SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2004
Commission file number 000-33415
CYBERLUX CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 91-2048178
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4625 Creekstone Drive, Suite 100
Research Triangle Park
Durham, North Carolina 27703
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(Address of principal executive offices) (zip code)
Issuer's Telephone Number: (919) 474-9700
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title if Class)
Indicate by check mark whether the registrant (a) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (b) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
As of March 28, 2005 the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $1,329,055.85,
based upon the closing sales price on the Nasdaq Over-The-Counter Bulletin Board
for that date.
The number of shares of Common Stock, $0.001 par value, outstanding on
March 28, 2005, was 29,836,117 shares, held by approximately 220 stockholders.
The issuer's revenues for its most recent fiscal year ended December 31,
2004 were $23,803.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
CYBERLUX CORPORATION
ANNUAL REPORT ON FORM 10-KSB
For the Fiscal Year Ended December 31, 2004
TABLE OF CONTENTS
PART I Page
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Item 1. Business.........................................................................................1
Item 2. Properties.......................................................................................4
Item 3. Legal Proceedings............................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders........................................... ..6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... ..7
Item 6. Management's Discussion and Analysis of Financial Condition and Results Of Operations......... .11
Item 7. Financial Statements............................................................................19
Item 8. Changes in and Disagreements with Accountants on Auditing and Financial Disclosure............ 20
Item 8A. Controls and Procedures....................................................................... 20
Item 8B. Other Information...............................................................................20
PART III
Item 9. Directors and Executive Officers of the Registrant............................................ .21
Item 10. Executive Compensation........................................................................ .23
Item 11. Security Ownership of Certain Beneficial Owners and Management................................ .25
Item 12. Certain Relationships and Related Transactions................................................ .26
PART IV
Item 13. Exhibits........................................................................................28
Item 14. Principal Accountant Fees and Services .... .................................................. .30
Signatures................................................................................................ .32
This form 10-KSB contains forward-looking statements within the meaning
of the federal securities laws. These forward-looking statements are necessarily
based on certain assumptions and are subject to significant risks and
uncertainties. These forward-looking statements are based on management's
expectations as of the date hereof, and the Company does not undertake any
responsibility to update any of these statements in the future. Actual future
performance and results could differ from that contained in or suggested by
these forward-looking statements as a result of factors set forth in this Form
10-KSB (including those sections hereof incorporated by reference from other
filings with the Securities and Exchange Commission), in particular as set forth
in the "Management's Discussion and Analysis and Results of Operation" under
Item 6.
In this form 10-KSB references to "CYBERLUX", "the Company", "we,"
"us," and "our" refer to CYBERLUX CORPORATION.
PART I
ITEM 1. DESCRIPTION OF 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.
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.. 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 the
Home Safety Light, the Cyclone PLP (Power Light Plant), the Power-Outage
Adapter, the Task & Accent Light and the KeyCap LockLight, 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.
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The power outage that struck the Midwest to the Northeastern United
States and parts of Canada in August of 2003 dramatized the absence of realistic
emergency lighting solutions in North America. This event was followed by the
hurricane season of 2004 during which millions of property owners in Florida
were without conventional power for days up to several weeks. The recurring
power losses are directly attributable to the grid system which delivers
electrical power to the North American Continent. Storm activity or power surges
may cause electrical power line damage which then causes grid collapse due to
the domino effect of failing systems. Typically, in the event of a power outage,
"emergency lighting" is utilized, which is short-term evacuation lights in
public and private buildings which perform for 60 to 90 minutes. Long-term
electrical power grid failure is a far different problem. We have developed an
alternative to typical "emergency lighting" for grid failure blackouts with
long-term emergency lighting using its Reliabrighttm family of battery powered
products that provide 60 hours (3,600 minutes) of bright light from one battery
charge.
Shortly after the blackout of August 2003, we were invited to propose
an emergency lighting redundancy system for the City of Cleveland, Ohio where
the power-outage darkened most of the city's buildings and homes. We reviewed
existing systems and then demonstrated our Reliabrighttm Emergency Lighting
System (ELS) over a three-month period beginning in December, 2003. In March of
2004, we were awarded a non-competitive bid contract by the City to begin
implementation of our Reliabrighttm ELS and ELU products in Cleveland's Public
Utilities Building. The nature and purpose of Reliabrighttm is its ability to
provide 60 hours of light during blackouts in bathrooms, stairwells, elevators,
corridors, equipment rooms and interior offices from its custom sealed
constant-charge battery pack and expandable diodaltm lighting element
configuration. The Reliabrighttm ELS retrofits into existing ceiling tiles in
bathrooms, elevators or offices and the ELU is wall mounted in corridors,
stairwells and equipment rooms.
Our initial product, the Home Safety Light (HSL), is an efficient
portable fixture that provides a full week of light from one set of AA batteries
compared to over 20 sets of replacement batteries required by other portable
lights to produce comparable light life. A proprietary intelligent circuit board
provides three levels of light intensity controlled by a simple push button. The
parabolic reflector broadcasts a blanket of light that can illuminate an entire
room, corridor, stairwell or other strategic location. The unit may be
hand-held, placed on a level platform or suspended from a wall-mounted hook. At
the moderate light level, it provides a full week of reliable bright light.
Because the patented HSL's performance characteristics are ideal for
recreational boating and camping as well as home safety, certain modifications
and package designs were implemented to create the CampLamptm which address the
needs of outdoor markets.
The Cyclone PLP (Power Light Plant) is a heavy-duty, rugged, portable
fixture that is actually a "perpetual source of light". The Cyclone is powered
by our proprietary sealed ConstaChargetm lead-acid battery that is maintained at
full charge by linkage to a standard electrical wall outlet or by linkage to a
vehicle's charge port or its cigarette lighter. The fixture operates its
articulated lens head for 60 hours of light from one charge session and can be
renewed to full charge in approximately 4 hours. The PLP has an integrated
charge port to enable recharge of a cell phone or other DC device and a reverse
current flow switch that can trickle charge a disabled automobile battery
through connection to the vehicle's internal charge port. The articulated lens
head arm has the ability to rotate through graduated ratchet points to provide
rigid focus of a powerful beam in task related applications. A 180 degree
rotation of the lens head when the fixture is upended to a vertical stance
positions the light source as a useful table lamp.
Our Power-Outage Adapter is a patented "intelligent electrical wall
outlet" that replaces an existing wall outlet, continues to perform as an
electrical outlet used by a variety of power cords, but now provides a new
dimension of service as an emergency lighting system. The Adapter contains a
constant charge battery, three sensors and three diodaltm lighting elements. One
sensor detects motion in a darkened space and illuminates one diode in the lower
lens to provide a guide light for movement; a second sensor detects loss of
power in the building's electrical system and illuminates two ultra-bright
diodes in the upper lens to wash the attendant wall with light; and a third
sensor detects ambient light in the space and deactivates the system. The Power
Outage Adapter will be marketed to hospitals, eldercare facilities and hotels in
the third quarter of 2005.
The "Heatless" new Task & Accent light is a fixture of several
different lengths which offer alternatives for its application in closets,
cabinets and under cabinet counter lighting. This product has the potential to
become the favorite of kitchen and interior designers owing to its remarkable
performance characteristics of several optional shades of white light, three
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levels of light intensity and its "cool to the touch" safety feature. The choice
of electrical connections as plug-in, hard-wired or battery powered adds to the
fixture's flexibility and its light life of 75,000 hours contributes to its
leadership role in energy efficiency, durability and longevity.
Our patented KeyCaptm LockLight provides an inexpensive solution for a
key chain light source. This unique fixture is encased in an elastic fabric that
easily fits over the head of any variety of keys. The slender circuitry is
positioned to reside at the side of the key with the diode facing the lockset
entry down the shaft of the key which brightly, and precisely, illuminates the
keyhole. The KeyCaptm, which will be marketed three to a package surrounding
plastic facsimiles of keys, is a practical, lightweight, addition to every
consumer's key chain.
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 Zykronix, Inc. of Englewood, Colorado, Taipei Hsien, Taiwan
and GuangZhou, P.R. China, 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 SCCS 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 Capstrat, Inc. as our public relations firm
responsible for the strategic and tactical communications for Cyberlux. Capstrat
is a marketing communications firm that assists Cyberlux in communicating to our
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target audiences of customers, prospects, the media, policymakers, employees,
opinion leaders and shareholders. Capstrat draws on a wide array of disciplines,
fueled by strategy and creativity, to aid Cyberlux in achieving our tactical and
strategic goals.
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.
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
We anticipate continuing to incur research and development expenditures
in connection with the development of our Wireless Lighting System during the
next twelve months.
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.
Employees
We currently have seven (7) 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 and John W. Ringo, Secretary and
Corporate Counsel. We believe that our relations with our employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
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) 474-9700 and our facsimile number is (919) 474-9712. We
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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.
ITEM 3. 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 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.
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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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to a written consent of a majority of stockholders dated
October 5, 2004, in lieu of a special meeting of the stockholders, the majority
of stockholders approved the following actions:
1. To amend the Company's Articles of Incorporation, as amended, to
increase the number of authorized shares of common stock, par value $.001 per
share, of the Company from 100,000,000 shares to 300,000,000 shares;
2. To ratify the selection of Russell Bedford Stefanou Mirchandani as
independent registered public accounting firm of the Company for the year ending
December 31, 2004; and
3. To elect Donald F. Evans, Mark D. Schmidt, John W. Ringo and Alan H.
Ninneman to the Company's Board of Directors, to hold office until their
successors are elected and qualified or until their earlier resignation or
removal.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"CYBL".
For the periods indicated, the following table sets forth the high and
low bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
High($) Low ($)
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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 0.35 0.06
2005
First Quarter (2) 0.07 0.02
(1) Our stock first traded on July 13, 2003.
(2) As of March 30, 2005.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue up to 300,000,000 shares of common stock,
par value $.001. As of March 28, 2005, there were 29,836,117 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 therefore. 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.
Preferred Stock
We are authorized to issue up to 5,000,000 shares of Preferred Stock,
par value $.001. As of March 28, 2005, there were 800,113.3606 shares of
preferred stock issued and outstanding.
Options
There are currently options outstanding that have been issued to our
officers and directors to purchase 2,000,000 shares of our common stock at a
purchase price of $0.001, which expire in 2010.
Warrants
In connection with a Securities Purchase Agreement dated September 23,
2004, we have issued 2,250,000 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.
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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 2,600,000 shares of common stock issuable
upon exercise of outstanding options and warrants, approximately 128,204,459
shares of common stock are issuable upon conversion of $1,282,044.59 of
outstanding secured convertible notes issued pursuant to the Securities Purchase
Agreement dated September 23, 2004, based on current market prices.
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.
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.
Penny Stock Regulation.
Shares of our common stock are subject to rules adopted by the
Securities and Exchange Commission that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in those securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules, deliver a standardized risk
disclosure prepared by the Securities and Exchange Commission, which contains
the following:
o A description of the nature and level of risk in the market for
penny stocks in both public offerings and secondary trading;
o A description of the broker's or dealer's duties to the customer and
of the rights and remedies available to the customer with respect to
violation to such duties or other requirements of securities' laws;
o A brief, clear, narrative description of a dealer market, including
"bid" and "ask" prices for penny stocks and the significance of the
spread between the "bid" and "ask" price;
o A toll-free telephone number for inquiries on disciplinary actions;
o Definitions of significant terms in the disclosure document or in
the conduct of trading in penny stocks; and o Such other information
and in such form (including language, type, size and format), as the
Securities and Exchange Commission shall require by rule or
regulation.
8
Prior to effecting any transaction in a penny stock, the broker-dealer
also must provide the customer the following:
o The bid and offer quotations for the penny stock;
o The compensation of the broker-dealer and its salesperson in the
transaction;
o The number of shares to which such bid and ask prices apply, or
other comparable information relating to the depth and liquidity of
the market for such stock; and
o Monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written acknowledgment
of the receipt of a risk disclosure statement, a written agreement to
transactions involving penny stocks, and a signed and dated copy of a written
suitably statement.
These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Holders of shares of our common stock may have difficulty
selling those shares because our common stock will probably be subject to the
penny stock rules for an indeterminate period of time.
Recent Sales of Unregistered Securities
On October 11, 2004, we issued 50,000 stock purchase warrants
exercisable at $0.20 per share to Fleetwood Associates for services rendered.
This issuance was exempt from registration pursuant to Section 4(2) of the
Securities Act.
On October 18, 2004, we issued 500,000 shares of our Common Stock to
Greenfield Capital, LLC pursuant to a placement agent agreement. This issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act.
On October 18, 2004, Dolores and Ray L. Jennings converted a promissory
note in the amount of $21,002.85 into 140,019 shares of our Common Stock at
$0.15 per share. This issuance was a private transaction pursuant to Section
4(2) of the Securities Act.
On October 18, 2004, we issued 90,000 shares of our Common Stock to
Dolores and Ray L. Jennings for services rendered. This issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act.
On October 18, 2004, we issued 100,000 shares of our Common Stock to
Sichenzia Ross Friedman Ference LLP for legal services rendered. This issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act.
On November 8, 2004, we issued 250,000 stock purchase warrants exercisable
at $0.20 per share to RoBrady Capital, LLC for services rendered. This issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act.
On November 8, 2004, we issued 50,000 stock purchase warrants
exercisable at $0.20 per share to Stephen W. Gropp for services rendered. This
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act.
On November 8, 2004, we issued 50,000 stock purchase warrants
exercisable at $0.20 per share to Timothy C. Dudgeon for services rendered. This
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act.
On November 8, 2004, we issued 200,000 stock purchase warrants
exercisable at $0.20 per share to William Walker for services rendered. This
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act.
9
On December 10, 2004, we issued 203,867 shares of our Common Stock to
our Series A Preferred Shareholders at $0.44 per share as a penalty for late
registration of the underlying stock. This issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act.
On December 14, 2004, we issued 200,000 stock purchase warrants
exercisable at $0.20 per share to William Walker for services rendered. This
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act.
On December 14, 2004, we issued 200,000 stock purchase warrants
exercisable at $0.20 per share to Hunter H. Bostfor services rendered. This
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act.
In December 2004, holders converted 15 shares of our Series A Preferred
Stock into 750,000 shares of our Common Stock at $.10 per share. This issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act.
Sales Subsequent to December 31, 2004 year-end
In January 2005, holders converted 33.5 shares of our Series A
Preferred Stock into 1,425,000 shares of our Common Stock at $.10 per share.
This issuance was exempt from registration pursuant to Section 4(2) of the
Securities Act.
In February 2005, holders converted 5 shares of our Series A Preferred
Stock into 250,000 shares of our Common Stock at $.10 per share. This issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act.
10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULT
OF OPERATIONS.
This report contains forward-looking statements. Actual results and
events could differ materially from those projected, anticipated, or implicit,
in the forward-looking statements as a result of the risk factors set forth
below and elsewhere in this report.
With the exception of historical matters, the matters discussed herein
are forward-looking statements that involve risks and uncertainties.
Forward-looking statements include, but are not limited to, statements
concerning anticipated trends in revenues and net income, projections concerning
operations and available cash flow. Our actual results could differ materially
from the results discussed in such forward-looking statements. The following
discussion of our financial condition and results of operations should be read
in conjunction with our financial statements and the related notes thereto
appearing elsewhere herein.
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.
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.
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.
11
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
Results of Operations for the Years Ended December 31, 2004 and 2003 Compared.
Revenues for the year ended December 31, 2004 were $23,803 and include
the pilot installation of our new ELS product for the City of Cleveland, Ohio.
This compares to revenues of $74,238 for the year ended December 31, 2003.
Cost of goods sold were $160,260 for 2004 compared with $161,984 for
2003. Much of the design effort on the ELS product was costed into the product
installation for the City of Cleveland.
Operating expenses for the year ended December 31, 2004 were $4,098,444
compared with $1,268,802 for the year ended December 31, 2003. Included in
expenses for 2004 was $2,116,672 for consulting services compared with $95,935
for the previous year. Most of this expense was the result of issuing common
stock of the Company, recorded at the market price on the date of the awards, in
lieu of cash payments. The services provided included product design, market
development and capital fund-raising services.
Operating expenses for 2004 also include $296,008 representing costs
incurred in the design and pre-production of three products to be marketed
during the second quarter of 2005. Accounting practices have historically
attempted to match revenues and costs; however, in compliance with the
requirements of FASB number 2, we have taken these costs to expense during the
year 2004.
Interest expense for 2004 were $1,600,087 compared to $138,008 for
2003. Included in interest expense for 2004 is $1,500,000 which was booked to
recognize the imbedded beneficial conversion feature of the $1,500,000
convertible notes payable entered into during the 3rd and 4th quarters of 2004.
The net loss realized for 2004 was $6,825,848, or $0.41 per share on an
average of 16,701,174 shares outstanding and compares to a net loss of
$2,230,806, or $0.29 per share on an average of 7,652,012 shares outstanding for
the year 2003.
Liquidity and Capital Resources
As of December 31, 2004, we had a working capital deficit of $442,303.
As a result of our operating losses from our inception through December 31.
2004, we generated a cash flow deficit of $3,067,671from operating activities.
Cash flows used in investing activities was $135,353 during the period May 17,
2000 (date of our inception) through December 31, 2004. We met our cash
requirements during this period through the private placement of $1,836,750
through the issuance of our common and preferred stock, and $1,781,649 from the
issuance of notes payable.
12
While we have raised capital to meet our working capital and financing
needs in the past, additional financing is required in order to meet our current
and projected cash flow deficits from operations and development.
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,
dated as of March 17, 2005, 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. The investors provided us
with an aggregate of $1,500,000 as follows:
o $500,000 was disbursed on September 23, 2004;
o $500,000 was disbursed on October 20, 2004; and
o $500,000 was disbursed on November 18, 2004.
The proceeds received from the sale of the secured convertible notes
were 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.
Since the conversion price was less than the market price of the common
stock at the time the secured convertible notes are issued, we recognized 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 $1,500,000 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
13
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.
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
14
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.
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.
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.
15
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.
Risk Factors
Much of the information included in this annual report includes or is
based upon estimates, projections or other "forward-looking statements". Such
forward-looking statements include any projections or estimates made by us and
our management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other future performance
suggested herein.
Such estimates, projections or other "forward-looking statements"
involve various risks and uncertainties as outlined below. We caution the reader
that important factors in some cases have affected and, in the future, could
materially affect actual results and cause actual results to differ materially
from the results expressed in any such estimates, projections or other
"forward-looking statements".
Our common shares are considered speculative. Prospective investors
should consider carefully the risk factors set out below.
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 $6,825,848 for the year ended December 31,
2004 and $2,230,806 for the year ended December 31, 2003. 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
$3,500,000 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 March 17, 2005, our independent auditors stated
that our financial statements for the year ended December 31, 2004 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, 2004 and 2003 in the amounts of $6,825,848 and $2,230,806,
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.
16
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.
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.
Our Principal Stockholders, Officers And Directors Own a Controlling Interest in
Our Voting Stock And Investors Will Not Have Any Voice in Our Management.
Our officers and directors, in the aggregate, through their holdings of
Series B Convertible Preferred Stock, have the ability to vote approximately
75.8% of the votes entitled to be cast on any matter submitted to the
shareholders. As a result, these stockholders, acting together, have the ability
to control substantially all matters submitted to our stockholders for approval,
including:
o election of our board of directors;
o removal of any of our directors;
o amendment of our certificate of incorporation or bylaws; and
o adoption of measures that could delay or prevent a change in control
or impede a merger, takeover or other business combination involving
us.
As a result of their ownership and positions, our directors and
executive officers collectively are able to influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our directors and executive officers, or the prospect of these
sales, could adversely affect the market price of our common stock. Management's
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock
price.
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.
17
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.
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.
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.
18
ITEM 7. FINANCIAL STATEMENTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2004 AND 2003
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
CYBERLUX CORPORATION
F-1
Page
--------------------------------------------------------------------------------
Report of Independent Certified Public Accountants F-3
--------------------------------------------------------------------------------
Balance Sheet at December 31, 2004 and 2003 F-4
--------------------------------------------------------------------------------
Statements of Losses for the Years ended December 31, 2004 F-5
and 2003 and for the Period May 17, 2000 (Date of Inception)
through December 31, 2004
--------------------------------------------------------------------------------
Statement of Deficiency in Stockholders' Equity for the F-6 - F-9
Period May 17, 2000 (Date of Inception) through December 31,
2004
--------------------------------------------------------------------------------
Statements of Cash Flows for the Years ended December 31, F-10
2004 and 2003 and for the Period May 17, 2000 (Date of
Inception) through December 31, 2004
--------------------------------------------------------------------------------
Notes to Financial Statements F-11 - F-23
--------------------------------------------------------------------------------
F-2
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Cyberlux Corporation
North Carolina 28370-2010
We have audited the accompanying balance sheets of Cyberlux Corporation
(the "Company"), as of December 31, 2004 and 2003 and the related statements of
losses, deficiency in stockholders' equity, and cash flows for the two years
then ended and for the period May 17, 2000 (Date of Inception) through December
31, 2004. 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 standards of the Public Company
Accounting Oversight Board (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 financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2004 and 2003 and for the period May 17, 2000 (Date of Inception) through
December 31, 2004, 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 financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note I to the
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 I. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
----------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
McLean, Virginia
March 17, 2005
F-3
CYBERLUX CORPORATION
(A Development Stage Company)
Balance Sheets
December 31, December 31,
2004 2003
Assets
Current assets:
Cash & cash equivalents $ 415,375 $ 16,247
Prepaid expenses 68,404 --
------------ ------------
Total current assets 483,779 16,247
Property, plant and equipment, net of accumulated
depreciation of $ 92,335 and $44,649, respectively 43,018 68,845
Other Assets:
Deposits - escrow -- 236,000
Patents, at cost 30,544 --
------------ ------------
Total other assets 30,544 236,000
Total Assets $ 557,341 $ 321,092
============ ============
Liabilities and Deficiency in Stockholders' Equity
Current liabilities:
Accounts payable $ 176,094 $ 296,388
Accrued liabilities 323,408 104,976
Management fees payable - related party (Note E) -- 996,508
Short-term notes payable - shareholders (Note E) 399,080 207,845
Short-term notes payable (Note B) 27,500 320,000
------------ ------------
Total current liabilities 926,082 1,925,717
Long-term liabilities:
Notes payable - (Note B) 1,355,069 --
Warrants payable convertible preferred -- 347,610
------------ ------------
Total long-term liabilities 1,355,069 347,610
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, Class A,
151.8606 and 0 shares issued and
outstanding as of December 31, 2004 and 2003 respective1y 1 1
Preferred stock, $0.001 par value, 8,000,000 shares authorized, Class B,
800,000 and 0 shares issued and
outstanding as of December 31, 2004 and 2003 respecti800y 800 --
Common stock, $0.001 par value, 300,000,000 shares authorized, 23,770,233
and 8,049,141 shares issued and outstanding as of December 31, 2004 and
December 31,
2003 respectively 23,770 8,049
Additional paid-in capital 9,099,302 2,337,736
Subscriptions receivable -- (276,186)
Accumulated deficit (10,847,683) (4,021,835)
------------ ------------
Deficiency in stockholders' equity (1,723,810) (1,952,235)
------------ ------------
Total liabilities and (deficiency) in stockholders' $ 557,341 $ 321,092
============ ============
The accompanying notes are an integral part of these financial statements
F-4
CYBERLUX CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Period
May 17, 2000
For the For the (Inception) to
Year Ended Year Ended December 31
Dec. 31, 2004 Dec. 31, 2003 2004
Revenue $ 23,803 $ 74,238 $ 98,041
Cost of goods sold (160,260) (161,984) (322,244)
------------ ------------ ------------
Gross (loss) (136,457) (87,746) (224,203)
Operating Expenses:
Marketing and advertising 109,651 20,820 257,519
Depreciation and amortization 47,686 246,598 386,086
Organization costs -- 25,473
Research and development 391,421 635,485
Management and consulting services - related party 445,997 504,000 1,717,319
General and administrative expenses 3,103,689 497,384 3,992,767
Total operating expenses 4,098,444 1,268,802 7,014,649
(Loss) from operations (4,234,901) (1,356,548) (7,238,852)
Other income/(expense)
Interest income 282 321
Interest expense (1,600,087) (138,008) (1,881,760)
Debt acquisition costs (191,142) (191,142)
Net loss before preferred dividend (6,025,848) (1,494,556) (9,311,433)
Preferred dividend - Beneficial conversion discount
on convertible preferred 800,000 736,250 1,536,250
Net loss available to common stockholders $ (6,825,848) $ (2,230,806) $(10,847,683)
Weighted average number of common shares
outstanding, basic and fully diluted 16,701,174 7,652,012
Net loss per share - Basic and fully diluted $ (0.41) $ (0.29)
Preferred dividend $ 96,000
The accompanying notes are an integral part of these financial statements
F-5
Cyberlux Corporation
(A Development Stage Company)
CONDENSED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY FOR THE
FROM INCEPTION THROUGH DECEMBER 31, 2004
Deficiency
Common Stock Preferrd Stock Accumulated
-------------------- ----------------- Additional Stock During Total In
Paid-in Subscription Development Stockholders'
Shares Amount Shares Amount Capital Receivable Stage Equtiy
--------- ------- ------ ------- ---------- ------------ ------------- -------------
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)
The accompanying notes are an integral part of these financial statements
F-6
Cyberlux Corporation
(A Development Stage Company)
CONDENSED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY FOR THE
FROM INCEPTION THROUGH DECEMBER 31, 2004 (Continued)
Deficiency
Common Stock Preferrd 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
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)
The accompanying notes are an integral part of these financial statements
F-7
Cyberlux Corporation
(A Development Stage Company)
CONDENSED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY FOR THE
FROM INCEPTION THROUGH DECEMBER 31, 2004 (Continued)
Additional
Paid in
Common Stock Preferred Stock Capital
-------------
Shares Amount Shares Amount
Balance, December 31, 2003 8,049,141 $ 8,049 155 $ 1 $ 2,337,736
Issuance of Convertible preferred shares 800,000 800 799,200
Class B in January, 2004 for accrued
management fees at $1 per share
Collected Balance of Stock Subscriptions
Receivable
Common Shares issued in January,
2004 in exchange for services valued
at $0.37 per share 260,000 260 95,940
Common Shares issued in January,
2004 in exchange for services valued
at $0..37 per share 225,000 225 83,025
Common Shares issued in January,
2004 in exchange for services valued
at $0.37 per share 2,100,000 2,100 774,900
Shares issued for note payable @ $.25
in January, 2004 110,764 111 27,580
Shares issued for consulting services
@ $0.21 per share 1,200,000 1,200 250,800
Beneficial conversion discount -
preferred stock dividend with respect
to convertible preferred shares Class B 800,000
Warrants issued in exchange for
services in April, 2004 243,000
Common shares cancelled for return of (450,000) (450) (89,550)
collateral deposit with factor
Common shares issued in May for
Private Placement at $0.10/Share 5,310,000 5,310 525,690
Class A preferred shares issued for
cash at $5,000 per share in May, 2004 15.861 79,307
Warrants on convertible preferred
Class A Shares (58,915)
Common shares issued in exchange for
note payable at $.10/share in June, 2004 50,000 50 4,950
Common Shares issued in June, 1,560,000 1,560 154,440
2004 in exchange for services valued
at $0..10 per share
Common Shares issued in June, 200,000 200 19,800
2004 in exchange for services valued
at $0.10 per share
Subscription received in advance for
shares to be issued
Common Shares issued in exchange for
services adjusted for issue prices (44,640)
Common Shares issued in July,
2004 in exchange for services valued
at $0.40 per share 100,000 100 39,900
Common shares issued in July, 2004 for
private placement at $0.10/Share 100,000 100 9,900
Common shares issued in August, 2004 for
Conversion of Preferred "A" Shares 200,000 200 (4) (200)
Common shares issued in August, 2004 for
Exercise of warrants at $0.25/Share 701,000 701 174,549
Warrants issued to consultants for
services 106,172
Beneficial conversion feature of
convertible debentures (Note D)
Common shares issued in September for
Exercise of warrants at $0..25/Share 200,000 200 49,800
Options issued to employees as
Incentive Compensation 275,000
Common Shares issued in October,
2004 in exchange for services valued
at $0.25 per share 690,000 690 171,810
Shares issued in October, 2004
for note payable at $0.15 pershare 140,019 140 20,863
Shares issued in November, 2004
for note payable at $0.105 pershare 1,035,221 1,035 107,663
Shares issued in December, 2004
for note payable at $0.035 pershare 1,035,221 1,035 35,197
Shares issued in December, 2004
as a penalty for late registration to
Preferred "A" shareholders 203,867 204 89,498
Shares issued in December, 2004
for conversion of Preferred "A" shares 750,000 750 (15) -- (750)
Beneficial conversion feature of
convertible debentures (Note D) 1,000,000
Warrants issued for services 516,637
Net (Loss)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2004 23,770,233 23,770 800,152 801 9,099,302
The accompanying notes are an integral part of these financial statements
F-8
Deficiency
Accumulated
Stock During Total in
Subscription Development Stockholders'
Receivable Stage Equity
------------- ------------- -------------
Balance, December 31, 2003 $ (276,186) $ (4,021,835) $ (1,952,235)
Issuance of Convertible preferred shares 800,000
Class B in January, 2004 for accrued
management fees at $1 per share
Collected Balance of Stock Subscriptions
Receivable 276,186 276,186
Common Shares issued in January,
2004 in exchange for services valued
at $0.37 per share 96,200
Common Shares issued in January,
2004 in exchange for services valued
at $0..37 per share 83,250
Common Shares issued in January,
2004 in exchange for services valued
at $0.37 per share 777,000
Shares issued for note payable @ $.25
in January, 2004 27,691
Shares issued for consulting services
@ $0.21 per share 252,000
Beneficial conversion discount -
preferred stock dividend with respect
to convertible preferred shares Class B 800,000
Warrants issued in exchange for
services in April, 2004 243,000
Common shares cancelled for return of (90,000)
collateral deposit with factor
Common shares issued in May for
Private Placement at $0.10/Share 531,000
Class A preferred shares issued for
cash at $5,000 per share in May, 2004 79,307
Warrants on convertible preferred
Class A Shares (58,915)
Common shares issued in exchange for
note payable at $.10/share in June, 2004 5,000
Common Shares issued in June, 156,000
2004 in exchange for services valued
at $0..10 per share
Common Shares issued in June, 20,000
2004 in exchange for services valued
at $0.10 per share
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)
Common Shares issued in July,
2004 in exchange for services valued
at $0.40 per share 40,000
Common shares issued in July, 2004 for
private placement at $0.10/Share (10,000) --
Common shares issued in August, 2004 for
Conversion of Preferred "A" Shares --
Common shares issued in August, 2004 for
Exercise of warrants at $0.25/Share (12,500) 162,750
Warrants issued to consultants for
services 106,172
Beneficial conversion feature of
convertible debentures (Note D) 500,000 500,000
Common shares issued in September for
Exercise of warrants at $0..25/Share 50,000
Options issued to employees as
Incentive Compensation 275,000
Common Shares issued in October,
2004 in exchange for services valued
at $0.25 per share 172,500
Shares issued in October, 2004
for note payable at $0.15 pershare 21,003
Shares issued in November, 2004
for note payable at $0.105 pershare 108,698
Shares issued in December, 2004
for note payable at $0.035 pershare 36,232
Shares issued in December, 2004
as a penalty for late registration to
Preferred "A" shareholders 89,702
Shares issued in December, 2004
for conversion of Preferred "A" shares --
Beneficial conversion feature of
convertible debentures (Note D) 1,000,000
Warrants issued for services 516,637
Net (Loss) (6,825,848) (6,825,848)
------------- ------------- -------------
Balance, December 31, 2004 -- (10,847,683) (1,723,810)
The accompanying notes are an integral part of these financial statements
F-9
Cyberlux Corporation
(A Development Stage Company)
Statement of Cash Flows
For the Period
May 17, 2000
(Inception) to
For theYear Ended For theYear Ended December 31,
December 31, 2004 December 31, 2003 2004
Cash flows from operating activities
Net (loss) available to common stockholders $ (6,825,848) $ (2,230,806) $ (10,847,683)
Depreciation and amortization 47,686 246,598 386,086
Beneficial conversion discount - preferred stock dividend 800,000 736,250 1,536,250
Amortization of debt discount - beneficial conversion 1,500,000 1,500,000
feature of convertible note (Note D)
Stock options issued for consulting services 107,504
Stock options issued as compensation 275,000 275,000
Shares issued for previously incurred debt 288,326 49,029 337,355
Warrants issued to consultants for services 516,637 516,637
Shares issued/(cancelled) for factoring deposit (90,000) 90,000 -
Loan extension write off -
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 23,814 23,814
Shares issued for consulting services 1,494,955 65,646 1,828,059
Shares issued for research and development 68,753
Decrease (increase) in deposits 236,000 (227,386) -
(Increase) decrease in prepaid expenses (68,404) (68,404)
(Increase)/decrease in other assets (30,544) 20,000 (30,544)
Increase (decrease) in accurued liabilities 218,432 60,549 323,408
(Decrease) increase in management fee payable-
related party (996,508) 450,000 -
(Decrease) increase in other accounts payable (120,294) 200,417 176,094
Net cash used in operating activities (1,954,562) (515,889) (3,067,671)
Cash flows from investing activities
Payments for property, plant and equipment (21,859) (11,000) (135,353)
Cash used in investing activities (21,859) (11,000) (135,353)
Cash flows from financing activities
(Payments for )/proceeds from short-term notes payable, net (292,500) (45,000) 27,500
Proceeds from short-term notes payable-shareholders (net) 191,235 84,300 399,080
Proceeds from issuance of preferred stock 79,308 475,000 554,308
Capital contributed by shareholders 276,186 292,186
Proceeds from convertible long-term notes 1,355,069 1,355,069
Proceeds from issuance of common stock 766,250 2,750 990,256
Net cash provided by financing activities 2,375,548 517,050 3,618,399
----------------- ----------------- -----------------
Net increase (decrease) in cash 399,128 (9,839) 415,375
Cash - beginning 16,247 26,086 -
Cash - ending $ 415,375 $ 16,247 $ 415,375
Supplemental disclosures:
Interest Paid 75,103 18,425 143,003
Income Taxes Paid - - -
Non-Cash investing and financing activities:
Shares issued for research and development and consulting - 68,753
Shares issued for conversion of debt 288,326 49,029 337,355
Warrants issued in connection with financing 406,525 - 481,525
Warrants issued to consultants for services 349,173 349,173
Options issued in connection with services - - 107,504
Shares issued in connection with services 1,494,955 65,646 1,828,059
Shares issued in connection with loan - 225,000 225,000
Shares issued in connection with factoring (90,000) 90,000 -
Amortization of debt discount - beneficial conversion 1,500,000 1,500,000
feature of convertible note (Note D)
Warrants payable (detachable) with convertible preferred
shares (347,610) 347,610 --
Beneficial conversion discount on convertible preferred
stock 800,000 736,250 1,536,250
Convertible preferred shares issued for previously incurred debt 76,330 76,330
Convertible preferred shares issued for accrued management fees 723,670 723,670
The accompanying notes are an integral part of these financial statements
F-10
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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 ("SF AS 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, 2004, the Company has accumulated losses of $10,847,683.
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.
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.
SAB 104 incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"), MULTIPLE
DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21 on
the Company's consolidated financial position and results of operations was not
significant.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents
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.
Property, plant and equipment
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 $100,132 and $20,820 in 2004 and 2003 respectively.
F-11
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2004 AND 2003
NOTE A-SUMMARY OF ACCOUNTING POLICIES (Continued)
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 ill 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. SF AS 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, 2004 and
2003. 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.
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 SF AS No. 123 to require
prominent disclosures in both armua1 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 D):
For the year ended December
31,
2004 2003
----------- -----------
Net loss attributable to common stockholders -as reported $(6,825,848) $(2,230,806)
Add. Total stock based employee compensation expense as
reported under intrinsic value method (APB No. 25) 105,000 --
Deduct Total stock based employee compensation expense
as reported under fair value based method (SFAS No. 123) (658,800) (106,800)
Net loss -Pro Forma $(7,379,648) $(2,337,606)
Net loss attributable to common stockholders - Pro forma $(7,379,648) $(2,337,606)
Basic (and assuming dilution) loss per share -as
reported $ (0.41) $ (0.29)
Basic (and assuming dilution) loss per share - Pro
forma $ (0.44) $ (0.31)
F-12
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A-SUMMARY OF ACCOUNTING POLICIES (Continued)
Loss per share
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No.128 (SF AS #128) Earnings Per Share. Basic loss per
share is computed by dividing losses available to common stockholders by the
weighted average number of common shares outstanding during the period.
Segment reporting
The Company follows Statement of Financial Accounting Standards No.130,
Disclosures About Segments of an Enterprise and Related Information. The Company
operates as a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
Income taxes
The Company follows Statement of Financial Accounting Standard No.109,
Accounting for Income Taxes (SFAS No.109) for recording the provision for income
taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability during
each period. If available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of change.
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 November, 2004, the Financial Accounting Standards Board (FASB) issued SFAS
151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. This statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing", to clarify
the accounting for normal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that"... under certain circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. "This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal". In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for inventory costs incurred during the
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company.
In December, 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67" (SFAS
152). The amendments made by Statement 152. This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP 04-2), Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance of SOP 04-2. This Statement id effective for financial statements for
fiscal years beginning after June 15, 2005, with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations, or cash
flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised, 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year, 2005. Currently the Company accounts for its share-based
payment transactions under the provisions of APB25, which does not necessarily
require the recognition of compensation costs in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of ooperations in the tird quarter of
fiscal year 2005 and thereafter.
F-13
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE A-SUMMARY OF ACCOUNTING POLICIES (Continued)
Recent pronouncements (Continued)
On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions ("SFAS 153"). This Statement
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. Under SFAS 153, if
a nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value if determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in the fiscal periods that begin after
June 15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
F-14
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE B-NOTES PAYABLE AND CONVERTIBLE DEBENTURES Notes payable at December 31,
2004 and 2003 are as follows:
2004 2003
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 2,500
Company's common stock at a rate of $ .50 per share. The company was in violation
of the loan covenants.
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 7,500
loan covenants.
-0-
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 25,000
loan covenants. 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 10,000
share. -0-
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 was 195,000
paid off and settledsubsequently in January 2004. -0-
10% Convertible note payable, unsecured and due October 2003; accrued and unpaid
interest due at maturity. Note holder has the option to convert the unpaid note
principal together with accrued and unpaid interest to the Company's common
stock at $ .25 per share. The Note was redeemed in March, 2004 for a 75,000
combination of common stock and cash. -0-
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 rate of $ .10 per share. The Company is in violation of the loan 5,000
covenants. The note was converted to common stock in June, 2004 -0-
10% convertible note payable in the original amount of $1,500,000, and due
September, 2006. Interest is payable quarterly during the life of the note. The
note is convertible into the Company's common stock at the lower of a) $0.72; b)
50% of the average of the three lowest intraday trading prices for the common
stock. The full principal amount of the secured convertible notes is due upon a
default under the terms of the secured convertible notes. The note is secured by
substantially all of the Company's assets, including the assets of wholly owned
subsidiaries and intellectual property. As of December 31, 2004 the Note holder
has converted $144,931 of the principal to common stock of the Company.
1,355,069
--------------------------------
1,382,569 320,000
Less: current portion (27,500) (320,000)
--------------------------------
Total $1,355,069 $ --
F-15
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2004 AND 2003
In accordance with the Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized an imbedded
beneficial conversion feature present in the convertible note. The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital. During the year ended December 31, 2004, the
Company recognized and measured an aggregate of $1,500,000 of the proceeds,
which is equal to the intrinsic value of the imbedded beneficial conversion
feature, to additional paid in capital as a discount against the convertible
note. The debt discount attributed to the beneficial conversion feature is
expensed immediately as interest expense since the note can be converted to
common shares at any time.
In connection with the placement of the convertible note, the Company issued
non-detachable warrants granting the holders the right to acquire 2,250,000
shares of the Company's common stock at $0.50 per share. The Company valued the
warrants in accordance with EITF 00-27 using the Black-Scholes pricing model and
the following assumptions: contractual terms of 5 years, an average risk free
interest rate of 2.0%, a dividend yield of 0%, and a volatility of 149%.
F-16
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,2004 AND 2003
NOTE C -STOCKHOLDER'S EQUITY
Common Stock
The Company has authorized 300,000,000 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.
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 $0.00 1 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.
F-17
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.
In January, 2004, the Company collected the balance of its subscriptions
receivable of $276,186.
In January, 2004, the holders of $27,691 in notes payable exchanged the unpaid
principal together with accrued interest for 110,764 shares of the Company's
common stock.
In January, 2004, the Company issued 2,585,000 shares of its common stock in
exchange for services totaling $ 956,450. The stock issued was valued at
approximately $.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 1,200,000 shares of its common stock in
exchange for services totaling $ 252,000. The stock issued was valued at
approximately $.21 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.
In April, 2004, the Company received back and cancelled 450,000 shares of its
common stock for return of collateral deposit with factor at $90,000.
In April, 2004, the Company issued warrants to consultants for services of
$243,000 which represents the fair value of the warrants issued, which did not
differ materially from the value of the services rendered.
In April, 2004, the Company issued 2,000,000 options to purchase common stock at
$0.2125 per share to employees of the Company. The company recognized $275,000
as stock-based compensation and additional paid in capital, which is equal to
the intrinsic value of the stock on the date of the award.
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 $0.25 per share and expire on June 30, 2004.
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 its common stock in
exchange for services totaling $ 176,000. The stock issued was valued at
approximately $.10 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.
In July, 2004 the Company issued 100,000 shares of common stock in exchange for
services rendered to the Company valued at $40,000. The shares were issued at
$0.40 per share which represents the fair value of the stock issued which did
not materially differ from the value of the services rendered.
In July, 2004 the Company issued 100,000 shares of common stock at $0.10 for
private placement for cash.
In August 2004, the Company issued 651,000 shares of common stock against
exercise of warrants at $0.25 per share for $150,250 in cash and balance $12,500
was adjusted out of cash received in June 2004.
In August 2004, the Company issued 200,000 shares of common stock for exercise
of warrants at $0.25 per share for cash.
In August, 2004, holders converted 4 shares of preferred stock - Class A into
200,000 of common stock at $.10 per share.
In September 2004, the Company recognized and measured an aggregate of $500,000
of the proceeds, which is equal to the intrinsic value of the imbedded
beneficial conversion feature, to additional paid in capital and expensed as
interest.
In September, 2004, the Company issued warrants to consultants for services for
$106,173 which represents the fair value of the warrants issued, which did not
differ materially from the value of the services rendered.
In October, 2004, the Company issued 690,000 shares of its common stock in
exchange for services totaling $ 172,500. 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.
F-18
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE C -STOCKHOLDER'S EQUITY (CONTINUED)
In October, 2004, the Company issued 140,019 shares of its common stock at $0.15
per share on conversion of notes payable.
In October, 2004, the Company recognized and measured an aggregate of $500,000
of the proceeds, which is equal to the intrinsic value of the imbedded
beneficial conversion feature, to additional paid in capital and expensed as
interest.
In November, 2004, the Company recognized and measured an aggregate of $500,000
of the proceeds, which is equal to the intrinsic value of the imbedded
beneficial conversion feature, to additional paid in capital and expensed as
interest.
In November, 2004, the Company issued 1,035,221 shares of its common stock at
$0.105 per share on conversion of notes payable.
In December, 2004, the Company issued 1,035,221 shares of its common stock at
$0.035 per share on conversion of notes payable.
In December, 2004, holders converted 15 shares of preferred stock - Class A into
750,000 shares of common stock at $.10 per share.
In December, 2004, the Company issued 203,867 shares of its common stock to
holders of preferred - Class A stock as a penalty for late registration of the
underlying common shares. The Company recorded an expense of $0.44 per share in
the amount of $89,702.
Preferred Stock
The Company has also authorized 5,000,000 shares of preferred Class A 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 shares of our common stock. The Company recorded
beneficial conversion discount for the year ended December 31, 2003 of $736,250.
In May, 2004, the Company issued 15.861 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 1,600,000 shares of our common stock.
The Company has also authorized 8,000,000 shares of preferred Class B stock,
with a par value of $.001 per share.
In January, 2004, the Company issued 800,000 shares of its preferred stock -
class B in lieu of certain accrued management service fees payable and notes
payable including interest payable thereon totaling $800,000 to officers of the
company. The stock issued was valued at $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 a beneficial
conversion discount of $800,000 - preferred dividend relating to the issuance of
the convertible preferred stock. The preferred stock - class B accumulates
interest, payable as dividends at the rate of 12% per annum. For the year ended
December 31, 2004 $96,000 in dividends were accumulated. These dividends are not
recorded until declared by the Company.
F-19
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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 31,2004.
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Remaining Exercise Exercise
--------- Number Contractual --------- Number --------
Prices Outstanding Life (years) Price Exercisable Price
------ ----------- ------------ ----- ----------- -----
$ 0.10 91,500 5 $ 0.10 91,500 $ 0.10
--
0.20 1,445,000 4 0.20 1,445,000 0.20
0.25 10,101,564 3 0.25 10,101,164 0.25
0.50 2,600,000 5 0.50 2,600,000 0.50
$ 1.05 8,643,064 3 1.05 8,643,064 1.05
22,881,128 3.30 $ 0.58 22,881,128 $ 0.58
Transactions involving the Company's warrant issuance are summarized as follows:
Weighted Average
Number of Shares Price Per Share
Outstanding at December
31,2003 15,895,000 $ 0.54
Granted 11,756,128 0.39
Exercised (851,000) 0.25
Canceled or expired (3,919,000) 0.25
Outstanding at December
31, 2004 22,881,128 $ 0.58
Employee Stock Options
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company under a non-qualified employee stock option plan.
Options Outstanding Options Exercisable
------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Remaining Exercise Exercise
--------- Number Contractual --------- Number --------
Prices Outstanding Life (years) Price Exercisable Price
------ ----------- ------------ ----- ----------- -----
$ 0.2125 2,000,000 5 $ 0.2125 2,000,000 $ 0.2125
------
0.2975 2,000,000 6 0.2125 2,000,000 0.2125
4,000,000 5.5 $ 0.2125 4,000,000 $ 0.2125
Transactions involving stock options issued to employees are summarized as
follows:
Weighted
Number Average
of Shares Price Per Share
Outstanding at
December 31, 2003 2,000,000 $ 0.2125
Granted 2,000,000 0.2125
Exercised
--------- ---------
Canceled or
expired -- --
Outstanding at
December 31, 2004 4,000,000 $ 0.2125
F-20
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE D -STOCK OPTIONS (CONTINUED)
The weighted-average fair value of stock options granted to employees during the
period ended December 31, 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 2.0% 1.02%
Expected stock price volatility 149% 26%
Expected dividend payout -- --
Expected option life-years (a) 6 5
(a)The expected option life is based on contractual expiration dates.
If the Company recognized compensation cost for the stock options and warrants
for the non-qualified employee stock option plan in accordance with SF AS
No.123, the Company's pro forma net loss and net loss per share would have been
$( 7,379,648 ) and $( 0.44 ) for the year ended December 31,2004 and
$(2,337,606) and $(0.31) for the year ended December 31, 2003, respectively.
F-21
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMP ANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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, 2004 and 2003 was $ 0 and $8,814, respectively.
The Company incurred management fees to its officers totaling $445,997 and
$504,000 during the years ended December 31, 2004 and December 31, 2003,
respectively. Unpaid management fees aggregate $ 0 and $996,508 as of December
31, 2004 and 2003, respectively. In May, 2004 the Board of Directors converted
$723,670 in unpaid management fees to Preferred Class B shares of the Company at
a rate of $1.00 per preferred share. The Company also issued notes payable to
officers in the amount of $283,835 for the balance of the unpaid management
fees. 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, 2004 and 2003, the
balance due to the officers was $ 399,080 and $207,845, respectively.
NOTE F -COMMITMENTS AND CONTINGENCIES
Consulting Agreements
The Company has consulting agreements with outside contractors, certain of whom
are also Company stockholders. 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:
2004 2003 Net loss available to Common stockholders $ (6,825,848) $ (2,230,806)
Basic and diluted loss per share (0.41) (0.29)
Weighted average common shares outstanding 16,701,174 7,652,012
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 31,2004 and 2003, the Company has available for
federal income tax purposes a net operating loss carry forward of approximately
$ 8,500,000, expiring in the year 2023, that may be used to offset future
taxable income. The Company has provided a valuation reserve against the full
amount of the net operating loss benefit, since in the opinion of management
based upon the earnings history of the Company, it is more likely than not that
the benefits will not be realized.
Components of deferred tax assets as of December 31,2004 are as follows:
Non current:
Net operating loss carry forward $ 2,900,000
Valuation allowance $(2,900,000)
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.
F-22
CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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 31,2004 and 2003, the Company incurred losses
from operations of $(6,025,848) and $(1,494,556), 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, 2005, the Company issued 1,035,221 shares of its common stock at
$0.0248 per share on conversion of notes payable.
In January, 2005, the Company issued 1,035,221 shares of its common stock at
$0.0135 per share on conversion of notes payable.
In February, 2005, the Company issued 1,035,221 shares of its common stock at
$0.00883 per share on conversion of notes payable.
In March, 2005, the Company issued 1,035,221 shares of its common stock at
$0.01358 per share on conversion of notes payable.
In March, 2005, the Company issued 1,035,221 shares of its common stock at
$0.00983 per share on conversion of notes payable.
F-23
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures: As of December 31, 2004,
the Company's management carried out an evaluation, under the supervision of the
Company's Chief Executive Officer and the Chief Financial Officer of the
effectiveness of the design and operation of the Company's system of disclosure
controls and procedures pursuant to the Securities and Exchange Act, Rule
13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective, as of the date of their
evaluation, for the purposes of recording, processing, summarizing and timely
reporting material information required to be disclosed in reports filed by the
Company under the Securities Exchange Act of 1934.
Changes in internal controls: There were no changes in internal controls
over financial reporting, known to the Chief Executive Officer or Chief
Financial Officer that occurred during the period covered by this report that
has materially affected, or is likely to materially effect, the Company's
internal control over financial reporting.
ITEM 8B. OTHER INFORMATION
None.
20
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
Set forth below are the directors and executive officers of the
Company, their ages and positions held with the Company, as follows
Name Age Position
------------------------------------------------------------------------------------------------
Donald F. Evans 70 Chief Executive Officer and Chairman of the Board of
Directors
Mark D. Schmidt 40 President, Chief Operating Officer and Director
John W. Ringo 59 Secretary, Corporate Counsel and Director
Alan H. Ninneman 61 Senior Vice President and Director
David D. Downing 55 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 spin-off 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 Financial 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.
21
Limitation of Liability of Directors
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.
Election of Directors and Officers.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and qualified.
No Executive Officer or Director of the Company has been the subject of
any order, judgment, or decree of any Court of competent jurisdiction, or any
regulatory agency permanently or temporarily enjoining, barring suspending or
otherwise limiting him from acting as an investment advisor, underwriter, broker
or dealer in the securities industry, or as an affiliated person, director or
employee of an investment company, bank, savings and loan association, or
insurance company or from engaging in or continuing any conduct or practice in
connection with any such activity or in connection with the purchase or sale of
any securities.
No Executive Officer or Director of the Company has been convicted in
any criminal proceeding (excluding traffic violations) or is the subject of a
criminal proceeding which is currently pending.
No Executive Officer or Director of the Company is the subject of any
pending legal proceedings.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Cyberlux Corporation executive officers and directors,
and persons who beneficially own more than ten percent of the Company's common
stock, to file initial reports of ownership and reports of changes in ownership
with the SEC. Executive officers, directors and greater than ten percent
beneficial owners are required by SEC regulations to furnish Cyberlux
Corporation with copies of all Section 16(a) forms they file. Based upon a
review of the copies of such forms furnished to the Company and written
representations from Company executive officers and directors, the Company
believes that during the year ended 2004, the officers and directors filed all
of their respective Section 16(a) reports on a timely basis.
Audit Committee
We do not have an Audit Committee, our board of directors during 2004,
performed some of the same functions of an Audit Committee, such as:
recommending a firm of independent certified public accountants to audit the
annual financial statements; reviewing the independent auditors independence,
the financial statements and their audit report; and reviewing management's
administration of the system of internal accounting controls. The Company does
not currently have a written audit committee charter or similar document.
22
Nominating Committee
We do not have a Nominating Committee or Nominating Committee Charter.
Our board of directors performed some of the functions associated with a
Nominating Committee. We have elected not to have a Nominating Committee at this
time, however, our Board of Directors intend to continually evaluate the need
for a Nominating Committee.
Code of Conduct
On March 4, 2005, we adopted a written code of conduct that governs all
of our officers, directors, employees and contractors. The code of conduct
relates to written standards that are reasonably designed to deter wrongdoing
and to promote:
(1) Honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
(2) Full, fair, accurate, timely and understandable disclosure in
reports and documents that are filed with, or submitted to, the
Commission and in other public communications made by an issuer;
(3) Compliance with applicable governmental laws, rules and regulations;
(4) The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
(5) Accountability for adherence to the code.
Compensation Committee
We currently do not have a compensation committee of the board of
directors. Until a formal committee is established, if at all, our entire board
of directors will review all forms of compensation provided to our executive
officers, directors, consultants and employees including stock compensation and
loans.
ITEM 10. EXECUTIVE COMPENSATION
Termination of Employment
There are no compensatory plans or arrangements, including payments to
be received from the Company, with respect to any person associated with the
Company which would in any way result in payments to any such person because of
his resignation, retirement, or other termination of such person's employment
with the Company or its subsidiaries, or any change in control of the Company,
or a change in the person's responsibilities following a change in control of
the Company.
Executive Compensation
The following table sets forth the cash compensation of the Company's
newly elected executive officers and directors during of the years 2004, 2003
and 2002. The remuneration described in the table represents compensation
received from Cyberlux Corporation and does not include the cost to the Company
of benefits furnished to the named executive officers, including premiums for
health insurance and other benefits provided to such individual that are
extended in connection with the conduct of the Company's business. The value of
such benefits cannot be precisely determined, but the executive officers named
below did not receive other compensation in excess of the lesser of $50,000 or
10% of such officer's cash compensation.
23
Summary Compensation Table
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation ($) Awards($) (#) ($) Compensation
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
Donald F. Evans 2004 180,000 0 0 - 550,000 - -
CEO & Chairman 2003 180,000 0 0 - 700,000 - -
2002 98,004 0 0 - - - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
John W. Ringo 2004 102,000 0 0 - 400,000 - -
Secretary and 2003 102,000 0 0 - 250,000 - -
Corporate Counsel 2002 69,000 0 0 - - - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
Alan H. Ninneman 2004 102,000 0 0 - 400,000 - -
Senior Vice President 2003 102,000 0 0 - 250,000 - -
2002 78,000 0 0 - - - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
Mark D. Schmidt 2004 180,000 0 0 - 650,000 - -
President & COO 2003 120,000 0 0 - 550,000 - -
2002 - - - - - - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
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.
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 550,000 %27.5 $0.2125 /Sh 2010
-------------------------------------------------------------------------------
John W. Ringo 400,000 %20.0 $0.2125 /Sh 2010
-------------------------------------------------------------------------------
Alan H. Ninneman 400,000 %20.0 $0.2125 /Sh 2010
-------------------------------------------------------------------------------
Mark D. Schmidt 650,000 %32.5 $0.2125 /Sh 2010
-------------------------------------------------------------------------------
Stock Option Plans
We have 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.
24
On April 8, 2004 our Board approved the 2005 Incentive Stock Option
Plan that provides for 12,000,000 shares to underwrite options and on January
10, 2005, the Board approved the 2006 Plan that provides for 18,000,000 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 December 31, 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.
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information, to the best of the Company's
knowledge, about the beneficial ownership of its common stock on March 28, 2005
relating to the beneficial ownership of the Company's common stock by those
persons known to beneficially own more than 5% of the Company's capital stock
and by its directors and executive officers. The percentage of beneficial
ownership for the following table is based on 29,836,117 shares of common stock
outstanding.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and does not necessarily indicate beneficial
ownership for any other purpose. Under these rules, beneficial ownership
includes those shares of common stock over which the stockholder has sole or
shared voting or investment power. It also includes shares of common stock that
the stockholder has a right to acquire within 60 days through the exercise of
any option, warrant or other right. The percentage ownership of the outstanding
common stock, however, is based on the assumption, expressly required by the
rules of the Securities and Exchange Commission, that only the person or entity
whose ownership is being reported has converted options or warrants into shares
of our common stock.
25
NAME AND ADDRESS NUMBER OF PERCENTAGE OF
OF OWNER TITLE OF CLASS SHARES OWNED(1) CLASS (2)
-------------------------------------------------------------------------------
Donald F. Evans Common Stock 28,965,300 (3) 50.51%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
Mark D. Schmidt Common Stock 10,300,000 (4) 25.79%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
Alan H. Ninneman Common Stock 18,715,200 (5) 39.07%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
John W. Ringo Common Stock 17,141,500 (6) 36.84%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
David Downing Common Stock 8,133,000 (7) 21.71%
4625 Creekstone Drive
Suite 100
Research Triangle Park
Durham, NC 27703
All Officers and Directors Common Stock 83,255,000 (8) 75.80%
As a Group (5 persons)
===============================================
Donald F. Evans Preferred B 275,103 34.38%
Mark D. Schmidt Preferred B 101,000 12.62%
Alan H. Ninneman Preferred B 180,652 22.58%
John W. Ringo Preferred B 166,915 20.86%
David Downing Preferred B 76,330 9.54%
* Less than 1%.
(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 29,836,117 shares issued and outstanding on March 28, 2005.
(3) Includes 275,103 shares of Series B convertible preferred stock convertible
into 27,510,300 shares of common stock.
(4) Includes 101,000 shares of Series B convertible preferred stock convertible
into 10,100,000 shares of common stock.
26
(5) Includes 180,652 shares of Series B convertible preferred stock convertible
into 18,065,200 shares of common stock.
(6) Includes 166,915 shares of Series B convertible preferred stock convertible
into 16,691,500 shares of common stock.
(7) Includes 76,330 shares of Series B convertible preferred stock convertible
into 7,633,000 shares of common stock.
(8) Includes 800,000 shares of Series B convertible preferred stock convertible
into 80,000,000 shares of common stock.
ITEM 12. 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 $3,100, $108,500 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.
27
PART IV
ITEM 13. EXHIBITS
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.
28
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.
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.
29
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.
14.1 Code of Conduct
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14 and Rule 15d-14(a), promulgated under the Securities
and Exchange Act of 1934, as amended
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14 and Rule 15d 14(a), promulgated under the Securities
and Exchange Act of 1934, as amended
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer)
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer)
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed for professional services rendered by Russell
Bedford Stefanou Mirchandani LLP for the audit of the registrant's annual
financial statements and review of the financial statements included in the
registrant's Form 10-QSB or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for fiscal years 2004 and 2003 were $56,650 and $31,439 respectively.
Audit-Related Fees
None.
Tax Fees
None.
30
All Other Fees
None.
Policy On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit
Services Of Independent Auditors
The Company currently does not have a designated Audit Committee, and
accordingly, the Company's Board of Directors' policy is to pre-approve all
audit and permissible non-audit services provided by the independent auditors.
These services may include audit services, audit-related services, tax services
and other services. Pre-approval is generally provided for up to one year and
any pre-approval is detailed as to the particular service or category of
services and is generally subject to a specific budget. The independent auditors
and management are required to periodically report to the Company's Board of
Directors regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. The Board of Directors may also pre-approve particular services on a
case-by-case basis.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
our behalf by the undersigned, thereunto duly authorized.
CYBERLUX CORPORATION
Dated: April 15, 2005 By: /s/ DONALD F. EVANS
--------------------
Donald F. Evans
Chief Executive Officer
(Principal Executive Officer)
Dated: April 15, 2005 By: /s/ DAVID D. DOWNING
---------------------
David D. Downing
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ DONALD F. EVANS Chief Executive Officer and April 15, 2005
-------------------------------- Chairman of the Board of Directors
Donald F. Evans
/s/ MARK D. SCHMIDT President, Chief Operating Officer April 15, 2005
-------------------------------- and Director
Mark D. Schmidt
/s/ JOHN W. RINGO Secretary, Corporate Counsel April 15, 2005
-------------------------------- and Director
John W. Ringo
/s/ ALAN H. NINNEMAN Senior Vice President and Director April 15, 2005
--------------------------------
Alan H. Ninneman
32