Letter to Shareholders from Mark D. Schmidt, President/CEO of Cyberlux Corporation

The following is a letter to Shareholders from Mark D. Schmidt, President/CEO of Cyberlux Corporation.

Dear Fellow Cyberlux Shareholder:

I’d like to update you on the progress made in 2009, the Company’s plans for 2010 and the challenges facing Cyberlux Corporation as we build and transform the Company into a profitable and sustainable business.

First, I want to express my thanks for your ongoing support as a fellow shareholder as we continue the challenging and difficult task of resolving past legacy issues, securing current and future business and balancing the risk and financial outlay of each opportunity we pursue. Cyberlux Corporation is thankful to have you as an investor, and we appreciate the trust you have put in Management to complete the “clean up and turnaround” effort that has been underway for the past eighteen months. Cyberlux Management is fully committed to completing the restructuring tasks that remain ahead, and the issues that were created in past years are now being systematically and judicially resolved. This effort is only the first step in creating the value we all expect our Company to have.

Our Management team and I realized eighteen months ago that the Company had serious decisions to make regarding the future viability of Cyberlux. While the Company was well-respected within the military channels it had previously sold to, our ability to capitalize from those prior opportunities and develop a constant stream of revenue proved to be very difficult. We quickly realized that competing against very large companies with their unlimited resources placed us at a competitive disadvantage in winning business. Furthermore, the series of false starts from earlier products that did not make it to market had placed the Company in significant debt with investors who had the opportunity to convert that debt into equity. At this point, the organization was left with two choices: either file Chapter 7 and wipe out all equity participants as well as our suppliers, or restructure the organization with the help of a select group of investors who had the foresight to recognize the underlying value of the Company.

Even though we understood that this would not be an easy task, we felt that the choice to reorganize made the most sense for our employees, our suppliers, our existing customer base and our shareholders. I fully understand that this course of action is only partially complete, but as I will elaborate below, we have already seen material success as a result of these changes. The original plan we established more than a year ago is still our core outline for this restructuring. We still draw capital from the same investors, with similar non-toxic terms that had been established almost two years ago, coupled with utilizing the same integral members of our management team in order to ensure the successful completion of this process.

In 2009, Cyberlux, like most small companies, had to focus on our core business capabilities and near-term opportunities. Cyberlux Management refocused the Company’s business model on our competitive differentiators: product innovation, product development and manufacturing capability, proprietary LED knowledge and patented LED technology. To best leverage these areas of competitive advantage, we transformed our business strategy into one where Cyberlux operates as an OEM supplier, supporting and supplying OEM customers who have existing contracts and ongoing opportunities. These changes have already had a major and lasting impact on how the business will scale over time, as well as how the value of the Company and its underlying equity value will grow.

We have already completed several significant milestones that will be reflected in the balance sheet during 2010. First, we have continued to focus on driving down expenses to the lowest operating levels possible. Astoundingly, Management has reduced the true operating expense of Cyberlux by 84% during this time by reducing personnel and decreasing or eliminating any non-essential operating costs. The senior management team has continued to defer compensation until the Company is sustainable in order to further align expense with revenue. With this cost structure, the Company should be well positioned for growth as our business model continues to advance and we make revenue and profit gains during 2010.

Second, we have eliminated a costly and strategically limiting lawsuit involving the Company’s original convertible debt financings. Rather than risk further expense and potential convertible debt conversions, Management settled the case in December and is now in the process of satisfying this payable over time. Ultimately, Management opted to reflect a payable in the balance sheet rather than risk an uncertain outcome and unforeseeable dilution.

Significant progress has been made in the execution of this new business strategy. Most importantly, in December 2009, Management entered into a supplier agreement with Spectrum Brands, one of the largest brands in the retail industry, to deliver six products for its Rayovac trade name. Under the terms of the agreement, Cyberlux will supply Rayovac with existing Cyberlux LED lighting products and technology, including LED products exclusively designed for the Rayovac brand itself. Products designed by Cyberlux will be unique to Rayovac, but the intellectual property owned or licensed by Cyberlux, as well as any new proprietary technology will be owned by Cyberlux. We are working closely with the Rayovac team to bring additional LED lighting solutions to market, including new products that the Rayovac brand anticipates selling to their far-reaching retail and commercial customer base.

Furthermore, during 4Q 2009, the Company began fulfilling product requirements for an exclusive Department of Defense (DoD), multi-national OEM customer, thus taking another important step towards becoming the LED OEM lighting solution provider for third-party companies who serve the military, commercial and retail markets. Additionally, Cyberlux began fulfilling DoD contracts for its BrightEye products, further solidifying the Company’s relationship with DoD OEM customers.

Cyberlux is still a relatively young company at this point and does require the assistance of our financiers. Our goal, like most public companies, is to minimize dilution as soon as the Company is sustainable. That being said, without the near-term operating capital required, we will be unable to execute our business strategy and Cyberlux will never attain the revenue necessary to operate without assistance from the capital markets. We believe that the capital we receive through equity participation from our investors is as good as a company our size can obtain. While this equity is, in our opinion, non-toxic, we do realize it is dilutive. The current share price has a direct correlation to the amount of equity exercised at the time of a capital infusion, thus creating a significant dilutive event.

We feel that the progress we’ve made justifies a higher market capitalization than where we trade today, but we also have strong ethical beliefs that the share price is driven by the markets. Other than issuing material events in the form of a press release, we do not interfere with the Company’s stock. As we grow the business, the share price should rise accordingly. Ultimately, the value of the Company will begin to outweigh the need for capital as the business grows. In the near term, we can’t expect to stop raising capital through the sale of equity, but we expect to see a transition during the year where this goal will be possible. At that point, we will implement the proper strategy that best aligns our investors with the Company.

The changes we’ve made in our business strategy are accelerating the growth of Cyberlux. Over time, these changes will enable Cyberlux to be a sustainable company, serving important customers with ongoing requirements for our products. This challenging process requires every Cyberlux employee to be constantly focused on execution, on quality and on achieving the commitments we make to our customers and business partners. There are no shortcuts, only unfailing day-in and day-out execution, where excellence is achieved through the constant effort of Cyberlux employees.

Your Management sincerely thanks you for your continued support.

    
      
        
          Best regards,
        
      
      
        
           
        
      
      
        
           
        
      
      
        
          Mark D. Schmidt
        
      
      
        
          President/CEO
        
      
      
        
          Cyberlux Corporation
        
      
    
    

About Cyberlux Corporation

Cyberlux Corporation (OTC Bulletin Board: CYBL), a leader in solid-state lighting innovation, has developed breakthrough LED lighting technology that provides the most energy efficient and cost effective portable lighting solutions available today for military and commercial uses. The Military and Homeland Security products provide tactical covert and visible lighting capability and are designed as highly mobile, battery-powered lighting systems ideal for threat detection, force and asset protection and general expeditionary lighting needs. For more information, please visit www.cyberlux.com.

This news release contains forward-looking statements. Actual results could vary materially from those expected due to a variety of risk factors, including, but not limited to, the Company’s ability to expand its production capabilities concurrent with product orders. The Company’s business is subject to significant risks and uncertainties discussed more thoroughly in Cyberlux Corporation's SEC filings, including but not limited to, its report on Form 10-KSB for the year ended December 31, 2008 and its 10-Q for the quarter ended September 30, 2009. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.