Edgar Filing: CYBERLUX CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB/A

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________________ to _____________
Commission file number 000-33415

CYBERLUX CORPORATION
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(Name of small business issuer in its charter)

Nevada 91-2048978
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

50 Orange Road, PO Box 2010
Pinehurst, North Carolina 28374
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number (910) 235-0066

Securities registered under Section 12(b) of the Exchange Act: None

Title of each class Name of each exchange on which registered

None
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Common Stock, $0.001 par value
Securities registered under Section 12(g) of the Exchange Act:

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(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

[X] Yes [ ] No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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. [x ]

State issuer's revenues for its most recent fiscal year. $74,238

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) The aggregate market value of Cyberlux Corporation
voting stock held by non-affiliates was approximately $2,397,070 on April 14,
2004.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of December 31, 2003, there were
8,049,141 shares of $0.001 par value stock outstanding.

Documents Incorporated by Reference: None

Transitional Small business Disclosure Format. Yes [_] No [X]

TABLE OF CONTENTS

PART I PAGE

Item 1 Description of Business 3
Item 2 Description of Property 6
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Securities Holders 8

PART II
Item 5 Market for Common Equity and Related Shareholder Matters 9
Item 6 Management's Discussion and Analysis or Plan of Operation 11
Item 7 Financial Statements 17
Item 8 Changes In and Disagreements with Accountants on Accounting 24
and Financial Disclosure
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; 25
Compliance with Section 16(a) of the Exchange Act
Item 10 Executive Compensation 25
Item 11 Security Ownership of Certain Beneficial Owners and Management 28
and Related Shareholder Matters
Item 12 Certain Relationships and Related Transactions 29
Item 13 Exhibits and Reports on Form 8K 29
Item 14 Principal Accountant Fees and Services 29

Signatures 32

INTRODUCTORY NOTE

This Annual Report on Form 10-KSB may be deemed to contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company intends that
such forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Annual Report contains forward-looking statements regarding
the financial condition, operating results, business prospects or any other
aspect of the Company, please be advised that the Company's actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, disadvantageous currency exchange rates, termination of
contracts, loss of suppliers, technological obsolescence of the Company's
products, technical problems with the Company's products, price increases for
supplies and components, inability to raise prices, failure to obtain new
customers, litigation and administrative proceedings involving the Company, the
possible acquisition of new businesses that result in operating losses or that
do not perform as anticipated, resulting in unanticipated losses, the possible
fluctuation and volatility of the Company's operating results, financial
condition and stock price, losses incurred in litigating and settling cases,
dilution in the Company's ownership of its business, adverse publicity and news
coverage, inability to carry out marketing and sales plans, loss or retirement
of key executives, changes in interest rates, inflationary factors, and other
specific risks that may be alluded to in this Annual Report or in other reports
issued by the Company. In addition, the business and operations of the Company
are subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.

PART I

RISK FACTORS AND CAUTIONARY STATEMENTS

Forward-looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The Company
wishes to advise readers that actual results may differ substantially from such
forward-looking statements. Forward-looking statements include statements
concerning underlying assumptions and other statements that are other than
statements of historical facts. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied by the statements, including, but not limited to, the
following: the ability of the Company to provide for its obligations, to provide
working capital needs from operating revenues, to obtain additional financing
needed for any future acquisitions, to meet competitive challenges and
technological changes, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission.

ITEM 1. DESCRIPTION OF BUSINESS.

A. BUSINESS DEVELOPMENT AND SUMMARY

Cyberlux is a Nevada corporation (hereinafter "Cyberlux" or "the Company") that
was incorporated on May 17, 2000 and is capitalized with 100 million common
shares and 5 million preferred shares. The Company was founded to design,
develop, manufacture, market and sell advanced lighting systems that utilize
Gallium Nitride light emitting diodes as illumination elements. White diodes are
a relatively new phenomenon that offer major advances in illumination
technology. The Cyberlux Gallium Nitride diodes consume 92% less energy than
incandescent or fluorescent counterparts to produce comparable lumen output. In
electrochemical (battery powered) applications, this remarkable diminution of
energy consumption position the Company's optoelectronic lighting solutions as
much more durable and far more reliable than other interim lighting
alternatives. In standard AC electrical applications, the calculated life of GaN
diodes as lighting elements is over 20 years versus 750 hours for traditional
incandescent bulbs. These exceptional performance characteristics, diminutive
energy consumption and extended life, have prompted GaN diode implementation in
traffic lights and automotive brake lights, but have not yet significantly
occurred in the Company's area of focus, diodal illumination (tm).

B. BUSINESS OF ISSUER

(1) PRINCIPAL PRODUCTS AND PRINCIPAL MARKETS

Cyberlux has successfully introduced its first product entry, the "Cyberlux Home
Safety Light" (HSL), through its web site, www.cyberlux.com. The Company's
production strategy has required the identification, qualification and
engagement of a variety of talents in industrial design, integrated circuit
board production, multi-cavity steel injection mold fabrication, component part
assembly, performance testing and packaging to fulfill the tasks associated with
finished goods delivery. The initial production of 10,000 HSLs was completed in
early October 2002 and has successfully demonstrated the Company's ability to
sustain volume production standards for up to 80,000 units per month at its
assembly and distribution center in Shelbyville, Illinois. We are now positioned
to broaden our product line consistent with emerging breakthroughs in
optoelectronic technology and expand our marketing activity into various
channels of retail and institutional sales. These recently achieved advances
enable substantial cost savings in production as they enhance product
performance and readily discernible value to the consumer. The product line (see
"Product Development"), Lazer Safety Light; PowerOutage Adapter; Failsafe Spot &
Lamp; and CampLamp, are fixtures that employ single use standard alkaline or
lithium ion constant charge reusable batteries in different applications. The
design of products is consistent with findings of market research conducted by
Howard, Merrell & Partners (HM&P), a member firm of InterPublic Group (IPG,
NYSE) wherein certain categories of emergency lighting or interim lighting
products were either underserved or non-existent due to the inherent
inefficiency of incandescent and fluorescent lighting elements. These fixtures
express superior characteristics in brightness, vastly extended light life and
durability through diodal(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 grossly inefficient
use of electrical energy (in an incandescent bulb, 95% of the electrical energy
consumed is dissipated as radiant heat, not light). The discovery of the bright
white Gallium Nitride (GaN) diode provided the solution to energy efficiency
necessary to produce the long-term interim light source that was to be the
objective of the Company's product development activities. Unlike light bulbs
that are brittle glass globes surrounding a fragile wire filament in a vacuum,

light emitting diodes are extraordinarily efficient solid state semiconductors
that are practically indestructible. Diodes are manufactured from chemical
compounds mixed with phosphors which transform electrical energy to visible
light without heat. When electrical current is applied to a diode, the energy
creates electromagnetic radiation which occurs as light. The Spartan
characteristics of GaN diodes with their frugal demand for energy (92% less
energy to produce equal or superior brightness to that of a bulb) create
opportunity to manage energy through Cyberlux patented circuitry to produce a
family of superior products.

The Home Safety Light (illustrations at www.cyberlux.com) is an efficient
portable fixture that provides a full week of light from one set of AA
batteries. Any other portable light will require over 20 sets of replacement
batteries to produce comparable light life which suggests that the Home Safety
Light (HSL) pays for itself at initial purchase. The Lazer Safety Light is a
modification of the HSL. The PowerOutage Adapter, the FailSafe portable
spot/lamp; and the CampLamp Lantern are the next product introductions followed
by hard-wired systems that will transcend the performance and efficiency of
existing emergency lighting products at a significant reduction in initial cost
and recurring expense for maintenance of incandescent products.

(2) DISTRIBUTION METHODS OF OUR PRODUCTS

Consistent with our sales objectives, the reliable manufacture of proprietary
component parts and assembly of finished products required exacting coordination
of resources to provide detailed working drawings to tool manufacturers for
injection molded parts and optics; precise circuitry diagrams to receive diodes,
resistors and capacitors into the electronics platform; source identification
for volume supplies of batteries and diodes; packaging considerations for
presentation of product and corresponding dimensions of containment's for
shipping and display; and an experienced contract assembly organization with an
extensive infrastructure capable of collation and inventory of all component
parts.

During the Fall of 2000, we identified Shelby County Community Services (SCCS),
Shelbyville, Illinois, as a contract manufacture and assembly organization that
was well positioned to meet the requirements proposed by the Company. SCCS has
over a decade of successful performance on behalf of Fortune 100 companies and
represented the quality of management, performance and fiscal stability that we
sought to employ in the production process. SCCS is a not-for-profit
organization that provides job training for handicapped workers and supplements
its workforce with underemployed farm labor. It is generously supported by State
and Federal programs to ensure competitiveness.

We have a Proprietary Product Manufacturing Agreement with SCCS that provides
for SCCS to purchase all of the component parts for our products; conformance of
parts acquired to Cyberlux specifications; exact assembly of parts in accordance
with schematics; verified accountable tests of each unit prior to packaging;
individual packaging; finished goods inventory warehousing; palletized shipping
containment's per purchase orders; and loading for shipment FOB Shelbyville.
SCCS is paid 112% of component cost to cover assembly, packaging and
warehousing.

The www.Cyberlux.com internet site is serviced by SCCS through a fulfillment
operations agreement whereby SCCS receives a daily batched summary of internet
sales through an email link established by Cyberlux and United Parcel Service.
The Cyberlux/UPS software validates the address of the customer and advises
shipping mode (next day, two day or ground), computes shipping and handling
charges then prints the appropriate waybill at the shipping office of SCCS.
Packages are shipped within 24 hours of receipt of the email summary of business
for the preceding day's orders. SCCS coordinates materials inventory with
Cyberlux approved vendors based upon purchase orders or blanket orders for
products. Robrady Design, Inc., the Company's industrial design firm, is
instrumental in providing detailed working drawings for injection molded parts
to tool manufacturers in the US and abroad. Similarly, the Company's proprietary
circuitry design is managed by the engineering firm of ICT, Inc. in Casey,
Illinois. ICT, Inc., an international engineering firm, is well positioned to
manufacture the electronic platforms to precise specifications. Although the
boards are rigidly tested prior to shipment to Shelbyville, SCCS tests each
board on receipt consistent with the quality assurance protocols established by
Cyberlux. The initial production capacity at SCCS is 80,000 product units per
month which can be increased by 50% consistent with a four month lead time to
undertake expansion of facilities.

SCCS will continue to serve as the warehousing and distribution center for
Cyberlux products, such as the PowerOutage Adapter, FailSafe Spot/Lamp and
CampLamp Lantern, which are to be manufactured abroad. The SCCS center will
coordinate customs protocols and manage incoming inventories.

The Company, through its agreements with Shelby County Community Services
(SCCS), has successfully implemented its internet order fulfillment operation,
the Cyberlux Distribution Center, which services all product sales generated
from its web site, www.cyberlux.com, at the SCCS complex in Shelbyville,
Illinois. The system was designed internally under the supervision of Cyberlux
Senior Vice President, Al Ninneman, who worked with the ecommerce professionals
at United Parcel Service (UPS) to perfect the customized billing and delivery
service. The Cyberlux software verifies ZIP code and credit card information;
records delivery selection (UPS overnight, second day air or ground); calculates
the delivery charge by destination; batches orders daily; and prints the
delivery way bills at the Distribution Center for shipment the day following
receipt of the order. SCCS and Cyberlux share the handling charge of $2 per
order equally.

Although the internet site and its fulfillment system is designed to receive and
process orders in volume, the linkage of the site to the Weather Channel (and
other referring sources) is not yet in place. The Weather Channel has proposed
an advertising position for the Home Safety Light wherein 10 million impressions
per month will be guaranteed, but the cost of the exposure is $10 thousand per
month. Cyberlux intends to pursue the relationship with the Weather Channel and
others relative to direction of traffic to its web site after the Company is in
a position to fund selective media buys through a contract relationship with
Howard, Merrell & Partners. Selection of media exposures is an important part of
the marketing campaign, but equally important is the development of compelling
messages and images that inspire consumer interest in Cyberlux products. The
Company has worked with Howard, Merrell & Partners (HM&P), a member firm of the
InterPublic Group (IPG, NYSE), that specializes in market research/analysis,
brand creation, creative imaging, messaging and media purchase management.
HM&P's market analysis indicates a dominant role for diodal(TM) illumination in
the safety lighting category. The objective is a marketing program that quickly
demonstrates the superiority of Cyberlux products to any incandescent bulb
product on the market today, whether battery powered or hard wired, and the
cost-effectiveness of Cyberlux diodal illumination tm based upon light life and
energy efficiency. HM&P sees broad opportunities to position Cyberlux as the
brand leader in diodal illumination tm through specific illustrations in which
the Company's technology provides superior value over the "burning" light bulb.

Equally important in product and/or brand launch is the management of a "go to

market" strategy. Cyberlux has engaged CMG Partners (CMGP) to coordinate product
launch into a variety of sales channels. CMGP has broad based experience in both
the US and UK in telecom (Nextel, BT Cellnet, MCI), Internet (Verisign) and
technology introductions. The role of CMGP is to integrate marketing, sales,
product and customer support activities and messages to optimize customer
acquisition and retention. CMGP will serve as the liaison for the preparation
and delivery of selling materials to the individual selling firms and an
information conduit to management for production and finished goods inventory
issues.

Cyberlux has retained three experienced technology product sales firms, Smart
Products, Inc., Westwood, NJ; A. Calvert & Company, LLC, Canton, OH; and Brand &
Associates, Dallas, TX to represent its product line over the range of channels
addressed for distribution. The individual firms have been selected based upon
established relationships with certain retail channels and proven track records
of sales to those retailers assigned. A. Calvert & Company, in addition to its
market segment of baby product retailers and On-Air sales (Calvert represents
Cyberlux to QVC), is a highly successful retail packaging design firm.

On September 22, 2003, we entered into a factoring agreement with Capital
Funding Solutions, Inc. with regard to a purchase order from QVC.

(3) STATUS OF ANY ANNOUNCED NEW PRODUCTS

(4) INDUSTRY BACKGROUND

Our Company was born from an investigative research study designed to identify a
new approach to the development of an electrochemical (battery powered),
portable, interim lighting system capable of providing safe illumination for
extended periods of time to property owners deprived of electrical service
caused by power outages. Although power outages have come to be a recurring
phenomenon due to anomalies in electrical service distribution networks, the
focus of the initial study was on disruptions caused by severe storm activity
along the Atlantic and Gulf States' coastlines and the corresponding affected
inland electrical grids. The National Weather Service labels annual storm
activity as the Hurricane Season, which is officially monitored from June 1st to
November 30th each year. Other deficiency outages not related to weather have
been labeled by the press as rolling blackouts. The loss of electrical power
related to tropical and subtropical storms can be wide spread and cover
extensive regional segments surrounding the matrix of the storm. It is the
pervasive incidence of power outages that identified the need for a reliable,
durable, safe and economical interim lighting system for property owners and the
general population in areas affected by these seasonally severe weather systems.
The research conducted to identify an optimum interim lighting system led to the
discovery of a new illumination technology (optoelectronics). We plan to
implement this technology through the development of diode illumination fixtures
for domestic, commercial and industrial applications. Management has identified
several opportunities, which are discussed in Section (10) Research and
Development Activities below, where our optoelectronic technology can be
introduced as a cost effective solution for antiquated, expensive and unreliable
lighting systems currently in use. The introduction of our Cyberlux Home Safety
Light is an example of our advanced illumination technology. We hope that this
will establish us as an innovative leader in the industry.

(5) 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.

(6) EFFECT OF EXISTING OR PROBABLE GOVERNMENT REGULATIONS

We believe that we will be able to comply in all material respects with laws and
regulations governing the conduct of business operations in general. We are not
aware of any pending government regulations that may adversely affect our
business.

(7) RESEARCH AND DEVELOPMENT ACTIVITIES

EMERGENCY LIGHTING AUGMENTATION SYSTEM (Production Title)

The Emergency Lighting Augmentation System (ELAS) was designed to provide a
long-term emergency lighting solution for commercial buildings. ELAS employs an
array of ultra-bright white diodes that are powered by constant charge batteries
and are controlled by a patented power sensor that is positioned to detect an
electrical failure in the building. ELAS is easily installed within existing
light fixtures and provides several days of bright white light versus 90 minutes
provided by "evacuation" lights, as mandated by fire codes. The recent
"blackout" caused by a massive power outage from Michigan to New York inspired
many government officials to recognize the danger of the inadequacy of existing
"emergency lights" and prompted a focus on long-term interim lighting solutions.
Cyberlux is engaged in a demonstrate its ELAS products with the City of
Cleveland, the epicenter of the August 2003 blackout. The Cleveland project
offers opportunity to demonstrate the cost/benefit effectiveness of ELAS and
suggests significant implementation prospects for the product in other
municipalities.

HOME SAFETY LIGHT (Market Title)

The Home Safety Light was designed to provide up to a full week of light from
one set of 8 AA batteries. The portable elliptical fixture contains an array of
6 white Nichia diodes and 4 amber diodes which are controlled through a circuit
board that provides three alternative levels of light intensity. The parabolic
reflector manages light output from the inverted diode array to broadcast a
blanket of light capable of total illumination of a room, corridor, stairwell or
other strategic location. In October 2003, the Home Safety Light was
successfully launched in the retail market on the QVC, Inc., the world's leading
on-air sales channel.

LAZER SAFETY LIGHT (Production Title)

The Lazer Safety Light is similar in form and function to the Home Safety Light,
but has an entirely new electrical system that employs a miniature square
circuit board controller which powers the fixture with only 2 C batteries. The
10 diodes mounted in the Home Safety Light are displaced by 1 Ultra Bright
Lumileds diode inversely centered to provide a blanket of light with more
intensity than its predecessor. The new circuitry, with pulse width modulation,
and the newly developed diodal lighting element reduce production cost of the
fixture by 47% of the cost of the original Home Safety Light.

POWEROUTAGE ADAPTER (Production Title)

The PowerOutage Adapter transforms existing electrical wall outlets into an
emergency lighting system for homes, hospitals, hotels, nursing homes and
businesses. The fixture, designed as a replacement outlet, simply plugs into an
existing dual outlet after removal of its faceplate. The adapter, which
continues to function as an electrical outlet, however, contains a constant
charge lithium ion battery; a motion sensor that provides a low level of light
for darkened room or corridor transit; a loss of power sensor that activates a
high level of light when electrical service is disrupted to broadcast a wash of
light up its attendant wall which then reflects bright white light from the
overhead ceiling; and a photoelectric cell which detects daylight or powered
light in the space to prevent unnecessary performance. Market research suggests
that the "Adapter" can become a "Standard of Safety" in institutions
(particularly patient care facilities and hotels) which will endorse its
economical implementation by home owners, educational institutions and
businesses. The fixture will first be marketed through institutional sales
channels.

FAILSAFE SPOT & LAMP (Production Title)

The FailSafe fixture is designed with a unique lens head that may be extended
and rotated 180 degrees to perform as a table lamp. The lens head has an opaque
surround that may be snapped out above the reflector to simulate the shade of a
lamp. This fixture contains a constant charge lithium ion battery and
retractable outlet inserts which fold into the base when it is removed from an
electrical wall outlet. The FailSafe contains a motion sensor which produces a
low level of light for darkened room or corridor transit from its constant
charge location in a strategically located wall outlet. The design form provides
a hand-held base that offers the alternatives of use as a powerful "flashlight"
or as a table lamp that will provide over a full week of light from its lithium
ion battery. The battery returns to "full charge" after the fixture is
reinstalled into a wall outlet.

CAMPLAMP LANTERN (Production Title)

The CampLamp is designed to be a superior alternative to the venerable "Coleman
Lantern" that has served as a utility gas and mantle light for over fifty years.
Unlike the Coleman version, however, the CampLamp does not generate heat or
noxious emissions and eliminates the safety threats of combustible fuel and
burning elements. The fixture features a tri-parted mirrored reflector system
that, when all of the three elements are engaged, broadcasts a blanket of light
over 360 degrees. The circuitry design provides a rheostat control system and
pulse width modulation to extend battery life to over fifty hours. The reflector
design provides directional light alternatives in 90 degree increments which,
when combined with the rheostat, offers more utility options than a traditional
lantern. The fixture will be marketed through recreational sales channels, home
improvement stores and to government agencies.

(8) EMPLOYEES

We currently have five (5) full time employees. Our employees are primarily at
the executive level based upon our role in coordination of outsource contracts
for manufacturing and other production considerations. Currently, there exist no
organized labor agreements or union agreements between Cyberlux and our
employees. However, we have employment agreements with the following executive
officers: Donald F. Evans, Chairman and CEO, Mark D. Schmidt, President and COO,
Alan H. Ninneman, Senior Vice President John W. Ringo, Secretary and Corporate
Counsel and David D. Downing, Treasurer and CFO. We believe that our relations
with our employees are good.

(9) DEPENDENCE ON KEY PERSONNEL

The success of our Company depends upon the efforts, abilities and expertise of
our executive officers and other key employees, including our Chief Executive
Officer, Senior Vice President for Operations, Treasurer/Chief Financial Officer
and Secretary/Corporate Counsel. The loss of the services of such individuals
and/or other key individuals could have a material adverse effect on our
operations.

(10) DEPENDENCE ON KEY CUSTOMERS

The Company is currently not dependent on any single customer for a significant
portion of its annual sales.

(11) MAJOR SUPPLIERS

The Company is currently not dependent on any major suppliers. The Company does
rely on its investor and lender relationships as a source of capital for its
operations.

(12) COMPLIANCE WITH COST OF ENVIRONMENTAL REGULATIONS

The Company currently has no costs associated with compliance with environmental
regulations. However, there can be no assurances that the Company will not incur
such costs in the future.

ITEM 2. DESCRIPTION OF PROPERTY.

A. DESCRIPTION OF PROPERTY

Our corporate headquarters are located at 50 Orange Road, Pinehurst, North
Carolina 28374. The office space is defined as the 12' by 14' office located at
the northeast corner of the property situated at 50 Orange Road, Pinehurst,
North Carolina 28374 and adjacent common spaces consisting of restroom
facilities, storage closets and conference room access. Equipment consists of
two telephone units; two calculators; one HP printer, copier, fax; one IBM
typewriter; one IBM computer with CTX color monitor and Logitech keyboards.
Furniture and fixtures consist of two leather executive swivel chairs; two
executive desks; two 2 drawer file cabinets; one lateral file cabinet; one
cherry wood storage cabinet; one steel typewriter table; two brass banker's
lamps, two extended halogen task lamps and various desk top appurtenances.

Research Econometrics, LLP, provides these facilities to Cyberlux at a
cost of $650 per month. The managing partner of Research Econometrics, LLP,
Carothers H. Evans, is the son of Donald F. Evans, president of Cyberlux. The
leasing terms represent a fully negotiated contract price between two related
parties at an arms length transaction. According to the Sublease Agreement, as
of July 1, 2000 the space is rented on a month-to-month basis continuing until
such use and enjoyment is terminated by either party on thirty days notice in
writing. Our management believes that suitable expansion space is available to
meet our future needs at commercially reasonable terms, if required.

B. INVESTMENT POLICIES

MANAGEMENT DOES NOT CURRENTLY HAVE POLICIES REGARDING THE ACQUISITION OR
SALE OF ASSETS PRIMARILY FOR POSSIBLE CAPITAL GAIN OR PRIMARILY FOR INCOME. WE
DO NOT PRESENTLY HOLD ANY INVESTMENTS OR INTERESTS IN REAL ESTATE, INVESTMENTS
IN REAL ESTATE MORTGAGES OR SECURITIES OF OR INTERESTS IN THOSE PERSONS
PRIMARILY ENGAGED IN REAL ESTATE ACTIVITIES.

ITEM 3. LEGAL PROCEEDINGS.

On October 23, 2003, OneCap, Inc. filed a complaint against us and our officers,
directors and certain shareholders in the District Court of Clark County, Nevada
(Case No. A475506). The complaint alleges a breach of contract and securities
fraud. The plaintiff is seeking specific performance, declaratory relief and
injunctive relief. We believe that we have meritorious defenses to the
plaintiff's claims and intend to vigorously defend ourselves against the
plaintiff's claims. On January 9, 2004 the litigation was settled with both
parties mutually releasing the other. The case was dismissed with prejudice.

On April 18, 2001, Cyberlux filed a civil complaint against Light Technology,
Inc., Ervin J. Rachwal, Safe-Light Industries, LLC a/k/a JFER Innovations Group,
LLC, James Meyer and John Fleming alleging fraud, breach of contract, monies
lent, misappropriation of trade secrets, conspiracy and sought injunctive relief
against the defendants to prevent them from misappropriating trade secrets as
well as to recover monetary damages On May 11, 2001, the Court granted a
temporary injunction against the Defendants. On June 5, 2001, the Defendants
filed their Answer denying the allegations of the Complaint and filed a
counterclaim alleging fraud, violation of Trade Secret Act, breach of contract
and money lent.

On January 18, 2002, the Court granted the Defendants' Motion to Dissolve the
Injunction. On January 28, 2002, Cyberlux filed a Motion for Rehearing or
Clarification of the Motion to Dissolve. A hearing on the Cyberlux Motion for
Rehearing or Clarification of the Motion to Dissolve was scheduled for March 18,
2002, but was cancelled by the Court and has not been rescheduled. The
injunction still remains in effect until the Court rules on this Motion.

Background:

Cyberlux came into contact with Light Technology, Inc. (LTI) and Rachwal in
early 2000. We were seeking someone with the knowledge and expertise to assist
us in the development of an emergency light using white LEDs. LTI and Rachwal
represented that they had such knowledge and expertise and could finalize the
development of the Cyberlux emergency light by September 30, 2000 so that we
could begin manufacturing and selling the emergency light by November 2000.
Rachwal and LTI also advised us that we could acquire all the assets of LTI and
the rights to LTI's flashlight which also used white LEDs provided Rachwal was
made an officer and director of Cyberlux as well as be in charge of design work
for the Company.

In order to evaluate this offer, we requested accounting and financial records
to verify the representations of LTI and Rachwal and to attempt to ascertain the
value of LTI. Despite repeated attempts, LTI and Rachwal were unable to provide
adequate, verifiable financial records. Nonetheless, in order allow LTI and
Rachwal to proceed with the development of the emergency light in order to meet
the November shipping deadline, Cyberlux and LTI entered into a Letter of Intent
on June 12, 2000. This Letter of Intent also contained a confidentiality clause
protecting our interests. Pursuant to the Letter of Intent we paid LTI $100,000
to develop a prototype of an emergency storm light and possible acquisition of
the assets of LTI based upon an independent evaluation of the of the worth of
the assets. We hired the Sarasota CPA firm, Kerkering, Barbario & Co. to
independently do an evaluation of the LTI assets. Kerkering, Barbario came to
the conclusion that LTI had no verifiable assets of any value. Furthermore, LTI
never developed and produced a working model of the emergency storm light. We
incurred meeting and travel expenses of $36,401 associated with LTI during the
period June through December 2000. $43,699 was expended for marketing expense in
anticipation of the promised delivery of the light. We also made loans to
defendant Safe-Light in the Amount of $13,188 to assist in development and
marketing of its products based upon representation that the assets of
Safe-Light would be acquired by us.

We instituted our complaint against the defendants when we learned, through a
local newspaper article that LTI and Safe-Light had merged and had developed an
emergency light. We had confidentiality rights with both companies. The
defendants breached their contracts with us by misappropriating trade secrets
and we are seeking monetary damages as well injunctive relief to prevent them
from capitalizing on the misappropriation of trade secrets. Despite the news
article in which Rachwal announced that LTI had developed an emergency light, he
did not object to the injunction stating that he did not have such a light.

There is no similarity between our product, the Home Safety Light, and LTI's
product, known as the Pal Light. Our product, which is described in detail in
the business section, has 10 diodes and provides a blanket of light to light up
a room in the event of a power outage. The LTI product is a small flashlight
that uses one diode. The two products are not in the same category.

Defendant LTI claims that we breached the contract terms of the letter of intent
and joint venture agreement by failing to maintain confidential disclosed to us
and intentionally disclosing confidential information to third parties. Despite
receiving $100,000 from us defendants claim we failed to fund the development of
the Light and claim that we owe them in excess of $100,000 by breaching the
letter of intent and joint venture agreement. Further, defendants claim we
failed to pay fees set forth in the licensing agreement notwithstanding that the
condition precedent to pay said fees (the successful completion of a private
placement by us, which was subsequently withdrawn due to market conditions).

Defendant Safe-Light allege that we requested that they assist us in raising
funding for the products discussed in the complaint. We actually loaned them
funds for the development of their barricade light.

In the event that LTI and Rachwal are successful in their claims, we would still
be able to sell our product since we have patent applications pending to protect
our product.

The Company intends to fully prosecute the Company's claims and actions against
the Defendants. The Company denies the Defendants allegations alleged against
the Company in their counterclaim. This litigation is still in the discovery
stage and the ultimate outcome cannot presently be determined.

COURT: Circuit Court of the Twelfth Judicial District In and For Sarasota
County, Florida.

CASE NAME: Cyberlux Corporation, Plaintiff v. Ervin J. Rachwal, Light
Technology, Inc., Safe-Light Industries, LLC a/k/a JFER Innovations Group, LLC,
James Meyer and John Fleming.

CASE NUMBER: 2001 CA 005309 NC Div. C.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders during the
year ended December 31, 2003.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock began trading on the Over-the-Counter Bulletin Board under the
symbol ,,CYBL.OB" on July 13, 2003. The table below sets forth by quarter the
sales information for our common stock as reported on the Over-the-Counter
Bulletin Board in our past fiscal year. This information reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.

SALE PRICES
-----------------------------
HIGH LOW
2002:

First Quarter N/A N/A
Second Quarter N/A N/A
Third Quarter N/A N/A
Fourth Quarter N/A N/A

2003:

First Quarter N/A N/A
Second Quarter N/A N/A
Third quarter 1.05 0.10
Fourth quarter 0.55 0.12

On April 13, 2004, the closing price of our common stock on the Over-the-Counter
Bulletin Board was $0.50 per share. We urge you to obtain current market
quotations for shares of our common stock.

NUMBER OF SHAREHOLDERS

The number of beneficial holders of record of the Common Stock of the Company as
of the close of business on December 31, 2003, was 136.

DIVIDEND POLICY

To date, the Company has declared no cash dividends on its Common Stock, and
does not expect to pay cash dividends in the next term. The Company intends to
retain future earnings, if any, to provide funds for operation of its business.

CHANGES IN SECURITIES

The following discussion describes all the securities we have sold within the
past three fiscal years. On May 17, 2000, we were incorporated under the laws of
the State of Nevada as Cyberlux Corporation. We are authorized to issue
20,000,000 shares of common stock, par value $0.001 and 5,000,000 shares of
preferred stock, par value $0.001.

On May 19, 2000, we issued 1,640,000 shares of our common stock, with par value
of $0.001 per share to nine founding individuals which were fully paid and
non-assessable in exchange for cash of $2,200. All Shares issued by the Company
were issued in accordance with Section 4(2) of the Securities Act of 1933, as
amended (the Securities Act).

During May 2000, we issued 750,000 shares of our $0.001 par value common stock
in exchange for research and development costs paid by Research Econometrics,
LLP in the amount of $68,753. The shares were issued in accordance with Section
4(2) of the Securities Act. No broker or dealer was involved in the transaction
and no discounts or commissions were paid.

During May 2000, the Company issued 875,000 shares of its $0.001 par value
common stock to Donald F. Evans in exchange for consulting services valued at
$36, 585. The shares were issued in accordance with Section 4(2) of the
Securities Act. No broker or dealer was involved in the transaction and no
discounts or commissions were paid.

During May 2000, we issued 288,000 shares of our $0.001 par value common stock
in exchange for convertible debentures in the amount of $40,000 in accordance
with Section 4(2) of the Securities Act.. The shares were issued in accordance
with Section 4(2) of the Securities Act. No broker or dealer was involved in the
transaction and no discounts or commissions were paid.

On November 30, 2000, we completed a public offering of shares of common stock
in accordance with Regulation D, Rule 504 of the Securities Act of 1933, as
amended, and the registration by qualification of the offering in the State of
Nevada and the State of Arkansas. This offering was conducted on a best efforts
basis and was not underwritten. We sold 640,171 shares of common stock, par
value, at a price of $0.15 per share to 51 unaffiliated shareholders of record,
none of whom were or are our officers or directors. The offering was sold for
$96,026 in cash.

During November 2000, 122,795 shares of common stock were issued to a consulting
firm in services rendered valued at $18,419. The shares were issued in
accordance with Section 4(2) of the Securities Act. No broker or dealer was
involved in the transaction and no discounts or commissions were paid.

Listed below are the requirements set forth under Regulation D, Rule 504 and the
facts, which support the availability of Rule 504 to this offering:

Exemption

Offers and sales of securities that satisfy the conditions in paragraph
(b) of this Rule 504 by an issuer that is not:

o Subject to the reporting requirements of section 13 or 15(d) of the
Exchange Act;

o An investment company; or

o A development stage company that either has no specific business plan or
purpose or has indicated that its business plan is to engage in a merger
or acquisition with an unidentified company or companies, or other entity
or person, shall be exempt from the provision of section 5 of the Act
under section 3(b) of the Act.

At the time of the offering, we were not subject to the reporting requirements
of Section 13 or Section 15(d) of the Exchange Act. Further, we have never been
considered to be an investment company. In addition, we have continuously
pursued our specific business plan of developing and manufacturing
optoelectronic products.

Conditions to be met

General Conditions - To qualify for exemption under this Rule 504, offers
and sales must satisfy the terms and conditions of Rule 501 and Rule 502 (a),
(c) and (d), except that the provisions of Rule 502 (c) and (d) will not apply
to offers and sales of securities under this Rule 504 that are made:

1. In one or more states that provide for the registration of the securities
that require the filing and delivery to investors of a prospectus before sale,
and are made in accordance with those state provisions;

2. In one or more states that have no provision for the registration of the
securities or the filing or delivery of a disclosure document before sale, if
the securities have been registered in at least one state that provides for such
registration, public filing and delivery before sale, offers and sales are made
in that state in accordance with such provisions, and the disclosure document is
delivered before sale to all purchasers; or

3. Exclusively according to state law exemptions from registration that permit
general solicitation and general advertising so long as sales are made only to
accredited investors as defined in Rule 501(a).

On August 21, 2000, we were issued a notice of effectiveness by the State of
Nevada, in response to our application for registration by qualification in that
state. The application for registration by qualification was filed in accordance
with the provisions of NRS 90.490, which requires the public filing and delivery
to investors of a disclosure document before sale.

On October 31, 2000, we were issued a notice of effectiveness by the State of
Arkansas, in response to our application for registration by qualification in
that state. The application for registration by qualification was filed pursuant
to Arkansas Code Ann. Section 23-42-503(b) and Rule 503.01(B)(1) of the Rules of
the Commissioner, which requires the public filing and delivery to investors of
a disclosure document before sale. This offering was conducted exclusively in
the states of Nevada and Arkansas.

Proceeds of the Offering - The aggregate offering price for an offering of
securities under this Rule 504, as defined in Rule 501(c), shall not exceed
$1,000,000, less the aggregate offering price for all securities sold within the
twelve months before the start of and during the offering of securities under
this Rule 504, in reliance on any exemption under section 3(b), or in violation
of section 5(a) of the Securities Act. The aggregate offering price was
$345,000, of which $96,026 was sold.

In January 2001, holders of the Company's convertible notes payable elected to
convert $104,817 of debt in exchange for 698,782 shares of the Company's $0.001
par value common stock in accordance with Section 4(2) of the Securities Act..

On October 18, 2001, the Company entered into a loan agreement with OneCap, Inc.
in which it borrowed $170,000 for the purpose of financing for tooling,
circuitry and registration costs for public listing of the Company's stock. The
term of the loan is for one year and the interest rate is 13% per annum. Under
the terms of the agreement, the Company issued a promissory note secured by
assets of the Company and founders stock which were placed into an escrow
account. The Company also issued OneCap a warrant to purchase 500,000 shares of
its $0.001 par value common stock at par. On December 31, 2002, the company
extended the loan repayment period to June , 2003 and the interest rate was
increased to 18% per annum payable monthly . The company also incurred $ 25,000
loan entension charges which were charged to interest expenses and the loan was
increased to $ 195,000.

During November 2001, officers of the Company elected to exercise their options
to purchase 350,000 shares of its $0.001 par value common stock for cash of
$350.

During the year ended December 31, 2001, certain warrant holders elected to
convert their warrants to 636,000 shares of the Company's 0.001 par value common
stock for cash of $14,250.

In December 2001, the Company issued 151,648 shares of its $0.001 par value
common stock in exchange for convertible debentures in the amount of $75,824.
The shares were issued in accordance with Section 4(2) of the Securities Act. No
broker or dealer was involved in the transaction and no discounts or commissions
were paid.

On May 29, 2002, the Company issued 70,000 shares of its $0.001 par value common
stock to an individual for services rendered valued at $49,000. The shares were
issued in accordance with Section 4(2) of the Securities Act. No broker or
dealer was involved in the transaction and no discounts or commissions were
paid.

During November 2002, the company issued 150,000 shares of its common stock in
exchange for services totalling $ 37,500. The stock issued was valued at $ 0.25
per share, which represents the fair value of the stock issued, which did not
differ materially from the value of the services rendered.

In December 2002, the company issued 256,000 shares of common stock for cash $
64,000 in connection with a private placement memorandum, net of costs.

On October 1, 2003, we entered into an agreement with Consulting for Strategic
Growth 1, Ltd. ("CFSG"), in which CFSG would provide consulting services in the
form of investor relations and public relations. On January 27, 2004, in
consideration for services rendered, Stanley Wunderlich, Chairman of CFSG was
issued 125,000 shares of the Company's Common Stock at $0.001 per share and
Bonnie Stretch, pubic relations for CFSG, was issued 25,000 shares of the
Company's Common Stock at $0.001 per share. This issuance was a private
transaction pursuant to Section 4(2) of the Securities Act.

On October 30, 2003, we entered into an agreement with Roccus Capital Partners,
LLC ("RCP") and Alliance Advisors(`AA") in which RCP and AA would provide
strategic advisement to us. On January 27, 2004, as an engagement fee, Richard
L. Berkley and Marc A. Heskell, principals of RCP and Alan Sheinwald, principal
of AA were each issued 75,000 shares of the Company's Common Stock at $0.001 per
share. These issuances were private transactions pursuant to Section 4(2) of the
Securities Act.

On December 1, 2003, we entered into an agreement with CFSG, in which CFSG would
provide consulting services in the form of investor relations and public
relations. In consideration for services to be rendered, On January 27, 2004,
Stanley Wunderlich was issued 60,000 shares of our Common Stock at $0.001 per
share with 10,000 shares issued each month based upon performance criteria
satisfactory to both parties. This issuance was a private transaction pursuant
to Section 4(2) of the Securities Act.

On January 27,2004, we issued 700,000 shares of its Common Stock at $0.01 per
share to Titan Entertainment Group pursuant to a consulting services agreement
in which Titan Entertainment Group would create strategic business relationships
for us. This issuance was a private transaction pursuant to Section 4(2) of the
Securities Act.

On January 27, 2004, we issued 600,000 shares of its Common Stock at $0.01 per
share to Michael J. Stern pursuant to a consulting services agreement in which
Michael J. Stern would create strategic business relationships for us. This
issuance was a private transaction pursuant to Section 4(2) of the Securities
Act.

On Januaary 27, 2004, we issued 600,000 shares of its Common Stock at $0.01 per
share to KBK Ventures, Inc. pursuant to a consulting services agreement in which
KBK Ventures would create strategic business relationships for us. This issuance
was a private transaction pursuant to Section 4(2) of the Securities Act.

On January 27, 2004,we issued 800,000 shares of its Common Stock at $0.01 per
share to 3CD Consulting, LLC pursuant to a consulting services agreement in
which 3CD Consulting would create strategic business relationships for us. This
issuance was a private transaction pursuant to Section 4(2) of the Securities
Act.

On January 27,2004, we issued 600,000 shares of its Common Stock at $0.01 per
share to Ronald E. Gee pursuant to a consulting services agreement in which
Ronald E. Gee would create strategic business relationships us. This issuance
was a private transaction pursuant to Section 4(2) of the Securities Act.

On January 27, 2004, we issued 155 shares of Series A Preferred Stock (with a
stated value of $5,000 per share and a conversion price of $0.10 per share) and
warrants to purchase an aggregate of 15,500,000 of our common stock. This
private placement was exempt from registration pursuant to Section 4(2) of the
Securities Act.

On January 27, 2004, we issued 40,000 shares of its Common Stock at $0.001 per
share to Donald F. Huffman in consideration of services on our behalf. This
issuance was a private transaction pursuant to Section 4(2) of the Securities
Act.

On January 27, 2004, we issued 10,000 shares of its Common Stock at $0.001 per
share to Robert Rubin in consideration of services on our behalf. This issuance
was a private transaction pursuant to Section 4(2) of the Securities Act.

On January 27, 2004, Brian Scott converted a $20,000 promissory note dated April
1, 2003 in the amount of $20,000 into 80,000 shares of the our Common Stock at
$0.25 per share. This issuance was a private transaction pursuant to Section
4(2) of the Securities Act.

On February 19, 2004, as approved by our Board of Directors, we filed a
Certificate of Designation with the Nevada Secretary of State creating a Series
B Convertible Preferred Stock, par value $0.001 which ranks pari passu with our
Series A Convertible Preferred Stock. The Series B Convertible Preferred Stock
will be issued to our officers in exchange for $800,000 in accrued management
fees and other liabilities.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

When used in this Form 10-KSB and in our future filings with the Securities and
Exchange Commission, the words or phrases will likely result, management
expects, or we expect, will continue, is anticipated, estimated or similar
expressions are intended to identify forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward-looking statements,

each of which speak only as of the date made. These statements are subject to
risks and uncertainties, some of which are described below. Actual results may
differ materially from historical earnings and those presently anticipated or
projected. We have no obligation to publicly release the result of any revisions
that may be made to any forward-looking statements to reflect anticipated events
or circumstances occurring after the date of such statements.

General Overview

The Company is in the development stage and its efforts have been principally
devoted to designing, developing manufacturing and marketing advanced lighting
systems that utilize white (and other) light emitting diodes as illumination
elements.

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.

o revenue recognition

Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS
No. 123 - Accounting for Stock-Based Compensation, providing alternative methods
of voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. FAS 148 also requires disclosure of the
method used to account for stock-based employee compensation and the effect of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2002.

The Company elected to continue to account for stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by APB No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Under the provisions of APB No. 25, compensation expense is measured at the
grant date for the difference between the fair value of the stock and the
exercise price.

Revenue Recognition

For revenue from product sales, the Company recognizes revenue in accordance
with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.

Revenues

We have generated operating revenues of $74,238 from operations from our
inception. We believe we will begin earning revenues from operations in our
second year of actual operation as the Company transitions from a development
stage company to that of an active growth and acquisition stage company.

Costs and Expenses

From our inception through December 31, 2003, we generated revenues of $74,238.
We have incurred losses of $4,021,835 during this period. These expenses were
associated principally with equity-based compensation to employees and
consultants, product development costs and professional services.

Liquidity and Capital Resources

As of December 31, 2003, we had a working capital deficit of $ 1,909,470. As a
result of our operating losses from our inception through December 31, 2003, we
generated a cash flow deficit of $1,260,565 from operating activities. Cash
flows used in investing activities was $113,494 during the period May 17, 2000
(date of Company's inception) through December 31, 2003 . We met our cash
requirements during this period through the private placement of $475,000 of
preferred stock, $224,006 through issuance of common stock, $207,845 from the
issuance of notes payable to Company officers and shareholders and advances.

While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development. We are seeking
financing in the form of equity in order to provide the necessary working
capital. We currently have no commitments for financing. There is no guarantee
that we will be successful in raising the funds required.

By adjusting its operations and development to the level of capitalization ,
management belives it has suffucient capital resources to meet projected cash
flow deficits through the next twelve months . However, if thereafter, we are
not successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations liquidity and
financial condition.

Auditors' opinion expresses doubt about the Company's ability to continue as a
going concern .

The indenpendent auditors report on the company's December 31, 2003 financial
statements included in this Form states that the Company's recurring losses
raise substantial doubts about the Company's ability to continue as a going
concern.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141), and Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142). The FASB also issued
Statement of Financial Accounting Standards No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets" (SFAS No. 143), and
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) in August and
October 2001, respectively.

SFAS No. 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method. The adoption of SFAS No. 141 had no material impact
on the Company's consolidated financial statements.

Effective January 1, 2002, the Company adopted SFAS No. 142. Under the new
rules, the Company will no longer amortize goodwill and other intangible assets
with indefinite lives, but such assets will be subject to periodic testing for
impairment. On an annual basis, and when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write-downs to be included in results from operations may be
necessary. SFAS No. 142 also requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption.

Any goodwill impairment loss recognized as a result of the transitional goodwill
impairment test will be recorded as a cumulative effect of a change in
accounting principle no later than the end of fiscal year 2002. The adoption of
SFAS No. 142 had no material impact on the Company's consolidated financial
statements

SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company expects that the provisions of SFAS No. 143 will not have
a material impact on its consolidated results of operations and financial
position upon adoption. The Company plans to adopt SFAS No. 143 effective
January 1, 2003.

SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS No. 144
superseded Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". The Company adopted
SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 had no
material impact on Company's consolidated financial statements.

In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that a similar to sale-leaseback
transactions. The Company does not expect the adoption to have a material impact
to the Company's financial position or results of operations.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company does not expect the adoption to have a material impact to the Company's
financial position or results of operations.

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 the Cyberlux Wireless Lighting System during
the next twelve months. This includes, but is not limited to: a Landscape
Illumination System and OEM Task Light designed for use by helmet manufacturers
that produce specialty headgear for the military; police/fire and safety; mining
industry, and ski/cycle safety firms.

These projected expenditures are dependent upon our generating revenues and
obtaining sources of financing in excess of our existing capital resources.
There is no guarantee that we will be successful in raising the funds required
or generating revenues sufficient to fund the projected costs of research and
development during the next twelve months.

Acquisition or Disposition of Plant and Equipment

We do not anticipate the sale of any significant property, plant or equipment
during the next twelve months. We do not anticipate the acquisition of any
significant property, plant or equipment during the next 12 months.

Number of Employees

From our inception through the period ended December 31, 2003, we have relied on
the services of outside consultants for services and currently have five (5)
full time employees. In order for us to attract and retain quality personnel, we
anticipate we will have to offer competitive salaries to future employees. We do
not anticipate our employment base will significantly change during the next 12
months. As we continue to expand, we will incur additional cost for personnel.
This projected increase in personnel is dependent upon our generating revenues
and obtaining sources of financing. There is no guarantee that we will be
successful in raising the funds required or generating revenues sufficient to
fund the projected increase in the number of employees.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.

Cautionary Factors that may Affect Future Results

We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products. These
are factors that we think could cause our actual results to differ materially
from expected results. Other factors besides those listed here could adversely
affect us.

Limited Operating History Anticipated Losses; Uncertainty of Future Results -

We were incorporated in May, 2000 and therefore have a limited operating history
upon which an evaluation of our Company and our prospects can be based. Our
prospects must be evaluated with a view to the risks encountered by a company in
an early stage of development, particularly in light of the uncertainties
relating to the new and evolving products and methods which we intend to develop
and market, and the acceptance of our business model. We will be incurring costs

to: (i) design, develop, manufacture and market our products; (ii) to establish
distribution relationships; and (iii) to build an organization. To the extent
that such expenses are not subsequently followed by commensurate revenues, our
business, results of operations and financial condition will be materially
adversely affected. We, therefore, cannot insure that we will be able to
immediately generate sufficient revenues. We expect negative cash flow from
operations to continue for the next 12 months as we continue to develop and
market our business. If cash generated by operations is insufficient to satisfy
our liquidity, we may be required to sell additional equity or debt securities.
The sale of additional equity or convertible debt securities would result in
additional dilution to our stockholders. Our initial operations may not be
profitable, since time will be required to build our business to the point that
our revenues will be sufficient to cover our total operating costs and expenses.
Our reaching a sufficient level of sales revenues will depend upon a large
number of factors, including availability of sufficient working capital, the
number of customer we are able to attract, and the costs of manufacturing and
distributing our products.

Liquidity and Working Capital Risks; Need for Additional Capital to Finance
Growth and Capital Requirements

We have had limited working capital and we are relying upon notes (borrowed
funds) to operate. We may seek to raise capital from public or private equity or
debt sources to provide working capital to meet our general and administrative
costs until net revenues make the business self-sustaining. We cannot guarantee
that we will be able to raise any such capital on terms acceptable to us or at
all. Such financing may be upon terms that are dilutive or potentially dilutive
to our stockholders. If alternative sources of financing are required, but are
insufficient or unavailable, we will be required to modify our growth and
operating plans in accordance with the extent of available funding.

New Business

We are a new business and you should consider factors which could adversely
affect our ability to generate revenues, which include, but are not limited to,
maintenance of positive cash flow, which depends on our ability both to raise
capital and to obtain additional financing as required, as well as the level of
sales revenues.

Potential fluctuations in quarterly operating results -

Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, most of which are outside our control,
including: the demand for our products; seasonal trends in purchasing, the
amount and timing of capital expenditures and other costs relating to the
development of our products; price competition or pricing changes in the
industry; technical difficulties or system downtime; general economic
conditions, and economic conditions specific to the consumer lighting industry.
Our quarterly results may also be significantly impacted by the impact of the
accounting treatment of acquisitions, financing transactions or other matters.
Particularly at our early stage of development, such accounting treatment can
have a material impact on the results for any quarter. Due to the foregoing
factors, among others, it is likely that our operating results will fall below
our expectations or those of investors in some future quarter.

Dependence Upon Management

Our future performance and success are dependant upon the efforts and abilities
of our Management. To a very significant degree, we are dependent upon the
continued services of Mr. Donald Evans, our founder and CEO and Chairman of our
Board of Directors. If we lost the services of Mr. Evans or other key employees
before we could get a qualified replacement, that loss could materially
adversely affect our business. We do not maintain key man life insurance on any
of our Management.

Lack of Independent Directors

We cannot guarantee that our Board of Directors will have a majority of
independent directors in the future. In the absence of a majority of independent
directors, our executive officers, who are also principal stockholders and
directors, could establish policies and enter into transactions without
independent review and approval thereof. This could present the potential for a
conflict of interest between the Company and its stockholders generally and the
controlling officers, stockholders or directors.

Limitation of Liability and Indemnification of Officers and Directors

Our officers and directors are required to exercise good faith and high
integrity in our Management affairs. Our Articles of Incorporation provide,
however, that our officers and directors shall have no liability to our
shareholders for losses sustained or liabilities incurred which arise from any
transaction in their respective managerial capacities unless they violated their
duty of loyalty, did not act in good faith, engaged in intentional misconduct or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. Our Articles and By-Laws
also provide for the indemnification by us of the officers and directors against
any losses or liabilities they may incur as a result of the manner in which they
operate our business or conduct the internal affairs, provided that in
connection with these activities they act in good faith and in a manner that
they reasonably believe to be in, or not opposed to, the best interests of the
Company, and their conduct does not constitute gross negligence, misconduct or
breach of fiduciary obligations. To further implement the permitted
indemnification, we have entered into Indemnity Agreements with our officers and
directors.

Continued Control by Current Officers and Directors

The present officers and directors own approximately 40.5 % of the outstanding
shares of Common Stock, and therefore are in a position to elect all of our
Directors and otherwise control the Company, including, without limitation,
authorizing the sale of equity or debt securities of the Company, the
appointment of officers, and the determination of officers' salaries.
Shareholders have no cumulative voting rights. (See Security Ownership of
Certain Beneficial Owners and Management)

Management of Potential Growth

We anticipate rapid growth, with regard to staffing requirements which will
occur subsequent to purchase orders from retailers. Such purchase orders will

require addition of middle management staff to oversee customer service,
accounting services and increased manufacturing operations which will place a
significant strain on our managerial, operational, and financial systems
resources. To accommodate our current size and manage growth, we must continue
to implement and improve our financial strength and our operational systems, and
expand, train and manage our sales and distribution base. There is no guarantee
that we will be able to effectively manage the expansion of our operations, or
that our facilities, systems, procedures or controls will be adequate to support
our expanded operations. Our inability to effectively manage our future growth
would have a material adverse effect on us.

Audit's Opinion Expresses Doubt About The Company's Ability To Continue As a
"Going Concern"

The independent auditor's report issued in connection with the audited financial
statements of the Company for the period ended December 31, 2003, expresses
"substantial doubt about its ability to continue as a going concern," due to the
Company's status as a development stage company and its lack of significant
operations. If the Company is unable to develop its operations, the Company may
have to cease to exist, which would be detrimental to the value of the Company's
common stock. The Company can make no assurances that its business operations
will develop and provide the Company with significant cash to continue
operations.

DELAYS IN THE INTRODUCTION OF OUR PRODUCTS

We have experienced numerous delays in the introduction of our initial product,
the Home Safety Light. These delays have been caused by certain requirements
from various retailers such as seasonal schedules to review certain products,
changes in personnel who review the products, problems with pricing and
packaging.

DEPENDENCE ON INDEPENDENT PARTIES TO PRODUCE OUR PRODUCTS

We have out sourced the design, engineering, production, assembly, and the
marketing and sale of our product through contractual arrangements with
independent professional firms. The loss of one or all of these firms could
seriously affect our production and sales capabilities.

MATERIAL LITIGATION

On April 18, 2001, we filed a civil complaint against Light Technology, Inc. and
others. Light Technology has filed a counterclaim (See "Legal Proceedings", page
7). Although we are of the opinion that we have meritorious claims against the
defendants, a ruling against us could have serious financial consequences.

LIMITED MARKET DUE TO PENNY STOCK

Our common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are
stock:

O With a price of less than $5.00 per share;

O That are not traded on a "recognized" national exchange;

O Whose prices are not quoted on the Nasdaq automated quotation
system. (Nasdaq listed stock must still have a price of not less
than $5.00 per share); or

O In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last
three years.

Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.

POTENTIAL INABILITY OF OFFICERS TO DEVOTE SUFFICIENT TIME TO THE OPERATIONS OF
THE BUSINESS

Although we have five (5) employees who consider themselves full time employees,
none have been paid salaries from the inception of the Company. They continue to
pursue other sources of income and may not be able to devote sufficient time to
the operations of the business.

ITEM 7. FINANCIAL STATEMENTS

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FINANCIAL STATEMENTS AND SCHEDULES

DECEMBER 31, 2003 AND 2002

FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934

CYBERLUX CORPORATION

F-1

CYBERLUX CORPORATION

INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Page
--------------------------------------------------------------------------------
Report of Independent Certified Public Accountants F-3
--------------------------------------------------------------------------------
Balance Sheet at December 31, 2003 and 2002 F-4
--------------------------------------------------------------------------------
Statements of Losses for the Years ended December 31, 2003 F-5
and 2002 and for the Period May 17, 2000 (Date of Inception)
through December 31, 2003
--------------------------------------------------------------------------------
Statement of Deficiency in Stockholders' Equity for the F-6 - F-8
Period May 17, 2000 (Date of Inception) through December 31,
2003
--------------------------------------------------------------------------------
Statements of Cash Flows for the Years ended December 31, F-9 - F10
2003 and 2002 and for the Period May 17, 2000 (Date of
Inception) through December 31, 2003
--------------------------------------------------------------------------------
Notes to Financial Statements F-11 - F-30
--------------------------------------------------------------------------------

F-2

RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Cyberlux Corporation
North Carolina 28370-2010

We have audited the accompanying consolidated balance sheets of Cyberlux
Corporation (the "Company"), as of December 31, 2003 and 2002 and the related
consolidated statements of losses, deficiency in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based upon our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 2003 and 2002, and the results of its operations
and its cash flows for the two years then ended, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As discussed in
Note O to the consolidated financial statements, the Company has suffered
recurring losses from operations. This raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note O. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
----------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants

McLean, Virginia
April 6, 2004

F-3

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS

December 31, December 31,
2003 2002

ASSETS
Current assets:
Cash and equivalents $ 16,247 $ 26,086
Prepaid Design Services -- 20,000
Total current assets 16,247 46,086

Fixed assets, net 68,845 79,443
Other assets

Deposits-escrow 236,000 8,614

236,000 8,614

Total Assets $ 321,092 $ 134,143
=========== ===========

LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY

Current liabilities:
Accrued interest $ 104,976 $ 44,427
Other accrued liabilities 296,388 95,971
Management fees payable - related party 996,508 546,508
Short-term notes payable - shareholders 207,845 123,545
Short-term notes payable 320,000 365,000
Total current liabilities 1,925,717 1,175,451

Long-Term Liabilities - warrants payable-
convertible preferred 347,610

Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000
shares authorized, 155 and 0 issued and
Class A 155 shares issued and outstanding 1 --
outstanding as of December 31, 2003 and 2002,
respectively
Common stock, $0.001 par value, 100,000,000 shares
authorized, 8,049,141 and 6,628,396 issued and
outstanding as of December 31, 2003 and 2002,
respectively 8,049 6,628

Subscriptions receivable (276,186) (2,500)
Additional paid-in capital 2,337,736 745,593
Accumulated deficit (4,021,835) (1,791,029)
Deficeincy in stockholders' equity (1,952,235) (1,041,308)

-----------
Total Liabilities and Stockholders' Equity $ 321,092 $ 134,143
=========== ===========

The accompanying notes are an integral part of these financial statements

F-4

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS

May 17, 2000
Year Ended Year Ended (Inception) to
December 31, December 31, December 31,
2003 2002 2003

Revenue $ 74,238 $ -- $ 74,238

Cost of Goods Sold (161,984) -- (161,984)
Gross Loss (87,746) (87,746)

Expenses
Marketing and advertising expense 20,820 8,500 147,868
Depreciation and amortization expense 246,598 379,070 325,898
Organization Costs -- -- 25,473
Research and development costs -- 322,814 244,064
Management and consulting fees - related party 504,000 350,504 1,271,322
General and administrative expenses 497,384 179,162 901,581

Total expenses 1,268,802 1,240,050 2,916,206

Income from operations (1,356,548) (1,240,050) (3,003,952)

Other Income (expense)

Interest income -- -- 40
Interest expense (138,008) (96,920) (281,673)

Net Loss (1,494,556) (1,336,970) (3,285,585)

Preferred dividend - beneficial conversion discount
on convertible preferred 736,250 -- 736,250
Net Loss $(2,230,806) $(1,336,970) $(4,021,835)

Weighted Average number of common shares
Outstanding - basic and fully diluted 7,652,012 6,241,585

Net loss per share - basic & fully diluted $ (0.29) $ (0.15)

The accompanying notes are an integral part of these financial statements

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)
Common shares issued in May
2002 in exchange for
services valued at $. 70
per share 70,000 $70 $49,930 - $ 50,000
Common shares issued in
Nov, 2002 in exchange for
services valued at $0.25
per share 150,000 150 37,350 37,500
Common shares issued in
Dec. 2002 as rights
offering at $0.25 per share 256,000 256 63,744 64,000
Subscription Receivable for
10,000 shares issued -2,500 -2,500
Net loss
- - - - - - -700,104 ($700,104)
--------- ------- ------ ------- ---------- ------------ ------------- -------------
Balance at December 31, 2002 6,628,396 $6,628 $745,593 ($2,500) ($1,791,029) ($1,041,308)
Common shares issued in
March, 2003 for cash in
connection with exercise of
options at $0.001 per share 250,000 $250 $250
Funds received for stock
subscription 2,500 2,500
Common Shares issued to
Cornell Capital Partners in
March, 2003 in connection
with Loan Commitment valued
at $0.75 per share 300,000 300 224,700 225,000
Common shares issues in
March, 2003 in exchange for
services valued at $0.75
per share 13,333 14 9,987 10,001
Robrady Design Note was
converted into 196,120
Shares @ .25 Per share. 196,120 196 48,833 49,029

Common Shares issued to
Mark Schmidt for services
in June, 2003. The 200,000
shares were issued at $0.25
per share. 200,000 200 49,800 50,000
Common Shares issued to
Capital Funding Solutions
September 2003. 450,000
shares were issued at $0.20
per share. Shares secure a
sales factoring agreement 450,000 450 89,550 90,000
Common shares issued on
11/12/03 for consulting
services valued at .50 per
share to Tom & Cheryl Rose 11,292 11 5,634 5,645

Preferred shares issued in
December 2003 valued at
$5,000 per share, Class A - 155 1 $774,999 (276,186) - 498,814
Warrants on convertible
preferred shares -347,610 -347,610
Beneficial conversion
discount on convertible
preferred shares 736,250 736,250
Net (Loss)
- - - - - - -2,230,806 -2,230,806
--------- ------- ------ ------- ---------- ------------ ------------- -------------
8,049,141 $8,049 155 $1 $2,337,736 ($276,186) ($4,021,835) ($1,952,235)
--------- ------- ------ ------- ---------- ------------ ------------- -------------

Balance, December 31, 2003

The accompanying notes are an integral part of these financial statements

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS

May 17,
2000
(Inception)
Year Ended Year Ended to
December 31, December December
2003 31, 2002 31, 2003
---- -------- --------

Cash flows from operating activities

Net loss $(1,494,556) $(700,104) $(3,285,585)

Depreciation and Amortization 246,598 82,518 325,898

Stock options issued for consulting services -- -- 107,504

Shares issued for previously incurred debt 49,029 -- 49,029

Preferred shares issued for previously incurred debt -- -- --

Loan extension write off -- 25,000 25,000

Preferred shares issued for conversion of accrued
management fees -- -- --

Accrued expenses relating to escrow deposits 23,814 -- 23,814

Shares issued for consulting services 65,646 87,498 173,150

Shares issued for research and development -- -- 68,753

Shares issued for factoring agreement 90,000 -- 90,000

Decrease(increase) in deposits (227,386) (1,795) (236,000)

(Increase) decrease in other assets, net 20,000 6,812 --

Increase in accounts receivable -- -- --

Increase in accrued interest 60,549 28,409 104,976

(Decrease)increase in management fee
payable-related party 450,000 260,004 996,508

Increase in other accrued liabilities 200,417 92,722 296,388

Net cash used in operating activities (515,889) (118,936)

Cash flows from investing activities

Purchase of fixed assets (11,000) (52,880) (113,494)

Cash used in investing activities (11,000) (52,880) (113,494)

Cash flows from financing activities

Payments for (proceeds from) short-term notes
payable net (45,000) 80,000 467,455

Proceeds from short-term notes
payable-shareholders (net) 84,300 25,800 207,845

Issuance of preferred stock 475,000 -- 475,000

Capital contributed by shareholders -- -- 16,000

Issuance of common stock 2,750 61,500 224,006

Net cash provided by financing activities 517,050 167,300 1,390,306

Net decrease in cash (9,839) (4,516) 16,247

Cash - beginning 26,086 30,602 --

Cash - ending $ 16,247 $ 26,086 $ 16,247

Supplemental disclosures:

Interest paid 18,425 49,475 50,900

Income taxes paid -- -- --

Non-cash investing and financing activities:

Shares issued for research and development and
consulting -- 37,500 106,253

Shares issued for conversion of debt 56,720 -- 313,692

Warrants issued in connection with financing -- -- 75,000

Options issued in connection with services -- -- 52,500

Shares issued in connection with services 99,081 49,998 204,083

Shares issued in connection with loan 225,000 -- 225,000

Shares issued in connection with factoring 90,000 -- 90,000

Warrants issued (detachable) with convertible
preferred shares 347,610 -- 347,610

Beneficial conversion discount on convertible
preferred stock 736,250 -- 736,250

The accompanying notes are an integral part of these financial statements

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

NOTE A-SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.

BUSINESS AND BASIS OF PRESENTATION

Cyberlux Corporation (the "Company") is incorporated under the laws of the State
of Nevada. The Company is in the development stage as defined under Statement on
Financial Accounting Standards No. 7, Development Stage Enterprises ("SFAS No.
7") and is seeking to develop, manufacture and market long-term portable
lighting products for commercial and industrial us. To date the Company has
generated little revenue, has incurred expenses, and sustained losses.
Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise. As of December 31, 2003, the Company
has accumulated losses of $3,285,585.

The Company's common stock has been listed on the NASDAQ OTC Electronic Bulletin
Board sponsored by the National Association of Securities Dealers, Inc. under
the symbol "CYBL" since July 11, 2003.

In September 2003, the Company entered into a factoring agreement with Capital
Funding Solutions, Inc. with regard to a purchase order from QVC.

In October 2003, due to the change in pricing structure of our common stock on
the over-the- counter bulletin board, the Company mutually cancelled the equity
line of credit agreement with Cornell Capital Partners, LP which was entered
into on March 15, 2003.

REVENUE RECOGNITION

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.

FIXED ASSETS

Property and equipment are recorded at cost. Minor additions and renewals are
expensed in the year incurred. Major additions and renewals are capitalized and
depreciated over their estimated useful lives. Depreciation is calculated using
the straight-line method over the estimated useful lives

ADVERTISING COSTS

The Company expenses all costs of advertising as incurred. Advertising costs
totaled $20,820 and $8,500 in 2003 and 2002, respectively.

F-9

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

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 in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should an impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2003 and
2002. The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments include
cash and accounts payable. Fair values were assumed to approximate carrying
values for cash and payables because they are short term in nature and their
carrying amounts approximate fair values or they are payable on demand.

CONCENTRATIONS OF CREDIT RISK

Financial instruments and related items which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess of
the FDIC insurance limit.

STOCK-BASED COMPENSATION:

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary charge to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended December 31, 2002 and
subsequent years.

Had compensation costs for the Company's stock options been determined based on
the fair value at the grant dates for the awards, the Company's net loss and
losses per share would have been as follows (transactions involving stock
options issued to employees and Black-Scholes model assumptions are presented in
Note C):

For the year ended
December 31,
2003 2002

Net loss - as reported $(2,230,806) $(1,336,970)
Add: Total stock based employee
compensation expense as reported
under intrinsic value method
(APB. No. 25) -- --
Deduct: Total stock based employee
compensation expense as reported
under fair value based method (SFAS 106,800 --
----------- -----------
No. 123)
Net loss - Pro Forma $(2,337,606) $(1,336,970)
Net loss attributable to common
stockholders - Pro forma $(2,337,606) $(1,336,970)
Basic (and assuming dilution) loss
per share - as reported $ (.29) $ (.15)
Basic (and assuming dilution) loss
per share - Pro forma $ (.31) $ (.15)

F-10

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

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 (SFAS #128) Earnings Per Share. Basic loss per
share is computed by dividing losses available to common stockholders by the
weighted average number of common shares outstanding during the period.

SEGMENT REPORTING

The Company follows Statement of Financial Accounting Standards No. 130,
Disclosures About Segments of an Enterprise and Related Information. The Company
operates as a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.

INCOME TAXES

The Company follows Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes (SFAS No. 109) for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability during
each period. If available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of change.
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 October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer relationship
intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions are
effective for acquisitions for which the date of acquisition is on or after
October 1, 2002. The provisions related to accounting for the impairment or
disposal of certain long-term customer-relationship intangible assets are
effective on October 1, 2002. The adoption of this Statement did not have a
material impact to the Company's financial position or results of operations as
the Company has not engaged in either of these activities.

F-11

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

RECENT PRONOUNCEMENTS (CONTINUED)

In April 2003, the FASB issued Statement No.149, "Amendment of Statement of 133
on Derivative Instruments and Hedging Activities ", which amends Statement 133,
Accounting for Derivative Instruments and Hedging Activities. The adoption of
this statement did not have a material impact on the Company's financial
position.

In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. The
adoption of this statement did not have a material impact on the Company's
financial position.

In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial positions.

F-12

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

NOTE B - NOTES PAYABLE AND CONVERTIBLE DEBENTURES

Notes payable at December 31, 2003 and 2002 are as follows:
2003 2002

10 % convertible note payable, unsecured and due September, 2003;
accrued and unpaid interest due at maturity ; Note holder has the option
to convert unpaid note principal together with accrued and unpaid
interest to the Company's common stock at a rate of $ .50 per share. The
Company is in violation of the loan covenants. $ 2,500 $ 2,500

10 % convertible notes payable, unsecured and due March , 2003; accrued
and unpaid interest due at maturity; Note holder has the option to
convert unpaid note principal together with accrued and unpaid interest
to the Company's common stock at a rate of $ 1.00 per share. The Company
is in violation of the loan covenants. 7,500 7,500

10 % convertible notes payable, unsecured and due March , 2003; accrued
and unpaid interest due at maturity; Note holder has the option to
convert unpaid note principal together with accrued and unpaid interest
to the Company's common stock at a rate of $ .50 per share. The Company
is in violation of the loan covenants. 25,000 25,000

10 % notes payable, unsecured and due March , 2003; accrued and unpaid
interest due at maturity; Note holder has the option to convert unpaid
note principal together with accrued and unpaid interest to the
Company's common stock at a rate of $ 1.00 per share. The Company is in
violation of the loan covenants. 10,000 10,000

18% note payable , interest payable monthly and due June, 2003; note
secured by Company's assets and pledge of 3,265,000 shares of the
Company's common stock owned by Company's principal shareholders and
officers; Note holder has the option to convert unpaid note principal
together with accrued and unpaid interest to the Company's common stock
at the lower of $ .15 per share or a price per share equal to 85 % of
the average daily bid price over the ten preceding days prior to the
date of conversion. The Company is in violation of the loan
covenants.This note is paid off and settled subsequently in January 2004. 195,000 195,000

10% Convertible note payable , unsecured and due October 2003; accrued
and unpaid interest due at maturity; Note holder has the option to
convert unpaid note principal together with accrued and unpaid interest
to the Company's common stock at $ .25 per share. The Company is in
violation of the loan covenants. 75,000 75,000

10% convertible note payable , unsecured and due October 2003 ; accrued
and unpaid interest due at maturity; Note holder has the option to
convert unpaid note principal together with accrued and unpaid interest
to the Company's common stock at the lower of $ .50 per share. The
Company is in violation of the loan covenants. 5,000 5,000

10% Note payable, unsecured, accrued and unpaid. Interest and principal
payable on demand 5,000

10 % notes payable, unsecured and due March , 2003; accrued and unpaid
interest due at maturity; Note holders have the option to convert unpaid
note principal together with accrued and unpaid interest to the
Company's common stock at a rate of $ 1.00 per share. The Company is in
violation of the loan covenants. - 40,000
----------------------

320,000 365,000

Less: current portion (320,000) (365,000)
----------------------

Total $ - $ -

Total interest expense at December 31, 2003 and 2002 of $138,008 and $96,920.

F-13

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

NOTE C - STOCKHOLDER'S EQUITY

Common Stock

The Company has authorized 20,000,000 shares of common stock, with a par value
of $.001 per share.

During May, 2000, the Company issued 1,640,000 shares of its common stock to its
founders in exchange for cash of $2,200.

During May 2000, the Company issued 750,000 shares of its common stock in
exchange for research and development and organizational costs paid for by
Research Econometrics, LLP the totaling $68,753. The stock issued was valued at
approximately $.09 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.

During May 2000, the Company issued 875,000 shares of its common stock to an
officer of the Company for consulting services valued at $36,585. The stock
issued was valued at approximately $.05 per share, which represents the fair
value of the stock issued, which did not differ materially from the value of the
services rendered.

In May, 2000 the Company issued $40,000 of notes payable convertible into the
Company's common stock at a price equal to $.15 per share. In July 2000, the
holders of the notes payable elected to convert $40,000 of the notes, plus
accrued interest, in exchange for 288,000 shares of the Company's common stock.

In November, 2000 the Company issued 640,171 shares of common stock in exchange
for $ 96,026 in connection with a private placement memorandum, net of costs.

During November 2000, the Company issued 122,795 shares of its common stock in
exchange for services totaling $18,419. The stock issued was valued at
approximately $0.15 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.

In January 2001, holders of the Company's convertible notes payable elected to
convert $104,817 of debt in exchange for 698,782 shares of the Company's common
stock.

F-14

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

NOTE C - STOCKHOLDER'S EQUITY (CONTINUED)

In May, 2001, the Company granted certain officers of the Company options to
purchase 350,000 shares the Company's common stock at its par value for services
rendered.. The options issued were valued at $ .15 per share, or $52,500 which
represents the fair value of the option issued, which did not differ materially
from the value of the services received. In November, 2001, the officers elected
to exercise their options to purchase the stock for $350.

In connection with the placement of the Company's Note Payable in October, 2001,
the Company issued warrants to purchase 500,000 shares of the Company's common
stock at par value to the holders of the Note. The warrant agreement expires
October 22, 2004, and is callable upon election by the Company. The 500,000
warrants are valued at $0.15 per warrant, or $75,000, which represents the fair
value of the warrants, issued and is being amortized over the life of the loan.
The warrant was exercised in November 2001. Amortization expense of $ 50,000 and
$12,500 was charged to operations in 2002 and 2001, respectively.

During the year ended December 31, 2001, certain warrant holders elected to
convert their warrants to 636,000 shares of the Company's $0.001 par value
common stock for cash of $ 14,250.

In December 2001, holders of the Company's convertible notes payable elected to
convert $ 75,824 of debt in exchange for 151,648 shares of the Company's common
stock.

During May 2002, the Company issued 70,000 shares of its common stock in
exchange for services totaling $49,998. The stock issued was valued at
approximately $.70 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.

During November 2002, the Company issued 150,000 shares of its common stock in
exchange for services totaling $ 37,500. The stock issued was valued at
approximately $.25 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.

In December, 2002 the Company issued 256,000 shares of common stock in exchange
for $ 64,000 for cash in connection with a private placement memorandum, net of
costs. In May, 2003, the holder of a $49,030 note payable exchanged the unpaid
principal together with accrued interest for 196,120 shares of the Company's
common stock.

In June, 2003 , the Company issued 200,000 shares of its common stock in
exchange for services totaling $ 50,000. The stock issued was valued at
approximately $.25 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.

In September, 2003 , the Company issued 450,000 shares of its common stock in
exchange for services totaling $ 90,000. The stock issued was valued at
approximately $.20 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.

In November, 2003 , the Company issued 11,292 shares of its common stock in
exchange for services totaling $ 5,645. The stock issued was valued at
approximately $.50 per share, which represents the fair value of the stock
issued, which did not differ materially from the value of the services rendered.

Preferred Stock

The Company has also authorized 5,000,000 shares if preferred stock, with a par
value of $.001 per share.

In December, 2003, the Company issued 155 shares of its convertible preferred
stock - class A, valued at $5,000 per share. This has a stated value of $5,000
per share and a conversion price of $0.10 per share and warrants to purchase an
aggregate of 15,500,000 of our common stock. The Company recorded beneficial
conversion discount for the year ended December 31, 2003 of $736,250.

F-15

NOTE D - STOCK OPTIONS

Class A Warrants

The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
shareholders at December 31, 2003.

Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted Average Weighed Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------

$ 0.25 7,750,000 5 $ 0.25 7,750,000 $ 0.25
--------- ---------
7,750,000 5 $ 0.25 7,750,000 $ 0.25
========= ====== ========= ======

Class B Warrants

The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
shareholders at December 31, 2003.

$ 1.05 7,750,000 3 $ 1.05 7,750,000 $ 1.05
--------- ---------
7,750,000 3 $ 1.05 7,750,000 $ 1.05
========= ====== ========= ======

Transactions involving the Company's warrant issuance are summarized as follows:

Number of Shares Weighted
Average Price
Per Share

Outstanding at December 31, 2002 - $ -
Granted 15,500,000 0.54
Exercised - -
Canceled or expired - -
----------- ----------
Outstanding at December 31, 2003 15,550,000 $ .54
=========== ==========

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.

$ 0.2125 2,000,000 6 $0.2125 2,000,000 $0.2125
--------- ---------
2,000,000 6 $0.2125 2,000,000 $0.2125
========= ====== ========= ======

Transactions involving stock options issued to employees are summarized as
follows:

Weighted
Average Price
Number of Shares Per Share
---------------- ---------

Outstanding at December 31, 2002
----------- ----------
Granted 2,000,000 $ 0.2125
Exercised - -
Canceled or expired - -
----------- ----------
Outstanding at December 31, 2003 2,000,000 $ 0.2125
=========== ==========

Employee Stock Options (Continued)

The weighted-average fair value of stock options granted to employees during the
period ended December 31, 2003 and 2002 and the weighted-average significant
assumptions used to determine those fair values, using a Black-Scholes option
pricing model are as follows:

2003 2002
---- ----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 1.02% n/a
Expected stock price volatility 26% n/a
Expected dividend payout - -
Expected option life-years (a) 6 n/a

If the Company recognized compensation cost for the stock options and warrants
for the non-qualified employee stock option plan in accordance with SFAS No.
123, the Company's pro forma net loss and net loss per share would have been
$(2,2337,606) and $(0.31) for the year ended December 31, 2003 and $(1,336,970)
and $(0.15) for the year ended December 31, 2002, respectively.

F-16

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

NOTE E - RELATED PARTY TRANSACTIONS

The Company entered into a sub-lease agreement with Research Econometrics, LLP,
which provides the Company the ability to continue the research and development
efforts of the Electrochemical Portable Power Plant and Lighting System. The
agreement is on a month-to-month basis. Total rental expense for the years
ending December 31, 2003 and 2002 was $8,814 and $13,185, respectively.

The Company incurred management fees to its officers totaling $504,000 and
$350,504 during the years ended December 31, 2003 and December 31, 2002,
respectively. Unpaid management fees aggregate $996,508 and $546,508 as of
December 31, 2003 and 2002, respectively.

From time to time, the Company's principal officers have advanced funds to the
Company for working capital purposes in the form of unsecured promissory notes
accruing interest at 12% per annum. As of December 31, 2003 and 2002, the
balance due to the officers was $ 207,845 and $123,545, respectively.

NOTE F - COMMITMENTS AND CONTINGENCIES

Consulting Agreements

The Company has consulting agreements with outside contractors, certain of whom
are also Company stockholders. directors and officers. The Agreements are
generally for a term of 12 months from inception and renewable automatically
from year to year unless either the Company or Consultant terminates such
engagement by written notice.

NOTE G - LOSSES PER SHARE

The following table presents the computation of basic and diluted losses per
share:
2003 2002

Net loss available to Common stockholders (1,494,556) $(1,336,970)
Basic and diluted loss per share (0.20) (0.15)
Weighted average common shares outstanding 7,652,012 6,241,585

NOTE H - INCOME TAXES

The Company has adopted Financial Accounting Standards No. 109, which requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of events that have been included in the financial statement or
tax returns.

Under this method, deferred tax liabilities and assets are determined based on
the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant. At December 31,2003 and 2002, the Company has available for
federal income tax purposes a net operating loss carry forward of approximately
$ 3,200,000, expiring in the year 2022, that may be used to offset future
taxable income. The Company has provided a valuation reserve against the full
amount of the net operating loss benefit, since in the opinion of management
based upon the earnings history of the Company, it is more likely than not that
the benefits will not be realized.

Components of deferred tax assets as of December 31, 2003 are as follows:

Non current:
Net operating loss carry forward $1,088,000
Valuation allowance $(1,088,000)
------------
Net deferred tax asset -

The realization of these net operating loss carry forwards is dependent upon
generating taxable income prior to the related year of expiration. The amount of
carry forward that may be utilized in any future tax year may also be subject to
certain limitations, including limitations as a result of certain stockholder
ownership changes in which may be beyond the control of the Company

F-17

CYBERLUX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

NOTE I - GOING CONCERN MATTERS

The accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the accompanying financial statements
during the years ended December 31, 2003 and 2002, the Company incurred losses
from operations of $(1,494,556) and $(1,336,970), respectively. These factors
among others may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time.

The Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance the
Company will be successful in its effort to secure additional equity financing.

If operations and cash flows continue to improve through these efforts,
management believes that the Company can continue to operate. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems.

The Company's existence is dependent upon management's ability to develop
profitable operations and resolve it's liquidity problems. Management
anticipates the Company will attain profitable status and improve its liquidity
through the continued developing, marketing and selling of its services and
additional equity investment in the Company. The accompanying financial
statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.

NOTE J - SUBSEQUENT EVENTS

In January 2004, the Company committed to issue 800,000 shares of Series B
Convertble Preferred Stock, Par Value $0.001 and ranks pari passu with the
Company's Series A Convertible preferred Stock and prior to all classes of the
Company's Equity Securities which by their terms do not rank senior to the
Company's Series B Preferred Stock. The shares were issued in lieu of accrued
salaries of $723,670, payable to certain officers of the Company.

In January, 2004, the Company 395,000 share warrants to certain affiliates and
officers of the company to compensate for services provided to the company. The
Company also increased the number of shares in the current Stock Purchase Plan
to 1,000,000 shares of the underlying common stock.

In January, 2004, the Company issued 185,000 shares of the Company's Common
Stock to certain affiliates as compensation for services rendered.

In January, 2004 the Company, in consideration of a sum of $230,000, obtained a
release from OneCap, a Nevada Corporation, in respect of a lawsuit filed by the
latter, relating to a loan advanced by it. The release discharges the company
from all present and future claims by OneCap relating to the loan.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

On July 17, 2002, G. Brad Beckstead (Beckstead), resigned as the Company's
certifying accountant. Beckstead's reports on the Company's financial statements
for the years ended December 31, 2001 and 2000 did not contain an adverse
opinion or disclaimer of opinion; however, the audit report for the years ended
December 31, 2001 and 2000 contained an explanatory paragraph regarding the
substantial doubt about the Company's ability to continue as a going concern.
The decision to change its certifying accountant was approved by the Company's
Board of Directors. During the year ended December 31, 2001 and the period May
17, 2000 (date of inception) through December 31, 2001, and the subsequent
interim period through July 17, 2002 the Company has not had any disagreements
with Beckstead on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.

The Company has engaged Russell Bedford Stefanou Mirchandani LLP ( Russell
Bedford Stefanou Mirchandani) as its certifying accountant as of August 23, 2002
for the Company's fiscal year ending December 31, 2002. The Company had not
consulted with Russell Bedford Stefanou Mirchandani prior to Russell Bedford
Stefanou Mirchandani's retention on either the application of accounting
principles or the type of opinion Russell Bedford Stefanou Mirchandani might
render on the Company's financial statements.

ITEM 8A CONTROLS AND PROCEDURES

As of 14, 2003, our Chief Executive Officer and Chief Financial Officer
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that our controls and procedures were
effective as of December 31, 2003 for purposes of preparation of this Annual
Report on Form 10-KSB.
The registrants' principal executive officers and principal financial officer
have concluded that there were no significant changes in the registrants'
internal controls or in other factors that could significantly affect these
controls subsequent to December 31, 2003 the date of their most evaluation of
such controls, and that there was no significant deficiencies or material
weaknesses in the registrant's internal controls.

F-18

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

A. DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to each of our
executive officers or directors.

NAME AGE POSITION APPOINTED

Donald F. Evans 68 CEO & Chairman of the Board May 19, 2000
Mark D. Schmidt 38 President, COO & Director May 01, 2003
John W. Ringo 59 Secretary, Corporate Counsel & Director May 19, 2000
Alan H. Ninneman 60 Senior Vice President & Director May 19, 2000
David D. Downing 52 Treasurer & CFO May 19, 2000

WORK EXPERIENCE

DONALD F. EVANS, CEO, Chairman of the Board - Mr. Evans graduated from the
University of North Carolina, Chapel Hill, NC with a BS Degree in Economics. Mr.
Evans represented the investment interest of Research Econometrics in Waste
Reduction Products Corporation, a privately held North Carolina corporation from
June of 1996 to until March of 1999. Mr. Evans served on the Board of that
Company and as its representative for product sales to the U.S. Department of
Defense. On March 19, 1999, Research Econometrics sold its interest in Waste
Reduction Products Corporation and on April 1, 1999, he began an investigative
research study on behalf of Research Econometrics into the feasibility of a
long-term electrochemical interim lighting system. The resulting study
identified the feasibility of white diodes as lighting elements which, when
managed by solid state circuitry, would provide a reliable source (over
forty-two hours from one battery pack) lighting solution to homeowners or
businesses during extended power outages. The study provided the performance
specifications and methods for the development of the light which led to the
formation of Cyberlux Corporation in May 2000 as the business management entity
for the project. Mr. Evans has served as the CEO of Cyberlux since its
inception.

MARK D. SCHMIDT, President, COO & Director. Mr. Schmidt graduated Summa Cum
Laude with a Bachelor of Science Degree in Engineering from North Carolina State
University and earned an MBA Degree from the Fuqua School of Business at Duke
University. Mr. Schmidt is a former IBM executive with over 15 years of consumer
marketing, business management and venture startup experience. He is a
recognized technology product marketing & sales expert who was responsible for
the global market launch of the IBM Valuepoint and IBM Aptiva personal computer
products as well as multiple accessories, services and home networking products.
He has held positions responsible for product development, manufacturing,
marketing, sales, strategic partnerships and worldwide channel development.

JOHN W. RINGO, Secretary, Corporate Counsel & Director - Mr. Ringo graduated
from the University of Kentucky in Lexington, KY with a BA Degree in Journalism.
Subsequently, he received a Juris Doctor Degree from the University of Kentucky
College of Law. Since 1990, he has been engaged in private practice in Marietta,
GA specializing in corporate and securities law. He is a former Staff Attorney
with the U. S. Securities and Exchange Commission, a member of the Bar of the
Supreme Court of the United States, the Kentucky Bar Association and the Georgia
Bar Association. Mr. Ringo is a founder of Cyberlux and has served as Secretary
and General Counsel since its inception.

ALAN H. NINNEMAN, Senior Vice President & Director - Mr. Ninneman attended Elgin
Community College, Elgin, IL and subsequently majored in business administration
at Southern Illinois University, Carbondale, IL. Mr. Ninneman was a senior
support analyst for Tandem Computer, San Jose, California from 1982 to 1985;
senior business analyst at Apple Computer, Cupertino, California from 1985 to
1987; Director of Operations at Scorpion Technologies, Inc., San Jose,
California; and CEO of City Software, Inc., Albuquerque, New Mexico from 1992
until becoming a founder of Cyberlux in May 2000. Mr. Ninneman is responsible
for the Company's operations systems.

DAVID D. DOWNING, Treasurer & CFO - Mr. Downing graduated from Grove City
College, Grove City, PA with a BA Degree in Accounting. Mr. Downing joined
Marietta Industrial Enterprises, Inc., Marietta, Ohio in November 1991 as its
Chief Financial Officer. He was elected to the Board of Directors of that
Company in January 1994. He has been a Director of American Business Parks,
Inc., Belpre, Ohio since January 1998 and served as a director of Agri-Cycle
Products, Inc. from May 1998 until April 2001. He is a founder of Cyberlux and
served as its Treasurer since its inception.

ITEM 10. EXECUTIVE COMPENSATION.

REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS

Although the Company has employment agreements with Messrs. Evans, Schmidt,
Ringo, Ninneman and Downing which call for compensation as listed below, no
salaries have been paid during the development stage. These officers have agreed
to receive accrued management fees in the form of bonus payments after revenues
are available from product sales. No officer or director has received any
compensation as of yet until such time as we begin generating revenues. However,
the following table sets forth the annual compensation due our executives that
has accrued based on the inability of the Company to meet the obligation.

F-19

SUMMARY COMPENSATION TABLE

----------------------------------------------------------------------------------------------------------------------------------
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL YEAR SALARY ($) OTHER ANNUAL RESTRICTED SECURITIES AWARDS LTIP PAYOUTS
POSITION COMPENSATION STOCK UNDERLYING PAYOUTS ALL OTHER
BONUS ($) AWARD(S)($) OPTIONS/SARS (#)($) COMPENSATION ($)
----------------------------------------------------------------------------------------------------------------------------------

Donald F. Evans 2000 $28,500 $0 $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------------
Chairman 2001 $98,004 $0 $0 $0 200,000 Common
----------------------------------------------------------------------------------------------------------------------------------
CEO 2002 $98,004 $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------------
2003 $180,000 700,000 Common
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------
John W. Ringo 2000 $13,000 $0 $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------------
Secretary 2001 $69,000 $0 $0 $0 150,000 Common
----------------------------------------------------------------------------------------------------------------------------------
Director 2002 $69,000 $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------------
2003 $102,000 $0 250,000 Common
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------
Alan H. Ninneman 2000 $15,000 $0 $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------------
Senior Vice Pres 2001 $78,000 $0 $0 $0 150,000 Common
----------------------------------------------------------------------------------------------------------------------------------
Director 2002 $78,000 $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------------
2003 $102,000 $0 250,000 Common
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------
David D. Downing 2000 $0 $0 $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------------
CFO 2001 $0 $0 $0 $0 100,000 Common
----------------------------------------------------------------------------------------------------------------------------------
Treasurer 2002 $0 $0 $0 $0 $0
----------------------------------------------------------------------------------------------------------------------------------
2003 $102,000 $0 $0 $0 250,000 Common
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------
Mark D. Schmidt * 2003 $120,000 $0 $0 $0 550,000 Common $0
----------------------------------------------------------------------------------------------------------------------------------
President, COO
----------------------------------------------------------------------------------------------------------------------------------
Director
----------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------

FOOTNOTES TO EXECUTIVE COMPENSATION:

No officer has been paid a salary since our inception as a capital conservation
measure designed to invest all available funds into the development of our
products. Annual compensation began accruing in the form of management fees as
of July 2000. The compensation indicated in the table is the annualized amount
of salary to be paid the respective officers in accordance with their employment
agreements. Salary accruals for Mr. Evans began in July 2000 at $3,000 per month
through September 2000 and $6,500 per month from October to December 2000.
Salary accruals for Messrs. Ninneman and Ringo began in September 2000 at $3,000
each for September and October 2000, followed by $4,500 in November and December
for Mr. Ninneman and $3,500 in November and December for Mr. Ringo. From 2001
forward, salaries have accrued in accordance with the annualized salaries
outlined in the table. Pursuant to their employment agreements, Messrs. Evans,
Ninneman and Ringo are to receive monthly salaries of $8,167, $6,500, and $5,750
respectively. The salary accruals are non-interest bearing obligations of the
Company that are to be retired from revenues when product sales begin.

Salary accruals in the form of management fees for Messrs. Evans, Ninneman and
Ringo for the year 2000 were $28,500, $15,000 and $13,000 respectively. Salary
accruals for Messrs. Evans, Ninneman and Ringo for the year 2001 were $98,004,
78,000 and 69,000 respectively. In November 2001, Messrs. Evans, Ninneman and
Ringo were paid $5,000 each. Salary accruals for Messrs. Evans, Ninneman and
Ringo for the years 2001 and 2002 were $98,004, $78,000 and 69,000 respectively.

On January 1, 2003, the employment agreements of Messrs. Evans, Ninneman and
Ringo were amended to increase their annual salaries to $180,000, $102,000 and
$102,000, respectively. On that same date, David D. Downing entered in to an
employment agreement in which he will be paid an annual salary of $102,000.

*On May 1, 2003, Mark D. Schmidt entered into an employment agreement in which
he will be paid an annual salary of $180,000.

Compensation to officers has been deferred as a capital conservation measure
designed to invest available funds into development of saleable products.

Management's salaries will be based upon the performance of the Company.
Management's performance bonuses will be decided by a majority of the Board of
Directors of the Company and may be increased by the Board of Directors from
year to year consistent with goals established by the Board to the benefit of
shareholders.

Members of the Company's Board of Directors will serve until the next annual
meeting of the stockholders and until their successors are duly elected and
qualified, unless earlier removed as provided in the Bylaws of the Company.
Executive officers serve at the pleasure of the Board of Directors.

COMPENSATION OF DIRECTORS

There are no arrangements made to compensate any director for services as a
director. Such arrangements for compensation of directors for services will
commence once we begin earning revenues.

F-20

1 STOCK OPTION GRANTS IN THE PAST FISCAL YEAR

STOCK OPTION PLAN

The Company has created an Employee Stock Option Plan for incentive/retention of
current key employees and as an inducement to employment of new employees. The
2003 plan, which sets aside 2,000,000 shares of common stock for purchase by
employees, was made effective by the Board of Directors. Cyberlux will not issue
options or warrants to any employee or affiliate with an exercise price of less
than 85% of the fair market value of the Common Stock on the date of the grant.

Option/SAR Grants in Last Fiscal Year - Individual Grants

-------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
-------------------------------------------------------------------------------
Donald F. Evans 100,000 %16.7 $0.001/Sh 2011
-------------------------------------------------------------------------------
John W. Ringo 100,000 %16.7 $0.001/Sh 2011
-------------------------------------------------------------------------------
Alan H. Ninneman 100,000 %16.7 $0.001/Sh 2011
-------------------------------------------------------------------------------
David D. Downing 50,000 %8.3 $0.001/Sh 2011
-------------------------------------------------------------------------------

Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

--------------------------------------------------------------------------------------------------------
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
ON EXERCISE VALUE OPTIONS/SARS AT FY-END AT FY-END ($)
NAME (#) REALIZED ($) (#)EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
--------------------------------------------------------------------------------------------------------

Donald F. Evans 100,000 $14,900 100,000 $14,900
--------------------------------------------------------------------------------------------------------
John W. Ringo 50,000 $7,450 50,000 $7,450
--------------------------------------------------------------------------------------------------------
Alan H. Ninneman 50,000 $7,450 50,000 $7,450
--------------------------------------------------------------------------------------------------------
David D. Downing 50,000 $7,450 50,000 $7,450
--------------------------------------------------------------------------------------------------------

On January 3, 2003, our Board approved a 2003 Incentive Stock Option Plan which
will provide 2,000,000 shares of common stock to underwrite options and declared
the current eligible participants as follows:

-----------------------------------------
Donald F. Evans 700,000 shares
-----------------------------------------
David D. Downing 250,000 shares
-----------------------------------------
John W. Ringo 250,000 shares
-----------------------------------------
Alan H. Ninneman 250,000 shares
-----------------------------------------
Mark D. Schmidt 550,000 shares
-----------------------------------------

Options Outstanding Options Exercisable
-------------------- --------------------
Weighted Average Weighed Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------

$ 0.2125 2,000,000 6 $0.2125 2,000,000 $0.2125
--------- ---------
2,000,000 6 $0.2125 2,000,000 $0.2125
========= ====== ========= ======

Transactions involving stock options issued to employees are summarized as
follows:

Weighted
Average Price
Number of Shares Per Share
---------------- ----------

Outstanding at December 31, 2002
Granted 2,000,000 $ 0.2125
Exercised - -
Canceled or expired - -
----------- ----------
Outstanding at December 31, 2003 2,000,000 $ 0.2125
=========== ==========

Employee Stock Options (Continued)

The weighted-average fair value of stock options granted to employees during the
period Ended December 31, 2003 and 2002 and the weighted-average significant
assumptions used to determine those fair values, using a Black-Scholes option
pricing model are as follows:

F-21

2003 2002

Significant assumptions (weighted-average):
Risk-free interest rate at grant date 1.02% n/a
Expected stock price volatility 26% n/a
Expected dividend payout - -
Expected option life-years (a) 6 n/a
(a)The expected option life is based on contractual expiration dates.

If the Company recognized compensation cost for the non-qualified employee stock
option plan in accordance with SFAS No. 123, the Company's pro forma net loss
and net loss per share would have been $(1,324,995) and $(0.19) for the period
ended September 30, 2003 and $(446,766)and $(0.07) for the period ended
September 30, 2002, respectively.

On September 2, 2003, our Board approved a 2004 Incentive Stock Option Plan
which will provide 2,000,000 shares to underwrite options.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

A. SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth as of December 31,2003 certain information
regarding the beneficial ownership of our common stock by:

(1)Each person who is known us to be the beneficial owner of more than 5% of
the common stock,
(2)Each of our director and executive officers and
(3) All of our directors and executive officers as a group.

Except as otherwise indicated, the persons or entities listed below have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them, except to the extent such power may be shared with a
spouse. No change in control is currently being contemplated.

NAME AND ADDRESS OF SHARES BENEFICIALLY PERCENTAGE OF SHARES
BENEFICIAL OWNER OWNED OUTSTANDING
-----------------------------------------------------------------------
Donald F. Evans
Fifty Orange Road
Pinehurst, NC 28374 1,455,000 18.1%
-----------------------------------------------------------------------
David D. Downing
100 Country Meadow Drive 500,000 6.2%
Marietta, OH 45750
-----------------------------------------------------------------------
Alan H. Ninneman
204 Chaparral Loop, SE 650,000 8.1%
Rio Rancho, NM 87124
-----------------------------------------------------------------------
John W. Ringo
241 Lamplighter Lane 450,000 5.6%
Marietta, GA 30067
-----------------------------------------------------------------------
Mark D. Schmidt
60 Kimberly Drive 200,000 2.5%
Durham, NC 27707
-----------------------------------------------------------------------
Total ownership by our 3,255,000 40.5%
officers
-----------------------------------------------------------------------

Footnotes:

1. Mr. Evans was issued 875,000 shares individually in connection with his
founding of Cyberlux Corporation and assignment of his patent for the
Electrochemical Portable Power and Lighting System to the Company.
Research Econometrics was issued 750,000 shares in connection with an
assignment of all of its interests derived from its funding of the initial
development of the long-tern interim lighting system. The Research
Econometric shares were distributed to the partners in this venture and,
as one of the partners, Mr. Evans received 380,000 of the partnership's
750,000 shares.
2. 380,000 shares received by Mr. Evans pursuant to the distribution of
Research Econometrics shares are common stock of the Company owned by him
individually. The balance of the Research Econometric shares were
distributed to ten other individual partners no one of whom owns an amount
approaching 5% of the shares outstanding.
3. There is no voting trust among any of the shareholders , officers or
directors. Pursuant to the Incentive Stock Option Plan, officers of the
Company, Messrs. Evans, Ringo, Ninneman and Downing were vested with
350,000 options, which they exercised in November 2001 at par. In January
2002, Messrs. Evans, Ringo, Ninneman and Downing were each vested with
50,000 options for the fiscal year ended 2001. In January 2003, Mr. Evans
was vested with 50,000 options for the fiscal year 2001. These options are
reflected in the individual's share ownership in the table.

F-22

B. PERSONS SHARING OWNERSHIP OF CONTROL OF SHARES

No person other than Donald F. Evans, David D. Downing, Alan H. Ninneman,
and John Ringo owns or shares the power to vote 5% or more of our
securities.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company entered into a sub-lease agreement with Research Econometrics, LLP,
which provides the Company the ability to continue the research and development
efforts of the Electrochemical Portable Power Plant and, Lighting System. The
agreement is on a month-to-month basis. Total rental expense for the for the
year ended December 31, 2003 and 2002 was $8,814 and $13,185 respectively.

The Company incurred management fees to its officers totaling $599,935 and
$350,504 during the years ended December 31, 2003 and December 31, 2002,
respectively. Unpaid management fees aggregate $272,838 and $546,508 as of
December 31, 2003 and December 31, 2002, respectively.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(A) EXHIBITS

EXHIBIT NO. DESCRIPTION

3.a [1] Articles of Incorporation of Cyberlux Corporation
filed May 17, 2000

3.1a [2] Certificate of Amendment of Articles of Incorporation
filed April 3, 2003

3.1b [1] Bylaws of Cyberlux Corporation

3.1c [4] Certificate of Designation of the Relative Rights and
Preferences of the Series A Convertible Preferred Stock of the
Registrant, dated as of December 30, 2003

10.a [1] SCCS Proprietary Product Manufacturing Agreement

10.b [1] Donald F. Evans Employment Agreement

10.c [1] Alan H. Ninneman Employment Agreement

10.d [1] John W. Ringo Employment Agreement

10.1 [2] Donald F. Evans Amended Employment Agreement

10.2 [2] Alan H. Ninneman Amended Employment Agreement

10.3 [2] John W. Ringo Amended Employment Agreement

10.4 [2] David D. Downing Employment Agreement

10.f [1] Robrady Agreement

10.h [1] ICT, Inc. Agreement

10.i [1] Research Econometrics Agreement

10.10 [3] Mark D. Schmidt Employment Agreement

10.1 [4] Series A Convertible Preferred Stock Purchase Agreement,
dated as of December 31, 2003, by the and among the
Registrant and the purchasers set forth therein.

10.2 [4] Registration Rights Agreement, dated as of December 31,
2003, by and among the Registrant and the purchasers named
therein

F-23

10.3 [4] Form of Series A Warrant to purchase shares of Common Stock of
the Registrant issued on December 31, 2003 in connection with
the sale of the Series A Convertible Preferred Stock.

10.4 [4] Form of Series B Warrant to purchase shares of Common Stock of
the Registrant issued on December 31, 2003 in connection with
the sale of the Series A Convertible Preferred Stock.

10.5 [4] Lock-Up Agreement dated as of December 31, 2003 by and
among the Registrant and certain stockholders named therein.

99.1 [4] Press Release dated January 8, 2004.

23.1 Consent of Russell Bedford Stefanou Mirchandani, LLP

-------------
[1] Incorporated by reference to our Registration Statement filed on Form
10-SB filed December 2001

[2] Incorporated by reference to our Registration Statement filed on Form SB-2
filed April 30, 2003

[3] Incorporated by reference to our Form 10-QSB for the period ended June 30,
2003

[4] Incorporated by reference to our Form 8-K filed on January 8, 2004

F-24

(b) Reports on Form 8-K

On January 8, 2004, we announced the completion of a $775,000 equity financing
transaction as of December 31, 2003.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

1. Audit Fees - The aggregate fees billed for services rendered by
Russell Bedford Stefanou Mirchandani LLP for the audit of our
financial statements and review of the financial statements included
in our quarterly reports on Form 10-QSB or services that are
normally provided by the accountant in connection with statutory and
regulatory filings or engagements for the years ended December 31,
2003 and December 31, 2002, were $ 31,439 and $ 35,025,
respectively.

2. Audit Related Fees - There were no other audit related fees billed
by Russell Bedford Stefanou Mirchandani LLP for the years ended
December 31, 2003 and December 31, 2002.

3. Tax Fees - There we no tax fees billed by Russell Bedford Stefanou
Mirchandani LLP for the years ended December 31, 2003 and December
31, 2002.

4. All other fees - There were no other fees billed by Russell Bedford
Stefanou Mirchandani LLP for the years ended December 31, 2003 and
December 31, 2002.

F-25

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

CYBERLUX CORPORATION

By /s/ Donald F. Evans
-------------------------
Donald F. Evans, CEO & Chairman of the Board

Date April 14, 2004
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.

By /s/ Donald F. Evans
-------------------------------------------------
Donald F. Evans, CEO & Chairman of the Board

Date April 14, 2004
-----------------

By /s/ Mark D. Schmidt
-------------------------------------------------
Mark D. Schmidt, President, COO & Director

Date April 14 2004

By /s/ John W. Ringo
-------------------------------------------------
John W. Ringo, Secretary & Director

Date April 14, 2004

By /s/ Alan H. Ninneman,
-------------------------------------------------
Alan H. Ninneman, Senior Vice President & Director

Date April 14, 2004

By /s/ David D. Downing
-----------------------
David D. Downing, Treasurer & CFO

Date April 14, 2004

F-26