U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 2004
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ____________ to ______________
For the Period Ended June 30, 2004
Commission file number 000-33415
CYBERLUX CORPORATION
(Name of Small Business Issuer in Its Charter)
Nevada 91-2048178
(State of Incorporation) (IRS Employer Identification No.)
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
(Address of Principal Executive Offices)
(919) 474-9000
Issuer's Telephone Number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
As of June 30, 2004, the Company had 18,614,905 shares of its par value $0.001
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
i
CYBERLUX CORPORATION
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................................. 1
Condensed Consolidated Balance Sheets................................... 2
Condensed Consolidated Statement of Losses.............................. 3
Condensed Consolidated Statement of Deficiency in Stockholders' Equity.. 4
Condensed Consolidated Statements of Cash Flows......................... 8
Notes to Condensed Consolidated Financial Statements..................... 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS............................. 14
General Overview........................................................ 14
Results of Operations................................................... 15
Revenues................................................................ 16
Costs and Expenses...................................................... 16
Liquidity and Capital Resources......................................... 16
Product Research and Development........................................ 19
Acquisition of Plant and Equipment and Other Assets..................... 20
Number of Employees..................................................... 20
Trends, Risks and Uncertainties......................................... 20
Cautionary Factors that May Affect Future Results....................... 20
ITEM 3. CONTROLS AND PROCEDURES........................................... 20
Evaluation of Disclosure controls and Procedures........................ 20
Changes in internal controls............................................ 20
PART II - OTHER INFORMATION............................................... 21
Item 1. Legal Proceedings............................................... 21
Item 2. Changes in Securities and Use of Proceeds....................... 21
Item 3. Defaults Upon Senior Securities................................. 22
Item 4. Submission of Matters to a Vote of Security Holders............. 22
Item 5. Other Information............................................... 22
Item 6. Exhibits and Reports on From 8-K................................ 22
INDEX TO EXHIBITS....................................................... 22
SIGNATURES.............................................................. 22
CERTIFICATIONS.......................................................... 23
ii
ITEM 1. FINANCIAL STATEMENTS
CYBERLUX CORPORATION
INDEX TO FINANCIAL INFORMATION
Condensed Balance Sheets at June 30, 2004 and December 31, 2003
Condensed Statements of Losses For the Three Months
ended June 30, 2004 and 2003, Six Months Ended
June 30, 2004 and 2003 and the Period May 17, 2000
(Date of Inception) Through June 30, 2004
Condensed Statement of (Deficiency) in Stockholders'
Equity For the Period May 17, 2000
(Date of Inception) Through June 30, 2004
Condensed Statement of Cash flows For the Six Months
Ended June 30, 2004 and 2003 and the Period From
May 17, 2000 (Date of Inception) Through June 30, 2004
Notes to Unaudited Condensed Financial statements
1
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.
2
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.
3
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
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.
4
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.
5
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
See accompanying notes to the unaudited condensed financial information.
6
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.
7
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)
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 -- -- --
See accompanying notes to the unaudited condensed financial information.
8
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
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
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
9
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.
10
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.
11
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.
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.
12
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.
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.
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.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion contains forward-looking statements that are subject to
significant risks and uncertainties about us, our current and planned products,
our current and proposed marketing and sales, and our projected results of
operations. There are several important factors that could cause actual results
to differ materially from historical results and percentages and results
anticipated by the forward-looking statements. The Company has sought to
identify the most significant risks to its business, but cannot predict whether
or to what extent any of such risks may be realized nor can there be any
assurance that the Company has identified all possible risks that might arise.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company's stock. The following
discussion and analysis should be read in conjunction with the financial
statements of the Company and notes thereto. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment from our Management.
GENERAL OVERVIEW
The Company is in the development stage and its efforts have been principally
devoted to designing, developing manufacturing and marketing advanced lighting
systems that utilize white (and other) light emitting diodes as illumination
elements.
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 ("ELAS"(TM)) project. The nature and purpose of ELAS 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 ELAS for the Cleveland municipality
including the Cleveland Hopkins International Airport.
During the quarter, 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 Ports
Authority in the City of New York. The MTA requested that we submit a proposal
to provide long term interim lighting pilot installations in the City's subway
system to include passenger platforms, rail cars and tunnel accesses. We
anticipate a similar proposal request from the Ports Authority relative to
Newark, LaGuardia and JFK airports and the Ports Authority Tunnel Holland
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 have developed 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.
On June 3, 2004, we announced that we had agreed in principle to acquire True To
Form, Limited, a specialty lighting firm with offices in Boston and Los Angeles.
True To Form, a privately held firm, manufactures specialty lighting for
restaurant chains, such as Chick-fil-A, Dunkin Donuts and Ben & Jerry's Ice
Cream as well as hotel-casino complexes. The consolidation with Cyberlux as its
specialty lighting division will add a new dimension of our Diodal(TM)
capability TO several of True To Form's products and will provide new
distribution channels for our emergency lighting solutions.
14
Our common stock began trading on the Over-the-Counter Bulletin Board under the
symbol ,,CYBL.OB" on July 13, 2003. The table below sets forth by quarter the
sales information for our common stock as reported on the Over-the-Counter
Bulletin Board in our past fiscal year. This information reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
SALE PRICES
-----------------------------
HIGH LOW
2002:
First Quarter N/A N/A
Second Quarter N/A N/A
Third Quarter N/A N/A
Fourth Quarter N/A N/A
2003:
First Quarter N/A N/A
Second Quarter N/A N/A
Third quarter 1.05 0.10
Fourth quarter 0.55 0.12
2004
First Quarter 0.53 0.19
Second Quarter 0.85 0.27
On August 19, 2004, the closing price of our common stock on the
Over-the-Counter Bulletin Board was $0.37 per share. We urge you to obtain
current market quotations for shares of our common stock.
FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN
THIS FORM 10-QSB ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S DEPENDENCE ON THE
TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF PRODUCTS, THE IMPACT
OF COMPETITION AND DOWNWARD PRICING PRESSURES, THE ABILITY OF THE COMPANY TO
REDUCE ITS OPERATING EXPENSES AND RAISE ANY NEEDED CAPITAL, THE EFFECT OF
CHANGING ECONOMIC CONDITIONS, RISKS IN TECHNOLOGY DEVELOPMENT AND THE EFFECTS OF
OUTSTANDING LITIGATION. OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS INCLUDE THE
RISKS AND UNCERTAINTIES DETAILED IN THE COMPANY'S MOST RECENT FORM 10-KSB AND
ITS OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.
RESULTS OF OPERATIONS
The Company is in the development stage and is seeking to develop, manufacture
and market advanced lighting systems that utilize white (and other) light
emitting diodes as illumination elements. The risks specifically discussed are
not the only factors that could affect future performance and results. In
addition the discussion in this quarterly report concerning our business our
operations and us contain forward-looking statements. Such forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements. We do not have a
policy of updating or revising forward- looking statements and thus it should
not be assumed that silence by our Management over time means that actual events
or results are occurring as estimated in the forward-looking statements herein.
15
As a result of limited capital resources and no revenues from operations from
its inception, the Company has relied on the issuance of equity securities to
non-employees in exchange for services. The Company's management enters into
equity compensation agreements with non-employees if it is in the best interest
of the Company under terms and conditions consistent with the requirements of
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation.
In order conserve its limited operating capital resources, the Company
anticipates continuing to compensate non-employees for services during the next
twelve months. This policy may have a material effect on the Company's results
of operations during the next twelve months.
Revenues
We have generated operating revenues from operations of $ 95,444 from our
inception. We believe we will begin earning revenues from operations in our
second year of actual operation as the Company transitions from a development
stage company to that of an active growth and acquisition stage company
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.
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 def,icit of $1,796,988 from operating activities. Cash flows used in
investing activities was $ 132,760 during the period May 17, 2000 (date of
Company's 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 $112,455 , net of repayments, to Company 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 its operations and development to the level of capitalization ,
management believes it has suffucient capital resources to meet projected cash
flow deficits through the next twelve months . However, if thereafter, we are
not successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations , liquidity and
financial condition.
The Company's independent certified public accountant has stated in his report
included in the Company's December 31, 2003 Form 10-KSB, as amended, that the
Company has incurred operating losses in the last two years, and that the
Company is dependent upon management's ability to develop profitable operations.
These factors among others may raise substantial doubt about the Company's
ability to continue as a going concern.
16
Application of Critical Accounting Policies
The Financial Accounting Standards Board (FASB) issued a proposed Statement,
Share-Based Payment, an amendment of FASB Statements No. 123 and 95, that would
require companies to account for stock-based compensation to employees using a
fair value method as of the grant date. The proposed statement addresses the
accounting for transactions in which a Company receives employee services in
exchange for equity instruments such as stock options, or liabilities that are
based on the fair value of the Company's equity instruments or that may be
settled through the issuance of such equity instruments, which includes the
accounting for employee stock purchase plans. This proposed statement would
eliminate a Company's ability to account for share-based awards to employees
using APB Opinion 25, Accounting for Stock Issued to Employees but would not
change the accounting for transactions in which a company issues equity
instruments for services to non-employees or the accounting for employee stock
ownership plans. The proposed statement, if adopted, would be effective for
awards that are granted, modified, or settled in fiscal years beginning after
December 15, 2004. The Company is in the process of assessing the potential
impact of this proposed statement to the financial statements.
Non-GAAP Financial Measures
The financial statements appearing in this quarterly report on Form 10-QSB do
not contain any financial measures which are not in accordance with generally
accepted accounting procedures.
Inflation
In the opinion of management, inflation has not had a material effect on the
Company's financial condition or results of its operations
Off-Balance Sheet Arrangements
The Company does not maintain off-balance sheet arrangements nor does it
participate in non-exchange traded contracts requiring fair value accounting
treatment.
TRENDS, RISKS AND UNCERTAINTIES
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
Cautionary Factors That May Affect Future Results
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products. These
are factors that we think could cause our actual results to differ materially
from expected results. Other factors besides those listed here could adversely
affect us.
17
Potential fluctuations in quarterly operating results
Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, most of which are outside our control,
including: the demand for our products; seasonal trends in purchasing, the
amount and timing of capital expenditures and other costs relating to the
development of our products; price competition or pricing changes in the
industry; technical difficulties or system downtime; general economic
conditions, and economic conditions specific to the consumer lighting industry.
Our quarterly results may also be significantly impacted by the impact of the
accounting treatment of acquisitions, financing transactions or other matters.
Particularly at our early stage of development, such accounting treatment can
have a material impact on the results for any quarter. Due to the foregoing
factors, among others, it is likely that our operating results will fall below
our expectations or those of investors in some future quarter.
Lack of Independent Directors
We cannot guarantee that our Board of Directors will have a majority of
independent directors in the future. In the absence of a majority of independent
directors, our executive officers, who are also principal stockholders and
directors, could establish policies and enter into transactions without
independent review and approval thereof. This could present the potential for a
conflict of interest between the Company and its stockholders generally and the
controlling officers, stockholders or directors.
Limitation of Liability and Indemnification of Officers and Directors
Our officers and directors are required to exercise good faith and high
integrity in our Management affairs. Our Articles of Incorporation provide,
however, that our officers and directors shall have no liability to our
shareholders for losses sustained or liabilities incurred which arise from any
transaction in their respective managerial capacities unless they violated their
duty of loyalty, did not act in good faith, engaged in intentional misconduct or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. Our Articles and By-Laws
also provide for the indemnification by us of the officers and directors against
any losses or liabilities they may incur as a result of the manner in which they
operate our business or conduct the internal affairs, provided that in
connection with these activities they act in good faith and in a manner that
they reasonably believe to be in, or not opposed to, the best interests of the
Company, and their conduct does not constitute gross negligence, misconduct or
breach of fiduciary obligations. To further implement the permitted
indemnification, we have entered into Indemnity Agreements with our officers and
directors.
Continued Control by Current Officers and Directors
The present officers and directors, through their ownership of the Company's
Series B Convertible Preferred Stock , have voting control , and therefore are
in a position to elect all of our Directors and otherwise control the Company,
including, without limitation, authorizing the sale of equity or debt securities
of the Company, the appointment of officers, and the determination of officers'
salaries. Shareholders have no cumulative voting rights.
Management of Potential Growth
We anticipate rapid growth, which will place a significant strain on our
managerial, operational, and financial systems resources. To accommodate our
current size and manage growth, we must continue to implement and improve our
financial strength and our operational systems, and expand, train and manage our
sales and distribution base. There is no guarantee that we will be able to
effectively manage the expansion of our operations, or that our facilities,
systems, procedures or controls will be adequate to support our expanded
operations. Our inability to effectively manage our future growth would have a
material adverse effect on us.
Limited Market Due To Penny Stock
The Company's stock differs from many stocks, in that it is a "penny stock." The
Securities and Exchange Commission has adopted a number of rules to regulate
"penny stocks." These rules include, but are not limited to, Rules 3a5l-l,
15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and
Exchange Act of 1934, as amended. Because our securities probably constitute
"penny stock" within the meaning of the rules, the rules would apply to us and
our securities. The rules may further affect the ability of owners of our stock
to sell their securities in any market that may develop for them. There may be a
limited market for penny stocks, due to the regulatory burdens on
broker-dealers. The market among dealers may not be active. Investors in penny
stock often are unable to sell stock back to the dealer that sold them the
stock. The mark-ups or commissions charged by the broker-dealers may be greater
than any profit a seller may make. Because of large dealer spreads, investors
may be unable to sell the stock immediately back to the dealer at the same price
the dealer sold the stock to the investor. In some cases, the stock may fall
quickly in value. Investors may be unable to reap any profit from any sale of
18
the stock, if they can sell it at all. Stockholders should be aware that,
according to the Securities and Exchange Commission Release No. 34- 29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. These patterns include: - Control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer; -
Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; - "Boiler room" practices involving high
pressure sales tactics and unrealistic price projections by inexperienced sales
persons; - Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and - The wholesale dumping of the same securities by
promoters and broker- dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with consequent
investor losses. Furthermore, the "penny stock" designation may adversely affect
the development of any public market for the Company's shares of common stock
or, if such a market develops, its continuation. Broker-dealers are required to
personally determine whether an investment in "penny stock" is suitable for
customers. Penny stocks are securities (i) with a price of less than five
dollars per share; (ii) that are not traded on a "recognized" national exchange;
(iii) whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an
issuer with net tangible assets less than $2,000,000 (if the issuer has been in
continuous operation for at least three years) or $5,000,000 (if in continuous
operation for less than three years), or with average annual revenues of less
than $6,000,000 for the last three years. Section 15(g) of the Exchange Act, and
Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny stocks
and to obtain a manually signed and dated written receipt of the document before
effecting any transaction in a penny stock for the investor's account. Potential
investors in the Company's common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Rule 15g-9 of the Commission requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for the Company's stockholders to
resell their shares to third parties or to otherwise dispose of them.
PRODUCT RESEARCH AND DEVELOPMENT
We anticipate performing further research and development for our exiting
products during the next twelve months. Those activities include the ReliaBright
Emergency Lighting Augmentation System, ReliaBright Solo, Bright Owl Home Safety
Light, Bright Owl Mini, Night Owl Power Outage Adapter and VersaBright Area
Light 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
19
ACQUISITION OF PLANT AND EQUIPMENT AND OTHER ASSETS
We do not anticipate the sale of any material property , plant or equipment
during the next 12 months. We do not anticipate the acquisition of any material
property, plant or equipment during the next 12 months. We do not own any real
property. Our corporate headquarters are located at 4625 Creekstone Drive, Suite
100, Research Triangle Park, Durham, NC 27703. We lease 2,405 square feet of
office space from a non affiliated landlord. The lease expires on December 31,
2008. The monthly rent is presently $3,457.
NUMBER OF EMPLOYEES
From our inception through the period ended June 30, 2004, we have relied on the
services of outside consultants for services and have five (5) employees. In
order for us to attract and retain quality personnel, we anticipate we will have
to offer competitive salaries to future employees. We anticipate that it may
become desirable to add additional full and or part time employees to discharge
certain critical functions during the next 12 months. This projected increase in
personnel is dependent upon our ability to generate revenues and obtain sources
of financing. There is no guarantee that we will be successful in raising the
funds required or generating revenues sufficient to fund the projected increase
in the number of employees. As we continue to expand, we will incur additional
cost for personnel.
TRENDS, RISKS AND UNCERTAINTIES
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Our annual report on December 31, 2003, Form 10-KSB, as amended, includes a
detailed list of cautionary factors that may affect future results. Management
believes that there have been no material changes to those factors listed,
however other factors besides those listed could adversely affect us. That
annual report can be accessed on EDGAR.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange act reports is recorded,
processed , summarized and reported within the time periods specified in the
SEC's rules and forms and that such information is accumulated and communicated
to our management, including our chief executive officer and chief financial
officer, as appropriate , to allow timely decisions regarding required
disclosure. Managment necessarily applied its judgement in assessing the costs
and benefits of such controls and procedures , which , by their nature, can
provide only reasonable assurance regarding management's control objectives.
We have carried out an evaluation, under the supervision and with the
participation of our management, including our chief executive officer and chief
financial officer of the effectiveness of the design and operation of our
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report ( the Evaluation date )
Based upon that evaluation , the chief executive officer and chief financial
officer concluded that our disclosure controls and procedures were effective as
of the evaluation date.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the evaluation
date.
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On April 5, 2004, 450,000 shares of our Common Stock issued to Capital Funding
Solutions as collateral pursuant to a factoring agreement were cancelled.
On April 29, 2004, we filed an Amendment to the Certificate of Designation with
the Nevada Secretary of State to the Series B Convertible Preferred Stock, par
value $0.001 to change the conversion price to common stock from$0.20 per share
to $0.10 per share and to change the purchase price for First Refusal Shares
from an amount equal to the liquidation amount to an average market price of
shares of common stock over a 10 day period from the date of the Notice of
Conversion.
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.
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
Current Capital Corp. 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.
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.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
---------- -----------
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002,
REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CYBERLUX CORPORATION
(Registrant)
Date:August 20, 2004
/s/ Donald F. Evans
----------------------
Donal F. Evans
CEO and Chairman of the Board
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