U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended September 30, 2003
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ____________ to ______________
For the Period Ended September 30, 2003
Commission file number 000-33415
CYBERLUX CORPORATION
(Name of Small Business Issuer in Its Charter)
Nevada 91-2048178
(State of Incorporation) (IRS Employer Identification No.)
50 Orange Road
PO Box 2010
Pinehurst, NC 28370
(Address of Principal Executive Offices)
(910) 235-0066
Issuer's Telephone Number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
As of September 30, 2003 the Company had 8,037,849 shares of its par value
$0.001 common tock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
i
CYBERLUX CORPORATION
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS...............................................1
Condensed Consolidated Balance Sheets.....................................2
Condensed Consolidated Statement of Losses................................3
Condensed Consolidated Statements of Cash Flows...........................4
Condensed Consolidated Statement of Deficiency in Stockholders' Equity....6
Notes to Condensed Consolidated Financial Statements.................8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..............................11
General Overview.........................................................11
Results of Operations....................................................12
Revenues.................................................................12
Costs and Expenses.......................................................12
Liquidity and Capital Resources..........................................12
Product Research and Development.........................................13
Acquisition of Plant and Equipment and Other Assets......................13
Number of Employees......................................................13
Trends, Risks and Uncertainties..........................................13
Cautionary Factors that May Affect Future Results........................13
ITEM 3. CONTROLS AND PROCEDURES............................................14
Evaluation of Disclosure controls and Procedures.........................14
Changes in internal controls.............................................14
PART II - OTHER INFORMATION................................................15
Item 1. Legal Proceedings................................................15
Item 2. Changes in Securities and Use of Proceeds........................15
Item 3. Defaults Upon Senior Securities..................................15
Item 4. Submission of Matters to a Vote of Security Holders..............15
Item 5. Other Information................................................15
Item 6. Exhibits and Reports on From 8-K.................................15
INDEX TO EXHIBITS........................................................16
SIGNATURES...............................................................16
CERTIFICATIONS...........................................................17
CERTIFICATIONS...........................................................18
EXHIBIT 99.1.............................................................19
EXHIBIT 99.2.............................................................20
ii
Item 1. Financial Information
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2003 December 31, 2002
(unaudited) (audited)
----------- -----------
Current assets:
Cash and equivalents $ 11,628 $ 26,086
Due from factor, net 18,710 --
Inventories, at cost 8,208 --
Prepaid expenses -- 20,000
----------- -----------
Total current assets 38,546 46,086
Property and equipment, net 96,520 79,443
Other assets
Deposits -- 8,614
$ 135,066 $ 134,143
=========== ===========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Accrued interest $ 65,466 $ 44,427
Other accrued liabilities 410,852 95,971
Management fees payable - related party 970,926 546,508
Short-term notes payable - shareholders 193,045 123,545
Short-term notes payable 327,500 365,000
----------- -----------
Total current liabilities 1,967,789 1,175,451
Commitments and contingencies (Note D) -- --
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, 100,000,000 shares
authorized, 8,037,849 and 6,628,396 issued and outstanding 8,038 6,628
Subscription receivable -- (2,500)
Additional paid-in capital 1,168,463 745,593
Deficit accumulated during development stage (3,009,224) (1,791,029)
----------- -----------
Total deficiency in stockholders' equity (1,832,723) (1,041,308)
----------- -----------
$ 135,066 $ 134,143
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements
1
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF LOSSES
(UNAUDITED)
For the Period
May 17, 2000
(Date of
Inception)
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
2003 2002 2003 2002 2003
----------- ----------- ----------- ----------- -----------
Revenue $ 87,375 $ -- $ 87,375 $ -- $ 87,375
Cost of Goods Sold 130,368 -- 130,368 -- 130,368
----------- ----------- ----------- ----------- -----------
Gross Profit (Loss) (42,993) -- (42,993) -- (42,993)
Expenses:
Marketing and advertising expense 250 9,196 114,750 9,196 241,798
Depreciation and amortization expense 5,675 24,197 240,924 52,071 320,224
Organization costs -- -- -- -- 25,473
Research and development costs 25,000 -- 60,000 1,250 304,064
Management and consulting fees 166,500 59,001 489,500 177,003 1,256,822
General and administrative expenses 127,539 49,993 215,905 166,742 620,102
----------- ----------- ----------- ----------- -----------
Total expenses 324,964 142,387 1,121,079 406,262 2,768,483
----------- ----------- ----------- ----------- -----------
Loss from operations (367,957) (142,387) (1,164,072) (406,262) (2,811,476)
Other (expense):
Interest income -- -- -- -- 40
Interest expense (15,189) (13,879) (54,123) (40,504) (197,788)
----------- ----------- ----------- ----------- -----------
Net (loss) $ (383,146) $ (156,266) $(1,218,195) $ (446,766) $(3,009,224)
=========== =========== =========== =========== ===========
(Loss) per share - basic and fully diluted $ (0.05) $ (0.03) $ (0.17) $ (0.07)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - basic and fully diluted 7,626,979 6,199,313 7,148,468 6,175,981
=========== =========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements
2
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the period May 17,
For the Nine Months For the Nine Months 2000 (date of
Ended September 30, Ended September 30, inception) through
2003 2002 September 30, 2003
----------- ----------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(1,218,195) $ (446,766) $(3,009,224)
Depreciation and Amortization 240,924 70,820 338,974
Stock issued in exchange for previously incurred debt 9,030 -- 9,030
Write off of previously incurred loan fees -- -- 25,000
Stock options issued for consulting services -- 49,000 107,504
Shares issued for consulting services 60,000 -- 147,498
Shares issued for factoring deposit 90,000 -- 90,000
Shares issued for research and development -- -- 68,753
(Increase) in Due From Factor, net (18,710) -- (18,710)
(Increase) in inventory (8,208) -- (8,208)
(Increase) in deposits 8,614 (1,795) --
(Increase) decrease in other assets, net 20,000 6,812 48,185
Increase (Decrease) in accrued interest 21,041 17,773 65,468
Increase in management fee payable-related party 424,418 176,003 970,926
Increase in other accrued liabilities 314,878 46,531 410,853
----------- ----------- -----------
Net cash (used) by operating activities (56,208) (81,622) (753,951)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment, net (33,000) (59,335) (135,494)
----------- ----------- -----------
Net cash provided (used in) by investing activities (33,000) (59,335) (135,494)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term notes payable net -- 80,000 80,000
Proceeds from notes payable net -- -- 432,455
Proceeds from short-term notes payable-shareholders, net 72,000 30,800 195,542
Capital contributed by shareholders -- -- 16,000
Receipts from subscription receivable 2,500 -- 2,500
Issuance of common stock 250 -- 174,576
----------- ----------- -----------
Net cash provided by financing activities 74,750 110,800 901,073
Net increase in cash (14,458) (30,157) 11,628
Cash - at beginning of period 26,086 30,602 --
----------- ----------- -----------
Cash - at end of period $ 11,628 $ 445 $ 11,628
=========== =========== ===========
3
Supplemental disclosures:
Interest paid $ 18,202 $ 20,856 $ 68,879
Income taxes paid -- -- --
Non-cash investing and financing activities:
Shares issued for research and development and consulting -- -- 106,253
Shares issued for conversion of debt 9,030 49,030 229,671
Warrants issued in connection with financing -- -- 75,000
Options issued in connection with services -- -- 52,500
Shares issued in connection with loan commitment 225,000 -- 225,000
Shares issued in connection with services 60,000 50,000 165,002
Shares issued for factoring deposit 90,000 -- 90,000
See accompanying notes to unaudited condensed consolidated financial statements
4
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 17, 2000 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 2003
(UNAUDITED)
Additional Stock
Paid in Subscription
Common Stock Capital Receivable
Shares Amount
----------- ----------- ----------- -----------
Common shares issued in May 2000 to founders in
exchange for cash at $. 001 per share 1,640,000 $ 1,640 $ 560 $ --
Common shares issued in May 2000 in exchange for for
research and development services valued at $.09 per
share 750,000 750 68,003
Common shares issued in May 2000 in exchange for
services valued @ $.05 per share 875,000 875 35,710
Common shares issued in July, 2000 in exchange for
convertible debt at $.15 per share 288,000 288 39,712
Capital contributed by principal shareholders -- -- 16,000
Common shares issued in November 2000 for cash in
connection with private placement at $. 15 per share 640,171 640 95,386
Common shares issued in November 2000 in exchange for
services valued @ $.15 per share hares issued for
consulting services 122,795 123 18,296
Net (loss) -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 2000 4,315,966 4,316 273,667 --
Common shares issued in January, 2001 in exchange for
convertible debt at $.15 per share 698,782 699 104,118 --
Stock options issued in May 2001, valued at $.15 per
option, in exchange for services -- -- 52,500 --
Warrant issued in May 2001, valued at $.15 per
warrant, in exchange for placement of debt -- -- 75,000 --
Common shares issued in September, 2001 for cash in
connection with exercise of warrant at $.15 per share 3,000 3 447 --
Common shares issued in September, 2001 for cash in
connection with exercise of warrant at $.10 per share 133,000 133 13,167 --
Common shares issued in November, 2001 for cash in
connection with exercise of warrant at $.0001 per share 500,000 500 -- --
Common shares issued in November, 2001 for cash in
connection with exercise of options at $.0001 per share 350,000 350 -- --
Common shares issued in December, 2001 in exchange for
convertible debt at $.50 per share 133,961 134 66,847 --
Common shares issued in December, 2001 in exchange for
debt at $.50 per share 17,687 18 8,825 --
Net (loss) -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 2001 6,152,396 6,152 594,571 --
Common shares issued in May, 2002 in exchange for
services valued at $.71 per share 70,000 70 49,930 --
Common shares issued in Nov, 2002 in exchange for
services valued at $0.25 per share 150,000 150 37,350 --
Common shares issued in Dec. 2002 as rights offering at
$0.25 per share 256,000 256 63,744 --
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
connection with exercise of options at $0.001 per share 250,000 250 -- --
Cash received in exchange for stock subscription -- -- -- 2,500
Common shares issued in March, 2003 in exchange for
services valued at $.75 per share 300,000 300 224,700 --
Common shares issues in March, 2003 in exchange for
services valued at $0.75 per share 13,333 14 9,987 --
Common shares issued in May, 2003 exchange for debt at 196,120 48,833 -- 49,029
$.25 per share 196 --
Common shares issued in June, 2003 in exchange for
services valued at $.25 per share 200,000 200 49,800 --
Common shares issued in September, 2003 in exchange 450,000 450 -- 90,000
forservices valued at $.20 per share 89,550 --
Net Loss -- -- -- --
----------- ----------- ----------- -----------
Balance, September 30, 2003 $ 8,037,849 $ 8,038 $ 1,168,463 $ --
=========== =========== ============ ===========
Deficiency
Accumulated Total
During Deficiency in
Development Stockholders'
Stage Equity
----------- -----------
Common shares issued in May 2000 to founders in
exchange for cash at $. 001 per share $ -- $ 2,200
Common shares issued in May 2000 in exchange for for
research and development services valued at $.09 per
share 68,753
Common shares issued in May 2000 in exchange for
services valued @ $.05 per share 36,585
Common shares issued in July, 2000 in exchange for
convertible debt at $.15 per share 40,000
Capital contributed by principal shareholders 16,000
Common shares issued in November 2000 for cash in
connection with private placement at $. 15 per share 96,026
Common shares issued in November 2000 in exchange for
services valued @ $.15 per share hares issued for
consulting services 18,419
Net (loss) (454,651) (454,651)
----------- -----------
Balance, December 31, 2000 (454,651) (176,668)
Common shares issued in January, 2001 in exchange for
convertible debt at $.15 per share -- 104,817
Stock options issued in May 2001, valued at $.15 per
option, in exchange for services -- 52,500
Warrant issued in May 2001, valued at $.15 per
warrant, in exchange for placement of debt -- 75,000
Common shares issued in September, 2001 for cash in
connection with exercise of warrant at $.15 per share -- 450
Common shares issued in September, 2001 for cash in
connection with exercise of warrant at $.10 per share -- 13,300
Common shares issued in November, 2001 for cash in
connection with exercise of warrant at $.0001 per share -- 500
Common shares issued in November, 2001 for cash in
connection with exercise of options at $.0001 per share -- 350
Common shares issued in December, 2001 in exchange for
convertible debt at $.50 per share -- 66,981
Common shares issued in December, 2001 in exchange for
debt at $.50 per share -- 8,843
Net (loss) (636,274) (636,274)
----------- -----------
Balance, December 31, 2001 (1,090,925) (490,202)
Common shares issued in May, 2002 in exchange for
services valued at $.71 per share -- 49,998
Common shares issued in Nov, 2002 in exchange for
services valued at $0.25 per share -- 37,500
Common shares issued in Dec. 2002 as rights offering at
$0.25 per share -- 64,000
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
connection with exercise of options at $0.001 per share -- 250
Cash received in exchange for stock subscription -- 2,500
Common shares issued in March, 2003 in exchange for
services valued at $.75 per share -- 225,000
Common shares issues in March, 2003 in exchange for
services valued at $0.75 per share -- 10,001
Common shares issued in May, 2003 exchange for debt at
$.25 per share
Common shares issued in June, 2003 in exchange for
services valued at $.25 per share -- 50,000
Common shares issued in September, 2003 in exchange
forservices valued at $.20 per share
Net Loss (1,218,195) (1,218,195)
----------- -----------
Balance, September 30, 2003 $(3,009,224) $(1,832,723)
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements
5
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE A - SUMMARY OF ACCOUNTING POLICIES
GENERAL
The accompanying un audited 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 nine months period ended
September 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
KSB.
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 September 30, 2003, the Company has accumulated losses of
$3,009,224.
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 change 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 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 all
subsequent periods.
Had compensation costs for the Company's stock options been determined based on
the fair value at the grant dates for the awards, the Company's net loss and
losses per share would have been as follows (transactions involving stock
options issued to employees and Black-Scholes model assumptions are presented in
Note C):
6
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
For the three months ended For the nine months ended
September 30, September 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net loss - as reported $ (383,146) $ (156,266) $(1,218,195) $ (446,766)
Add: Total stock based employee compensation
expense as reported under intrinsic value method
(APB. No. 25) -- -- -- --
Deduct: Total stock based employee compensation
expense as reported under fair value based
method (SFAS No. 123) (106,800) -- (106,800) --
----------- ----------- ----------- -----------
Net loss - Pro Forma $ (489,946) $ (156,266) $(1,324,995) $ (446,766)
Net loss attributable to common stockholders -
Pro forma $ (489,946) $ (156,266) $(1,324,995) $ (446,766)
Basic (and assuming dilution) loss per share -
as reported $ (0.05) $ (0.03) $ (0.17) $ (0.07)
Basic (and assuming dilution) loss per share -
Pro forma $ (0.06) $ (0.03) $ (0.19) $ (0.07)
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.
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.
7
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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
8
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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.
NOTE B- COMMON STOCK
In May, 2003, the holder of a $49,030 note payable exchanged the unpaid
principal together with accrued interest for 196,120 shares of the Company's
common stock ..
In June, 2003 , the Company issued 200,000 shares of its common stock in
exchange for services totaling $ 50,000. 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 September , 2003 , the Company issued 450,000 shares of its common stock in
exchange for services totaling $ 90,000. The stock issued was valued at
approximately $.20 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.
9
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE C - STOCK OPTIONS
Employee Stock Options
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company under a non-qualified employee stock option plan.
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Average Weighted Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- --------------- --------------- --------------- --------------- ---------------
$ 0.2125 2,000,000 6.00 $ 0.2125 2,000,000 $ 0.2125
--------------- --------------- --------------- --------------- ---------------
2,000,000 6.00 $ 0.2125 2,000,000 $ 0.2125
--------------- --------------- --------------- --------------- ---------------
Transactions involving stock options issued to employees are summarized as
follows:
Weighted Average
Number of Shares Price Per Share
---------------- ---------------
Outstanding at July, 2003 -- --
Granted 2,000,000 $ 0.2125
Exercised -- --
Canceled or expired --
--------- ---------
Outstanding at September 30, 2003 2,000,000 $ 0.2125
--------- ---------
Employee Stock Options (Continued)
The weighted-average fair value of stock options granted to employees during the
period ended September 30, 2003 and 2002 and the weighted-average significant
assumptions used to determine those fair values, using a Black-Scholes option
pricing model are as follows:
2003 2002
---- ----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 1.02% n/a
Expected stock price volatility 26% n/a
Expected dividend payout -- --
Expected option life-years (a) 6 n/a
(a) The expected option life is based on contractual expiration dates.
If the Company recognized compensation cost for the non-qualified employee stock
option plan in accordance with SFAS No. 123, the Company's pro forma net loss
and net loss per share would have been $(1,324,995) and $(0.19) for the period
ended September 30, 2003 and $(446,766) and $(0.07) for the period ended
September 30, 2002, respectively.
10
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE D- COMMITMENTS AND CONTINGENCIES
In October, 2003 , OneCap, Inc. filed a complaint against the Company and its
officers, Directors and certain shareholders in the District Court of Clark
County, Nevada . The complaint alleges a breach of contract and securities
fraud.. The Company believes that it has meritorious defenses to the plaintiff's
claims and intends to vigorously defend itself against the Plaintiff's claims.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. There are several important factors that could cause actual results
to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. The Company has sought to
identify the most significant risks to its business, but cannot predict whether
or to what extent any of such risks may be realized nor can there be any
assurance that the Company has identified all possible risks that might arise.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company's stock. The following
discussion and analysis should be read in conjunction with the financial
statements of the Company and notes thereto. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment from our Management.
GENERAL OVERVIEW
The Company is in the development stage and its efforts have been principally
devoted to designing, developing manufacturing and marketing advanced lighting
systems that utilize white (and other) light emitting diodes as illumination
elements.
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 OCTOBER 22, 2003, THE LAST TRADE PRICE AS
REPORTED BY THE ELECTRONIC BULLETIN BOARD WAS $0.21.
ON SEPTEMBER 22, 2003, WE ENTERED INTO A FACTORING AGREEMENT WITH CAPITAL
FUNDING SOLUTIONS, INC. WITH REGARD TO A PURCHASE ORDER FROM QVC.
Subsequent to the end of this quarter, on October 16, 2003, due to the change in
pricing structure of our common stock on the over-the- counter bulletin board,
we mutually cancelled the equity line of credit agreement with Cornell Capital
Partners, LP which we entered into on March 15, 2003.
11
RESULTS OF OPERATIONS
The Company is in the development stage and is seeking to develop, manufacture
and market advanced lighting systems that utilize white (and other) light
emitting diodes as illumination elements. The risks specifically discussed are
not the only factors that could affect future performance and results. In
addition the discussion in this quarterly report concerning our business our
operations and us contain forward-looking statements. Such forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements. We do not have a
policy of updating or revising forward- looking statements and thus it should
not be assumed that silence by our Management over time means that actual events
or results are occurring as estimated in the forward-looking statements herein.
As a result of limited capital resources and no revenues from operations from
its inception, the Company has relied on the issuance of equity securities to
non-employees in exchange for services. The Company's management enters into
equity compensation agreements with non-employees if it is in the best interest
of the Company under terms and conditions consistent with the requirements of
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation.
In order conserve its limited operating capital resources, the Company
anticipates continuing to compensate non-employees for services during the next
twelve months. This policy may have a material effect on the Company's results
of operations during the next twelve months.
REVENUES
We have generated operating revenues from operations of $ 87,375 from our
inception. We believe we will begin earning revenues from operations in our
second year of actual operation as the Company transitions from a development
stage company to that of an active growth and acquisition stage company. On July
19, 2002, we developed a web site (www.cyberlux.com) which gives us the ability
to offer our products over the internet.
COSTS AND EXPENSES
From our inception through September 30, 2003, we have not generated any
revenues from operations. We have incurred losses of $3,009,224 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 September 30, 2003, we had a working capital deficit of $1,929,243 . As a
result of our operating losses from our inception through September 30, 2003, we
generated a cash flow def,icit of $753,951 from operating activities. Cash flows
used in investing activities was $135,494 during the period May 17, 2000 (date
of Company's inception) through September 30, 2003. We met our cash requirements
during this period through the private placement of 177,076 of common stock, $
512,455 from the issuance of notes (net of repayments and costs), $195,542 from
the issuance of notes payable to Company officers and shareholders (net of
repayments ), and $16,000 capital contributed by the Company's principal
shareholders.
12
While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development. We have a
financing commitment in the form of an equity line of credit from Cornell
Capital to provide the necessary working capital.
By adjusting its operations and development to the level of capitalization ,
management believes it has suffucient capital resources to meet projected cash
flow deficits through the next twelve months . However, if thereafter, we are
not successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations , liquidity and
financial condition.
The Company's independent certified public accountant has stated in his report
included in the Company's December 31, 2002 Form 10-KSB, as amended, that the
Company has incurred operating losses in the last two years, and that the
Company is dependent upon management's ability to develop profitable operations.
These factors among others may raise substantial doubt about the Company's
ability to continue as a going concern.
PRODUCT RESEARCH AND DEVELOPMENT
We anticipate performing further research and development for our exiting
products during the next twelve months. Those activities include an Emergency
Lighting Augmentation System, Lazer Safety Light, Power Outage Adapter, FailSafe
Spot & Lamp and CampLamp Lantern. These projected expenditures are dependent
upon our generating revenues and obtaining sources of financing in excess of our
existing capital resources. There is no guarantee that we will be successful in
raising the funds required or generating revenues sufficient to fund the
projected costs of research and development during the next twelve months
ACQUISITION OF PLANT AND EQUIPMENT AND OTHER ASSETS
We do not anticipate the sale of any material property , plant or equipment
during the next 12 months. We do not anticipate the acquisition of any material
property, plant or equipment during the next 12 months.
NUMBER OF EMPLOYEES
From our inception through the period ended September 30, 2003, we have relied
on the services of outside consultants for services and have five (5) employees.
In order for us to attract and retain quality personnel, we anticipate we will
have to offer competitive salaries to future employees. We anticipate that it
may become desirable to add additional full and or part time employees to
discharge certain critical functions during the next 12 months. This projected
increase in personnel is dependent upon our ability to generate revenues and
obtain sources of financing. There is no guarantee that we will be successful in
raising the funds required or generating revenues sufficient to fund the
projected increase in the number of employees. As we continue to expand, we will
incur additional cost for personnel.
TRENDS, RISKS AND UNCERTAINTIES
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Our annual report on December 31, 2002 Form 10-KSB, as amended, includes a
detailed list of cautionary factors that may affect future results. Management
believes that there have been no material changes to those factors listed,
however other factors besides those listed could adversely affect us. That
annual report can be accessed on EDGAR.
13
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange act reports is recorded,
processed , summarized and reported within the time periods specified in the
SEC's rules and forms and that such information is accumulated and communicated
to our management, including our chief executive officer and chief financial
officer, as appropriate , to allow timely decisions regarding required
disclosure. Managment necessarily applied its judgement in assessing the costs
and benefits of such controls and procedures , which , by their nature, can
provide only reasonable assurance regarding management's control objectives.
We have carried out an evaluation, under the supervision and with the
participation of our management, including our chief executive officer and chief
financial officer of the effectiveness of the design and operation of our
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report ( the Evaluation date )
Based upon that evaluation , the chief executive officer and chief financial
officer concluded that our disclosure controls and procedures were effective as
of the evaluation date.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the evaluation
date.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Item 3: Legal Proceedings in our annual report on Form 10-KSB for the year
ended December 31, 2002 for a description of current legal proceedings.
On October 23, 2003, Onecaps, Inc filed a camplain against the company and its
Officers, Directors and cewrtain Shareholders in District Court of Clark County,
Nevada (CASE NO. A475506).
The complaint alleges a breach of contract on securities fraud.
The Plaintiff is seeking specific performance, declaratory relief and injunctive
relief . The Company believes that is has neritorious defenses to the plaintiff
claims and intends to vigorously defend itself against the plaintiff claims.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On September 22, 2003, the Company issued 450,000 shares @ $0.20 per share to
Capital Funding Solutions, Inc. as collateral for a factoring agreement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
15
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
---------- -----------
99.1 Certification of Donald F. Evans (Filed herewith)
99.2 Certification of David D. Downing (Filed herewith)
Reports on Form 8-K
None
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cyberlux Corporation
(Registrant)
Date: November 14, 2003
/s/ Donald F. Evans
President and Chairman of the Board
================================================================================
16
CERTIFICATIONS
I, Donald F. Evans, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cyberlux
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14 for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions, with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2003
/s/ Donald F. Evans
-------------------
Donald F. Evans
President and Chief Executive Officer
17
CERTIFICATIONS
I, David D. Downing, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cyberlux
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14 for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions);
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions, with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2003
/s/ David D. Downing
--------------------
David D. Downing
Treasurer and Chief Financial Officer
18