U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2004 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ______________ For the Period Ended March 31, 2004 Commission file number 000-33415 CYBERLUX CORPORATION (Name of Small Business Issuer in Its Charter) Nevada 91-2048178 (State of Incorporation) (IRS Employer Identification No.) 4625 Creekstone Drive Suite 100 Research Triangle Park Durham, NC 27703 (Address of Principal Executive Offices) (919) 474-9000 Issuer's Telephone Number Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] As of March 31, 2004, the Company had 11,944,905 shares of its par value $0.001 common stock issued and outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] i CYBERLUX CORPORATION Table of Contents PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS................................................ Condensed Balance Sheets.................................................3 Condensed Statement of Losses............................................3 Condensed Statements of Cash Flows.......................................3 Condensed Statement of Deficiency in Stockholders' Equity.................................................................3 Notes to Condensed Financial Statements.................................3-10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS...............................3 General Overview.........................................................3 Results of Operations....................................................4 Revenues.................................................................5 Costs and Expenses.......................................................5 Liquidity and Capital Resources..........................................5 Product Research and Development.........................................5 Acquisition of Plant and Equipment and Other Assets......................7 Number of Employees......................................................7 Trends, Risks and Uncertainties..........................................7 Cautionary Factors that May Affect Future Results........................8 ITEM 3. CONTROLS AND PROCEDURES.............................................8 Evaluation of Disclosure controls and Procedures.........................8 Changes in internal controls.............................................8 PART II - OTHER INFORMATION.................................................9 Item 1. Legal Proceedings................................................9 Item 2. Changes in Securities and Use of Proceeds........................9 Item 3. Defaults Upon Senior Securities.................................10 Item 4. Submission of Matters to a Vote of Security Holders.............10 Item 5. Other Information...............................................10 Item 6. Exhibits and Reports on From 8-K................................10 INDEX TO EXHIBITS.......................................................11 SIGNATURES..............................................................11 CERTIFICATIONS..........................................................12 CERTIFICATIONS..........................................................13 EXHIBIT 99.1............................................................14 EXHIBIT 99.2............................................................15 ii Item 1. Financial Information CYBERLUX CORPORATION INDEX TO FINANCIAL INFORMATION PAGE NO Condensed Balance Sheets at March 31, 2004 and December 31, 2003 F-3 Condensed Statement of Losses for the three months ended of March 31, 2004 and 2003 and the period from May 17, 2000 ( date of inception ) through March 31, 2004 F-4 Condensed Statement of (Deficiency) in Stockholders' Equity for the Period May 17, 2000 (Date of Inception) through March 31, 2004 F-5 to F-7 Condensed Statement of Cash flows for the three months ended March 31, 2004 and March 31, 2003 and the period from May 17, 2000 ( date of inception ) through March 31, 2004 F-8 to F-9 Notes to Unaudited Condensed Financial statements F-10 to F-14 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED BALANCE SHEETS (UNAUDITED) Unaudited Audited March 31 ,2004 December 31 ,2003 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 19,233 $ 16,247 Accounts receivable 9,816 -- Total current assets 29,049 16,247 Property, plant and equipment, net of accumulated depreciation of $ 62,941 and $ 44,649 respectively 55,727 68,845 ----------- ----------- Other assets- deposits -- 236,000 ----------- ----------- Total Assets $ 84,776 $ 321,092 =========== =========== LIABILITIES AND (DEFICIENCY) IN STOCKHOLDERS' EQUITY Current liabilities: Accued interest $ 51,716 $ 104,976 Other accrued liabilities 207,206 296,388 Management fees payable - related party 311,838 996,508 Advance deposits 32,403 -- Short term notes payable - shareholders 122,845 207,845 Short term notes payable 120,000 320,000 ----------- ----------- Total current liabilities 846,008 1,925,717 ----------- ----------- Long Term liabilities - warrants payable - convertible preferred 347,610 347,610 (Deficiency) in Stockholders' Equity: Convertible preferred stock 800,001 1 Common stock 11,945 8,049 Additional paid-in capital 2,820,756 2,337,736 Subscription receivable -- (276,186) Deficit accumulated during development stage (4,741,544) (4,021,835) ----------- ----------- (Deficiency) in stockholders' equity (1,108,842) (1,952,235) ----------- ----------- Total liabilities and (Deficiency) in Stockholders' Equity $ 84,776 $ 321,092 See accompanying notes to the unaudited condensed financial information. F-3 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) For the Period May 17, 2000 For the Three Months Ended (date of inception) Through March 31, 2004 March 31, 2003 March 31, 2004 -------------- -------------- --------------------------- Revenue $ 9,968 $ -- $ 83,354 Cost of goods sold 8,395 -- 167,224 ----------- ----------- ----------- Gross profit (loss) 1,573 -- (83,870) ----------- ----------- ----------- Operating Expenses Depreciation and amortization 18,291 5,125 344,189 General and administrative expenses 268,798 203,933 2,861,370 ----------- ----------- ----------- Total Operating Expenses 287,089 209,058 3,205,559 ----------- ----------- ----------- (Loss) from Operations (285,516) (209,058) (3,289,429) Other Income (expense) 15,000 -- 15,000 Interest Income (49,193) -- (330,866) Interest Expense -- (20,917) -- Income Taxes -- -- -- ----------- ----------- ----------- Net Loss Before Preferred Dividend (319,709) (229,975) (3,605,295) Preferred dividend - beneficial conversion discount on convertible preferred 400,000 -- 1,136,250 Net Loss $ (719,709) $ (229,975) $(4,741,545) =========== =========== =========== Weighted average number of common shares outstanding - basic and fully diluted 11,907,762 6,736,322 n/a Net (loss) per share - basic & fully diluted $(0.06) $(0.03) n/a See accompanying notes to the unaudited condensed financial information. F-4 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY FOR THE PERIOD MAY 17, 2000 (DATE OF INCEPTION) THROUGH MARCH 31, 2004 (UNAUDITED) STOCK COMMON STOCK PREFERRED STOCK ADDITIONAL SUBSCRIPTION RECEIVABLE PAID IN SHARES AMOUNT SHARES AMOUNT CAPITAL Common shares issued in May, 2000 to founders in exchange for cash at $0.01 per share 1,640,000 $1,640 - - $560 - Common shares issued in May, 2000 in exchange for research and development services valued at $.09 pers share 750,000 750 - - 68,003 - Common shares issued in May, 2000 in exchange for services valued @ $.05 per share 875,000 875 - - 35,710 - Common shares issued in July, 2000 in exchange for convertible debt at $.15 per share 288,000 288 - - 39,712 - Capital contributed by principal shareholders - - - - 16,000 - Common shares issued in November , 2000 in for cash in connection with private placement $.15 per share 640,171 640 - - 95,386 - Common shares issued in November , 2000 in exchange for services valued @$.15 per share issued for consulting services 122,795 123 - - 18,296 - - - Net loss - - - - - - --------- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 2000 4,315,966 4,316 - - 273,667 - Common shares issued in January , 2000 in exchange for convertible debt at $.15 per share 698,782 699 - - 104,118 - Stock options issued in May, 2001 valued @ $.15 per option in exchange for services - - - - 52,500 - Warrant issued in May 2001, valued at $015 per warrant in exhange for placement of debt - - - - 75,000 - Common shares issued in September 2001 in excercise for warrant at $.15 per share 3,000 3 - - 447 - Common shares issued in September 2001 for cash in connection with excercise of warrant at $.10 per share 133,000 133 - - 13,167 - Common shares issued in November 2001 for cash in connection with excercise of warrant at $.0001 per share 500,000 500 - - - - Common shares issued in Nov , 01 in on excercise of options at $.0001 per share 350,000 350 - - - - DEFECIENCY TOTAL IN ACCUMALATED SHAREHOLDERS EQUITY DURING DEVELOPMENT STAGE 2004 Common shares issued in May, 2000 to founders in exchange for cash at $0.01 per share - $2,200 Common shares issued in May, 2000 in exchange for research and development services valued at $.09 pers share - 68,753 Common shares issued in May, 2000 in exchange for services valued @ $.05 per share - 36,585 Common shares issued in July, 2000 in exchange for convertible debt at $.15 per share - 40,000 Capital contributed by principal shareholders - 16,000 Common shares issued in November , 2000 in for cash in connection with private placement $.15 per share - 96,026 Common shares issued in November , 2000 in exchange for services valued @$.15 per share issued for consulting services - 18,419 Net loss (454,651) (454,651) -------- -------- BALANCE, DECEMBER 31, 2000 (454,651) (176,668) Common shares issued in January , 2000 in exchange for convertible debt at $.15 per share - 104,817 Stock options issued in May, 2001 valued @ $.15 per option in exchange for services - 52,500 Warrant issued in May 2001, valued at $015 per warrant in exhange for placement of debt - 75,000 Common shares issued in September 2001 in excercise for warrant at $.15 per share - 450 Common shares issued in September 2001 for cash in connection with excercise of warrant at $.10 per share - 13,300 Common shares issued in November 2001 for cash in connection with excercise of warrant at $.0001 per share - 500 Common shares issued in Nov , 01 in on excercise of options at $.0001 per share - 350 See accompanying notes to the unaudited condensed financial information. F-4 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY FOR THE PERIOD MAY 17, 2000 (DATE OF INCEPTION) THROUGH MARCH 31, 2004 (UNAUDITED) STOCK COMMON STOCK PREFERRED STOCK ADDITIONAL SUBSCRIPTION RECEIVABLE PAID IN SHARES AMOUNT SHARES AMOUNT CAPITAL Common shares issued in December, 2001 in exchange for convertible debt at $.50 per share 133,961 134 - - 66,847 - Common shares issued in December, 2001 in exchange for debt at $.50 per share 17,687 17 - - 8,825 Net loss - - - - - - --------- --------- --------- --------- --------- --------- BALANCE AT DECEMBER 31, 2001 6,152,396 6,152 - - 594,571 - Common shares issued in May, 2002 in exchange for services valued at $.70 per share 70,000 70 - - 49,928 - Common shares issued in November, 2002 in exchange for services valued at $.25 per share 150,000 150 - - 37,350 - Common shares issued in December, 2002 as rights offerings at $0.25 per share 256,000 256 - - 63,744 - Subscription receivable for 10,000 shares issued - - - - - (2,500) - - Net loss - - - - --------- --------- --------- --------- --------- --------- BALANCE AT DECEMBER 31, 2002 6,628,396 6,628 - - 745,593 (2,500) Common shares issued in March , 2003 in connection with excercise of options at $.0001 per share 250,000 250 - - - - Funds received for stock subscription - - - - - 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 - Common shares issued in March , 2003 in exchange for services valued at $0.75 per share 13,333 14 - - 9,987 - DEFECIENCY TOTAL IN ACCUMALATED SHAREHOLDERS EQUITY DURING DEVELOPMENT STAGE Common shares issued in December, 2001 in exchange for convertible debt at $.50 per share - 66,981 Common shares issued in December, 2001 in exchange for debt at $.50 per share 8,842 Net loss (636,274) (636,274) --------- --------- BALANCE AT DECEMBER 31, 2001 (1,090,925) $(490,202) Common shares issued in May, 2002 in exchange for services valued at $.70 per share - 49,998 Common shares issued in November, 2002 in exchange for services valued at $.25 per share - 37,500 Common shares issued in December, 2002 as rights offerings at $0.25 per share - 64,000 Subscription receivable for 10,000 shares issued - (2,500) Net loss - (700,104) (700,104) --------- --------- BALANCE AT DECEMBER 31, 2002 (1,791,029) (1,041,308) Common shares issued in March , 2003 in connection with excercise of options at $.0001 per share - 250 Funds received for stock subscription - 2,500 Common shares issued to Cornell Capital Partners in March 2003 in connection with Loan Commitment valued at $0.75 per share - 225,000 Common shares issued in March , 2003 in exchange for services valued at $0.75 per share - 10,001 See accompanying notes to the unaudited condensed financial information. F-5 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY FOR THE PERIOD MAY 17, 2000 (DATE OF INCEPTION) THROUGH MARCH 31, 2004 COMMON STOCK PREFERED STOCK ADDITIONAL STOCK SUBSCRIPTION SHARES AMOUNT SHARES AMOUNT PAID IN CAPITAL RECEIVABLE Robrady Design Note was converted into 196,120 shares @.25 per share 196,120 196 - - 48,833 - Common Shares issued to Mark Schmidt for services in June 2003. The 200,000 shares wer issued at $0.25 per share 200,000 200 - - 49,800 - 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 - - Common shares issued in November 2003 for consulting services valued at $0.50 per share 11,292 11 - - 5,634 - Convertible Preferred Shares issued in December 2003 valued at $5,000 per share, Class A - - 155 1 774,999 (276,186) Warrants on convertible preferred shares - - - - (347,610) - Beneficial converion discount on convertible preferred shares - - - - 736,250 - Net (Loss) - - - - - - --------- --------- --------- --------- --------- --------- BALANCE AT DECEMBER 31, 2003 8,049,141 8,049 155 1 2,337,736 (276,186) Issuance of convertible preferred shares Class B in January 2004 for accrued management fees at $1 per share - - 800,000 800,000 - - Proceeds from subscriptions Receivable - - - - - 276,186 Common Shares issued in January, 2004 in exchange for services at $0.10 per share 260,000 260 - - 25,740 - Common Shares issued in January 2004 in ex-change for services at $0.001 per share 225,000 225 - - - - Common Shares issued in January 2004 in ex-change for services valued at $0.01 per share 2,100,000 2,100 - - 18,900 - DEFICIENCY TOTAL IN ACCUMULATED SHAREHOLDERS EQUITY DURING DEVELOPEMENT STAGE - 2004 Robrady Design Note was converted into 196,120 shares @.25 per share - 49,029 Common Shares issued to Mark Schmidt for services in June 2003. The 200,000 shares wer issued at $0.25 per share - 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 - 90,000 Common shares issued in November 2003 for consulting services valued at $0.50 per share - 5,645 Convertible Preferred Shares issued in December 2003 valued at $5,000 per share, Class A - 498,814 Warrants on convertible preferred shares - (347,610) Beneficial converion discount on convertible preferred shares - 736,250 Net (Loss) (2,230,806) (2,230,806) ---------- ----------- BALANCE AT DECEMBER 31, 2003 (4,021,835) (1,952,235) Issuance of convertible preferred shares Class B in January 2004 for accrued management fees at $1 per share - 800,000 Proceeds from subscriptions Receivable - 276,186 Common Shares issued in January, 2004 in exchange for services at $0.10 per share - 26,000 Common Shares issued in January 2004 in ex-change for services at $0.001 per share - 225 Common Shares issued in January 2004 in ex-change for services valued at $0.01 per share - 21,000 See accompanying notes to the unaudited condensed financial information. F-6 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) STATEMENT OF DEFICIENCY IN STOCKHOLDER'S EQUITY FOR THE PERIOD MAY 17, 2000 (DATE OF INCEPTION) THROUGH MARCH 31, 2004 COMMON STOCK PREFERED STOCK ADDITIONAL STOCK DEFICIENCY TOTAL IN SUBSCRIPTION SHARES AMOUNT SHARES AMOUNT PAID IN CAPITAL RECEIVABLE Shares issued for note payable at $0.25 in January 2004 110,764 111 - - 27,580 - Shares issued for consulting services at $0.01 per share 1,200,000 1,200 - - 10,800 - Beneficial conversion discount- preferred stock dividend with respect to convertible preferred shares - - - - 400,000 - Net loss - - - - - - BALANCE AT MARCH 31, 2004 11,944,905 $ 11,945 800,155 $800,001 $2,820,756 $ - ACCUMILATED DURING SHAREHOLDERS DEVELOPEMENT STAGE - 2004 EQUTIY Shares issued for note payable at $0.25 in January 2004 - 27,691 Shares issued for consulting services at $0.01 per share - 12,000 Beneficial conversion discount- preferred stock dividend with respect to convertible preferred shares - 400,000 Net loss (719,709) (719,709) BALANCE AT MARCH 31, 2004 $(4,741,544) $ (1,108,842) See accompanying notes to the unaudited condensed financial information. F-7 For the Three Months Ended For the Period May 17, 2000 (date of inception) Through March 31, 2004 2004 2003 ---- ---- CASH FLOW FROM OPERATING ACTIVITIES: Net (loss) $ (719,709) $ (229,971) $(4,741,544) Depreciation and amortization 18,291 5,124 344,190 Strock options issued for consulting services -- 10,000 107,504 Shares issued for previosuly incurred debt 27,692 -- 76,721 Loan extension write off -- -- 25,000 Preferred shares issued for conversion of accrued management fees 723,670 -- 723,670 Beneficial conversion discount -- preferred stock dividend 400,000 -- 1,136,250 Preferred shares issued for previously incurred debt 76,330 -- 76,330 Accrued expenses relating to escrow deposits -- -- 23,813 Shares issued for consulting services 47,225 -- 220,375 Shares issued for research and development -- -- 68,753 Shares issued for factoring agreement -- -- 90,000 Increase in accounts receivable (9,816) -- (9,816) Decrease in deposits 236,000 -- -- Increase (decrease) in accrued interest (53,260) 5,638 51,716 (Decrease) increase in mfee payable-- related party (684,670) 121,500 311,838 Increase in other accrued liabilities (89,182) 46,962 207,206 Net cash used in operating activities (27,429) (40,747) (1,287,994) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (5,174) -- (118,668) Net cash provided (used in) investing activities (5,174) -- (118,668) CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments for) short-term notes payable (200,000) -- 267,455 (Payments for)proceeds from short-term notes payable - shareholders - net (85,000) 29,500 122,845 Proceeds from advance deposits 32,403 -- 32,403 Proceeds from issuance of preferred stock -- -- 475,000 Proceeds from issuance of common stock 288,186 2,750 528,192 NET CASH PROVIDED BY FINANCING ACTIVITIES 35,589 32,250 1,425,895 Net increase in cash 2,986 (8,497) 19,233 Cash - beginning 16,247 26,086 -- Cash - ending $ 19,233 $ 17,589 $ 19,233 Supplemental disclosures: Cash paid for Interest expenses $ 66,314 $ 9,427 $ 117,214 Cash paid for income taxes -- -- -- See accompanying notes to the unaudited condensed financial information. F-8 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) Non Cash investing and financing activities: Shares issued for research and development and consulting 47,225 10,000 153,478 Shares issued for conversion of debt 27,692 -- 338,384 Warrants issued in connection with financing -- -- 75,000 Warrants issued detachable with convertible preferred shares -- -- 347,610 Beneficial conversion discount on convertible preferred shares 400,000 -- 1,136,250 Options issued in connection with services -- -- 52,500 Shares issued in connection with services -- -- 204,083 Shares issued in connection with factoring -- -- 90,000 Shares issued in connection with loan -- -- 225,000 Convertible preferred shares issued for note payable and accrued interest 76,330 -- 76,330 Convertible preferred shares issued for accrued management fees 723,670 -- 723,670 See accompanying notes to the unaudited condensed financial information F-9 CYBERLUX CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (UNAUDITED) NOTE A - SUMMARY OF ACCOUNTING POLICIES GENERAL The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Accordingly, the results from operations for the three-month period ended March 31, 2004, are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2003 financial statements and footnotes thereto included in the Company's SEC Form 10-KSB. BUSINESS AND BASIS OF PRESENTATION Cyberlux Corporation (the "Company") is in the development stage and its effort have been principally devoted to seeking profitable business opportunities. To date the Company has incurred expenses and has sustained losses. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise. For the period from inception through March 31 2004, the Company has accumulated losses of $4,741,544. 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. F-10 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (UNAUDITED) NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED) Had compensation costs for the Company's stock options been determined based on the fair value at the grant dates for the awards, the Company's net loss and losses per share would have been as follows (transactions involving stock options issued to employees and Black-Scholes model assumptions are presented in Note D): For the three months ended March 31, 2004 2003 Net loss - as reported $(719,709) $(229,975) Add: Total stock based employee compensation expense as reported under intrinsic value method (APB. No. 25) -- -- Deduct: Total stock based employee compensation expense as reported under fair value based method (SFAS No 123) -- -- Net loss - Pro Forma $(719,709) $(229,975) Net loss attributable to common stockholders - Pro forma $(719,709) $(229,975) Basic (and assuming dilution) loss per share - as reported $ (.06) $ (.03) Basic (and assuming dilution) loss per share - proforma $ (.06) $ (.03) RECENT ACCOUNTING PRONOUNCEMENTS 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-11 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (UNAUDITED) NOTE B - COMMON STOCK In January, 2004 , the Company issued 260,000 shares of its common stock in exchange for services totaling $26,000. The stock issued was valued at approximately $.10 per share, which represents the fair value of the stock issued, which did not differ materially from the value of the services rendered. In January, 2004 , the Company issued 225,000 shares of its common stock in exchange for services totaling $225. The stock issued was valued at approximately $.001 per share, which represents the fair value of the stock issued, which did not differ materially from the value of the services rendered. In January, 2004 , the Company issued 2,100,000 shares of its common stock in exchange for services totaling $21,000. The stock issued was valued at approximately $.01 per share, which represents the fair value of the stock issued, which did not differ materially from the value of the services rendered. In January, 2004, the holder of a $27,691 note payable exchanged the unpaid principal together with accrued interest for 110,764 shares at $0.25 per share of the Company's common stock. In January, 2004, the Company issued 1,200,000 shares of its common stock for cash at $0.01 per share for $12,000. In January, 2004, the Company collected the balance of its subscriptions receivable of $276,186. NOTE C - PREFERRED STOCK In January, 2004 , the Company issued 800,000 shares of its preferred stock B in lieu of certain accrued management services fee payable and notes payable including interest payable thereon totaling $8,00,000 to officers of the company The stock issued was valued at approximately $1.00 per share, which represents the fair value of the stock. The Company recorded beneficial conversion discount of $400,000 - preferred dividend relating to the issuance of convertible preferred stock. 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 March 31, 2004. Warrants Outstanding Warrants Exercisable Weighted Average Remaining Weighed Average Weighted Average Number Outstanding Contractual Life (Years) Exercise Price Number Exercise Price ----------- ------------ -------------- -------------- Exercise Prices Exercisable $ 0.25 7,750,000 5 $ 0.25 7,750,000 $ 0.25 --------- --------- 7,750,000 5 $ 0.25 7,750,000 $ 0.25 === ========= = ====== ==== ========= ====== F-12 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (UNAUDITED) NOTE D - STOCK OPTIONS (CONTINUED) 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 March 31, 2004. Warrants Outstanding Warrants Exercisable Weighted Average Remaining Weighed Average Weighted Average Number Outstanding Contractual Life (Years) Exercise Price Number Exercise Price ----------- ------------ -------------- -------------- Exercise Prices Exercisable $ 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, 2003 $15,500,000 $ 0.54 Granted -- -- Exercised -- -- Canceled or expired -- -- ----------- --------- Outstanding at March 31, 2004 $15,500,000 $ .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. Options Outstanding Options Exercisable Weighted Average Weighted Average Weighted Number Outstanding Remaining Contractual Exercise Price Number Average ----------- -------------- Exercise Prices Life (Years) Exercisable Exercise Price --------------- ------------ ----------- -------------- $0.2125 2,000,000 6.00 $ 0.2125 2,000,000 $0.2125 --------- ---- ------- --------- ------- $0.2125 2,000,000 6.00 $ 0.2125 2,000,000 $0.2125 --------- ---- ------- --------- ------- Transactions involving stock options issued to employees are summarized as follows: Number of Shares Weighted Average Price Per Share Outstanding at December 31, 2003 $ 2,000,000 $ 0.2125 Granted -- -- Exercised -- -- Canceled or expired -- -- ----------- ----------- Outstanding at March 31, 2004 $ 2,000,000 $ 0.2125 ----------- ----------- F-13 CYBERLUX CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (UNAUDITED) NOTE D - STOCK OPTIONS (CONTINUED) Employee Stock Options (continued) The weighted-average fair value of stock options granted to employees during the period ended March 31, 2004 and 2003 and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes option pricing model are as follows: 2003 2002 ---- ---- Significant assumptions (weighted-average): Risk-free interest rate at grant date n/a n/a Expected stock price volatility n/a n/a Expected dividend payout - - Expected option life-years (a) n/a n/a (a)The expected option life is based on contractual expiration dates. If the Company recognized compensation cost for the stock options and warrants for the non-qualified employee stock option plan in accordance with SFAS No. 123, the Company's pro forma net loss and net loss per share would have been $(719,709) and $(0.06) for the period ended March 31, 2004 and $(229,975) and $(0.03) for the period ended March 31, 2003, respectively. F-14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion contains forward-looking statements that are subject to significant risks and uncertainties about us, our current and planned products, our current and proposed marketing and sales, and our projected results of operations. There are several important factors that could cause actual results to differ materially from historical results and percentages and results anticipated by the forward-looking statements. The Company has sought to identify the most significant risks to its business, but cannot predict whether or to what extent any of such risks may be realized nor can there be any assurance that the Company has identified all possible risks that might arise. Investors should carefully consider all of such risks before making an investment decision with respect to the Company's stock. The following discussion and analysis should be read in conjunction with the financial statements of the Company and notes thereto. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment from our Management. GENERAL OVERVIEW The Company is in the development stage and its efforts have been principally devoted to designing, developing manufacturing and marketing advanced lighting systems that utilize white (and other) light emitting diodes as illumination elements. We are developing and marketing new product applications of diodal illumination(TM) that demonstrate added value over traditional lighting systems. Using proprietary technology, we are creating a family of products for emergency and security lighting offer extended light life and greater cost effectiveness than other existing forms of illumination. We are expanding our marketing activity into channels of retail, commercial and institutional sales. Our target markets include long-term interim lighting needs in hotels, hospitals, nursing homes, airports, shopping centers and multiple family complexes; long-term evacuation solutions for theaters, office and public buildings; reduced maintenance cost solutions for property managers as applied to walkway, corridor or landscape lighting; and certain sensitive applications for the military. Shortly after the power outage blackout that occurred from the Midwest to Northeastern United States and parts of Canada in August 2003, we were invited to propose an emergency lighting redundancy system for the City of Cleveland, Ohio where the power outage darkened most of the City's buildings. We reviewed existing systems and demonstrated our Emergency Lighting Augmentation System (ELAS (TM) ) over a three month period beginning in December 2003. In March 2004, we were awarded a Non-Competitive Bid Contract by the City to begin implementation of the Elas product in Cleveland's Public Utilities Building. The nature and purpose of ELAS is its ability to provide up to 40 hours of light in bathrooms, stairwells, elevators, corridors, equipment rooms and interior offices from its custom constant charge battery pack and expandable lighting element configuration. The system retrofits into existing fluorescent fixtures where its patented sensor differentiates between power off at a wall switch and a power outage in the building's electrical system. We view the Cleveland implementation as a beta site that underwrites a marketing campaign to other major cities in North America and Europe. Our common stock began trading on the Over-the-Counter Bulletin Board under the symbol ,,CYBL.OB" on July 13, 2003. The table below sets forth by quarter the sales information for our common stock as reported on the Over-the-Counter Bulletin Board in our past fiscal year. This information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. SALE PRICES ----------------------------- HIGH LOW 2002: First Quarter N/A N/A Second Quarter N/A N/A Third Quarter N/A N/A Fourth Quarter N/A N/A 2003: First Quarter N/A N/A Second Quarter N/A N/A Third quarter 1.05 0.10 Fourth quarter 0.55 0.12 2004 First Quarter 0.53 0.19 On May 18, 2004, the closing price of our common stock on the Over-the-Counter Bulletin Board was $0.40 per share. We urge you to obtain current market quotations for shares of our common stock. RESULTS OF OPERATIONS The Company is in the development stage and is seeking to develop, manufacture and market advanced lighting systems that utilize white (and other) light emitting diodes as illumination elements. The risks specifically discussed are not the only factors that could affect future performance and results. In addition the discussion in this quarterly report concerning our business our operations and us contain forward-looking statements. Such forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. We do not have a policy of updating or revising forward- looking statements and thus it should not be assumed that silence by our Management over time means that actual events or results are occurring as estimated in the forward-looking statements herein. As a result of limited capital resources and no revenues from operations from its inception, the Company has relied on the issuance of equity securities to non-employees in exchange for services. The Company's management enters into equity compensation agreements with non-employees if it is in the best interest of the Company under terms and conditions consistent with the requirements of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation. In order conserve its limited operating capital resources, the Company anticipates continuing to compensate non-employees for services during the next twelve months. This policy may have a material effect on the Company's results of operations during the next twelve months. REVENUES We have generated operating revenues from operations of $83,354 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 March 31, 2004, we have generated revenues of $83,354 from operations. We have incurred losses of $4,741,545 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 March 31, 2004, we had a working capital deficit of $816,959. As a result of our operating losses from our inception through March 31, 2004, we generated a cash flow deficit of $1,287,994 from operating activities. Cash flows used in investing activities was $118,668 during the period May 17, 2000 (date of Company's inception) through March 31, 2004. We met our cash requirements during this period through the private placement of $475,000of preferred stock, $528,192through the issuance of common stock, and $ 155,248from 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. By adjusting its operations and development to the level of capitalization , management believes it has suffucient capital resources to meet projected cash flow deficits through the next twelve months . However, if thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations , liquidity and financial condition. The Company's independent certified public accountant has stated in his report included in the Company's December 31, 2003 Form 10-KSB, as amended, that the Company has incurred operating losses in the last two years, and that the Company is dependent upon management's ability to develop profitable operations. These factors among others may raise substantial doubt about the Company's ability to continue as a going concern. 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. In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9", which removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The requirements relating to acquisitions of financial institutions are effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. The adoption of this Statement did not have a material impact to the Company's financial position or results of operations as the Company has not engaged in either of these activities. In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure", which amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The adoption of this statement did not have a material impact on the Company's financial position or results of operations as the Company has not elected to change to the fair value based method of accounting for stock-based employee compensation. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not expect the adoption to have a material impact to the Company's financial position or results of operations. On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed Statement, Share-Based Payment, an amendment of FASB Statements No. 123 and 95, that would require companies to account for stock-based compensation to employees using a fair value method as of the grant date. The proposed statement addresses the accounting for transactions in which a company receives employee services in exchange for equity instruments such as stock options, or liabilities that are based on the fair value of the company's equity instruments or that may be settled through the issuance of such equity instruments, which includes the accounting for employee stock purchase plans. This proposed statement would eliminate a company's ability to account for share-based awards to employees using APB Opinion 25, Accounting for Stock Issued to Employees but would not change the accounting for transactions in which a company issues equity instruments for services to non-employees or the accounting for employee stock ownership plans. The proposed statement, if adopted, would be effective for awards that are granted, modified, or settled in fiscal years after December 15, 2004. The Company is in the process of assessing the potential impact of this proposed statement to the financial statements. PRODUCT RESEARCH AND DEVELOPMENT We anticipate performing further research and development for our exiting products during the next twelve months. Those activities include the ReliaBright Emergency Lighting Augmentation System, ReliaBright Solo, Bright Owl Home Safety Light, Bright Owl Mini, Night Owl Power Outage Adapter and VersaBright Area Light These projected expenditures are dependent upon our generating revenues and obtaining sources of financing in excess of our existing capital resources. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected costs of research and development during the next twelve months ACQUISITION OF PLANT AND EQUIPMENT AND OTHER ASSETS We do not anticipate the sale of any material property , plant or equipment during the next 12 months. We do not anticipate the acquisition of any material property, plant or equipment during the next 12 months. We do not own any real property. Our corporate headquarters are located at 4625 Creekstone Drive, Suite 100, Research Triangle Park, Durham, NC 27703. We lease 2,405 square feet of office space from a non affiliated landlord. The lease expires on December 31, 2008. The monthly rent is presently $3,457. NUMBER OF EMPLOYEES From our inception through the period ended March 31, 2004, we have relied on the services of outside consultants for services and have five (5) employees. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. We anticipate that it may become desirable to add additional full and or part time employees to discharge certain critical functions during the next 12 months. This projected increase in personnel is dependent upon our ability to generate revenues and obtain sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees. As we continue to expand, we will incur additional cost for personnel. TRENDS, RISKS AND UNCERTAINTIES We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our Common Stock. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS Our annual report on December 31, 2003, Form 10-KSB, as amended, includes a detailed list of cautionary factors that may affect future results. Management believes that there have been no material changes to those factors listed, however other factors besides those listed could adversely affect us. That annual report can be accessed on EDGAR. ITEM 3. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange act reports is recorded, processed , summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate , to allow timely decisions regarding required disclosure. Managment necessarily applied its judgement in assessing the costs and benefits of such controls and procedures , which , by their nature, can provide only reasonable assurance regarding management's control objectives. We have carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer of the effectiveness of the design and operation of our disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ( the Evaluation date ) Based upon that evaluation , the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the evaluation date. CHANGES IN INTERNAL CONTROLS There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. See Item 3: Legal Proceedings in our annual report on Form 10-KSB for the year ended December 31, 2003 for a description of current legal proceedings. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. On January 2, 2004, Jonathon Mader converted a $2,500 promissory note, plus interest, dated August 18, 2003, into 10,364 shares of our Common Stock at $0.25 per share. This issuance was a private transaction pursuant to Section 4(2) of the Securities Act. On January 2, 2004, Advanced Alloys converted a $2,500 promissory note, plus interest, dated October 16, 2003, into 10,205 shares of our Common Stock at $0.25 per share. This issuance was a private transaction pursuant to Section 4(2) of the Securities Act. On January 2, 2004, Mary Rooks converted a $2,500 promissory note, plus interest, dated October 20, 2003, into 10,195 shares of our Common Stock at $0.25 per share. 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 January 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. On April 29, 2004, we filed an Amendment to the Certificate of Designation with the Nevada Secretary of State to the Series B Convertible Preferred Stock, par value $0.001 to change the conversion price to common stock from$0.20 per share to $0.10 per share and to change the purchase price for First Refusal Shares from an amount equal to the liquidation amount to an average market price of shares of common stock over a 10 day period from the date of the Notice of Conversion. On May 14, 2004, 800,000 shares of Series B Convertible Preferred stock were issued to our officers in exchange for $800,000 in accrued management fees and other liabilities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ---------- ----------- 3.1 Certificate of Designation of the Relative Rights and Preferences of the Series B Convertible Preferred Stock of the Registrant, dated as of February 19, 2004 (Filed herewith) 3.2 Amended Certificate of Designation of the Relative Rights and Preferences fo the Series B Convertible Preferred Stock of the Registrant, dated as of April 29, 2004 (filed herewith) 10.1 Office Lease between Highwoods Realty Limited Partnership and Cyberlux Corporation dated January 20, 2004 (filed herewith) 99.1 Certification of Donald F. Evans (Filed herewith) 99.2 Certification of David D. Downing (Filed herewith) 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. SIGNATURES In accordance with requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cyberlux Corporation (Registrant) Date: May 20, 2004 /s/ Donald F. Evans CEO and Chairman of the Board CERTIFICATIONS I, Donald F. Evans, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Cyberlux Corporation. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions); a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions, with regard to significant deficiencies and material weaknesses. Date: May 20, 2004 /s/ Donald F. Evans ------------------------------------- Donald F. Evans Chairman and Chief Executive Officer CERTIFICATIONS I, David D. Downing, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Cyberlux Corporation. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions); c) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions, with regard to significant deficiencies and material weaknesses. Date: May 20, 2004 /s/ David D. Downing -------------------------------------- David D. Downing Treasurer and Chief Financial Officer