlux Corporation
filed May 17, 2000.
3.1a * Certificate of Amendment of Articles of Incorporation
filed April 3, 2003
3.b |1] Bylaws of Cyberlux Corporation
5.1 * Opinion re: Legality
10.a [1] SCCS Proprietary Product Manufacturing Agreement
46
10.b [1] Donald F. Evans Employment Agreement
10.c [1] Alan H. Ninneman Employment Agreement
10.d [1] John W. Ringo Employment Agreement
10.1 * Donald F. Evans Amended Employment Agreement
10.2 * Alan H. Ninneman Amended Employment Agreement
10.3 * John W. Ringo Amended Employment Agreement
10.4 * David D. Downing Employment Agreement
10.e [1] Hynes, Inc. Agreement
10.f [1] Robrady Agreement
10.g [1] TKJ, Inc. Agreement
10.h [1] ICT, Inc. Agreement
10.i [1] Research Econometrics Agreement
10.5 * Equity Line of Credit Agreement between the Company
and Capital Partners, LP dated March 15, 2003
10.6 * Placement Agent Agreement between Cyberlux Corp and
Westrock Advisors
10.7 * Registration Rights Agreement between Cyberlux
Corporation and Cornell Capital Partners, LLP
10.8 * Escrow Agreement between Cyberlux Corporation,
Capital Partners, L.P. Butler Gonzales LLP and
Wachovia Bank, N.A.
10.10 * Mark D. Schmidt Employment Agreement
23.1 * Consent of John W. Ringo (included in
Exhibit 5.1)
23.2 * Consent of Russell Bedford Stefanou Mirchandani, LLP
(* Previously filed and incorporated by reference)
[1] Incorporated by reference to the Company's Registration Statement filed on
Form 10-SB filed December 2001
47
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3) of the
Securities Act of 1933 (the "ACT");
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information on the
plan of distribution;
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
48
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on this Form SB-2 and authorized this
registration statement to be signed on our behalf by the undersigned, in
Pinehurst, North Carolina on August 27, 2003.
CYBERLUX CORPORATION.
By: /s/ Donald F. Evans
--------------------------------------
Donald F. Evans
Chief Executive Officer, President and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates stated.
By: /s/ Donald F. Evans
--------------------------------------
Donald F. Evans, Chief Executive Officer, President and Chairman of the Board
Date: August 27, 2003
By: /s/ John W. Ringo
--------------------------------------
John W. Ringo, Secretary, Corporate Counsel and Director
Date: August 27, 2003
By: /s/ Alan H. Ninneman
--------------------------------------
Alan H. Ninneman, Senior Vice President and Director
Date August 27, 2003
By: /s/ David D. Downing
--------------------------------------
David D. Downing, Treasurer and Chief Financial Officer
49