As filed with the Securities and Exchange Commission on October 13, 2004
An Exhibit List can be found on page II-5.
Registration No. 333-
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 small business issuer in its charter)
NEVADA 3674 91-2048178
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
4625 CREEKSTONE DRIVE, SUITE 100
RESEARCH TRIANGLE PARK
DURHAM, NORTH CAROLINA 27703
(919) 474-9000
(Address and telephone number of principal executive offices
and principal place of business)
DON F. EVANS, CHIEF EXECUTIVE OFFICER
CYBERLUX CORPORATION
4625 CREEKSTONE DRIVE, SUITE 100
RESEARCH TRIANGLE PARK
DURHAM, NORTH CAROLINA 27703
(919) 474-9000
(Name, address and telephone number of agent for service)
Copies to:
GREGORY SICHENZIA, ESQ.
SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 AVENUE OF THE AMERICAS, 21ST FLR.
NEW YORK, NEW YORK 10018
(212) 930-9700
(212) 930-9725 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any 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, other
than securities offered only in connection with dividend or interest
reinvestment plans, 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, 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 effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
2
CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) MAXIMUM MAXIMUM REGISTRATION FEE
SHARE (2) OFFERING AGGREGATE
PRICE PER OFFERING PRICE
-------------------------------------------------------------------------------------------------------------
Common stock, $.001 par 22,222,224 $ .27 $ 6,000,000.48 $ 760.20
value issuable upon
conversion of Secured
Convertible Notes
-------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 4,500,000 $ .50 $ 2,250,000 $ 285.08
value issuable upon exercise
of Warrants
-------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 10,416,000 $ .27 $ 2,812,320 $ 356.32
-------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 8,543,032 $ .27 $ 2,306,618.64 $ 292.25
value issuable upon
conversion of Series A
Convertible Preferred Stock
-------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 8,543,032 $ .27 $ 2,306,618.64 $ 292.25
value issuable upon exercise
of Warrants
-------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 8,543,032 $ 1.05 $ 8,970,183.60 $ 1,136.52
value issuable upon exercise
of Warrants
-------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 58,500 $ .27 $ 15,795 $ 2.00
value issuable upon exercise
of Warrants
-------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 1,441,500 $ .27 $ 389,205 $ 49.31
value issuable upon exercise
of Warrants
-------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par 300,000 $ .50 $ 150,000 $ 19.01
value issuable upon exercise
of Warrants
-------------------------------------------------------------------------------------------------------------
Total 64,567,319 $25,200,741.36 $ 3,192.94
-------------------------------------------------------------------------------------------------------------
(1) Includes shares of our common stock, par value $0.001 per share, which may
be offered pursuant to this registration statement, which shares are issuable
upon conversion of secured convertible notes and the exercise of warrants held
by the selling stockholders. In addition to the shares set forth in the table,
the amount to be registered includes an indeterminate number of shares issuable
upon conversion of the secured convertible notes and exercise of the warrants,
as such number may be adjusted as a result of stock splits, stock dividends and
similar transactions in accordance with Rule 416. The number of shares of common
stock registered hereunder represents a good faith estimate by us of the number
of shares of common stock issuable upon conversion of the secured convertible
notes and upon exercise of the warrants. For purposes of estimating the number
of shares of common stock to be included in this registration statement, we
calculated a good faith estimate of the number of shares of our common stock
that we believe will be issuable upon conversion of the secured convertible
notes and upon exercise of the warrants to account for market fluctuations, and
antidilution and price protection adjustments, respectively. Should the
conversion ratio result in our having insufficient shares, we will not rely upon
Rule 416, but will file a new registration statement to cover the resale of such
additional shares should that become necessary. In addition, should a decrease
in the exercise price as a result of an issuance or sale of shares below the
then current market price, result in our having insufficient shares, we will not
rely upon Rule 416, but will file a new registration statement to cover the
resale of such additional shares should that become necessary.
3
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of 1933,
using the average of the high and low price as reported on the Over-The-Counter
Bulletin Board on October 8, 2004, which was $.27 per share.
(3) Includes a good faith estimate of the shares underlying secured convertible
notes to account for market fluctuations.
(4) Includes a good faith estimate of the shares underlying warrants exercisable
at $.50 per share to account for antidilution and price protection adjustments.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
4
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 13, 2004
CYBERLUX CORPORATION
64,567,319 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up to
64,567,319 shares of our common stock, including up to 22,222,224 shares of
common stock underlying secured convertible notes in a principal amount of
$1,500,000, up to 23,334,064 issuable upon the exercise of common stock purchase
warrants, up to 8,543,032 underlying series A convertible preferred stock and
10,416,000 shares of common stock. The secured convertible notes are convertible
into our common stock at the lower of $0.72 or 50% of the average of the three
lowest intraday trading prices for the common stock on a principal market for
the 20 trading days before but not including the conversion date. The selling
stockholders may sell common stock from time to time in the principal market on
which the stock is traded at the prevailing market price or in negotiated
transactions. The selling stockholders may be deemed underwriters of the shares
of common stock which they are offering. We will pay the expenses of registering
these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under
the symbol "CYBL". The last reported sales price per share of our common stock
as reported by the Over-The-Counter Bulletin Board on October 8, 2004, was $.26.
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of 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 October 13, 2004.
The information in this Prospectus is not complete and may be changed.
This Prospectus is included in the Registration Statement that was filed by
Cyberlux Corporation with the Securities and Exchange Commission. The selling
stockholders may not sell these securities until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the sale
is not permitted.
5
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the secured convertible notes to
the financial statements.
CYBERLUX CORPORATION
We are in the development stage and our 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. We are developing and marketing new product applications of diodal
illumination(TM) that demonstrate added value over traditional lighting systems.
Using proprietary technology, we are creating a family of products for emergency
and security lighting offer extended light life and greater cost effectiveness
than other existing forms of illumination. We are expanding our marketing
activity into channels of retail, commercial and institutional sales.
For the three months ended June 30, 2004, we generated $11,238 in revenue
and a net loss of $553,279. In addition, for the year ended December 31, 2003,
we generated $74,238 in revenue and a net loss of $1,494,556. As a result of
recurring losses from operations and a net deficit in both working capital and
stockholders' equity, our auditors, in their report dated April 6, 2004, have
expressed substantial doubt about our ability to continue as going concern.
Our principal offices are located at 4625 Creekstone Drive, Suite 100,
Research Triangle Park, Durham, North Carolina 27703, and our telephone number
is (919) 474-9000. We are a Nevada corporation.
The Offering
Common stock offered by selling stockholders......Up to 64,567,319 shares,
including the following:
- up to 22,222,224 shares
of common stock
underlying secured
convertible notes in the
principal amount of
$1,500,000 (includes a
good faith estimate of
the shares underlying
secured convertible
notes to account for
market fluctuations
antidilution and price
protection adjustments,
respectively),
- up to 4,500,000 shares
of common stock issuable
upon the exercise of
common stock purchase
warrants at an exercise
price of $.50 per share
(includes a good faith
estimate of the shares
underlying warrants to
account for antidilution
and price protection
adjustments,
respectively);
- up to 8,543,032 shares
of common stock
underlying series A
convertible preferred
stock;
6
- 10,416,000 shares of
common stock;
- up to 8,543,032 shares
of common stock issuable
upon the exercise of
common stock purchase
warrants at an exercise
price of $.25 per share;
- up to 8,543,032 shares
of common stock issuable
upon the exercise of
common stock purchase
warrants at an exercise
price of $1.05 per
share;
- up to 58,500 shares of
common stock issuable
upon the exercise of
common stock purchase
warrants at an exercise
price of $.10 per share;
- up to 1,441,500 shares
of common stock issuable
upon the exercise of
common stock purchase
warrants at an exercise
price of $.25 per share;
- up to 300,000 shares of
common stock issuable
upon the exercise of
common stock purchase
warrants at an exercise
price of $.50 per share;
This number represents
87.06% of our current
outstanding stock.
Common stock to be outstanding after
the offering .....................................Up to 74,067,225 shares
Use of proceeds...................................We will not receive any
proceeds from the sale of the
common stock. However, we will
receive the sale price of any
common stock we sell to the
selling stockholders upon
exercise of the warrants. We
expect to use the proceeds
received from the exercise of
the warrants, if any, for
general working capital
purposes. However, AJW
Partners, LLC, AJW Qualified
Partners, LLC, AJW Offshore,
Ltd., and New Millennium
Partners II, LLC will be
entitled to exercise up to
4,500,000 warrants on a
cashless basis if the shares
of common stock underlying the
warrants are not then
registered pursuant to an
effective registration
statement. In the event that
AJW Partners, LLC, AJW
Qualified Partners, LLC, AJW
Offshore, Ltd., or New
Millennium Partners II, LLC
exercise the warrants on a
cashless basis, then we will
not receive any proceeds from
the exercise of those
warrants. In addition, we have
received gross proceeds
$500,000 from the sale of the
secured convertible notes and
the investors are obligated to
provide us with an additional
$1,000,000; $500,000 within
five days following the filing
of this registration statement
and $500,000 within five days
of this prospectus being
declared effective. The
proceeds received from the
sale of the secured
convertible notes will be used
for business development
purposes, working capital
needs, pre-payment of
interest, payment of
consulting and legal fees and
purchasing inventory.
7
Over-The-Counter Bulletin Board Symbol............CYBL
The above information regarding common stock to be outstanding after the
offering is based on 19,915,905 shares of common stock outstanding as of
September 22, 2004 and assumes the subsequent conversion of our issued secured
convertible notes and series A convertible preferred stock and exercise of
warrants by our selling stockholders.
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with four accredited investors on September 23, 2004 for the
sale of (i) $1,500,000 in secured convertible notes and (ii) warrants to buy
2,250,000 shares of our common stock.
This prospectus relates to the resale of the common stock underlying these
secured convertible notes and warrants. The investors are obligated to provide
us with an aggregate of $1,500,000 as follows:
o $500,000 was disbursed on September 23, 2004;
o $500,000 will be disbursed within five days of the filing of this
registration statement; and
o $500,000 will be disbursed within five days of the effectiveness of
this prospectus.
Accordingly, we have received a total of $500,000 pursuant to the
Securities Purchase Agreement.
The secured convertible notes bear interest at 10%, mature two years from
the date of issuance, and are convertible into our common stock, at the selling
stockholders' option, at the lower of (i) $0.72 or (ii) 50% of the average of
the three lowest intraday trading prices for the common stock on a principal
market for the 20 trading days before but not including the conversion date.
Accordingly, there is in fact no limit on the number of shares into which the
notes may be converted. As of October 11, 2004, the average of the three lowest
intraday trading prices for our common stock during the preceding 20 trading
days as reported on the Over-The-Counter Bulletin Board was $.27 and, therefore,
the conversion price for the secured convertible notes was $.135. Based on this
conversion price, the $1,500,000 secured convertible notes, excluding interest,
were convertible into 11,111,112 shares of our common stock.
AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd., and
New Millennium Partners II, LLC have contractually agreed to restrict their
ability to convert or exercise their warrants and receive shares of our common
stock such that the number of shares of common stock held by them and their
affiliates after such conversion or exercise does not exceed 4.9% of the then
issued and outstanding shares of common stock.
See the "Selling Stockholders" and "Risk Factors" sections for a complete
description of the secured convertible notes.
8
RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.
RISKS RELATING TO OUR BUSINESS:
WE HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE, WHICH MAY NEGATIVELY IMPACT OUR
ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.
We incurred net losses of $1,494,556 for the year ended December 31, 2003
and $1,336,970 for the year ended December 31, 2002. For the three months ended
June 30, 2004, we incurred a net loss of $553,279. We cannot assure you that we
can achieve or sustain profitability on a quarterly or annual basis in the
future. Our operations are subject to the risks and competition inherent in the
establishment of a business enterprise. There can be no assurance that future
operations will be profitable. Revenues and profits, if any, will depend upon
various factors, including whether we will be able to continue expansion of our
revenue. We may not achieve our business objectives and the failure to achieve
such goals would have an adverse impact on us.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE
HARMED AND IF WE DO OBTAIN ADDITIONAL FINANCING OUR THEN EXISTING SHAREHOLDERS
MAY SUFFER SUBSTANTIAL DILUTION.
We will require additional funds to sustain and expand our sales and
marketing activities. We anticipate that we will require up to approximately
$900,000 to fund our continued operations for the next twelve months, depending
on revenue from operations. Additional capital will be required to effectively
support the operations and to otherwise implement our overall business strategy.
There can be no assurance that financing will be available in amounts or on
terms acceptable to us, if at all. The inability to obtain additional capital
will restrict our ability to grow and may reduce our ability to continue to
conduct business operations. If we are unable to obtain additional financing, we
will likely be required to curtail our marketing and development plans and
possibly cease our operations. Any additional equity financing may involve
substantial dilution to our then existing shareholders.
OUR INDEPENDENT AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE
FINANCING.
In their report dated April 6, 2004, our independent auditors stated that
our financial statements for the year ended December 31, 2003 were prepared
assuming that we would continue as a going concern. Our ability to continue as a
going concern is an issue raised as a result of losses for the years ended
December 31, 2003 and 2002 in the amounts of $1,494,556 and 1,336,970,
respectively. We continue to experience net operating losses. Our ability to
continue as a going concern is subject to our ability to generate a profit
and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans and grants from various financial institutions where possible.
Our continued net operating losses increases the difficulty in meeting such
goals and there can be no assurances that such methods will prove successful.
IF WE ARE UNABLE TO RETAIN THE SERVICES OF MESSRS. EVANS, SCHMIDT OR RINGO, OR
IF WE ARE UNABLE TO SUCCESSFULLY RECRUIT QUALIFIED MANAGERIAL AND SALES
PERSONNEL HAVING EXPERIENCE IN BUSINESS, WE MAY NOT BE ABLE TO CONTINUE OUR
OPERATIONS.
Our success depends to a significant extent upon the continued service of
Mr. Donald F. Evans, our Chief Executive Officer, Mr. Mark D. Schmidt, our
President and Mr. John Ringo, our Secretary and Corporate Counsel. Loss of the
services of Messrs. Evans, Schmidt or Ringo could have a material adverse effect
on our growth, revenues, and prospective business. We do not maintain key-man
insurance on the life of Messrs. Evans or Ringo. In addition, in order to
successfully implement and manage our business plan, we will be dependent upon,
among other things, successfully recruiting qualified managerial and sales
personnel having experience in business. Competition for qualified individuals
is intense. There can be no assurance that we will be able to find, attract and
retain existing employees or that we will be able to find, attract and retain
qualified personnel on acceptable terms.
9
MANY OF OUR COMPETITORS ARE LARGER AND HAVE GREATER FINANCIAL AND OTHER
RESOURCES THAN WE DO AND THOSE ADVANTAGES COULD MAKE IT DIFFICULT FOR US TO
COMPETE WITH THEM.
The lighting and illumination industry is extremely competitive and
includes several companies that have achieved substantially greater market
shares than we have, and have longer operating histories, have larger customer
bases, and have substantially greater financial, development and marketing
resources than we do. If overall demand for our products should decrease it
could have a materially adverse affect on our operating results.
OUR TRADEMARK AND OTHER INTELLECTUAL PROPERTY RIGHTS MAY NOT BE ADEQUATELY
PROTECTED OUTSIDE THE UNITED STATES, RESULTING IN LOSS OF REVENUE.
We believe that our trademarks, whether licensed or owned by us, and other
proprietary rights are important to our success and our competitive position. In
the course of our international expansion, we may, however, experience conflict
with various third parties who acquire or claim ownership rights in certain
trademarks. We cannot assure that the actions we have taken to establish and
protect these trademarks and other proprietary rights will be adequate to
prevent imitation of our products by others or to prevent others from seeking to
block sales of our products as a violation of the trademarks and proprietary
rights of others. Also, we cannot assure you that others will not assert rights
in, or ownership of, trademarks and other proprietary rights of ours or that we
will be able to successfully resolve these types of conflicts to our
satisfaction. In addition, the laws of certain foreign countries may not protect
proprietary rights to the same extent, as do the laws of the United States.
RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR SECURED CONVERTIBLE NOTES,
SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANTS THAT MAY BE AVAILABLE FOR
FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK.
As of September 22, 2004, we had 19,915,905 shares of common stock issued
and outstanding, secured convertible notes outstanding that may be converted
into an estimated 3,750,938 shares of common stock at current market prices,
series A convertible preferred stock convertible into 8,543,032 shares of common
stock, and outstanding warrants to purchase 21,834,064 shares of common stock.
Additionally, we have an obligation to sell secured convertible notes
outstanding that may be converted into an estimated 7,501,876 shares of common
stock at current market prices and issue warrants to purchase 1,500,000 shares
of common stock in the near future. In addition, the number of shares of common
stock issuable upon conversion of the outstanding secured convertible notes may
increase if the market price of our stock declines. All of the shares, including
all of the shares issuable upon conversion of the notes and preferred stock and
upon exercise of our warrants, may be sold without restriction. The sale of
these shares may adversely affect the market price of our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
NOTES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH
WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our secured convertible
notes is essentially limitless. The following is an example of the amount of
shares of our common stock that are issuable, upon conversion of our secured
convertible notes (excluding accrued interest), based on market prices 25%, 50%
and 75% below the market price, as of October 8, 2004 of $0.26.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 50% Issuable Stock
------ ----- ------ -------- -----
25% $.195 $.0975 15,384,616 43.58%
50% $.13 $.065 23,076,924 53.68%
75% $.065 $.0325 46,153,847 69.86%
As illustrated, the number of shares of common stock issuable upon
conversion of our secured convertible notes will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
10
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
NOTES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK, WHICH
COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The secured convertible notes are convertible into shares of our common
stock at a 50% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the selling stockholder converts and sells material amounts of common stock
could encourage short sales by investors. This could place further downward
pressure on the price of the common stock. The selling stockholder could sell
common stock into the market in anticipation of covering the short sale by
converting their securities, which could cause the further downward pressure on
the stock price. In addition, not only the sale of shares issued upon conversion
or exercise of notes, warrants and options, but also the mere perception that
these sales could occur, may adversely affect the market price of the common
stock.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE SECURED CONVERTIBLE NOTES AND
SERIES A CONVERTIBLE PREFERRED STOCK AND EXERCISE OF OUTSTANDING WARRANTS MAY
CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the secured convertible notes
and series A convertible preferred stock and exercise of warrants may result in
substantial dilution to the interests of other stockholders since the selling
stockholders may ultimately convert and sell the full amount issuable on
conversion. Although AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd., and New Millennium Partners II, LLC may not convert their
secured convertible notes and/or exercise their warrants if such conversion or
exercise would cause them to own more than 4.9% of our outstanding common stock,
this restriction does not prevent AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW Offshore, Ltd., and New Millennium Partners II, LLC from converting
and/or exercising some of their holdings and then converting the rest of their
holdings. In this way, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd., and New Millennium Partners II, LLC could sell more than this
limit while never holding more than this limit. There is no upper limit on the
number of shares that may be issued which will have the effect of further
diluting the proportionate equity interest and voting power of holders of our
common stock, including investors in this offering.
IN THE EVENT THAT OUR STOCK PRICE DECLINES, THE SHARES OF COMMON STOCK ALLOCATED
FOR CONVERSION OF THE SECURED CONVERTIBLE NOTES AND REGISTERED PURSUANT TO THIS
PROSPECTUS MAY NOT BE ADEQUATE AND WE MAY BE REQUIRED TO FILE A SUBSEQUENT
REGISTRATION STATEMENT COVERING ADDITIONAL SHARES. IF THE SHARES WE HAVE
ALLOCATED AND ARE REGISTERING HEREWITH ARE NOT ADEQUATE AND WE ARE REQUIRED TO
FILE AN ADDITIONAL REGISTRATION STATEMENT, WE MAY INCUR SUBSTANTIAL COSTS IN
CONNECTION THEREWITH.
Based on our current market price and the potential decrease in our market
price as a result of the issuance of shares upon conversion of the secured
convertible notes, we have made a good faith estimate as to the amount of shares
of common stock that we are required to register and allocate for conversion of
the secured convertible notes. Accordingly, we have allocated and registered
22,222,224 shares to cover the conversion of the secured convertible notes. In
the event that our stock price decreases, the shares of common stock we have
allocated for conversion of the secured convertible notes and are registering
hereunder may not be adequate. If the shares we have allocated to the
registration statement are not adequate and we are required to file an
additional registration statement, we may incur substantial costs in connection
with the preparation and filing of such registration statement.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING SECURED CONVERTIBLE
NOTES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE, OR
RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE SECURED CONVERTIBLE NOTES, IF
REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE
OF SUBSTANTIAL ASSETS.
In September 2004, we entered into a Securities Purchase Agreement for the
sale of an aggregate of $1,500,000 principal amount of secured convertible
notes. The secured convertible notes are due and payable, with 10% interest, two
years from the date of issuance, unless sooner converted into shares of our
common stock. Although we currently have $500,000 secured convertible notes
outstanding, the investors are obligated to purchase additional secured
convertible notes in the aggregate of $1,000,000. In addition, any event of
default such as our failure to repay the principal or interest when due, our
failure to issue shares of common stock upon conversion by the holder, our
failure to timely file a registration statement or have such registration
statement declared effective, breach of any covenant, representation or warranty
in the Securities Purchase Agreement or related convertible note, the assignment
or appointment of a receiver to control a substantial part of our property or
business, the filing of a money judgment, writ or similar process against our
company in excess of $50,000, the commencement of a bankruptcy, insolvency,
reorganization or liquidation proceeding against our company and the delisting
of our common stock could require the early repayment of the secured convertible
notes, including a default interest rate of 15% on the outstanding principal
balance of the notes if the default is not cured with the specified grace
period. We anticipate that the full amount of the secured convertible notes will
be converted into shares of our common stock, in accordance with the terms of
the secured convertible notes. If we were required to repay the secured
convertible notes, we would be required to use our limited working capital and
raise additional funds. If we were unable to repay the notes when required, the
note holders could commence legal action against us and foreclose on all of our
assets to recover the amounts due. Any such action would require us to curtail
or cease operations.
11
RISKS RELATING TO OUR COMMON STOCK:
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
12
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
13
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
will receive the sale price of any common stock we sell to the selling
stockholders upon exercise of the warrants. We expect to use the proceeds
received from the exercise of the warrants, if any, for general working capital
purposes. However, AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd., and New Millennium Partners II, LLC will be entitled to exercise up to
4,500,000 warrants on a cashless basis if the shares of common stock underlying
the warrants are not then registered pursuant to an effective registration
statement. In the event that AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd., or New Millennium Partners II, LLC exercise the warrants on a
cashless basis, then we will not receive any proceeds from the exercise of those
warrants. In addition, we have received gross proceeds $500,000 from the sale of
the secured convertible notes and the investors are obligated to provide us with
an additional $1,000,000; $500,000 within five days of the filing of this
registration statement, and $500,000 within five days of this prospectus being
declared effective. The proceeds received from the sale of the secured
convertible notes will be used for business development purposes, working
capital needs, pre-payment of interest, payment of consulting and legal fees and
purchasing inventory.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"CYBL".
For the periods indicated, the following table sets forth the high and low
bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
High($) Low ($)
------- -------
2003
Third Quarter (1) 1.05 0.10
Fourth Quarter 0.55 0.12
2004
First Quarter 0.53 0.19
Second Quarter 0.85 0.27
Third Quarter 0.55 0.23
Fourth Quarter (2) 0.35 0.24
(1) Our stock first traded on July 13, 2003.
(2) As of October 8, 2004.
HOLDERS
As of September 23, 2004, we had approximately 180 holders of our common
stock. The number of record holders was determined from the records of our
transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies. The transfer agent of our common stock is Pacific
Stock Transfer Company, 500 E. Warm Springs Road, Suite 240, Las Vegas, Nevada
89119.
We have never declared or paid any cash dividends on our common stock. We
do not anticipate paying any cash dividends to stockholders in the foreseeable
future. In addition, any future determination to pay cash dividends will be at
the discretion of the Board of Directors and will be dependent upon our
financial condition, results of operations, capital requirements, and such other
factors as the Board of Directors deem relevant.
14
EQUITY COMPENSATION PLAN INFORMATION
STOCK OPTION PLAN
We have a 2003 Employee Stock Option Plan for incentive/retention of
current key employees and as an inducement to employment of new employees. The
2003 plan, which sets aside 2,000,000 shares of common stock for purchase by
employees, was approved by our Board of Directors. We will not issue options or
warrants to any employee or affiliate with an exercise price of less than 85% of
the fair market value of our common stock on the date of the grant.
OPTION/SAR GRANTS IN LAST FISCAL YEAR - INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/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 $0.001/Sh 2011
-------------------------------------------------------------------------------
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
--------------------------------------------------------------------------------------------------------
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
ON EXERCISE VALUE OPTIONS/SARS AT FY-END AT FY-END ($)
NAME (#) REALIZED ($) (#)EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------------------------------------------------------------------------------------------------
Donald F. Evans 100,000 $14,900 100,000 $14,900
--------------------------------------------------------------------------------------------------------
John W. Ringo 50,000 $7,450 50,000 $7,450
--------------------------------------------------------------------------------------------------------
Alan H. Ninneman 50,000 $7,450 50,000 $7,450
--------------------------------------------------------------------------------------------------------
David D. Downing 50,000 $7,450 50,000 $7,450
--------------------------------------------------------------------------------------------------------
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 700,000 shares
-----------------------------------------
David D. Downing 250,000 shares
-----------------------------------------
John W. Ringo 250,000 shares
-----------------------------------------
Alan H. Ninneman 250,000 shares
-----------------------------------------
Mark D. Schmidt 550,000 shares
-----------------------------------------
15
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 Weighed Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
$ 0.2125 2,000,000 6 $0.2125 2,000,000 $0.2125
--------- ---------
2,000,000 6 $0.2125 2,000,000 $0.2125
========= ====== ========= ======
Transactions involving stock options issued to employees are summarized as
follows:
Weighted
Average Price
Number of Shares Per Share
---------------- ----------
Outstanding at December 31, 2002
Granted 2,000,000 $ 0.2125
Exercised - -
Canceled or expired - -
----------- ----------
Outstanding at December 31, 2003 2,000,000 $ 0.2125
=========== ==========
The weighted-average fair value of stock options granted to employees
during the period Ended December 31, 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.
16
On September 2, 2003, our Board approved a 2004 Incentive Stock Option Plan
which will provide 2,000,000 shares to underwrite options.
On April 8, 2004 our Board approved the 2005 Incentive Stock Option Plan that
provides for 12,000,000 shares to underwrite options.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; and
o state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there
may be events in the future that we are not able to accurately predict or over
which we have no control. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."
OVERVIEW
We are in the development stage and our 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.
We are developing and marketing new product applications of diodal
illumination(TM) that demonstrate added value over traditional lighting systems.
Using proprietary technology, we are creating a family of products for emergency
and security lighting offer extended light life and greater cost effectiveness
than other existing forms of illumination. We are expanding our marketing
activity into channels of retail, commercial and institutional sales.
Our target markets include long-term interim lighting needs in hotels,
hospitals, nursing homes, airports, shopping centers and multiple family
complexes; long-term evacuation solutions for theaters, office and public
buildings; reduced maintenance cost solutions for property managers as applied
to walkway, corridor or landscape lighting; and certain sensitive applications
for the military.
On April 27, 2004, we received an initial purchase order from the City of
Cleveland for the pilot phase implementation of our Emergency Lighting
Augmentation System project. The nature and purpose of our Emergency Lighting
Augmentation System is its ability to provide up to 60 hours of light in
bathrooms, stairwells, elevators, corridors, equipment rooms and interior
offices from its custom constant charge battery pack and expandable lighting
element configuration. The system retrofits into existing fluorescent fixtures
where its patented sensor differentiates between power off at a wall switch and
a power outage in the building's electrical system. We concluded the pilot phase
in June 2004 and are working on proposals to extend our installation of our
Emergency Lighting Augmentation System for the Cleveland municipality including
the Cleveland Hopkins International Airport.
During the second quarter of 2004, we met with officials from the State of
New York who expressed interest in our long-term interim lighting solutions. We
also met with security administrators of the Metropolitan Transit Authority and
the Port Authority in the City of New York. The Metropolitan Transit Authority
requested that we submit a proposal to provide long term interim lighting pilot
installations in New York City's subway system to include passenger platforms,
rail cars and tunnel accesses. We anticipate a similar proposal request from the
Port Authority relative to Newark, LaGuardia and JFK airports and the Port
Authority Holland Tunnel system.
Although, we have been focused on emergency lighting due to power grid
failures and blackout concerns expressed by Homeland Security officials, we have
also made advances from the retail segment of our business. For the Christmas
retail season, we are developing a camping light positioning and are marketing
the "CampLamp" to major national retailers. In addition, our Home Safety Light
is continuing to gain sales acceptance across the broad retail channel and we
anticipate launching the next generation of Home Safety Light for the Christmas
season.
18
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires us
to make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policies involve the most complex, difficult and subjective
estimates and judgments:
o stock-based compensation; and
o revenue recognition.
STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS
No. 123 - Accounting for Stock-Based Compensation, providing alternative methods
of voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. FAS 148 also requires disclosure of the
method used to account for stock-based employee compensation and the effect of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2002.
The Company elected to continue to account for stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by APB No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Under the provisions of APB No. 25, compensation expense is measured at the
grant date for the difference between the fair value of the stock and the
exercise price.
REVENUE RECOGNITION
For revenue from product sales, the Company recognizes revenue in
accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred; (3) the selling price is fixed
and determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.
RESULTS OF OPERATIONS
REVENUES
We have generated operating revenues from operations of $95,444 from our
inception. We believe we will continue earning revenues from operations in our
second year of actual operation on an ongoing basis as we transition from a
development stage company to that of an active growth and acquisition stage
company
COSTS AND EXPENSES
From our inception through June 30, 2004, we have generated revenues of
$95,444 from operations. We have incurred losses of $5,283,798 during this
period. These expenses were associated principally with equity-based
compensation to employees and consultants, product development costs and
professional services.
19
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2004, we had a working capital deficit of $530,352. As a
result of our operating losses from our inception through June 30, 2004, we
generated a cash flow deficit of $1,796,988 from operating activities. Cash
flows used in investing activities was $132,760 during the period May 17, 2000
(date of our inception) through June 30, 2004. We met our cash requirements
during this period through the private placement of $1,620,000 through the
issuance of our common and preferred stock, and $212,455 from the issuance of
notes payable and advances of $112,745, net of repayments, to our officers and
shareholders and advances.
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.
By adjusting our operations and development to the level of
capitalization, we believe we have sufficient 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.
Our independent certified public accountant has stated in their report
included in our December 31, 2003 Form 10-KSB, as amended, that we have incurred
operating losses in the last two years, and that we are dependent upon
management's ability to develop profitable operations. These factors among
others may raise substantial doubt about our ability to continue as a going
concern.
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with four accredited investors on September 23, 2004 for the
sale of (i) $1,500,000 in secured convertible notes and (ii) warrants to buy
2,250,000 shares of our common stock. This prospectus relates to the resale of
the common stock underlying these secured convertible notes and warrants. The
investors are obligated to provide us with an aggregate of $1,500,000 as
follows:
o $500,000 was disbursed on September 23, 2004;
o $500,000 will be disbursed within five days of the filing of this
registration statement; and
o $500,000 will be disbursed within five days of this prospectus being
declared effective.
Accordingly, we have received a total of $500,000 pursuant to the
Securities Purchase Agreement. The proceeds received from the sale of the
secured convertible notes will be used for business development purposes,
working capital needs, pre-payment of interest, payment of consulting and legal
fees and purchasing inventory.
The secured convertible notes bear interest at 10%, mature two years from
the date of issuance, and are convertible into our common stock, at the
investors' option, at the lower of (i) $0.72 or (ii) 50% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including the conversion date. The full
principal amount of the secured convertible notes is due upon default under the
terms of secured convertible notes. The warrants are exercisable until five
years from the date of issuance at a purchase price of $0.50 per share. In
addition, the conversion price of the secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the secured convertible notes and the
exercise price of the warrants may be adjusted in certain circumstances such as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the selling stockholder's position. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.9% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors a
security interest in substantially all of our assets and intellectual property
and registration rights.
20
Since the conversion price will be less than the market price of the
common stock at the time the secured convertible notes are issued, we anticipate
recognizing a charge relating to the beneficial conversion feature of the
secured convertible notes during the quarter in which they are issued, including
the third quarter of fiscal 2004 when $500,000 of secured convertible notes were
issued.
We will still need additional investments in order to continue operations
to cash flow break even. Additional investments are being sought, but we cannot
guarantee that we will be able to obtain such investments. Financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. However, the trading price of
our common stock and the downturn in the U.S. stock and debt markets could make
it more difficult to obtain financing through the issuance of equity or debt
securities. Even if we are able to raise the funds required, it is possible that
we could incur unexpected costs and expenses, fail to collect significant
amounts owed to us, or experience unexpected cash requirements that would force
us to seek alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
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
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.
21
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.
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.
22
PRODUCT RESEARCH AND DEVELOPMENT
We anticipate continuing to incur research and development expenditures in
connection with the development of our Wireless Lighting System during the next
twelve months. Those activities include the of ReliaBright Emergency Lighting
Augmentation System (ELAS), Standard and Solo models, the SensorBright Power
Outage Adapter, the EnduroBright Safety Light 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 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.
23
BUSINESS
OVERVIEW
We are a Nevada corporation that was incorporated on May 17, 2000. We were
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 offers major
advances in illumination technology. Our Gallium Nitride diodes consume 92% less
energy than incandescent or fluorescent counterparts to produce comparable light
output. In electrochemical (battery powered) applications, this diminution of
energy consumption positions our lighting solutions as more durable and reliable
than other interim lighting alternatives. In standard alternating current
electrical applications, the calculated life of Gallium Nitride diodes as
lighting elements is over 20 years versus 750 hours for traditional incandescent
light bulbs. These exceptional performance characteristics, diminutive energy
consumption and extended life, have prompted Gallium Nitride diode
implementation in traffic lights and automotive brake lights, but have not yet
significantly occurred in our area of focus, diodal illumination (tm). Diodal
illumination is the production of light through the use of white light emitting
diodes. A light emitting diode is a chemical compound (gallium nitride, GaN)
that produces a visible light when an electrical current is applied. This
production of light through a diode is contrasted with light from a typical
light bulb, in which light is produced as a by-product of a burning filament
contained within a vacuum globe. The diode uses 92% less energy to produce
comparable light to that of a traditional light bulb.
PRINCIPAL PRODUCTS AND PRINCIPAL MARKETS
We have introduced our first product, the Cyberlux Home Safety Light,
which we currently sell and market through our web site, www.cyberlux.com. Our
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 Home Safety Lights was
completed in early October 2002 and we have demonstrated our ability to sustain
volume production standards for up to 80,000 units per month at our assembly and
distribution center in Shelbyville, Illinois. We are now planning to broaden our
product line into optoelectronic technology and expand our marketing activity
into various channels of retail and institutional sales. Our product line,
consisting of ReliaBright Emergency Lighting Augmentation System (ELAS),
Standard and Solo models, the SensorBright Power Outage Adapter, the
EnduroBright Safety Light and CampLamp Lantern, employ single use standard
alkaline or lithium ion constant charge reusable batteries in different
applications. These fixtures express superior characteristics in brightness,
extended light life and durability through diodal(TM) illumination, 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 inefficient use of electrical energy. For
example, 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 diode provides an alternative that can produce the long-term interim
light source that was to be the objective of our 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 Home Safety Light is a portable fixture that provides a full week of
light from one set of AA batteries. Other portable lights require over 20 sets
of replacement batteries to produce comparable light life. The EnduroBright
Safety Light is a modification of the Home Safety Light. The ReliaBright
Emergency Lighting Augmentation System (ELAS) Standard and Solo models, the
SensorBright PowerOutage Adapter and the CampLamp Lantern are the next product
introductions followed by hard-wired systems that will provide alternative
emergency lighting products at a reduction in initial cost and recurring expense
for maintenance of incandescent products.
24
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,
Shelbyville, Illinois, as a contract manufacture and assembly organization that
was positioned to meet our requirements. Shelby County Community Services 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.
We have a Proprietary Product Manufacturing Agreement with Shelby County
Community Services that provides for Shelby County Community Services to
assemble, test, package, warehouse finished good inventory, palletize and ship
per purchase orders for shipment FOB Shelbyville. In the Summer of 2004, we
renewed our relationship with Shelby County Community Services. Shelby County
Community Services will continue to serve as the warehousing and distribution
center for our products, which are to be manufactured abroad. Shelby County
Community Services coordinates customs protocols and manages incoming
inventories.
Our internet site is serviced by Shelby County Community Services through
a fulfillment operations agreement whereby Shelby County Community Services
receives a daily batched summary of internet sales through an email link
established by us and United Parcel Service. The 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 Shelby County Community Services. Packages are shipped
within 24 hours of receipt of the email summary of business for the preceding
day's orders. Shelby County Community Services coordinates materials inventory
with our approved vendors based upon purchase orders or blanket orders for
products.
Robrady Design, Inc., our industrial design firm, provides detailed
working drawings for injection molded parts to tool manufacturers in the US and
abroad. Similarly, our proprietary circuitry design is managed by the
engineering firm of Sino Direct, Ltd. of Dallas, Texas and GuangZhou, P.R.
China. Sino Direct, an international engineering and sourcing firm, designs and
manufactures our product components and ships them to SCCS where the product
components are assembled, packaged, warehoused and shipped. The initial
production capacity at Shelby County Community Services is 80,000 product units
per month, which can be increased by 50% with a four month lead time to
undertake expansion of facilities.
We have engaged Forma Designs, Inc. to produce, coordinate and manage our
corporate and product marketing activities. Forma Designs, Inc. has broad-based
experience in developing the corporate and product marketing required to launch
technology companies. The role of Forma Designs, Inc. is to integrate marketing,
sales, product and customer support activities and messages to optimize customer
acquisition and retention. Forma Designs, Inc. serves 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.
We have retained two technology product sales firms, Smart Products, Inc.,
Westwood, NJ, and New Edison, LLC, Longmont, CO, to represent our product line
over the range of channels addressed for distribution. The individual firms have
been selected based upon established relationships with certain commercial and
retail channels and proven track records of sales to those channels.
25
INDUSTRY BACKGROUND
A research study attempted 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 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).
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. 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.
RESEARCH AND DEVELOPMENT ACTIVITIES
RELIABRIGHT EMERGENCY LIGHTING AUGMENTATION SYSTEM
Our ReliaBright Emergency Lighting Augmentation System was designed to
provide a long-term emergency lighting solution for commercial buildings. The
Emergency Lighting Augmentation System employs an array of ultra-bright white
diodes that are powered by constant charge batteries and are controlled by a
patented power sensor that is positioned to detect an electrical failure in the
building. The Emergency Lighting Augmentation System is easily installed within
existing light fixtures and provides several days of bright white light versus
90 minutes provided by "evacuation" lights, as mandated by fire codes. The
blackout in 2003 caused by a massive power outage from Michigan to New York
inspired many government officials to recognize the danger of the inadequacy of
existing emergency lights and prompted a focus on long-term interim lighting
solutions. We have demonstrated our Emergency Lighting Augmentation System
products with the City of Cleveland, which was affected by the August 2003
blackout. The Cleveland project offers us the opportunity to demonstrate the
cost/benefit effectiveness of our Emergency Lighting Augmentation System and
provides a an opportunity to demonstrate the product for other municipalities.
HOME SAFETY LIGHT
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. In October 2003, the Home Safety Light
was successfully launched in the retail market on the QVC, Inc. home shopping
channel.
ENDUROBRIGHT SAFETY LIGHT
The EnduroBright Safety Light is similar in form and function to the Home
Safety Light, but has an entirely new electrical system that employs a miniature
square circuit board controller that powers the fixture with only two 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.
26
SENSORBRIGHT POWER OUTAGE ADAPTER
The SensorBright Power Outage 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 faceplate. 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. The fixture
will first be marketed through institutional sales channels.
CAMPLAMP LANTERN
The CampLamp is designed to be an 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
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.
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
us and our employees. We have employment agreements with the following executive
officers: Donald F. Evans, Chairman and CEO, Mark D. Schmidt, President and COO,
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.
DESCRIPTION OF PROPERTIES
We maintain our principal office at 4625 Creekstone Drive, Suite 100,
Research Triangle Park, Durham, North Carolina 27703. Our telephone number at
that office is (919) 474-9000 and our facsimile number is (919) 474-9712. We
lease 2,405 square feet of office space. The lease expires on December 31, 2008.
The monthly rent is $3,457, subject to an annual cost of living increase. We
believe that our current office space and facilities are sufficient to meet our
present needs and do not anticipate any difficulty securing alternative or
additional space, as needed, on terms acceptable to us.
27
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. Except as
disclosed below, we are currently not aware of any such legal proceedings or
claims that we believe will have, individually or in the aggregate, a material
adverse affect on our business, financial condition or operating results.
On October 23, 2003, OneCap, Inc. filed a complaint against us and our
officers, directors and certain shareholders in the District Court of Clark
County, Nevada (Case No. A475506). The complaint alleges a breach of contract
and securities fraud. The plaintiff is seeking specific performance, declaratory
relief and injunctive relief. We believe that we have meritorious defenses to
the plaintiff's claims and intend to vigorously defend ourselves against the
plaintiff's claims. On January 9, 2004 the litigation was settled with both
parties mutually releasing the other. The case was dismissed with prejudice.
On April 18, 2001, we 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, we filed a Motion for Rehearing or
Clarification of the Motion to Dissolve. A hearing on our 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:
We came into contact with Light Technology, Inc. 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. Light Technology, Inc.
and Rachwal represented that they had such knowledge and expertise and could
finalize the development of our emergency light by September 30, 2000 so that we
could begin manufacturing and selling the emergency light by November 2000.
Rachwal and Light Technology, Inc. also advised us that we could acquire all the
assets of Light Technology, Inc. and the rights to Light Technology, Inc.'s
flashlight which also used white LEDs provided Rachwal was made an officer and
director of our company as well as be in charge of design work.
In order to evaluate this offer, we requested accounting and financial
records to verify the representations of Light Technology, Inc. and Rachwal and
to attempt to ascertain the value of Light Technology, Inc.. Despite repeated
attempts, Light Technology, Inc. and Rachwal were unable to provide adequate,
verifiable financial records. Nonetheless, in order allow Light Technology, Inc.
and Rachwal to proceed with the development of the emergency light in order to
meet the November shipping deadline, we entered into a Letter of Intent with
Light Technology, Inc. on June 12, 2000. This Letter of Intent also contained a
confidentiality clause protecting our interests. Pursuant to the Letter of
Intent we paid Light Technology, Inc. $100,000 to develop a prototype of an
emergency storm light and possible acquisition of the assets of Light
Technology, Inc. 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 Light Technology, Inc. assets. Kerkering,
Barbario came to the conclusion that Light Technology, Inc. had no verifiable
assets of any value. Furthermore, Light Technology, Inc. never developed and
produced a working model of the emergency storm light. We incurred meeting and
travel expenses of $36,401 associated with Light Technology, Inc. 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 Light Technology, Inc. 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 Light
Technology, Inc. had developed an emergency light, he did not object to the
injunction stating that he did not have such a light.
28
There is no similarity between our product, the Home Safety Light, and
Light Technology, Inc.'s product, known as the Pal Light. Our product has 10
diodes and provides a blanket of light to light up a room in the event of a
power outage. The Light Technology, Inc. product is a small flashlight that uses
one diode.
Light Technology, Inc. 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 alleges 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.
We intend to fully prosecute our claims and actions against the
Defendants. We deny the Defendants allegations alleged against us 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.
29
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position
--------------------------------------------------------------------------------
Donald F. Evans 69 Chief Executive Officer and Chairman of the Board
of Directors
Mark D. Schmidt 38 President, Chief Operating Officer and Director
John W. Ringo 59 Secretary, Corporate Counsel and Direector
Alan H. Ninneman 60 Senior Vice President and Director
David D. Downing 52 Chief Financial Officer and Treasurer
Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Currently
there are three seats on our board of directors.
Currently, our Directors are not compensated for their services. Officers
are elected by the Board of Directors and serve until their successors are
appointed by the Board of Directors. Biographical resumes of each officer and
director are set forth below.
DONALD F. EVANS. Mr. Evans has been our Chief Executive Officer and
Chairman of the Board since May 2000. Between 1979 and May 2000, Mr. Evans was
the Managing Partner of Research Econometrics, a North Carolina based
corporation, where Mr. Evans began an investigative research study into the
feasibility of a long-term electrochemical interim lighting system. From June
1996 until March 1999, Mr. Evans represented the investment interest of Research
Econometrics in Waste Reduction Products Corporation, a privately held North
Carolina corporation Mr. Evans also served on the Board of Directors of Waste
Reduction Products Corporation. Mr. Evans graduated from the University of North
Carolina, Chapel Hill, NC with a BS Degree in Economics.
MARK D. SCHMIDT. Mr. Schmidt has been our President, Chief Operating
Officer and Director since May 2003. From December 1999 until December 2002, Mr.
Schmidt was a founder and executive of Home Director, Inc., the IBM Home
Networking Division spinoff company and a public company. Mr. Schmidt is a
former IBM executive with over 15 years of consumer marketing, business
management and venture startup experience. 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.
JOHN W. RINGO. Mr. Ringo has been our Secretary, Corporate Counsel and a
Director since May 2000. Since 1990, Mr. Ringo has been 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 graduated from the University of Kentucky in
Lexington, KY with a BA Degree in Journalism. Subsequently, he received a Juris
Doctor Degree from the University of Kentucky College of Law.
ALAN H. NINNEMAN. Mr. Ninneman has been our Senior Vice President and a
Director since May 2000. From 1992 until April 2000, Mr. Ninneman was a Chief
Executive Officer of City Software, Inc. based in Albuquerque, New Mexico. He
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; and Director of Operations at Scorpion Technologies, Inc., San
Jose, California. Mr. Ninneman attended Elgin Community College, Elgin, IL and
subsequently majored in business administration at Southern Illinois University,
Carbondale, IL.
DAVID D. DOWNING. Mr. Downing has been our Chief Executive Officer and
Treasurer since May 2000. 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. Mr. Downing graduated from Grove City College, Grove City, PA with a BA
Degree in Accounting.
30
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding our CEO
and each of our most highly-compensated executive officers whose total annual
salary and bonus for the fiscal year ending December 31, 2003, 2002 and 2001
exceeded $100,000:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation ($) Awards($) (#) ($) Compensation
---------------------------------------------------------------------------------------------------------------------------
Donald F. Evans 2003 180,000 0 0 -- 700,000 -- --
CEO & Chairman 2002 98,004 0 0 -- -- -- --
2001 98,004 0 0 -- 200,000 -- --
-----------------------------------------------------------------------------------------------------------------------
John W. Ringo 2003 102,000 0 0 -- 250,000 -- --
Secretary and 2002 69,000 0 0 -- -- -- --
Corporate Counsel 2001 69,000 0 0 -- 150,000 -- --
-----------------------------------------------------------------------------------------------------------------------
Alan H. Ninneman 2003 102,000 0 0 -- 250,000 -- --
Senior Vice President 2002 78,000 0 0 -- -- -- --
2001 78,000 0 0 -- 150,000 -- --
-----------------------------------------------------------------------------------------------------------------------
Mark D. Schmidt 2003 120,000 0 0 -- 550,000 -- --
President & COO 2002 -- -- -- -- -- -- --
2001 -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
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. 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 bear interest at
10% per annum and these obligations of the Company are to be retired from
revenues when product sales begin.
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.
(1) On May 1, 2003, Mark D. Schmidt entered into an employment agreement in
which he will be paid an annual salary of $180,000.
31
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/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
--------------------------------------------------------------------------------
STOCK OPTION PLANS
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 2003 plan, which sets aside 2,000,000 shares of common
stock for purchase by employees, was made effective by the Board of Directors.
On September 2, 2003, our Board approved a 2004 Incentive Stock Option
Plan, which will provide 2,000,000 shares to underwrite options.
On April 8, 2004 our Board approved the 2005 Incentive Stock Option Plan
that provides for 12,000,000 shares to underwrite options.
The stock option plans are administered directly by our board of
directors.
Subject to the provisions of the stock option plans, the board will
determine who shall receive stock options, the number of shares of common stock
that may be purchased under the options, the time and manner of exercise of
options and exercise prices.
As of September 30, 2004, there were 2,000,000 stock options granted under
the 2003 plan that were outstanding.
EMPLOYMENT AGREEMENTS
Donald F. Evans
On July 1, 2000, we entered into an eight-year employment contract with
Donald F. Evans to serve as Chief Executive Officer, which was amended on
January 1, 2003. The base salary under the agreement is $180,000 per annum, plus
benefits.
Alan H. Ninneman
On July 1, 2000, we entered into an eight-year employment contract with
Alan H. Ninneman to serve as Senior Vice President, which was amended on January
1, 2003. The base salary under the agreement is $102,000 per annum, plus
benefits.
32
John W. Ringo
On July 1, 2000, we entered into an eight-year employment contract with
John W. Ringo to serve as Secretary and Corporate Counsel, which was amended on
January 1, 2003. The base salary under the agreement is $102,000 per annum, plus
benefits.
Mark D. Schmidt
On May 1, 2003, we entered into an employment contract with Mark D.
Schmidt to serve as Executive Vice President and Chief Operating Officer until
June 30, 2008. The base salary under the agreement is $180,000 per annum, plus
benefits.
33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We issued certain management fees, which were for accrued salaries for
Messrs. Evans, Ninneman, Ringo, Schmidt and Downing consistent with employment
agreements. These fees are in the form of non-interest bearing promissory notes.
$800,000 of these management fees were converted to Series B Convertible
Preferred stock with superior voting rights. Salary accruals in the form of
management fees for Messrs. Evans, Ninneman and Ringo are still owed in the
amounts of $125,401.95, $82,347.82 and $76,085.63, 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
loaned $13,100, $106,000 and $3,745, 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.
We have no policy regarding entering into transactions with affiliated
parties.
34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of October 1, 2004:
o by each person who is known by us to beneficially own more than 5%
of our common stock;
o by each of our officers and directors; and
o by all of our officers and directors as a group.
PERCENTAGE OF PERCENTAGE OF
CLASS CLASS
NAME AND ADDRESS NUMBER OF PRIOR TO AFTER
OF OWNER TITLE OF CLASS SHARES OWNED(1) OFFERING(2) OFFERING(3)
-----------------------------------------------------------------------------------------------------
Donald F. Evans Common Stock 28,965,300 (4) 61.07% 28.52%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
Mark D. Schmidt Common Stock 10,300,000 (5) 34.32% 12.24%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
Alan H. Ninneman Common Stock 18,715,200 (6) 49.28% 20.31%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
John W. Ringo Common Stock 17,141,500 (7) 46.83% 18.89%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
David Downing Common Stock 8,133,000 (8) 29.52% 9.95%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
All Officers and Directors Common Stock 83,255,000 (9) 83.33% 54.04%
As a Group (5 persons)
===============================================
Katherine Kurzman Preferred A 13 7.61% 7.61%
800 West End Avenue
New York, NY 10025
Lon E. Bell Preferred A 10 5.85% 5.85%
1819 N. Grand Oaks
Altadena, CA 91001
Wilson A. Knott Preferred A 10 5.85% 5.85%
200 Red Bud Lane
Longwood, FL 32779
===============================================
Donald F. Evans Preferred B 275,103 34.39% 34.39%
Mark D. Schmidt Preferred B 101,000 12.63% 12.63%
Alan H. Ninneman Preferred B 180,652 22.58% 22.58%
John W. Ringo Preferred B 166,915 20.86% 20.86%
David Downing Preferred B 76,330 9.54% 9.54%
35
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of October 1, 2004 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) Based upon 19,915,905 shares issued and outstanding on October 1, 2004.
(3) Percentage based on 74,067,225 shares of common stock outstanding.
(4) Includes 275,103 shares of Series B convertible preferred stock convertible
into 27,510,300 shares of common stock.
(5) Includes 101,000 shares of Series B convertible preferred stock convertible
into 10,100,000 shares of common stock.
(6) Includes 180,652 shares of Series B convertible preferred stock convertible
into 18,065,200 shares of common stock.
(7) Includes 166,915 shares of Series B convertible preferred stock convertible
into 16,691,500 shares of common stock.
(8) Includes 76,330 shares of Series B convertible preferred stock convertible
into 7,633,000 shares of common stock.
(9) Includes 800,000 shares of Series B convertible preferred stock convertible
into 80,000,000 shares of common stock.
36
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 100,000,000 shares of common stock, par
value $.001. As of September 22, 2004, there were 19,915,905 shares of common
stock outstanding. Holders of the common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. Holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
We have engaged Pacific Stock Transfer Company, located in Las Vegas,
Nevada, as independent transfer agent or registrar.
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of Preferred Stock, par
value $.001. As of September 22, 2004, there were 800,170.861 shares of
preferred stock issued and outstanding.
OPTIONS
There are currently options outstanding that have been issued to our
officers and directors to purchase 350,000 shares of our common stock at a
purchase price of $0.001, which expire in 2011.
WARRANTS
In connection with a Securities Purchase Agreement dated September 23,
2004, we have issued 750,000 warrants to purchase shares of common stock and we
are obligated to issue an additional 1,500,000 warrants to purchase shares of
common stock. The warrants are exercisable until five years from the date of
issuance at a purchase price of $0.50 per share.
In addition, in connection with a private placement offering, we have
issued 8,543,064 Series A and 8,543,064 Series B warrants. The Series A warrants
are exercisable at $0.25 per share and the Series B warrants are exercisable at
$1.05 per share. The Series A warrants expire in 2006 and the Series B warrants
expire in 2008. In addition, we issued Placement Agent warrants to the placement
agent in the private placement offering. We issued a total of 100,000 placement
agents warrants exercisable at $0.01 per share, 1,550,000 placement agent
warrants exercisable at $0.10 per share, 1,550,000 placement agent warrants
exercisable at $0.25 per share and 1,550,000 placement agent warrants
exercisable at $1.05 per share. All placement agent warrants expire in 2008.
In addition, we have 58,500 warrants outstanding exercisable at $0.10 per
share, which expire in 2008. We have 605,000 warrants outstanding exercisable at
$0.20 per share, which expire in 2006. We have 1,441,500 warrants outstanding
exercisable at $0.25 per share, of which 1,350,000 expire in 2005 and 91,500
expire in 2008. We have 300,000 warrants outstanding exercisable at $0.50 per
share, which expire in 2006. We have 605,000 warrants outstanding exercisable at
$0.20 per share, which expire in 2006.
CONVERTIBLE SECURITIES
Not including approximately 750,000 shares of common stock issuable upon
exercise of outstanding options and warrants and 1,500,000 warrants that we are
obligated to issue in the near future, approximately 3,750,938 shares of common
stock are issuable upon conversion of outstanding secured convertible notes
issued pursuant to the Securities Purchase Agreement dated September 23, 2004.
The 750,000 warrants to shares of common stock that we are obligated to issue in
the near future are to be issued pursuant to the Securities Purchase Agreement
dated September 23, 2004, which requires that 750,000 warrants be issued
together with $500,000 in secured convertible notes within five days of the
filing of this registration statement and 750,000 warrants be issued together
with $500,000 in secured convertible notes within five days from the effective
date of this prospectus.
37
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with four accredited investors on September 23, 2004 for the
sale of (i) $1,500,000 in secured convertible notes, and (ii) warrants to
purchase 2,250,000 shares of our common stock.
This prospectus relates to the resale of the common stock underlying these
secured convertible notes and warrants. The investors are obligated to provide
us with an aggregate of $1,500,000 as follows:
o $500,000 was disbursed on September 23, 2004;
o $500,000 will be disbursed within five days of the filing of this
registration statement; and
o $500,000 will be disbursed within five days of the effectiveness of
this prospectus.
Accordingly, we have received a total of $500,000 pursuant to the
Securities Purchase Agreement.
The notes bear interest at 10%, mature two years from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:
o $0.72; or
o 50% of the average of the three lowest intraday trading prices for
the common stock on a principal market for the 20 trading days
before but not including the conversion date.
The full principal amount of the secured convertible notes are due upon
default under the terms of secured convertible notes. The warrants are
exercisable until five years from the date of issuance at a purchase price of
$0.50 per share. In addition, we have granted the investors a security interest
in substantially all of our assets and intellectual property and registration
rights.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Nevada law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling us 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 Act and is, therefore, unenforceable.
38
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees and other successors-in-interest may, from time to time, sell any or
all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o short sales that are not violations of the laws and regulations of
any state or the United States;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion. In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
39
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholders and the broker-dealer.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
40
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares
of common stock by the selling stockholders. We will not receive any proceeds
from the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants unless the selling stockholders
exercise the warrants on a cashless basis. Assuming all the shares registered
below are sold by the selling stockholders, none of the selling stockholders
will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is
offering the resale of shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of shares of
common stock each person will own after the offering, assuming they sell all of
the shares offered.
------------------------------------------------------------------------------------------------------------------------
Total
Total Shares of Percentage Percentage
Common Stock of Common Shares of Beneficial of Common
Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership Stock Owned
Conversion of Assuming Included in Ownership Common Stock After the After
Name Notes Full Prospectus Before the Owned Before Offering Offering
and/or Warrants* Conversion (1) Offering** Offering** (4) (4)
------------------------------------------------------------------------------------------------------------------------
AJW Offshore, Ltd. 4,943,612 19.89% Up to 1,026,161 (2) 4.9% -- --
(3) 9,887,223
shares of
common stock
------------------------------------------------------------------------------------------------------------------------
AJW Qualified 5,878,889 22.79% Up to 1,026,161 (2) 4.9% -- --
Partners, LLC (3) 11,757,779
shares of
common stock
------------------------------------------------------------------------------------------------------------------------
AJW Partners, LLC 2,137,778 9.69% Up to 712,593 3.45% -- --
(3) 4,275,556
shares of
common stock
------------------------------------------------------------------------------------------------------------------------
New Millennium 400,833 1.97% Up to 133,612 * -- --
Capital Partners 801,666
II, LLC (3) shares of
common stock
========================================================================================================================
Arla Sheinwald -- -- 750,000 (5) 750,000 3.63% -- --
Bruce W. Bryde -- -- 300,000 (5) 300,000 1.48% -- --
Charles O'Brien -- -- 210,000 (5) 210,000 1.04% -- --
Christina Crossman -- -- 600,000 (5) 600,000 2.92% -- --
David Bromberg -- -- 300,000 (5) 300,000 1.48% -- --
David S. Nagelberg -- -- 712,500 (5) 712,500 3.45% -- --
2003 Revocable Trust
David W. Eckert -- -- 150,000 (5) 150,000 * -- --
Debbie Miller -- -- 300,000 (5) 300,000 1.48% -- --
Dennis R. Steinke -- -- 375,000 (5) 375,000 1.85% -- --
Dominic Thomas Coletta -- -- 570,000 (5) 570,000 2.75% -- --
Emmet L. Goodman, Jr. -- -- 600,000 (5) 600,000 2.92% -- --
41
F.B. Bywater -- -- 525,000 (5) 525,000 2.57% -- --
Gary W. Callicott -- -- 300,000 (5) 300,000 1.48% -- --
George E. Flyth -- -- 300,000 (5) 300,000 1.48% -- --
Jacob Engel -- -- 750,000 (5) 750,000 3.63% -- --
Jericho Investments LLC -- -- 750,000 (5) 750,000 3.63% -- --
John G. Lechner -- -- 75,000 (5) 75,000 * -- --
John Huie -- -- 387,000 (5) 387,000 1.91% -- --
Jonathan Wachs -- -- 750,000 (5) 750,000 3.63% -- --
Katherine Kurzman -- -- 1,950,000 (5) 1,950,000 8.92% -- --
Kenneth F. Oswald -- -- 900,000 (5) 900,000 4.32% -- --
Larry R. Stessel -- -- 375,000 (5) 375,000 1.85% -- --
Lon E. Bell -- -- 1,500,000 (5) 1,500,000 7.00% -- --
Lyder R. Johnson -- -- 600,000 (5) 600,000 2.92% -- --
M. Mark Castellano, III -- -- 600,000 (5) 600,000 2.92% -- --
Mark Wachs -- -- 750,000 (5) 750,000 3.63% -- --
Neal M. Goldstein -- -- 750,000 (5) 750,000 3.63% -- --
Patrick J. Armstrong -- -- 375,000 (5) 375,000 1.85% -- --
Phoenix Group -- -- 450,000 (5) 450,000 2.21% -- --
Consultants, Inc.
R. Keith Fetter -- -- 450,000 (5) 450,000 2.21% -- --
Robert G. Dello Russo -- -- 750,000 (5) 750,000 3.63% -- --
Robert G. & Cynthia -- -- 600,000 (5) 600,000 2.92% -- --
D. Lewis
Robert Mittleman -- -- 300,000 (5) 300,000 1.48% -- --
Ronald E. Gee -- -- 300,000 (5) 300,000 1.48% -- --
Ronald I. Heller -- -- 712,500 (5) 712,500 3.45% -- --
Trust dated 12/23/97
Stephen B. Armstrong -- -- 387,096 (5) 387,096 1.91% -- --
Stephen W. Gropp -- -- 300,000 (5) 300,000 1.48% -- --
Thomas Terry -- -- 300,000 (5) 300,000 1.48% -- --
Thomas V. Marianacci -- -- 300,000 (5) 300,000 1.48% -- --
Vic T. Luong -- -- 750,000 (5) 750,000 3.63% -- --
Ward I. Snyder -- -- 450,000 (5) 450,000 2.21% -- --
William A. Coben -- -- 825,000 (5) 825,000 3.98% -- --
42
William V. Castellano -- -- 300,000 (5) 300,000 1.48% -- --
Wilson A. Knott -- -- 1,500,000 (5) 1,500,000 7.00% -- --
Current Capital Corp -- -- 1,950,000 (6) 1,500,000 7.00% -- --
Advisory Group Ltd. -- -- 750,000 (7) 750,000 3.63% -- --
KBK Ventures -- -- 600,000 600,000 3.01% -- --
Marc Heskell -- -- 125,000 (8) 125,000 * -- --
Richard Berkley -- -- 125,000 (8) 125,000 * -- --
Alan Sheinwald -- -- 125,000 (8) 125,000 * -- --
Frank Maresca & -- -- 160,000 (9) 160,000 * -- --
Associates, Inc.
William Schnell & -- -- 160,000 (9) 160,000 * -- --
Associates, Inc.
Bruce W. Geiger & -- -- 160,000 (9) 160,000 * -- --
Associates, Inc.
Mike Kelly -- -- 50,000 50,000 * -- --
Castle Rock D.M.G. -- -- 200,000 200,000 1.00% -- --
Investments Management,
Inc.
Alex Arabian -- -- 100,000 100,000 * -- --
Robert Mendel -- -- 200,000 200,000 1.00% -- --
Christopher Brown -- -- 250,000 250,000 1.26% -- --
C. Randy Little -- -- 100,000 100,000 * -- --
Sherman Smith -- -- 100,000 100,000 * -- --
Thomas E. Enright -- -- 250,000 250,000 1.26% -- --
David L. Spehar -- -- 150,000 150,000 * -- --
Don Early -- -- 350,000 -- --
Gregory B. Lott -- -- 100,000 100,000 * -- --
Preston K. and Stephanie -- -- 100,000 100,000 * -- --
R. Cain
Steven K. and Michele -- -- 300,000 300,000 1.51% -- --
Rowe JTWROS
William Stanley -- -- 100,000 100,000 * -- --
Gregory K. and Laura A. -- -- 200,000 200,000 1.00% -- --
Crooker
John P. Danchertsen -- -- 54,000 54,000 * -- --
Patrick Schetzer -- -- 100,000 100,000 * -- --
Philip E. & Sherri A. -- -- 150,000 150,000 * -- --
Tearney JTWROS
43
M. Ray Simpson -- -- 100,000 100,000 * -- --
Stephen E. Hinkhouse -- -- 100,000 100,000 * -- --
William P. Moore, III -- -- 850,000 850,000 4.27% -- --
Trustee of William P.
Moore III Revocable Trust
Dated Oct. 9, 2001
James M. Thomas -- -- 175,000 175,000 * -- --
John F. Younghanz, Jr. -- -- 120,000 120,000 * -- --
Thomas Todd Maxwell -- -- 100,000 100,000 * -- --
Gary Sirna -- -- 200,000 200,000 1.00% -- --
Golf Club Investment Club -- -- 100,000 100,000 * -- --
J. Ryan Williams -- -- 50,000 50,000 * -- --
Brad and Stephanie -- -- 100,000 100,000 * -- --
Sayre JTWROS
Richard E. Ellison -- -- 100,000 100,000 * -- --
John F. Youngblood -- -- 110,000 110,000 * -- --
Trustee R/L/T/A dated
February 14, 1990
John M. Gott -- -- 100,000 100,000 * -- --
David L. Bromberg -- -- 400,000 400,000 2.01% -- --
Robert D. & Sherri L. -- -- 100,000 100,000 * -- --
Woodworth JTWROS
Jane E. Snowden, Trustee -- -- 130,000 130,000 * -- --
Of Jane E. Snowden Trust
Dated 12/23/94
Chris Bradford -- -- 80,000 80,000 * -- --
Claude G. & Kristin S. -- -- 12,000 12,000 * -- --
Lerner
Jim Pryor -- -- 40,000 40,000 * -- --
Sharon Snowden -- -- 20,000 20,000 * -- --
Arnold Morren Revocable -- -- 200,000 200,000 1.00% -- --
Living Trust
Jay & Kathleen Morren -- -- 200,000 200,000 1.00% -- --
JTTEN Trust Dated 3/18/92
3CD Consulting, LLC -- -- 800,000 800,000 4.02% -- --
Robert Ruben -- -- 10,000 10,000 * -- --
Stanley Wunderlich -- -- 185,000 185,000 * -- --
Bonnie Stretch -- -- 25,000 25,000 * -- --
44
Titan Entertainment Group, -- -- 100,000 100,000 * -- --
LLC
Pensco Trust Company FBO -- -- 100,000 (10) 100,000 * -- --
James A. Boeddeker
Greenfield Capital -- -- 500,000 500,000 2.51% -- --
Partners, LLC
Sichenzia Ross Friedman -- -- 100,000 100,000 * -- --
Ference LLP
* This column represents an estimated number based on a conversion price as of a
recent date of October 11, 2004 of $.135, divided into the principal amount.
** These columns represent the aggregate maximum number and percentage of shares
that the selling stockholders can own at one time (and therefore, offer for
resale at any one time) due to their 4.9% limitation.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the secured convertible notes is subject to adjustment depending
on, among other factors, the future market price of the common stock, and could
be materially less or more than the number estimated in the table.
(1) Includes a good faith estimate of the shares issuable upon conversion of the
secured convertible notes and exercise of warrants, based on current market
prices. Because the number of shares of common stock issuable upon conversion of
the secured convertible notes is dependent in part upon the market price of the
common stock prior to a conversion, the actual number of shares of common stock
that will be issued upon conversion will fluctuate daily and cannot be
determined at this time. Under the terms of the secured convertible notes, if
the secured convertible notes had actually been converted on October 11, 2004,
the conversion price would have been $.135.
(2) The actual number of shares of common stock offered in this prospectus, and
included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon conversion of the secured convertible notes and exercise of the
related warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416 under the
Securities Act of 1933. However the selling stockholders have contractually
agreed to restrict their ability to convert their secured convertible notes or
exercise their warrants and receive shares of our common stock such that the
number of shares of common stock held by them in the aggregate and their
affiliates after such conversion or exercise does not exceed 4.9% of the then
issued and outstanding shares of common stock as determined in accordance with
Section 13(d) of the Exchange Act. Accordingly, the number of shares of common
stock set forth in the table for the selling stockholders exceeds the number of
shares of common stock that the selling stockholders could own beneficially at
any given time through their ownership of the secured convertible notes and the
warrants. In that regard, the beneficial ownership of the common stock by the
selling stockholder set forth in the table is not determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
(3) The selling stockholders are affiliates of each other because they are under
common control. AJW Partners, LLC is a private investment fund that is owned by
its investors and managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey
S. Ribotsky is the fund manager, has voting and investment control over the
shares listed below owned by AJW Partners, LLC. AJW Offshore, Ltd. is a private
investment fund that is owned by its investors and managed by First Street
Manager II, LLC. First Street Manager II, LLC, of which Corey S. Ribotsky is the
fund manager, has voting and investment control over the shares owned by AJW
Offshore, Ltd. AJW Qualified Partners, LLC is a private investment fund that is
owned by its investors and managed by AJW Manager, LLC, of which Corey S.
Ribotsky and Lloyd A. Groveman are the fund managers, have voting and investment
control over the shares listed below owned by AJW Qualified Partners, LLC. New
Millennium Capital Partners II, LLC, is a private investment fund that is owned
by its investors and managed by First Street Manager II, LLC. First Street
Manager II, LLC, of which Corey S. Ribotsky is the fund manager, has voting and
investment control over the shares owned by New Millennium Capital Partners II,
LLC. We have been notified by the selling stockholders that they are not
broker-dealers or affiliates of broker-dealers and that they believe they are
not required to be broker-dealers.
45
(4) Assumes that all securities registered will be sold.
(5) Includes equal amounts of shares issuable upon: (i) conversion of series A
preferred stock; (ii) exercise of Series A warrants at $0.25; and (iii) exercise
of Series B warrants at $1.05.
(6) Includes 975,000 shares issuable upon exercise of warrants at $0.25.
(7) Includes 375,000 shares issuable upon exercise of warrants at $0.25.
(8) Includes 19,500 shares issuable upon exercise of warrants at $0.10 and
30,500 shares issuable upon exercise of warrants at $0.25.
(9) Includes 100,000 shares issuable upon exercise of warrants at $0.50.
(10) Includes 100,000 shares issuable upon exercise of Series B warrants at
$1.05.
TERMS OF SECURED CONVERTIBLE NOTES
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd., and New Millennium Partners II, LLC on September 23, 2004 for
the sale of (i) $1,500,000 in secured convertible notes and (ii) a warrants to
buy 2,250,000 shares of our common stock.
The investors are obligated to provide us with the funds as follows:
o $500,000 was disbursed on September 23, 2004;
o $500,000 will be disbursed within five days of the filing of this
registration statement; and
o $500,000 will be disbursed within five days of the effectiveness of
this prospectus.
Accordingly, we have received a total of $500,000 pursuant to the
Securities Purchase Agreement.
The notes bear interest at 10%, mature two years from the date of
issuance, and are convertible into our common stock, at the investors' option,
at the lower of:
o $0.72; or
o 50% of the average of the three lowest intraday trading prices for
the common stock on a principal market for the 20 trading days
before but not including the conversion date.
The full principal amount of the secured convertible notes are due upon
default under the terms of secured convertible notes. In addition, we have
granted the investors a security interest in substantially all of our assets and
intellectual property and registration rights. We are liable for breach of any
covenant, representation or warranty contained in the Securities Purchase
Agreement for a period of two years from the date that the investors distribute
the final $500,000. In the event that we breach any representation or warranty
regarding the condition of our company as set forth in the Securities Purchase
Agreement, we are liable to pay liquidated damages in shares or cash, at the
election of the investors, equal to three percent of the outstanding amount of
the secured convertible notes per month plus accrued and unpaid interest. In the
event that we breach any covenant as set forth in the Securities Purchase
Agreement, including the failure to comply with blue sky laws, timely file all
public reports, use the proceeds from the sale of the secured convertible notes
in the agreed upon manner, obtain written consent from the investors to
negotiate or contract with a party to for additional financing, reserve and have
authorized the required number of shares of common stock or the maintenance of
our shares of common stock on an exchange or automated quotation system, then we
are liable to pay liquidated damages in shares or cash, at the election of the
investors, equal to three percent of the outstanding amount of the secured
convertible notes per month plus accrued and unpaid interest.
46
The warrants are exercisable until five years from the date of issuance at
a purchase price of $0.50 per share. The selling stockholders will be entitled
to exercise the warrants on a cashless basis if the shares of common stock
underlying the warrants are not then registered pursuant to an effective
registration statement. In the event that the selling stockholder exercises the
warrants on a cashless basis, then we will not receive any proceeds. In
addition, the exercise price of the warrants will be adjusted in the event we
issue common stock at a price below market, with the exception of any securities
issued as of the date of this warrant or issued in connection with the secured
convertible notes issued pursuant to the Securities Purchase Agreement, dated
September 23, 2004.
Upon the issuance of shares of common stock below the market price, the
exercise price of the warrants will be reduced accordingly. The market price is
determined by averaging the last reported sale prices for our shares of common
stock for the five trading days immediately preceding such issuance as set forth
on our principal trading market. The exercise price shall be determined by
multiplying the exercise price in effect immediately prior to the dilutive
issuance by a fraction. The numerator of the fraction is equal to the sum of the
number of shares outstanding immediately prior to the offering plus the quotient
of the amount of consideration received by us in connection with the issuance
divided by the market price in effect immediately prior to the issuance. The
denominator of such issuance shall be equal to the number of shares outstanding
after the dilutive issuance.
The conversion price of the secured convertible notes and the exercise
price of the warrants may be adjusted in certain circumstances such as if we pay
a stock dividend, subdivide or combine outstanding shares of common stock into a
greater or lesser number of shares, or take such other actions as would
otherwise result in dilution of the selling stockholder's position.
AJW Partners, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd., and
New Millennium Partners II, LLC have contractually agreed to restrict their
ability to convert their secured convertible notes or exercise their warrants
and receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 4.9% of the then issued and outstanding shares of
common stock.
A complete copy of the Securities Purchase Agreement and related documents
are filed with the SEC as exhibits to our Form SB-2 relating to this prospectus.
SAMPLE CONVERSION CALCULATION
The number of shares of common stock issuable upon conversion of the notes
is determined by dividing that portion of the principal of the notes to be
converted and interest, if any, by the conversion price. For example, assuming
conversion of $1,500,000 of notes on October 11, 2004, a conversion price of
$0.135 per share, the number of shares issuable upon conversion would be:
$1,500,000/$.135 = 11,111,112 shares
The following is an example of the amount of shares of our common stock
that are issuable, upon conversion of the principal amount of our secured
convertible notes, based on market prices 25%, 50% and 75% below the market
price, as of October 8, 2004 of $0.26.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 50% Issuable Stock
------ ----- ------ -------- -----
25% $.195 $.0975 15,384,616 43.58%
50% $.13 $.065 23,076,924 53.68%
75% $.065 $.0325 46,153,847 69.86%
47
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.
EXPERTS
Russell Bedford Stefanou Mirchandani LLP, independent registered public
accounting firm, have audited, as set forth in their report thereon appearing
elsewhere herein, our financial statements at December 31, 2003 and 2002 and for
the years then ended that appear in the prospectus. The financial statements
referred to above are included in this prospectus with reliance upon the
independent registered public accounting firm's opinion based on their expertise
in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Cyberlux Corporation, filed as part of
the registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 which requires us to file reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information may be inspected at public reference
facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C.
20549. Copies of such material can be obtained from the Public Reference Section
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
48
INDEX TO FINANCIAL STATEMENTS
CYBERLUX CORPORATION
INDEX TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2003 and December 31, 2002
Report of Independent Registered Public Accounting Firm F-1
Balance Sheets F-2
Statement of Operations F-3
Statement of Deficiency in Stockholders Equity F-4
Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-8 to
F-20
For the Six Months Ended June 30, 2004 and June 30, 2003
Condensed Balance Sheets June 30, 2004 (Unaudited)
and December 31, 2003 F-21
Condensed Statements of Operations for the three and six
months ended June 30, 2004 and 2003 (Unaudited) F-22
Condensed Statements of Deficiency in Stockholders' Equity
for the date of inception through June 30, 2004 (Unaudited) F-23
Condensed Statements of Cash Flows For the six months
ended June 30, 2004 and 2003 (Unaudited) F-27
Notes to the Condensed Financial Statements (Unaudited) F-31 to
F-36
49
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Cyberlux Corporation
North Carolina 28370-2010
We have audited the accompanying consolidated balance sheets of Cyberlux
Corporation (the "Company"), as of December 31, 2003 and 2002 and the related
consolidated statements of losses, deficiency in stockholders' equity, and cash
flows for the years then ended. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit 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 audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2003 and 2002, and the results of its operations and
its cash flows for the two years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note O to the
consolidated financial statements, the Company has suffered recurring losses
from operations. This raises substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note O. 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
McLean, Virginia
April 6, 2004
F-1
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, December 31,
2003 2002
ASSETS
Current assets:
Cash and equivalents $ 16,247 $ 26,086
Prepaid Design Services -- 20,000
Total current assets 16,247 46,086
Fixed assets, net 68,845 79,443
Other assets
Deposits-escrow 236,000 8,614
236,000 8,614
Total Assets $ 321,092 $ 134,143
=========== ===========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Accrued interest $ 104,976 $ 44,427
Other accrued liabilities 296,388 95,971
Management fees payable - related party 996,508 546,508
Short-term notes payable - shareholders 207,845 123,545
Short-term notes payable 320,000 365,000
Total current liabilities 1,925,717 1,175,451
Long-Term Liabilities - warrants payable-
convertible preferred 347,610
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000
shares authorized, 155 and 0 issued and
Class A 155 shares issued and outstanding 1 --
outstanding as of December 31, 2003 and 2002,
respectively
Common stock, $0.001 par value, 100,000,000 shares
authorized, 8,049,141 and 6,628,396 issued and
outstanding as of December 31, 2003 and 2002,
respectively 8,049 6,628
Subscriptions receivable (276,186) (2,500)
Additional paid-in capital 2,337,736 745,593
Accumulated deficit (4,021,835) (1,791,029)
Deficiency in stockholders' equity (1,952,235) (1,041,308)
-----------
Total Liabilities and Stockholders' Equity $ 321,092 $ 134,143
=========== ===========
The accompanying notes are an integral part of these financial statements
F-2
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
May 17, 2000
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
2003 2002 2003
Revenue $ 74,238 $ -- $ 74,238
Cost of Goods Sold (161,984) -- (161,984)
Gross Loss (87,746) (87,746)
Expenses
Marketing and advertising expense 20,820 8,500 147,868
Depreciation and amortization expense 246,598 379,070 325,898
Organization Costs -- -- 25,473
Research and development costs -- 322,814 244,064
Management and consulting fees - related party 504,000 350,504 1,271,322
General and administrative expenses 497,384 179,162 901,581
Total expenses 1,268,802 1,240,050 2,916,206
Income from operations (1,356,548) (1,240,050) (3,003,952)
Other Income (expense)
Interest income -- -- 40
Interest expense (138,008) (96,920) (281,673)
Net Loss (1,494,556) (1,336,970) (3,285,585)
Preferred dividend - beneficial conversion discount
on convertible preferred 736,250 -- 736,250
Net Loss $(2,230,806) $(1,336,970) $(4,021,835)
Weighted Average number of common shares
Outstanding - basic and fully diluted 7,652,012 6,241,585
Net loss per share - basic & fully diluted $ (0.29) $ (0.15)
The accompanying notes are an integral part of these financial statements
F-3
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF DEFICIENCY IN STOCKHOLDERS EQUITY
Deficiency
Common Stock Preferred Stock Accumulated
-------------------- ----------------- Additional Stock During Total In
Paid-in Subscription Development Stockholders'
Shares Amount Shares Amount Capital Receivable Stage Equity
--------- ------- ------ ------- ---------- ------------ ------------- -------------
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 in exchange for
research and development
services valued at $.09
per share 750,000 750 68,003 68,753
Common shares issued in
May 2000 in exchange for
services valued @ $. 05 per
share 875,000 875 35,710 36,585
Common shares issued in
July 2000 in exchange for
convertible debt at $ .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 $. 15 per
share 640,171 640 95,386 96,026
Common shares issued in
November 2000 in exchange
for services valued @ $. 15
per share hares issued 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 $
.15 per share 698,782 $699 $104,118 $104,817
Stock options issued in May
2001, valued at $. 15 per
option, in exchange for
services 52,500 52,500
Warrant issued in May 2001,
valued at $. 15 per
warrant, in exchange for
placement of debt 75,000 75,000
Common shares issued in
September 2001 for cash in
connection with exercise of
warrant at $.15 per share 3,000 3 447 450
Common shares issued in
September 2001 for cash in
connection with exercise of
warrant at $.10 per share 133,000 133 13,167 13,300
Common shares issued in
November 2001 for cash in
connection with exercise of
warrant at $.0001 per share 500,000 500 -- 500
Common shares issued in
November 2001 for cash in
connection with exercise of
options at $.0001 per share 350,000 350 -- 350
Common shares issued in
December 2001 in exchange
for convertible debt at $
.50 per share 133,961 134 66,847 66,981
Common shares
issued in December 2001 in
exchange for debt at $ .50
per share 17,687 18 8,825 8,843
Net (loss)
-- -- -- -- -- -- (636,274) (636,274)
--------- ------- ------ ------- ---------- ------------ ------------- -------------
Balance, December 31, 2001 6,152,396 $6,152 594,571 -- (1,090,925) (490,202)
F-4
Common shares issued in May
2002 in exchange for
services valued at $. 70
per share 70,000 $70 $49,930 -- $ 50,000
Common shares issued in
Nov, 2002 in exchange for
services valued at $0.25
per share 150,000 150 37,350 37,500
Common shares issued in
Dec. 2002 as rights
offering at $0.25 per share 256,000 256 63,744 64,000
Subscription Receivable for
10,000 shares issued -2,500 -2,500
Net loss
-- -- -- -- -- -- -700,104 ($700,104)
--------- ------- ------ ------- ---------- ----------- ------------ -------------
Balance at December 31, 2002 6,628,396 $6,628 $745,593 ($2,500) ($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 250,000 $250 $250
Funds received for stock
subscription 2,500 2,500
Common Shares issued to
Cornell Capital Partners in
March, 2003 in connection
with Loan Commitment valued
at $0.75 per share 300,000 300 224,700 225,000
Common shares issues in
March, 2003 in exchange for
services valued at $0.75
per share 13,333 14 9,987 10,001
Robrady Design Note was
converted into 196,120
Shares @ .25 Per share. 196,120 196 48,833 49,029
Common Shares issued to
Mark Schmidt for services
in June, 2003. The 200,000
shares were issued at $0.25
per share. 200,000 200 49,800 50,000
Common Shares issued to
Capital Funding Solutions
September 2003. 450,000
shares were issued at $0.20
per share. Shares secure a
sales factoring agreement 450,000 450 89,550 90,000
Common shares issued on
11/12/03 for consulting
services valued at .50 per
share to Tom & Cheryl Rose 11,292 11 5,634 5,645
Preferred shares issued in
December 2003 valued at
$5,000 per share, Class A -- 155 1 $774,999 (276,186) -- 498,814
Warrants on convertible
preferred shares -347,610 -347,610
Beneficial conversion
discount on convertible
preferred shares 736,250 736,250
Net (Loss)
-- -- -- -- -- -- -2,230,806 -2,230,806
--------- ------- ------ ------- ---------- ----------- ------------ -------------
Balance, December 31, 2003 8,049,141 $8,049 155 $1 $2,337,736 ($276,186) ($4,021,835) ($1,952,235)
--------- ------- ------ ------- ---------- ----------- ------------ -------------
The accompanying notes are an integral part of these financial statements
F-5
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
May 17,
2000
(Inception)
Year Ended Year Ended to
December 31, December December
2003 31, 2002 31, 2003
----------- ----------- -----------
Cash flows from operating activities
Net loss $(1,494,556) $ (700,104) $(3,285,585)
Depreciation and Amortization 246,598 82,518 325,898
Stock options issued for consulting services -- -- 107,504
Shares issued for previously incurred debt 49,029 -- 49,029
Preferred shares issued for previously incurred debt -- -- --
Loan extension write off -- 25,000 25,000
Preferred shares issued for conversion of accrued
management fees -- -- --
Accrued expenses relating to escrow deposits 23,814 -- 23,814
Shares issued for consulting services 65,646 87,498 173,150
Shares issued for research and development -- -- 68,753
Shares issued for factoring agreement 90,000 -- 90,000
Decrease(increase) in deposits (227,386) (1,795) (236,000)
(Increase) decrease in other assets, net 20,000 6,812 --
Increase in accounts receivable -- -- --
Increase in accrued interest 60,549 28,409 104,976
(Decrease)increase in management fee
payable-related party 450,000 260,004 996,508
Increase in other accrued liabilities 200,417 92,722 296,388
Net cash used in operating activities (515,889) (118,936)
Cash flows from investing activities
Purchase of fixed assets (11,000) (52,880) (113,494)
Cash used in investing activities (11,000) (52,880) (113,494)
F-6
Cash flows from financing activities
Payments for (proceeds from) short-term notes
payable net (45,000) 80,000 467,455
Proceeds from short-term notes
payable-shareholders (net) 84,300 25,800 207,845
Issuance of preferred stock 475,000 -- 475,000
Capital contributed by shareholders -- -- 16,000
Issuance of common stock 2,750 61,500 224,006
Net cash provided by financing activities 517,050 167,300 1,390,306
Net decrease in cash (9,839) (4,516) 16,247
Cash - beginning 26,086 30,602 --
Cash - ending $ 16,247 $ 26,086 $ 16,247
Supplemental disclosures:
Interest paid 18,425 49,475 50,900
Income taxes paid -- -- --
Non-cash investing and financing activities:
Shares issued for research and development and
consulting -- 37,500 106,253
Shares issued for conversion of debt 56,720 -- 313,692
Warrants issued in connection with financing -- -- 75,000
Options issued in connection with services -- -- 52,500
Shares issued in connection with services 99,081 49,998 204,083
Shares issued in connection with loan 225,000 -- 225,000
Shares issued in connection with factoring 90,000 -- 90,000
Warrants issued (detachable) with convertible
preferred shares 347,610 -- 347,610
Beneficial conversion discount on convertible
preferred stock 736,250 -- 736,250
The accompanying notes are an integral part of these financial statements
F-7
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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 little revenue, has incurred expenses, and sustained losses.
Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise. As of December 31, 2003, the Company
has accumulated losses of $3,285,585.
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.
The Company's 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.
In September 2003, the Company entered into a factoring agreement with Capital
Funding Solutions, Inc. with regard to a purchase order from QVC.
In October 2003, due to the change in pricing structure of our common stock on
the over-the- counter bulletin board, the Company mutually cancelled the equity
line of credit agreement with Cornell Capital Partners, LP which was entered
into on March 15, 2003.
REVENUE RECOGNITION
For revenue from product sales, the Company recognizes revenue in accordance
with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.
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.
F-8
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
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 $20,820 and $8,500 in 2003 and 2002, 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, 2003 and
2002. 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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments and related items which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess of
the FDIC insurance limit.
F-9
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 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
subsequent years.
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):
For the year ended
December 31,
2003 2002
Net loss - as reported $(2,230,806) $(1,336,970)
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 106,800 --
----------- -----------
No. 123)
Net loss - Pro Forma $(2,337,606) $(1,336,970)
Net loss attributable to common
stockholders - Pro forma $(2,337,606) $(1,336,970)
Basic (and assuming dilution) loss
per share - as reported $ (.29) $ (.15)
Basic (and assuming dilution) loss
per share - Pro forma $ (.31) $ (.15)
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.
F-10
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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 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.
F-11
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RECENT PRONOUNCEMENTS (CONTINUED)
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.
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.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial positions.
F-12
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE B - NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes payable at December 31, 2003 and 2002 are as follows:
2003 2002
10 % convertible note payable, unsecured and due September,
2003; accrued and unpaid interest due at maturity ; Note
holder 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. The Company is in
violation of the loan covenants.
$ 2,500 $ 2,500
10 % convertible notes payable, unsecured and due March ,
2003; accrued and unpaid interest due at maturity; Note
holder 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. The Company is
in violation of the loan covenants.
7,500 7,500
10 % convertible notes payable, unsecured and due March ,
2003; accrued and unpaid interest due at maturity; Note
holder 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. The Company is in
violation of the loan covenants.
25,000 25,000
10 % notes payable, unsecured and due March , 2003; accrued
and unpaid interest due at maturity; Note holder 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. The Company is in violation of
the loan covenants.
10,00 10,000
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; Note holder
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. The Company
is in violation of the loan covenants. This note is paid off
and settled subsequently in January 2004.
195,000 195,000
10% Convertible note payable , unsecured and due October
2003; accrued and unpaid interest due at maturity; Note
holder has the option to convert unpaid note principal
together with accrued and unpaid interest to the Company's
common stock at $ .25 per share. The Company is in violation
of the loan covenants.
75,000 75,000
10% convertible note payable , unsecured and due October
2003 ; accrued and unpaid interest due at maturity; Note
holder 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. The Company is
in violation of the loan covenants.
5,000 5,000
10% Note payable, unsecured, accrued and unpaid. Interest
and principal payable on demand
5,000
F-13
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE B - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (CONTINUED)
10 % notes payable, unsecured and due March , 2003; accrued
and unpaid interest due at maturity; Note holders have 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. The Company is in violation of
the loan covenants.
-- 40,000
----------------------
320,000 365,000
Less: current portion (320,000) (365,000)
----------------------
Total $ -- $ --
Total interest expense at December 31, 2003 and 2002 of $138,008 and $96,920.
NOTE C - STOCKHOLDER'S EQUITY
COMMON STOCK
The Company has authorized 20,000,000 shares of common 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 $0.15 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-14
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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. 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.
In November, 2003, the Company issued 11,292 shares of its common stock in
exchange for services totaling $ 5,645. The stock issued was valued at
approximately $.50 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.
PREFERRED STOCK
The Company has also authorized 5,000,000 shares if preferred stock, with a par
value of $.001 per share.
In December, 2003, the Company issued 155 shares of its convertible preferred
stock - class A, valued at $5,000 per share. This has a stated value of $5,000
per share and a conversion price of $0.10 per share and warrants to purchase an
aggregate of 15,500,000 of our common stock. The Company recorded beneficial
conversion discount for the year ended December 31, 2003 of $736,250.
F-15
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE D - STOCK OPTIONS
CLASS A WARRANTS
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
shareholders at December 31, 2003.
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted Average Weighed Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
$ 0.25 7,750,000 5 $ 0.25 7,750,000 $ 0.25
--------- ---------
7,750,000 5 $ 0.25 7,750,000 $ 0.25
========= ====== ========= ======
CLASS B WARRANTS
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
shareholders at December 31, 2003.
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted Average Weighed Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
$ 1.05 7,750,000 3 $ 1.05 7,750,000 $ 1.05
--------- ---------
7,750,000 3 $ 1.05 7,750,000 $ 1.05
========= ====== ========= ======
Transactions involving the Company's warrant issuance are summarized as follows:
Number of Shares Weighted
Average Price
Per Share
Outstanding at December 31, 2002 -- $ -
Granted 15,500,000 0.54
Exercised -- -
Canceled or expired -- -
----------- ----------
Outstanding at December 31, 2003 15,550,000 $ .54
=========== ==========
F-16
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE D - STOCK OPTIONS (CONTINUED)
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.
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted Average Weighed Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
$ 0.2125 2,000,000 6 $0.2125 2,000,000 $0.2125
--------- ---------
2,000,000 6 $0.2125 2,000,000 $0.2125
========= ====== ========= ======
Transactions involving stock options issued to employees are summarized as
follows:
Weighted
Average Price
Number of Shares Per Share
---------------- ---------
Outstanding at December 31, 2002
----------- ----------
Granted 2,000,000 $ 0.2125
Exercised - -
Canceled or expired - -
----------- ----------
Outstanding at December 31, 2003 2,000,000 $ 0.2125
=========== ==========
The weighted-average fair value of stock options granted to employees during the
period ended December 31, 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
If the Company recognized compensation cost for the stock options and warrants
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
$(2,2337,606) and $(0.31) for the year ended December 31, 2003 and $(1,336,970)
and $(0.15) for the year ended December 31, 2002, respectively.
F-17
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE E - 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, 2003 and 2002 was $8,814 and $13,185, respectively.
The Company incurred management fees to its officers totaling $504,000 and
$350,504 during the years ended December 31, 2003 and December 31, 2002,
respectively. Unpaid management fees aggregate $996,508 and $546,508 as of
December 31, 2003 and 2002, respectively.
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, 2003 and 2002, the
balance due to the officers was $ 207,845 and $123,545, respectively.
NOTE F - 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 G - LOSSES PER SHARE
The following table presents the computation of basic and diluted losses per
share:
2003 2002
Net loss available to Common stockholders (1,494,556) $(1,336,970)
Basic and diluted loss per share (0.20) (0.15)
Weighted average common shares outstanding 7,652,012 6,241,585
NOTE H - 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 31,2003 and 2002, the Company has available for
federal income tax purposes a net operating loss carry forward of approximately
$ 3,200,000, 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.
F-18
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE H - INCOME TAXES (CONTINUED)
Components of deferred tax assets as of December 31, 2003 are as follows:
Non current:
Net operating loss carry forward $1,088,000
Valuation allowance $(1,088,000)
------------
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, 2003 and 2002, the Company incurred losses
from operations of $(1,494,556) and $(1,336,970), 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.
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.
NOTE J - SUBSEQUENT EVENTS
In January 2004, the Company committed to issue 800,000 shares of Series B
Convertble Preferred Stock, Par Value $0.001 and ranks pari passu with the
Company's Series A Convertible preferred Stock and prior to all classes of the
Company's Equity Securities which by their terms do not rank senior to the
Company's Series B Preferred Stock. The shares were issued in lieu of accrued
salaries of $723,670, payable to certain officers of the Company.
In January, 2004, the Company 395,000 share warrants to certain affiliates and
officers of the company to compensate for services provided to the company. The
Company also increased the number of shares in the current Stock Purchase Plan
to 1,000,000 shares of the underlying common stock.
In January, 2004, the Company issued 185,000 shares of the Company's Common
Stock to certain affiliates as compensation for services rendered.
F-19
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE J - SUBSEQUENT EVENTS (CONTINUED)
In January, 2004 the Company, in consideration of a sum of $230,000, obtained a
release from OneCap, a Nevada Corporation, in respect of a lawsuit filed by the
latter, relating to a loan advanced by it. The release discharges the company
from all present and future claims by OneCap relating to the loan.
F-20
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
June 30, 2004 December 31,
(Unaudited) 2003
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 31,452 $ 16,247
Accounts receivable 10,804 --
----------- -----------
Total current assets 42,256 16,247
Property, plant and equipment, net of accumulated
depreciation of $ 72,783 and $ 44,649, respectively 59,977 68,845
Other assets, net of accumulated
amortization of $ 3,518 and $ 0, respectively 102,032 236,000
----------- -----------
Total Assets $ 204,265 $ 321,092
=========== ===========
LIABILITIES AND (DEFICIENCY) IN STOCKHOLDERS' EQUITY
Current liabilities:
Accrued interest $ 49,435 $ 104,976
Other accrued liabilities 72,590 296,388
Management fees payable - related party 272,838 996,508
Short term notes payable - shareholders 112,745 207,845
Short term notes payable 65,000 320,000
----------- -----------
Total current liabilities 572,608 1,925,717
Long Term liabilities 406,525 347,610
(Deficiency) in Stockholders' Equity:
Convertible preferred stock 801 1
Common stock 18,615 8,049
Additional paid-in capital 6,003,264 2,337,736
Subscription received in advance for shares to be issued 22,500 --
Subscription receivable -- (276,186)
Deficit accumulated during development stage (6,820,048) (4,021,835)
----------- -----------
(Deficiency) in stockholders' equity (774,868) (1,952,235)
----------- -----------
Total liabilities and (Deficiency) in Stockholders' Equity $ 204,265 $ 321,092
=========== ===========
See accompanying notes to the unaudited condensed financial information.
F-21
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
May 17, 2000
(date of
For the Three Months Ended For the Six Months Ended inception)
June 30, June 30, Through
2004 2003 2004 2003 June 30, 2004
------------ ------------ ------------ ------------ ------------
Revenue $ 11,238 $ 307 $ 21,206 $ 1,160 $ 95,444
Cost of goods sold (7,992) (1,256) (16,387) (3,512) (178,371)
------------ ------------ ------------ ------------ ------------
Gross profit (loss) 3,246 (949) 4,819 (2,352) (82,927)
Operating Expenses
Depreciation and amortization 13,361 230,124 31,652 235,249 357,550
General and
administrative expenses 503,351 355,988 1,921,374 558,518 4,511,682
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 516,712 586,112 1,953,026 793,767 4,869,232
(Loss) from Operations (513,466) (587,061) (1,948,207) (796,119) (4,952,159)
Other Income (expense) 10,441 -- 4,559 -- 4,559
Interest Income 62 -- 62 -- 102
Interest Expense (5,434) (18,017) (54,627) (38,934) (336,300)
Income tax (benefit) -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net Loss Before Preferred Dividend (529,279) (605,078) (1,998,213) (835,053) (5,283,798)
Preferred dividend requirements (24,000) -- (24,000) -- (24,000)
Preferred dividend-Beneficial
conversion discount
on convertible preferred -- -- (800,000) -- (1,536,250)
Net loss attributable
to common shareholders $ (553,279) $ (605,078) $ (2,822,213) $ (835,053) $ (6,844,048)
============ ============ ============ ============ ============
Weighted average number of
common shares outstanding
- basic and fully diluted 15,169,191 6,946,684 13,004,736 6,946,684 n/a
============ ============ ============ ============
Net (loss) per share - basic &
fully diluted $ (0.04) $ (0.09) $ (0.22) $ (0.12) n/a
============ ============ ============ ============
See accompanying notes to the unaudited condensed financial information.
F-22
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY FOR THE
PERIOD MAY 17,2000 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
STOCK DEFICIT TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL SUBSCRIPTION ACCUMULATED (DEFICIENCY)
PAID IN RECEIVABLE/ DURING IN
CAPITAL RECEIVED IN DEVELOPMENT SHAREHOLDERS
ADVANCE STAGE EQUITY
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
Common shares issued in May,
2000 to founders in exchange
for cash at $0.01 per share 1,640,000 $ 1,640 -- -- $ 560 -- -- $ 2,200
Common shares issued in May,
2000 in exchange for research
and development services
valued at $.09 pers share 750,000 750 -- -- 68,003 -- -- 68,753
Common shares issued in May,
2000 in exchange for
services valued @ $.05
per share 875,000 875 -- -- 35,710 -- -- 36,585
Common shares issued in
July, 2000 in exchange for
convertible debt at $.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 in for cash
in connection with private
placement $.15 per share 640,171 640 -- -- 95,386 -- -- 96,026
Common shares issued in
November , 2000 in exchange
for services valued @$.15
per share issued 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 , 2000 in exchange
for convertible debt at
$.15 per share 698,782 699 -- -- 104,118 -- -- 104,817
Stock options issued in May,
2001 valued @ $.15 per
option in exchange
for services -- -- -- -- 52,500 -- -- 52,500
Warrant issued in May 2001,
valued at $015 per warrant
in exchange for placement of
debt -- -- -- -- 75,000 -- -- 75,000
Common shares issued in
September 2001 in exercise
for warrant at $.15
per share 3,000 3 -- -- 447 -- -- 450
Common shares issued in
September 2001 for cash in
connection with exercise of
warrant at $.10 per share 133,000 133 -- -- 13,167 -- -- 13,300
F-23
Common shares issued in
November 2001 for cash in
connection with exercise of
warrant at $.0001 per share 500,000 500 -- -- -- -- -- 500
Common shares issued in
Nov , 01 in on exercise
of options at
$.0001 per share 350,000 350 -- -- -- -- -- 350
See accompanying notes to the unaudited condensed financial information.
F-24
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY FOR THE
PERIOD MAY 17,2000 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
(CONTINUED)
STOCK DEFICIT TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL SUBSCRIPTION ACCUMULATED (DEFICIENCY)
PAID IN RECEIVABLE/ DURING IN
CAPITAL RECEIVED IN DEVELOPMENT SHAREHOLDERS
ADVANCE STAGE EQUITY
SHARES AMOUNT SHARES AMOUNT
Common shares issued in
December, 2001 in exchange
for convertible debt at
$.50 per share 133,961 134 -- -- 66,847 -- -- 66,981
Common shares issued in
December, 2001 in exchange
for debt at $.50 per share 17,687 17 -- -- 8,825 8,842
Net loss -- -- -- -- -- -- (636,274) (636,274)
------- ------- ------- ------- ------- ------- ------- -------
BALANCE AT DECEMBER 31, 2001 6,152,396 6,152 -- -- 594,571 -- (1,090,925) (490,202)
Common shares issued in May,
2002 in exchange for
services valued at $.70 per
share 70,000 70 -- -- 49,928 -- -- 49,998
Common shares issued in
November, 2002 in exchange
for services valued at $.25
per share 150,000 150 -- -- 37,350 -- -- 37,500
Common shares issued in
December, 2002 as rights
offerings at $0.25 per share 256,000 256 -- -- 63,744 -- -- 64,000
Subscription receivable for
10,000 shares issued -- -- -- -- -- (2,500) -- (2,500)
Net loss -- -- -- -- -- -- (700,104) (700,104)
------- ------- ------- ------- ------- ------- ------- -------
BALANCE AT DECEMBER 31, 2002 6,628,396 6,628 -- -- 745,593 (2,500) (1,791,029) (1,041,308)
Common shares issued in
March , 2003 in connection
with exercise of options at
$.0001 per share 250,000 250 -- -- -- -- -- 250
Funds received for
stock subscription -- -- -- -- -- 2,500 -- 2,500
Common shares issued to
Cornell Capital Partners in
March 2003 in connection
with Loan Commitment valued
at $0.75 per share 300,000 300 -- -- 224,700 -- -- 225,000
Common shares issued in
March , 2003 in exchange for
services valued at $0.75 per
share 13,333 14 -- -- 9,987 -- -- 10,001
See accompanying notes to the unaudited condensed financial information.
F-25
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY FOR THE
PERIOD MAY 17,2000 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
(CONTINUED)
STOCK DEFICIT TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL SUBSCRIPTION ACCUMULATED (DEFICIENCY)
PAID IN RECEIVABLE/ DURING IN
CAPITAL RECEIVED IN DEVELOPMENT SHAREHOLDERS
ADVANCE STAGE EQUITY
SHARES AMOUNT SHARES AMOUNT
Robrady Design Note was
converted into 196,120
shares @.25 per share 196,120 196 -- -- 48,833 -- -- 49,029
Common Shares issued to
Mark Schmidt for
services in June 2003.
The 200,000 shares were
issued at $0.25 per
share 200,000 200 -- -- 49,800 -- -- 50,000
Common shares issued to
Capital Funding Solutions
September 2003, 450,000
shares were issued at $0.20
per share. Shares secure
a sales factoring agreement 450,000 450 -- -- 89,550 -- -- 90,000
Common shares issued in
November 2003 for
consulting services
valued at $0.50 per
share 11,292 11 -- -- 5,634 -- -- 5,645
Convertible Preferred
Shares issued in
December 2003 valued at
$5,000 per share, Class A -- -- 155 1 774,999 (276,186) -- 498,814
Warrants on convertible
preferred shares -- -- -- -- (347,610) -- -- (347,610)
Beneficial conversion
discount on convertible
preferred shares -- -- -- -- 736,250 -- -- 736,250
Net (Loss) -- -- -- -- -- -- (2,230,806) (2,230,806)
------- ------- ------- ------- ------- ------- ---------- ----------
BALANCE AT DECEMBER 31, 2003 8,049,141 8,049 155 1 2,337,736 (276,186) (4,021,835) (1,952,235)
Issuance of convertible
preferred shares Class
B in January 2004 for
accrued management fees
at $1 per share -- -- 800,000 800 799,200 -- -- 800,000
Proceeds from
subscriptions Receivable -- -- -- -- -- 276,186 -- 276,186
Common Shares issued in
January, 2004 in
exchange for services
at $0.37 per share 260,000 260 -- -- 95,940 -- -- 96,200
Common Shares issued in
January 2004 in
exchange for services
at $0.37 per share
225,000 225 -- -- 83,025 -- -- 83,250
Common Shares issued in
January 2004 in
exchange for services
valued at $0.37 per
share 2,100,000 2,100 -- -- 774,900 -- -- 777,000
F-26
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY FOR THE
PERIOD MAY 17,2000 (DATE OF INCEPTION) THROUGH JUNE 30, 2004
(CONTINUED)
STOCK DEFICIT TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL SUBSCRIPTION ACCUMULATED (DEFICIENCY)
PAID IN RECEIVABLE/ DURING IN
CAPITAL RECEIVED IN DEVELOPMENT SHAREHOLDERS
ADVANCE STAGE EQUITY
SHARES AMOUNT SHARES AMOUNT
Shares issued for note payable
at $0.25 in January 2004 110,764 111 -- -- 27,580 -- -- 27,691
Shares issued for consulting
services at $0.21 per share 1,200,000 1,200 -- -- 250,800 -- -- 252,000
Beneficial conversion discount-
preferred stock dividend with
respect to convertible
preferred shares Class B -- -- -- -- 800,000 -- (800,000) --
Net loss -- -- -- -- -- -- (1,468,934) (1,468,934)
BALANCE AT MARCH 31, 2004 11,944,905 $ 11,945 800,155 $801 $5,169,181 $ -- $(6,290,769)$ (1,108,842)
Warrants issued in exchange for
Services, April 2004 -- -- -- -- 243,000 -- -- 243,000
Common shares canceled for
return of collateral deposit
with factor (450,000) (450) -- -- (89,550) -- -- (90,000)
Common shares issued for cash
in private placement at
$0.10per share, May 2004 5,310,000 5,310 -- -- 525,690 -- -- 531,000
Class A Preferred shares issued
for cash at $5,000 per share,
May 2004 -- -- 15.861 -- 79,308 -- -- 79,308
Warrants on convertible
preferred shares Class A shares
-- -- -- -- (58,915) -- -- (58,915)
Common shares issued in
exchange for note payable at
$0.10 per share, June , 2004 50,000 50 -- -- 4,950 -- -- 5,000
Common Shares issued in
exchange for services valued at
$0.10 per share, June 2004 1,560,000 1,560 -- -- 154,440 -- -- 156,000
Common Shares issued
2004 in exchange for services
valued at $0.10 per share,
June 2004 200,000 200 -- -- 19,800 -- -- 20,000
Subscription received in
advance for shares to be issued -- -- -- -- -- 22,500 -- 22,500
Common Shares issued
in exchange for
services adjusted for
issue prices -- -- -- -- (44,640) -- -- (44,640)
Net (Loss) -- -- -- -- -- -- (529,279) (529,279)
------- ------- ------- ------- ------- ------- ------- -------
BALANCE, JUNE 30, 2004 18,614,905 $ 18,615 800,171 $ 801 $6,003,264 $22,500 $(6,820,048) $(774,868)
========= ======== ======= ====== ========== ======= =========== =========
See accompanying notes to the unaudited condensed financial information.
F-27
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Period
May 17, 2000
17, 2000 (date of
inception)
For the Six Months Ended Through
June 30, June 30,
2004 2003 2004
----------- ----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) available to common stockholders $(2,822,213) $ (835,049) $(6,844,048)
Depreciation and amortization 31,652 235,249 357,550
Preferred stock dividend 24,000 -- 24,000
Beneficial conversion discount
-- preferred stock dividend 800,000 -- 1,536,250
Stock options issued for consulting services -- -- 107,504
Shares issued for previously incurred debt 32,691 9,030 81,720
Warrants issued to consultants for services 243,000 243,000
Loan extension write off -- -- 25,000
Preferred shares issued
for conversion of accrued management fees 723,670 -- 723,670
Preferred shares issued for
previously incurred debt 76,330 -- 76,330
Accrued expenses relating to escrow deposits -- 20,000 23,814
Shares issued for consulting services 1,327,810 60,000 1,500,960
Shares issued for research and development -- -- 68,753
Common shares canceled for
return of factor collateral deposit (90,000) -- --
Increase in accounts receivable (10,804) -- (10,804)
Decrease in other assets 130,450 -- (105,550)
(Decrease) increase in accrued interest (55,541) 5,852 49,435
(Decrease) increase in management
fee payable - related party (723,670) 273,000 272,838
(Decrease) increase in other
accrued liabilities (223,798) 145,457 72,590
----------- ----------- -----------
Net cash used in operating activities (536,423) (86,461) (1,796,988)
F-28
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (19,266) -- (132,760)
----------- ----------- -----------
Net cash used in investing activities (19,266) -- (132,760)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments for) proceeds
from short-term notes payable (255,000) -- 212,455
(Payments for)proceeds from short-term notes
payable - shareholders - net (95,100) 59,500 112,745
Proceeds from advance deposits received for
shares to be issued 22,500 -- 22,500
Proceeds from issuance of preferred stock 79,308 -- 554,308
Capital contributed by shareholders -- -- 16,000
Proceeds from subscriptions receivable 276,186 -- 276,186
Proceeds from issuance of common stock 543,000 2,750 767,006
----------- ----------- -----------
Net cash provided by financing activities 570,894 62,250 1,961,200
Net increase (decrease) in cash 15,205 (24,211) 31,452
Cash - beginning 16,247 26,086 --
----------- ----------- -----------
Cash - ending $ 31,452 $ 1,875 $ 31,452
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for Interest expense $ 110,167 $ 18,202 $ 161,067
Cash paid for income taxes -- -- --
Non Cash investing and financing activities:
Shares issued for research and development
and consulting $ -- $ -- $ 106,253
Shares issued for conversion of debt 32,692 9,030 346,384
Warrants issued in connection with financing -- -- 75,000
Warrants issued to consultants for services 243,000 -- 243,000
Warrants issued detachable with convertible
preferred shares 58,915 -- 406,525
Beneficial conversion discount on
convertible preferred shares 800,000 -- 1,536,250
Options issued in connection with services -- -- 52,500
Shares issued in connection with services 1,327,810 60,000 1,500,960
Common Shares canceled for return of
factor collateral deposit (90,000) -- --
Shares issued in connection with loan -- -- 225,000
F-29
Convertible preferred shares issued for
previously incurred debt 76,330 -- 76,330
Convertible preferred shares issued
for accrued management fees 723,670 -- 723,670
See accompanying notes to the unaudited condensed financial information
F-30
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
GENERAL
The accompanying unaudited condensed consolidated 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 10-QSB. 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-month period ended June 30,
2004, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2004. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated December 31, 2003
financial statements and footnotes thereto included in the Company's SEC Form
10-KSB.
BUSINESS AND BASIS OF PRESENTATION
Cyberlux Corporation (the "Company") is in the development stage and its effort
have been principally devoted to seeking profitable business opportunities. To
date the Company 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 June 30 2004, the
Company has accumulated losses of $6,820,048.
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
subsequent years.
F-31
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 D):
For the three months ended For the six months ended
June 30, June 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net loss attributable to
common stockholders - as reported $ (553,279) $ (605,078) $(2,822,213) $ (835,053)
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) -- -- -- --
----------- ----------- ----------- -----------
Net loss - Pro Forma (553,279) (605,078) (2,822,213) (835,053)
Net loss attributable to
common stockholders - Pro forma $ (553,279) $ (605,078) $(2,822,213) $ (835,053)
Basic (and assuming dilution)
loss per share - as reported $ (0.04) $ (0.09) $ (0.22) $ (0.12)
Basic (and assuming dilution)
loss per share - Pro forma (0.04) (0.09) (0.22) (0.12)
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial positions.
F-32
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
NOTE B - COMMON STOCK
In January 2004, the Company collected the balance of its previously recognized
subscriptions receivable of $276,186.
In January, 2004, the Company issued 260,000 shares of its common stock in
exchange for services totaling $96,200. The stock issued was valued at
approximately $0.37 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, 2004, the Company issued 225,000 shares of its common stock in
exchange for services totaling $83,250. The stock issued was valued at
approximately $.0.37 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, 2004, the Company issued 2,100,000 shares of its common stock in
exchange for services totaling $777,000. The stock issued was valued at
approximately $0.37 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, 2004, the holder of a $27,691 note payable exchanged the unpaid
principal together with accrued interest for 110,764 shares at $0.25 per share
of the Company's common stock.
In January, 2004, the Company issued 1,200,000 shares of its common stock for
cash at $0.21 per share for $252,000.
In April, 2004 the Company received back and cancelled 450,000 shares of common
stock for return of collateral deposit with a creditor previously valued at
$90,000.
During the period ended June 30, 2004, the Company issued warrants to
consultants for services for $243,000 which represents the fair value of the
warrants issued, which did not differ materially from the value of the services
rendered (see Note D).
In May, 2004 the Company issued 5,310,000 shares of common stock at $0.10 per
share for private placement for cash. In connection with the offering , the
investors received a warrant to purchase the Company's common stock for each
share of common stock purchased ( "Class A Warrants ") The warrants have an
exercise price of $,25 per share and expire June 30, 2004 (see Notes D and E).
In May, 2004 the Company issued 50,000 shares of common stock at $0.10 per share
on conversion of notes payable.
In June, 2004 the Company issued 1,760,000 shares of common stock in exchange
for services rendered to the Company valued at $176,000. The shares were issued
at $0.10 per share which represents the fair value of the stock issued which did
not materially differ from the value of the services rendered.
In June 2004, the Company received cash $22,500 in connection with a
subscription to acquire shares of the Company's common stock. As of June 30,
2004, the shares had not been issued.
F-33
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
NOTE C - CONVERTIBLE PREFERRED STOCK
SERIES A CONVERTIBLE PREFERRED STOCK
In May 2004, the Company issued 15.861 Series A Preferred shares, par value
$0.001 per share, at $5,000 per share in exchange for $79,308. The Series A
Preferred shares are convertible at the option of the holder to 50,000 shares of
the Company's common stock for each share of Series A Preferred stock. The
Series A Preferred holders also received two (2) warrants ("Series A and Series
B Warrants") to purchase 50,000 shares of Common Stock, per warrant, for each
share of Series A Preferred (or fraction thereof) issued. The Series A Warrants
shall have an exercise price per share equal to $0.25 and shall expire in three
(3) years. The Series B Warrants shall have an exercise price per share equal to
$1.05 and shall expire five (5) years, subject to the number of number of shares
acquired pursuant to the Series A Warrants.
SERIES B CONVERTIBLE PREFERRED STOCK
In January, 2004, the Company issued 800,000 shares of its Series B 12%
Cummulative Convertible Preferred Stock ("series B Preferred Shares") in lieu of
certain accrued management services fee payable and notes payable including
interest payable thereon totaling $800,000 to officers of the company The stock
issued was valued at approximately $1.00 per share, which represents the fair
value of the stock. The shares of preferred stock are convertible into common
shares at $0.20 per share which was amended in April 2004 to $0.10 per share. In
connection with the transaction, the Company recorded beneficial conversion
discount of $800,000 - preferred dividend relating to the issuance of
convertible preferred stock.
Holders of the Series B Preferred Shares are entitled to receive cumulative cash
dividends at the annual rate of 12% per annum, or $.12 per share, payable
semi-annually. The dividends may be payable in cash or through a dividend of
additional shares of Preferred Shares. The aggregate unpaid Series B Preferred
Stock dividends at June 30, 2004 is $ 24,000.
The Series B Preferred Shares, along with the Series A Preferred Shares rank,
pari passu, senior to the common stock. The Series B Preferred Shares have a
liquidation preference of $ 1.00 per share plus any and all declared and unpaid
dividends.
The Series B Preferred Shares are convertible, in whole or in part , at the
option of the holders thereof, into shares of common stock at amount equal to $
0.10 per share. Each share of Series B Preferred Stock shall have voting rights
equal to ten times the number of shares of Common Stock such holder of Series B
Preferred Stock would receive upon conversion of such holder's shares of Series
B Preferred Stock.
F-34
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
NOTE D - WARRANTS TO PURCHASE COMMON STOCK
The following condensed table summarizes the changes in warrants outstanding and
the related prices for the shares of the Company's common stock issued to
consultants and shareholders at June 30, 2004.
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted Average Weighed Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
$ 0.10 58,500 4 $ 0.10 58,500 $ 0.15
0.20 605,000 1 0.20 605,000 0.20
0.25 9,984,550 4 0.25 9,984,550 0.25
0.50 300,000 2 0.50 300,000 0.50
1.05 8,543,050 5 1.05 8,543,050 1.05
--------- ----------
19,491,100 19,491,100
========== ==========
Transactions involving the Company's warrant issuance are summarized as follows:
Number of Weighted Average
Shares Price Per Share
Outstanding at December 31, 2003
15,500,000 $ 0.25
Granted 9,301,000 $ 0.32
Exercised (681,000) .25
Canceled or expired (4,629,000) .25
Outstanding at June 30, 2004 19,491,100 $ 0.60
========== ==========
The weighted-average fair value of warrants granted to consultants during the
period ended June 30, 2004 and 2003 and the weighted-average significant
assumptions used to determine those fair values, using a Black-Scholes option
pricing model are as follows:
2004 2003
---- ----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 1.01 % n/a
Expected stock price volatility 84 % n/a
Expected dividend payout -- --
Expected option life-years (a) 1 - 4 years n/a
(a) The expected option life is based on contractual expiration dates.
The estimated value of the warrants granted to consultants was in lieu of cash
compensation for services performed. The amount of the expense charged to
operations in connection with granting the warrants to consultants was $ 243,000
and $ 0 during the period ended June 30, 2004 and 2003, respectively.
F-35
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
NOTE E - SUBSEQUENT EVENTS
Certain holders of the Company's Class A Warrants exercised their options to
acquire the Company's restricted common stock (see Note C). The Company received
proceeds of approximately $175,250 in connection with the exercise of the
warrants.
F-36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Nevada law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our right and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in its Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant 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
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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 registrant 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 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 an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 3,192.94
Accounting fees and expenses 10,000.00*
Legal fees and expenses 35,000.00*
Miscellaneous 1,807.06
-----------
TOTAL $50,000.00*
===========
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On October 18, 2001, in connection with a a loan agreement with OneCap,
Inc. in which we borrowed $170,000 for the purpose of financing for tooling,
circuitry and registration costs for public listing of our stock, we issued
OneCap a warrant to purchase 500,000 shares of our $0.001 par value common stock
at par.
During November 2001, some of our officers 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 exercise their warrants to purchase 636,000 shares of our common stock for
cash of $14,250.
In December 2001, we issued 151,648 shares of our 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, we issued 70,000 shares of our 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, we issued 150,000 shares of our common stock in
exchange for services totaling $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, we issued 256,000 shares of common stock for $64,000 in
connection with a private placement memorandum, net of costs.
On October 1, 2003, we entered into an agreement with Consulting for
Strategic Growth 1, Ltd. ("CFSG"), in which CFSG would provide consulting
services in the form of investor relations and public relations. On January 27,
2004, in consideration for services rendered, Stanley Wunderlich, Chairman of
CFSG was issued 125,000 shares of our common stock at $0.001 per share and
Bonnie Stretch, pubic relations for CFSG, was issued 25,000 shares of our Common
stock at $0.001 per share. This issuance was a private transaction pursuant to
Section 4(2) of the Securities Act.
On October 30, 2003, we entered into an agreement with Roccus Capital
Partners, LLC ("RCP") and Alliance Advisors (`AA") in which RCP and AA would
provide strategic advisement to us. On January 27, 2004, as an engagement fee,
Richard L. Berkley and Marc A. Heskell, principals of RCP and Alan Sheinwald,
principal of AA were each issued 75,000 shares of our common stock at $0.001 per
share. These issuances were private transactions pursuant to Section 4(2) of the
Securities Act.
On December 1, 2003, we entered into an agreement with CFSG, in which CFSG
would provide consulting services in the form of investor relations and public
relations. In consideration for services to be rendered, on January 27, 2004,
Stanley Wunderlich was issued 60,000 shares of our common stock at $0.001 per
share with 10,000 shares issued each month based upon performance criteria
satisfactory to both parties. This issuance was a private transaction pursuant
to Section 4(2) of the Securities Act.
On January 27,2004, we issued 700,000 shares of our Common stock at $0.01
per share to Titan Entertainment Group pursuant to a consulting services
agreement in which Titan Entertainment Group would create strategic business
relationships for us. This issuance was a private transaction pursuant to
Section 4(2) of the Securities Act.
On January 27, 2004, we issued 600,000 shares of our Common stock at $0.01
per share to Michael J. Stern pursuant to a consulting services agreement in
which Michael J. Stern would create strategic business relationships for us.
This issuance was a private transaction pursuant to Section 4(2) of the
Securities Act.
On Januaary 27, 2004, we issued 600,000 shares of our Common stock at
$0.01 per share to KBK Ventures, Inc. pursuant to a consulting services
agreement in which KBK Ventures would create strategic business relationships
for us. This issuance was a private transaction pursuant to Section 4(2) of the
Securities Act.
II-2
On January 27, 2004,we issued 800,000 shares of our Common stock at $0.01
per share to 3CD Consulting, LLC pursuant to a consulting services agreement in
which 3CD Consulting would create strategic business relationships for us. This
issuance was a private transaction pursuant to Section 4(2) of the Securities
Act.
On January 27,2004, we issued 600,000 shares of our Common stock at $0.01
per share to Ronald E. Gee pursuant to a consulting services agreement in which
Ronald E. Gee would create strategic business relationships us. This issuance
was a private transaction pursuant to Section 4(2) of the Securities Act.
On January 27, 2004, we issued 155 shares of Series A Preferred Stock
(with a stated value of $5,000 per share and a conversion price of $0.10 per
share) and warrants to purchase an aggregate of 15,500,000 of our common stock.
This private placement was exempt from registration pursuant to Section 4(2) of
the Securities Act.
On January 27, 2004, we issued 40,000 shares of our Common stock at $0.001
per share to Donald F. Huffman in consideration of services on our behalf. This
issuance was a private transaction pursuant to Section 4(2) of the Securities
Act.
On January 27, 2004, we issued 10,000 shares of our common stock at $0.001
per share to Robert Rubin in consideration of services on our behalf. This
issuance was a private transaction pursuant to Section 4(2) of the Securities
Act.
On January 27, 2004, Brian Scott converted a $20,000 promissory note dated
April 1, 2003 in the amount of $20,000 into 80,000 shares of the our common
stock at $0.25 per share. This issuance was a private transaction pursuant to
Section 4(2) of the Securities Act.
On April 5, 2004, we issued 450,000 shares of our common stock issued to
Capital Funding Solutions as collateral pursuant to a factoring agreement were
cancelled.
In May 2004, we issued 5,310,000 shares of our common stock at $0.10 per
share and 5,310,000 warrants exercisable at $0.25 per share. This issuance was a
private transaction pursuant to Section 4(2) of the Securities Act
On May 25, 2004, we issued 15.861 shares of Series A Preferred Stock (with
a stated value of $5,000 per share and a conversion price of $0.10 per share)
and warrants to purchase an aggregate of 793,065 of our common stock. This
private placement was exempt from registration pursuant to Section 4(2) of the
Securities Act.
On June 4, 2004, we issued 30,500 stock purchase warrants exercisable at
$0.25 per share and 19,500 stock purchase warrants exercisable at $0.10 per
share each to Marc Haskell, Richard Berkley and Alan Sheinwald pursuant to a
consulting agreement. This issuance was a private transaction pursuant to
Section 4(2) of the Securities Act.
On June 4, 2004, Michael Kelly converted a promissory note in the amount
of $5.000 into 50,000 shares of our common stock at $0.10 per share. This
issuance was a private transaction pursuant to Section 4(2) of the Securities
Act.
On June 4, 2004, we issued 30,000 shares of our common stock valued at
$.10 per share to Forma Designs, Inc. for services rendered. This issuance was a
private transaction pursuant to Section 4(2) of the Securities Act.
On June 4, 2004, we issued 310,000 stock purchase warrants to Dennis Oon,
Gary Murphy, Brian Kramen and Ed English exercisable at $0.20 per share for
services rendered. This issuance was a private transaction pursuant to Section
4(2) of the Securities Act.
On June 8, 2004, we issued 975,000 shares of our common stock valued at
$.10 per share and 975,000 stock purchase warrants exercisable at $0.25 per
share pursuant to an agreement in which Current Capital would provide investor
relation services for us. This issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act.
II-3
On June 8, 2004, we issued 375,000 shares of our common stock valued at
$.10 per share and 375,000 stock purchase warrants exercisable at $0.25 per
share to Advisory Group Ltd. pursuant to an agreement in which Advisory Group
Ltd. would provide investor relation services for us. This issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act.
On June 8, 2004, we issued 200,000 shares of our common stock valued at
$.10 per share to Phil Snowden and C. Clark Burns pursuant to a consulting
agreement. This issuance was a private transaction pursuant to Section 4(2) of
the Securities Act.
On June 16, 2004, we issued 60,000 shares of our common stock valued at
$.10 per share and 100,000 stock purchase warrants exercisable at $0.50 each to
Frank Maresca Associate, Inc., William Schnell & Associates, Inc. and Bruce W.
Geiger & Associates, Inc. pursuant to a consulting agreement. This issuance was
a private transaction pursuant to Section 4(2) of the Securities Act.
To obtain funding for our ongoing operations, we entered into a Securities
Purchase Agreement with AJW Partners, LLC, AJW Qualified Partners, LLC, AJW
Offshore, Ltd., and New Millennium Partners II, LLC on September 23, 2004 for
the sale of (i) $1,500,000 in secured convertible notes and (ii) a warrants to
buy 2,250,000 shares of our common stock.
The investors are obligated to provide us with the funds as follows:
o $500,000 was disbursed on September 23, 2004;
o $500,000 will be disbursed within five days of the filing of this
registration statement; and
o $500,000 will be disbursed within five days of the effectiveness of
this registration statement.
Accordingly, we have received a total of $500,000 pursuant to the
Securities Purchase Agreement.
The secured convertible notes bear interest at 10%, mature two years from
the date of issuance, and are convertible into our common stock, at the
investors' option, at the lower of (i) $0.72 or (ii) 50% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including the conversion date. The full
principal amount of the secured convertible notes are due upon default under the
terms of secured convertible notes. In addition, we have granted the investors a
security interest in substantially all of our assets and intellectual property
and registration rights. The warrants are exercisable until five years from the
date of issuance at a purchase price of $0.50 per share. In addition the
warrants exercise price gets adjusted in the event we issue common stock at a
price below market, with the exception of any securities issued as of the date
of this warrant.
* All of the above offerings and sales were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
No advertising or general solicitation was employed in offering the securities.
The offerings and sales were made to a limited number of persons, all of whom
were accredited investors, business associates of Cyberlux or executive officers
of Cyberlux, and transfer was restricted by Cyberlux Corporation in accordance
with the requirements of the Securities Act of 1933. In addition to
representations by the above-referenced persons, we have made independent
determinations that all of the above-referenced persons were accredited or
sophisticated investors, and that they were capable of analyzing the merits and
risks of their investment, and that they understood the speculative nature of
their investment. Furthermore, all of the above-referenced persons were provided
with access to our Securities and Exchange Commission filings.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with us.
II-4
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References
to "the Company" in this Exhibit List mean Cyberlux Corporation, a Nevada
corporation.
Exhibit No. Description
3.1 Articles of Incorporation, dated as of May 17, 2000, filed as an
exhibit to the registration statement on Form 10-SB filed with
the Commission on December 17, 2001 and incorporated herein by
reference.
3.2 Certificate of Amendment to the Articles of Incorporation, dated
as of April 3, 2003, filed as an exhibit to the registration
statement on Form SB-2 filed with the Commission on April 30,
2003 and incorporated herein by reference.
3.3 Bylaws of Cyberlux Corporation, filed as an exhibit to the
registration statement on Form 10-SB filed with the Commission on
December 17, 2001 and incorporated herein by reference.
3.4 Certificate of Designation of Series A Preferred Stock, filed as
an exhibit to the current report on Form 8-K filed with the
Commission on January 8, 2004 and incorporated herein by
reference.
4.1 Securities Purchase Agreement, dated as of September 23, 2004, by
and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified
Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital
Partners II, LLC, filed as Exhibit 4.1 to the current report on
Form 8-K filed with the Commission on September 29, 2004 and
incorporated herein by reference.
4.2 Secured Convertible Note issued to AJW Offshore, Ltd., dated
September 23, 2004, filed as Exhibit 4.2 to the current report on
Form 8-K filed with the Commission on September 29, 2004 and
incorporated herein by reference.
4.3 Secured Convertible Note issued to AJW Qualified Partners, LLC,
dated September 23, 2004, filed as Exhibit 4.3 to the current
report on Form 8-K filed with the Commission on September 29,
2004 and incorporated herein by reference.
4.4 Secured Convertible Note issued to AJW Partners, LLC, dated
September 23, 2004, filed as Exhibit 4.4 to the current report on
Form 8-K filed with the Commission on September 29, 2004 and
incorporated herein by reference.
4.5 Secured Convertible Note issued to New Millennium Capital
Partners II, LLC, dated September 23, 2004, filed as Exhibit 4.5
to the current report on Form 8-K filed with the Commission on
September 29, 2004 and incorporated herein by reference.
4.6 Common Stock Purchase Warrant issued to AJW Offshore, Ltd., dated
September 23, 2004, filed as Exhibit 4.6 to the current report on
Form 8-K filed with the Commission on September 29, 2004 and
incorporated herein by reference.
4.7 Common Stock Purchase Warrant with AJW Qualified Partners, LLC,
dated September 23, 2004, filed as Exhibit 4.7 to the current
report on Form 8-K filed with the Commission on September 29,
2004 and incorporated herein by reference.
4.8 Common Stock Purchase Warrant with AJW Partners, LLC, dated
September 23, 2004, filed as Exhibit 4.8 to the current report on
Form 8-K filed with the Commission on September 29, 2004 and
incorporated herein by reference.
4.9 Common Stock Purchase Warrant with New Millennium Capital
Partners II, LLC, dated September 23, 2004, filed as Exhibit 4.9
to the current report on Form 8-K filed with the Commission on
September 29, 2004 and incorporated herein by reference.
II-5
4.10 Registration Rights Agreement, dated as of September 23, 2004, by
and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified
Partners, LLC, AJW Offshore, Ltd. and New Millennium Capital
Partners II, LLC, filed as Exhibit 4.10 to the current report on
Form 8-K filed with the Commission on September 29, 2004 and
incorporated herein by reference.
4.11 Security Agreement, dated as of September 23, 2004, by and among
Cyberlux Corporation, AJW Partners, LLC, AJW Qualified Partners,
LLC, AJW Offshore, Ltd. and New Millennium Capital Partners II,
LLC, filed as Exhibit 4.11 to the current report on Form 8-K
filed with the Commission on September 29, 2004 and incorporated
herein by reference.
4.12 Intellectual Property Security Agreement, dated as of September
23, 2004, by and among Cyberlux Corporation, AJW Partners, LLC,
AJW Qualified Partners, LLC, AJW Offshore, Ltd. and New
Millennium Capital Partners II, LLC, filed as Exhibit 4.12 to the
current report on Form 8-K filed with the Commission on September
29, 2004 and incorporated herein by reference.
4.13 Guaranty and Pledge Agreement, dated as of September 23, 2004, by
and among Cyberlux Corporation, AJW Partners, LLC, AJW Qualified
Partners, LLC, AJW Offshore, Ltd., New Millennium Capital
Partners II, LLC and Donald F. Evans, filed as Exhibit 4.13 to
the current report on Form 8-K filed with the Commission on
September 29, 2004 and incorporated herein by reference.
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (filed
herewith)
10.1 Donald F. Evans Employment Agreement, dated as of July 1, 2000,
filed as an exhibit to the registration statement on Form 10-SB
filed with the Commission on December 17, 2001 and incorporated
herein by reference.
10.2 Alan H. Ninneman Employment Agreement, dated as of July 1, 2000,
filed as an exhibit to the registration statement on Form 10-SB
filed with the Commission on December 17, 2001 and incorporated
herein by reference.
10.3 John W. Ringo Employment Agreement, dated as of July 1, 2000,
filed as an exhibit to the registration statement on Form 10-SB
filed with the Commission on December 17, 2001 and incorporated
herein by reference.
10.4 Donald F. Evans Amended Employment Agreement, dated as of January
1, 2003, filed as an exhibit to the registration statement on
Form SB-2 filed with the Commission on April 30, 2003 and
incorporated herein by reference.
10.5 Alan H. Ninneman Amended Employment Agreement, dated as of
January 1, 2003, filed as an exhibit to the registration
statement on Form SB-2 filed with the Commission on April 30,
2003 and incorporated herein by reference.
10.6 John W. Ringo Amended Employment Agreement, dated as of January
1, 2003, filed as an exhibit to the registration statement on
Form SB-2 filed with the Commission on April 30, 2003 and
incorporated herein by reference.
10.7 Mark D. Schmidt Employment Agreement, dated as of May 1, 2003,
filed as an exhibit to the quarterly report on Form 10-QSB filed
with the Commission on August 19, 2003 and incorporated herein by
reference.
10.8 Proprietary Product Manufacturing Agreement, dated as April 24,
2001, by and between Cyberlux Corporation and Shelby County
Community Services, Inc., filed as an exhibit to the registration
statement on Form 10-SB filed with the Commission on December 17,
2001 and incorporated herein by reference.
II-6
10.9 Design Agreement, dated as of March 2, 2001, by and between
Cyberlux Corporation and ROBRADY Design, filed as an exhibit to
the registration statement on Form 10-SB/A filed with the
Commission on February 4, 2001 and incorporated herein by
reference.
10.10 Series A Convertible Preferred Stock Purchase Agreement, dated as
of December 31, 2003, by and among Cyberlux Corporation and the
purchasers set forth therein, filed as an exhibit to the current
report on Form 8-K filed with the Commission on January 8, 2004
and incorporated herein by reference.
10.11 Registration Rights Agreement, dated as of December 31, 2003, by
and among Cyberlux Corporation and the purchasers of Series A
Convertible Preferred Stock set forth therein, filed as an
exhibit to the current report on Form 8-K filed with the
Commission on January 8, 2004 and incorporated herein by
reference.
10.12 Form of Series A Warrant issued in connection with the sale of
Series A Convertible Preferred Stock, filed as an exhibit to the
current report on Form 8-K filed with the Commission on January
8, 2004 and incorporated herein by reference.
10.13 Form of Series B Warrant issued in connection with the sale of
Series A Convertible Preferred Stock, filed as an exhibit to the
current report on Form 8-K filed with the Commission on January
8, 2004 and incorporated herein by reference.
10.14 Lock-up Agreement, dated as of December 31, 2003, by and among
Cyberlux Corporation and certain officers and directors of
Cyberlux Corporation, filed as an exhibit to the current report
on Form 8-K filed with the Commission on January 8, 2004 and
incorporated herein by reference.
23.1 Consent of Russell Bedford Stefanou Mirchandani LLP (filed
herewith).
23.2 Consent of legal counsel (see Exhibit 5.1).
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the 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) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
II-7
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
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 registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant 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
registrant 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 Securities Act and will be governed by the final adjudication
of such issue.
II-8
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 of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Durham,
State of North Carolina, on October 13, 2004.
CYBERLUX CORPORATION
By: /s/ DONALD F. EVANS
--------------------------------------
Donald F. Evans, Chief Executive
Officer, Principal Executive
Officer and Chairman of the Board
of Directors
By: /s/ DAVID D. DOWNING
--------------------------------------
David D. Downing, Chief Financial
Officer, Principal Financial
Officer and Principal Accounting
Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
/s/ DONALD F. EVANS Chief Executive Officer and October 13, 2004
----------------------- Chairman of the Board of Directors
Donald F. Evans
/s/ MARK D. SCHMIDT President, Chief Operating Officer October 13, 2004
----------------------- and Director
Mark D. Schmidt
/s/ JOHN W. RINGO Secretary, Corporate Counsel October 13, 2004
----------------------- and Director
John W. Ringo
/s/ ALAN H. NINNEMAN Senior Vice President and Director October 13, 2004
-----------------------
Alan H. Ninneman
/s/ DAVID D. DOWNING Chief Financial Officer October 13, 2004
----------------------- and Director
David D. Downing
II-9