UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2002
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number 0-4846-3
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LumaLite Holdings, Inc.
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(Exact name of small business issuer as
specified in its charter)
Nevada 82-0288840
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2810 Via Orange Way, Ste B, Spring Valley, CA 91978
(Address of principal executive offices)
(619) 660-5410
Issuer's telephone number
(Former name, former address and former fiscal year, if changed since last
report.)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ----- No -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: Approximately 28,510,287 shares
as of July 30, 2002
Transitional Small Business Disclosure Format (check one).
Yes ; No X
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Condensed Consolidated Balance Sheets at June 30, 2002 and
December 31, 2001.
Unaudited Condensed Consolidated Statements of Operations for the Three
Months and Six Months ended June 30, 2002 and 2001.
Unaudited Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 2002 and 2001.
Notes to Interim Unaudited Consolidated Financial Statements at June 30,
2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
PART I
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders
LumaLite Holdings, Inc. and Subsidiary
We have reviewed the accompanying condensed consolidated balance sheets
of LumaLite Holdings, Inc. and subsidiary as of June 30, 2002 and December 31,
2001 and the related condensed consolidated statements of operations for the
three and six month and cash flows for the six month periods ended June 30, 2002
and 2001. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
Respectfully submitted
/s/ Robison, Hill & Co.
-----------------------------
Certified Public Accountants
Salt Lake City, Utah
July 18, 2002
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2002 2001
--------------- --------------
Assets:
Current assets:
Cash $ 59,794 $ 52,492
Accounts receivable, net of allowance for doubtful accounts 267,405 388,569
Inventories 334,487 316,706
Other current assets 27,257 -
--------------- --------------
Total current assets 688,943 757,767
--------------- --------------
Equipment:
Manufacturing equipment 166,980 -
Demo equipment 24,750 24,750
Computer equipment 14,942 6,681
Furniture & fixtures 6,334 4,709
Test equipment 5,958 5,958
--------------- --------------
218,964 42,098
Less accumulated depreciation (28,314) (10,646)
--------------- --------------
Equipment, net of accumulated depreciation 190,650 31,452
--------------- --------------
Other non-current assets:
Intangible assets 179,933 -
Deposits 3,662 3,662
--------------- --------------
Total other non-current assets 183,595 3,662
--------------- --------------
Total assets $ 1,063,188 $ 792,881
=============== ==============
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Unaudited)
June 30, December 31,
2002 2001
--------------- --------------
Liabilities and Stockholders' Deficit:
Current liabilities:
Accounts payable, trade $ 394,193 $ 172,879
Accrued expenses 149,914 283,153
Due to related party 100,000 -
Accrued wages 145,455 186,482
--------------- --------------
Total current liabilities 789,562 642,514
--------------- --------------
Stockholders' Equity:
Preferred Stock, par value $.001 per share
Authorized 10,000,000 shares, None
issued at June 30, 2002 and
December 31, 2001 - -
Common Stock, par value $.001 per share
Authorized 100,000,000 shares, Issued
28,510,287 Shares at June 30, 2002
and 27,507,529 Shares at December 31, 2001 28,510 27,507
Additional paid-in capital 473,439 401,182
Retained Earnings (228,323) (278,322)
--------------- --------------
Total Stockholders' Equity 273,626 150,367
--------------- --------------
Total Liabilities and
Stockholders' Equity $ 1,063,188 $ 792,881
=============== ==============
See accompanying notes and accountants' report.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------- -------------------------------
2002 2001 2002 2001
-------------- -------------- --------------- --------------
Revenues $ 744,223 $ 696,516 1,161,052 $ 1,246,770
Cost of revenues 230,828 338,314 466,654 665,302
-------------- -------------- --------------- --------------
Gross Profit 513,395 358,202 694,398 581,468
-------------- -------------- --------------- --------------
Expenses
Sales and marketing 161,844 105,676 277,230 166,574
Research and development 48,182 21,464 83,548 23,992
General and administrative 152,194 92,997 247,612 137,555
-------------- -------------- --------------- --------------
Total costs and expenses 362,220 220,137 608,390 328,121
-------------- -------------- --------------- --------------
Other Income (Expense)
Interest income 80 193 461 670
Interest expense (478) - (670) -
-------------- -------------- --------------- --------------
Net Other Income (Expense) (398) 193 (209) 670
-------------- -------------- --------------- --------------
Income taxes
Federal 29,000 40,000 29,000 86,000
State 6,800 9,000 6,800 20,000
-------------- -------------- --------------- --------------
Total income taxes 35,800 49,000 35,800 106,000
-------------- -------------- --------------- --------------
Net Income (Loss) $ 114,977 $ 89,258 $ 49,999 $ 148,017
============== ============== =============== ==============
Weighted Average
Shares Outstanding 28,510,287 27,507,529 28,510,287 27,507,529
============== ============== =============== ==============
Loss per Common Share $ - $ - $ - $ 0.01
============== ============== =============== ==============
See accompanying notes and accountants' report.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
-------------------------------
2002 2001
--------------- ---------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 49,999 $ 148,017
Adjustments necessary to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 17,668 4,909
Decrease (increase) in accounts receivable 121,164 (247,334)
Decrease (increase) in inventories (17,781) 32,588
Decrease (increase) in other current assets (27,257) (50,000)
Increase (decrease) in checking overdraft - (17,229)
Increase (decrease) in accounts payable 221,314 38,613
Increase (decrease) in accrued expenses (133,239) 8,391
Increase (decrease) in accrued wages (41,027) 109,644
--------------- ---------------
Net Cash Used in operations 190,841 27,599
--------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of intangible assets (179,933) -
Acquisition of equipment (176,866) (3,149)
--------------- ---------------
Net cash provided by (used) investing activities (356,799) (3,149)
--------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Repayments) borrowings on short term notes - (20,044)
Proceeds from shareholder notes payable 100,000 -
Repayment of notes payable to shareholder - (174,000)
Common stock issued for cash 500,000 258,013
Merger expenses (426,740) -
--------------- ---------------
Net Cash Provided by Financing Activities 173,260 63,969
--------------- ---------------
Net (Decrease) Increase in
7,302 88,419
Cash and Cash Equivalents
at Beginning of Period 52,492 -
--------------- ---------------
Cash and Cash Equivalents
at End of Period $ 59,794 $ 88,419
=============== ===============
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 478 $ -
Franchise and income taxes $ 120,000 $ 800
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
In April 2002, the reverse merger with LumaLite was completed (see Note
6). Upon completion of the merger, all of the issued and outstanding shares of
common stock of LumaLite were cancelled and converted into a right to receive
17,800,000 post-reverse split shares (approximately 62.46% of the currently
outstanding common stock).
Effective with the merger, the holders of debt in the original amount of
$725,000 converted the principal amount of the debt, plus accrued interest, into
10,118,744 post-reverse split shares of common stock (approximately 35.5% of the
outstanding common stock).
In connection with the merger, Lincoln Properties Ltd., one of the
principal stockholders prior to the merger, contributed 296,732 post-reverse
split shares of common stock back to the Company.
See accompanying notes and accountants' report.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for LumaLite Holdings, Inc. ( the
"Company" or "LHI") is presented to assist in understanding the Company's
financial statements. The accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
Interim Reporting
The unaudited financial statements as of June 30, 2002 and for the three
and six month periods ended June 30, 2002 and 2001 reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of operations for
such the three and six month periods. Operating results for interim periods are
not necessarily indicative of the results which can be expected for full years.
Organization and Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary LumaLite, Inc. "(LLI)" During the
year ended December 31, 2001, the Company had no operations under its prior
name, Consil Corporation. On April 10, 2002, the Company changed its name to
LumaLite Holdings, Inc. and through a series of transactions, reincorporated in
Nevada from Idaho. On April 16, 2002, the Company closed on a transaction with
LLI whereby LLI merged into Consil Merger Corporation, a wholly owned subsidiary
of the Company, in a "reverse merger" such that LLI was the surviving
corporation and wholly owned by the Company.
Nature of Business
LHI and its subsidiary are in the business of developing, manufacturing
and selling advanced medical devices for the dental industry that use the
Company's proprietary technology. LHI and its subsidiary operate from its sole
location in Spring Valley, California..
Principles of Consolidation
The consolidated financial statements for the three and six months ended
June 30, 2002 and 2001 include the accounts of the parent entity and its wholly
owned subsidiary LLI.
All significant intercompany balances and transactions have been
eliminated.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation
Fixed assets are stated at cost. Depreciation is calculated using the
200 percent declining balance method over the estimated useful lives of the
assets as follows:
Asset Rate
--------------------------------------- --------------
Manufacturing equipment 5 years
Demo equipment 3 years
Computer equipment 5 years
Furniture & fixtures 7 years
Test equipment 7 years
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
Inventories
Inventories are stated at lower of cost or market, with cost determined
on the first-in, first-out method.
Inventories consist of:
June 30, December 31,
2002 2001
--------------- ---------------
Finished Goods $ 55,543 $ 112,543
Raw Materials 278,944 204,163
--------------- ---------------
Total Inventory $ 334,487 $ 316,706
=============== ===============
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires recognition of
deferred income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
At June 30, 2002 there were no deferred taxes resulting from temporary
differences in the recognition of income and expenses for income tax reporting
and financial statement reporting purposes.
Reclassifications
Certain reclassifications have been made in the June 30, 2001 financial
statements to conform with the June 30, 2002 presentation.
Revenue recognition
Revenue is recognized from sales of product at the time of shipment to
customers.
Advertising Expense
Advertising costs are expensed when the services are provided.
Concentrations of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements. The Company maintains the majority of its cash
balances with two financial institutions, in the form of demand deposits.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Loss per Share
The reconciliations of the numerators and denominators of the basic loss
per share computations are as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------- --------------- --------------
For the Three Months Ended June 30, 2002
------------------------------------------------
BASIC INCOME PER SHARE
Income to common shareholders $ 114,977 28,510,287 $ -
=============== =============== ==============
For the Three Months Ended June 30, 2001
------------------------------------------------
BASIC INCOME PER SHARE
Income to common shareholders $ 89,258 27,507,529 $ -
=============== =============== ==============
For the Six Months Ended June 30, 2002
------------------------------------------------
BASIC INCOME PER SHARE
Income to common shareholders $ 49,999 28,510,287 $ -
=============== =============== ==============
For the Six Months Ended June 30, 2001
------------------------------------------------
BASIC INCOME PER SHARE
Income to common shareholders $ 148,017 27,507,529 $ 0.01
=============== =============== ==============
Options to purchase 98,298 shares of common stock were outstanding
during June 30, 2002 and December 31, 2001 but were not included in the
computation of diluted Earnings Per Share because the options' exercise price
was greater than the average market price of the common shares.
NOTE 2 - RELATED PARTY TRANSACTIONS
Notes payable to related parties are as follows:
June 30, December 31,
2002 2001
--------------- ---------------
Promissory note, repayable to
Officers of the Company, due
on demand including
interest at 15%, unsecured $ 100,000 $ -
=============== ===============
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Continued)
NOTE 3 - STOCK OPTIONS
The options have a five or ten-year life. The following summarizes stock
option activity during the six months ended June 30, 2002 and year ended
December 31, 2001:
June 30, 2002 December 31, 2001
----------------------------- -------------------------------
Exercise Exercise
Shares Price/Share Shares Price/Share
------------- --------------- -------------- ---------------
Options outstanding,
Beginning of period: 98,298 $0.0292-$0.117 2,581,496 $0.0292
Options granted 367,647 $0.272 81,202 $0.117
Options exercised - - (2,564,400) $0.0292
Options canceled - - - -
------------- --------------
Options outstanding,
End of period: 465,945 $0.0292-$0.272 98,298 $0.0292-$0.117
============= ==============
Of the aggregate options, 98,298 of the options have a vesting schedule
that permits exercise of twenty-five percent of such amount (24,575 options on
the date one year from the date of grant and an additional twenty-five percent
of such amount on each of the second, third and fourth anniversary dates from
the dates of grant (24,575; 24575 and 24573 options, respectively).
NOTE 4 - ECONOMIC DEPENDENCE
The Company does not utilize any specialized raw materials and as such
any and all materials are readily available. The Company is not aware of any
problem that exist at present time or that is projected to occur within the near
future that will materially affect the source and availability of raw materials,
which would be required by the Company. The Company acquires approximately 5% of
the products it produces and markets from a single supplier. Although there are
other suppliers, a change in suppliers would cause a delay in the production
process, which could ultimately affect operating results.
NOTE 5 - COMMITMENTS
The Company has entered into a lease agreement for its office and
warehouse facilities. The rental charges are approximately $5,197 per month. The
lease expires November 30, 2005.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Continued)
NOTE 5 - COMMITMENTS (continued)
The minimum future lease payments under these leases for the next five
years are:
Twelve Months Real Property Equipment
Ended December
31:
-------------------- -------------------------------
2002 $ 49,028 $ -
2003 63,176 -
2004 65,727 -
2005 56,974 -
2006 - -
-------------- ---------------
Total minimum future lease payments $ 234,905 $ -
===============================
The leases generally provides that insurance, maintenance and tax
expenses are obligations of the Company. It is expected that in the normal
course of business, leases that expire will be renewed or replaced by leases on
other properties.
NOTE 6 - RESCISSION OF SALE OF COMMON STOCK
On January 2,2002, prior to the Merger and pursuant to written agreements
for the purchase and sale of stock, LLI sold an aggregate of 502,758 shares of
common stock of LLI to five investors for an aggregate purchase price of $1.5
million. The shares of LLI were issued and in accordance with the stock purchase
agreement, the buyers were to pay six equal monthly installments beginning on
May 1, 2002. The buyers are in default under the terms of the stock purchase
agreements and the Company, after review of the matter and analysis of, among
other matters, the cost of litigation, has negotiated with the buyers to rescind
the stock purchase and sale transaction. Although as of the date of this report,
the rescission has not been completed, it is the Company's intent to complete
such a rescission. Accordingly, the Company has not recorded the receivable from
the buyers of the $1.5 million and the corresponding increase to additional paid
in capital. However, since the shares of common stock of the Company are issued
and outstanding and the Company has not received nor does the Company expect to
receive any consideration for such issuance, the Company has recorded the
issuance of 502,758 shares of common stock of the Company and has reduced
additional paid in capital in the aggregate amount of $178, representing the
aggregate of the par value of such shares that has not or will not be collected.
If the rescission is completed, the Company will reduce the number of
outstanding shares of common stock by 502,758 as if such shares of common stock
were never issued and correspondingly increase the additional paid in capital by
$178.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Continued)
NOTE 7 - REVERSE MERGER
In December 2001, the Company entered into an agreement with LLI .
Pursuant to which a newly formed wholly owned Company subsidiary merged with and
into LLI (the "Merger"). In connection with the Merger, in early January 2002,
the Company completed a private placement of 12,500,000 shares of common stock
with three accredited investors for an aggregate purchase price of $500,000.
Following the reverse split, as described below, the three accredited investors
held 500,000 shares of common stock of the Company. The stock was sold in
reliance on the exemption from registration provided under ss. 4(2) of the
Securities Act of 1933, as amended. The Proceeds from the private placement were
placed in escrow and were used primarily to pay costs and expenses associated
with the Merger.
As contemplated by the Merger, in March 2002, the stockholders of the
Company approved a 25 for 1 reverse split of its outstanding shares of common
stock, amended and restated the Company's articles and bylaws and moved the
state of incorporation from Idaho to Nevada. The Company also changed its name
to LumaLite Holdings, Inc. and through a series of transactions, amended and
restated its articles of incorporation and its bylaws. On April 16, 2002 the
Company completed the Merger.
In the Merger, all of LLI's issued and outstanding shares of common
stock were cancelled and converted into a right to receive 17,800,000 post
reverse split common shares of the Company (approximately 62.46% of the
outstanding common stock of the Company following the reverse split of the
common shares of the Company).
In connection with the merger, one of the Company's principal
stockholders prior to the merger, contributed 296,732 post reverse split shares
of common stock of the Company, back to the Company and holders of debt in the
original amount of $725,000 converted the principal amount of the debt, plus
accrued interest, into 10,118,744 post reverse split shares of common stock of
the Company (approximately 35.5% of the outstanding common stock of the
Company).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY STATEMENTS:
This report contains certain 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 plans 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 report contains forward-looking statements regarding the financial
condition, operating results, business prospects or any other aspect of the
Company, 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, termination of contracts, loss of supplies, technological obsolescence
of the Company's products, technical problems with the Company's products, price
increases for supplies, 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, inability of the Company to continue as a going
concern, losses incurred in litigating and settling cases, 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 report or in other
reports issued by the Company. In addition, the business and operations of the
Company are subject to substantial risks that increase the uncertainty inherent
in the forward-looking statements. The inclusion of forward-looking statements
in this report 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.
HISTORY OF THE COMPANY
In December 2001, the Company entered into an agreement with LumaLite,
Inc. ("LLI") pursuant to which a newly formed wholly owned Company subsidiary
merged with and into LLI (the "Merger"). As contemplated by the Merger, in March
2002, the stockholders of the Company approved a 25 for 1 reverse split of its
outstanding shares of common stock, amended and restated the Company's articles
and bylaws and moved the state of incorporation from Idaho to Nevada. The
Company also changed its name to LumaLite Holdings, Inc. and through a series of
transactions, amended and restated its articles of incorporation and its bylaws.
On April 16, 2002 the Company completed the Merger as all of the outstanding
shares of LLI were converted to rights to receive shares in the Company.
o As a result of the Merger, the Company is no longer conducting its historic
business operations, which were to hold mineral property in Shoshone
County, Idaho. Those activities were unsuccessful and, beginning in the
fourth quarter of 1997 and continuing through late 2001, the Company
engaged in no active business operations, had no employees and maintained
only minimal accounting, management and officer functions. Upon completion
of the Merger, the combined business operations are active in a
significantly different industry.
BUSINESS OVERVIEW
We believe that, as a result of the Merger and the transactions
completed in connection with it, prospective investors and shareholders should
not rely on year-to-year comparisons of the operating results of the Company's
predecessor Consil Corporation to our present and future operating results. We
also believe that prospective investors and shareholders will have a better
understanding of our financial performance if they better understand our current
operations. Accordingly, we have included in this report a summary of our
operations, products, markets and material relationships. For more information
regarding these matters, please see our annual report on Form 10-KSB for the
year ended December 31, 2001.
BUSINESS
The Company, through its wholly owned subsidiary LLI, develops and
markets products to the dental community. It's current products include
tooth-whitening products and services that it markets through wholesale
distributors whose customers are primarily dental practitioners. The Company's
current principal product is its LumaArch(TM) Xenon-halogen Bleaching System,
which provides customers with tooth-whitening results that we believe are
superior to those provided by the Company's competitors. We believe its lower
cost and the reduced time that the customer is required to spend in the dental
chair during the whitening process make the product economically attractive to
the dentist. The Company plans to launch a number of complementary products and
service offerings in the near future and, in late 2002, plans to introduce
company-owned and operated tooth-whitening centers in major retail locations as
a store-in-store concept.
The LumaArch system uses a proprietary Xenon-halogen light and a
proprietary liquid light guide to produce uniform tooth-whitening results
without any heat. The system is used in conjunction with single-use LumaWhite
tooth-whitening material, which is especially formulated to react to the energy
wavelength produced by the LumaArch. The LumaArch system provides up to eight
shades of whitening improvement in a procedure that takes approximately 40
minutes of chair time, and at a cost to the patient that the Company believes is
lower than that charged by comparable companies. As of April 2002, the Company
had an installed base of approximately 1,700 LumaArch systems nationwide (at an
average manufacturers suggested retail price to the dental professionals of
$6,000).
The Company currently markets its LumaArch system through a series of
wholesale distributor relationships with leading dental supply companies,
including Henry Schen and Patterson Dental. These dental supply companies
provide the Company with the equivalent of a 1,500 person sales representative
force and ready access to the more than 120,000 domestic dentists in the United
States. For more information regarding the Company's wholesale distributor
relationships, see "Strategic Relationships and Contracts" below.
The Company plans to extend its current product and service offerings
through three initiatives. First, beginning in the fall of 2002, the Company
plans to open company-owned and operated retail tooth-whitening centers that
will offer consumers accessible, pleasant and affordable access to quality
tooth-whitening services in an upscale, "salon" type atmosphere. The tooth-
whitening centers will be designed to avoid the stigma associated with in-office
dental visits and make tooth-whitening less painful and easier. Management plans
to place the retail centers in high traffic locations such as shopping malls,
"store-within-a-store" boutiques in major upscale department stores and fitness
centers, resorts, spas and vacation destinations. We believe the retail centers
will build the Company's brand recognition and marketing exposure, as well as
offer numerous opportunities for the growth of the Company's customer base.
The second initiative will focus on the introduction of a number of
ancillary tooth-whitening and oral hygiene products, such as at-home
tooth-whitening kits, toothpastes and mouthwash. These products will be designed
to supplement and reinforce the customer's initial LumaArch tooth- whitening
procedure, since there is a natural degradation in post-procedure tooth
whiteness from natural wear and the customer's use of staining agents such as
coffee, nicotine and red wine. Management plans on initiating market
introduction of these products in late 2002, including the "LumaWhite DIY" (do
it yourself), a home bleaching and whitening kit, "LumaWhite" toothpaste, and
"LumaWhite" branded mouthwash. We believe that the Company's sale of these
consumer products will leverage the Company's established reputation within the
cosmetic dentistry industry and provide an additional, high margin, recurring
revenue stream.
The third initiative is the manufacturing and distribution of an
intra-oral camera, a new product developed by Veratronics, Inc. The intra-oral
camera called Vera-Cam, when used in conjunction with either a common cathode
ray tube monitor or a digital display through a personal computer, is designed
to be used by dentists to provide a close-up view of the patient's mouth and
teeth so that both the patient and the dentist can observe the images
transmitted by the camera. With the Vera-Cam or other similar intra-oral
cameras, the dentist can use the Vera-Cam to demonstrate the need for dental
procedures to the patient in real time while the patient is in the dentist chair
improving the opportunity for the dentist to increase the number of procedures
performed in any one patient visit and the opportunity to perform additional
procedures in future patient appointments. The Vera-Cam's electronics allow the
Company to produce a superior performing product at a cost that the Company
believes is lower than the cost of previous generation electronics. The Company
introduced the Vera-Cam in the third quarter of this fiscal year.
INDUSTRY OVERVIEW
Tooth-whitening has been practiced in rudimentary form since the late
1800s. With the discovery of carbamide peroxide, an active bleaching agent, and
its accidental application to aesthetic dentistry in the 1960s, the modern
tooth-whitening industry began to develop. Initially, tooth-whitening procedures
were generally cost prohibitive and time consuming. During the 1990s, the
industry experienced significant growth and, by 2001, was a $1.3 billion
industry domestically. The industry is expected to have domestic sales exceeding
$5 billion within the next seven years. Industry experts believe that the
industry has grown due to a number of factors, including a fundamental shift in
the focus of the dental profession (i.e., as baby boomers age there is less of a
need for traditional dental services such as treating cavities and tooth decay),
a more image conscious American public that desires white, good-looking teeth
and the growing perception that the industry represents a potentially lucrative
niche industry. According to the American Dental Association, approximately 84%
of U.S. dentists now offer cosmetic dental procedures as part of
their practices and 50% of those dentists report a steady increase in the amount
of cosmetic procedures they have performed over the last three years.
Despite the substantial changes in the industry over the past decade,
current tooth-whitening products still suffer from the same general problems
that have plagued the industry historically -- they are generally expensive,
inconvenient and not very effective. The most commonly used methods for
whitening stained or discolored teeth have traditionally been at-home products,
such as whitening toothpaste or dentist-prescribed bleaching trays that offer
only marginal shade improvements (1 to 3 shades of improvement for toothpastes
and 2 to 4 shares of improvement for trays) at a moderate cost, but with a
significant investment in time. The most effective whitening solutions have
typically relied on dental professionals using light or laser activated
bleaching systems. These systems have historically been fairly expensive and,
because the procedures are done at dental offices, cause some potential
customers to avoid the procedures because of a fear of dental offices and the
assumption that the in-office bleaching process will be painful, difficult and
generally uncomfortable.
In 1999, one of the principal competitors, BriteSmile, introduced a
relatively cost effective and easy to use in-office bleaching procedure that
offered significant whitening results at a moderate (although still relatively
high-end) cost. Using that system, a customer could obtain an average of eight
shades of whiteness improvement during a 90 minute procedure and at an average
cost of $600. In late 2002, the Company plans to introduce its retail operation
using the LumaArch, which offers comparable results at approximately half the
cost of a BriteSmile procedure and which requires customers to spend only 40
minutes in the dentist chair.
PRODUCTS AND TECHNOLOGY
The Company believes the LumaArch bleaching system is technologically
superior to the tooth-whitening systems employed by the competitors. The
LumaArch system was developed by the Company's co-founder, Dr. Dale Rorabaugh,
and is currently the core of the Company's product and service offerings. The
LumaArch system uses a proprietary Xenon-halogen illumination source that
produces a high lumen energy output in a specified bandwidth within the visible
spectrum. The Xenon-halogen light is filtered through a patented "liquid light"
guide that provides a, uniform wavelength with virtually no heat. . The Company
believes the liquid light guide is more effective in the whitening process than
the more commonly used, but less efficient, fiber optic guides, and the Company
believes that the liquid light guides manufactured by the Company are among the
most advanced guides currently on the market, providing operating efficiencies
in the range of 85%. By comparison, most commonly used fiber optic light guides
provide efficiencies of approximately 45%. The Company believes the only
competitive liquid light product on the market is 20% less efficient than the
LumaArch liquid light guides. The LumaArch liquid light guides produce virtually
no heat, providing a safer and more comfortable experience for the patients.
The Company's liquid light guides have been specifically designed to
interact with the Company's LumaWhite tooth-whitening material, which is the
medium that actually whitens the tooth enamel. The material is a proprietary
formulation that increases the rate of oxidation on the chromagens that cause
tooth staining. The LumaArch system is also unique in that it is specifically
designed for tooth-whitening and can simultaneously whiten both tooth arches at
the same time
The Company has received one patent on its LumaArch system and has filed three
additional patents in the United States. The Company plans to continue filing
patents, with the advice of its counsel. The Company also uses a number of
trademarks for its products and services.
STRATEGIC RELATIONSHIPS AND CONTRACTS
The Company has entered into a number of agreements relating to the
manufacturing and distribution of the services and products both domestically
and internationally.
Domestic Distribution Relationships. The Company distributes its products
domestically through relationships with a number of nationwide dental
distributors, including Henry Schein, Inc., Patterson Dental Supply, Inc.,
Burkhart Dental and Kings Two Dental Supply. The Company sells its products to
those companies through standard purchase order arrangements,. The Company's
relationships with its domestic distributors are non-exclusive and subject to
termination by either party at any time.
International Distributorships. The Company's international distributorship
arrangements are evidenced by a series of written agreements using a
standardized form that the Company has developed. The agreements specify the
territory and the products covered by the distributorship agreements. As of the
date of this report, the Company had entered into agreements for the territories
of Australia, Singapore, Indonesia, Taiwan, the European Union, Korea, Brazil
and Mexico.
The distribution arrangements grant the distributors the exclusive right
to distribute the products specified within the described territory and require
the distributor to maintain adequate facilities and sales personnel to sell the
Company's products. The distribution agreements generally provide for minimum
annual sales quotas by each distributor. If a distributor fails to meet the
sales quota during a particular year and fails to remedy any shortfall within 90
days after notice from the Company, the Company has the right to terminate the
distribution agreement.
The distribution agreements are generally for an initial term of three
years and then provide the distributor with a right to renew the contract for
additional periods. The agreement can be terminated by either party if the
distributor fails to make timely payment for the products it purchases or if a
party declares bankruptcy or institutes insolvency proceedings. In addition,
either party may terminate the agreement for the other party's failure to
perform any non-monetary obligation set forth in the agreement after 90 days
notice specifying the party's failure to perform. The Company may terminate the
agreement if the distributor ceases to make the Company's products available to
customers for more than 30 consecutive days or the distributor states in writing
that plans to cease marketing the Company's products.
Manufacturing and Distribution Relationships. In February 2002, the Company
executed a letter of intent with Veratronics, Inc. and its sole owner Ron
Williams with respect to the manufacturing and distribution of the Vera-Cam and
to employ Mr. Williams as Senior Vice President of Engineering for three years.
Pursuant to the manufacturing and distribution terms, the Company has the
exclusive rights in the United States to manufacture the Vera-Cam and the
-exclusive rights to manufacture and distribute the Vera-Cam internationally. In
the United States, the Company manufactures the
Vera-Cam for sale to a third party distributor who holds the exclusive rights to
such distribution as such rights were granted by Veratronics. The key component
to the Vera-Cam is a charged couple device ("CCD") that provides high-resolution
images and is manufactured by Panasonic. Pursuant to an oral agreement between
Veratronics and Panasonic, Vertaronics has the exclusive worldwide right to use
the CCD in dental applications. The Company purchases all CCDs for the Vera-Cam
from Veratronics.
SALES AND MARKETING
Currently, the Company distributes its LumaArch system using a wholesale
distribution network that sells to professional dental customers through
established relationships. The Company's wholesale distributors are primarily
major dental distributors.
The Company's distributor relationships effectively provide it with access to
the equivalent of 1,500 sales representatives who sell to the over 120,000
domestic dentists. The Company believes that this distribution system provides
it with rapid national market penetration without the heavy up-front costs that
a national sales platform would normally require. The Company compliments its
national distributor relationships with a small commission-only sales force of
approximately 20 independent sales representatives who train and update dental
end users on the LumaArch product and its use. The Company believes that
wholesale distribution provides a number of distinct benefits to it over the
more traditional direct marketing approaches and independent distribution chains
used by its competitors. Typically, traditional marketing and distribution
chains are costly, complex and slow to gain momentum. For example, the Company
believes its principal competitors employ marketing approaches that require them
to spend a significant portion of their revenues (at least in the early stages
of corporate growth) on marketing and advertising. The Company believes,
however, that by using distributor networks and relationships, the Company's
overall marketing and advertising costs will stabilize in the range of between
10% and 12% of revenues.
The Company believes that by the end of 2002 the Company's distribution
network will lead to an installed base of approximately 2,000 LumaArch systems
on a worldwide basis, and that those installed systems will allow the Company to
derive long-term recurring revenues from the sale of its high-margin, single-use
tooth-whitening material as customers and dental practitioners use the LumaArch
systems. The Company also plans to take advantage of these existing sales
channels to cross-market its proposed line of complementary tooth-whitening and
oral care products to its expanding customer base.
COMPETITION.
The Company's tooth-whitening systems will compete with all
tooth-whitening products and services, including those offered through dental
offices, retail stores and take-home products. The Company's competition in the
in-office arena include BriteSmile, Inc., which offers its products through a
number of storefront centers, as well as through associated dentists offices Air
Technologies, which uses Patterson Dental as a distribution channel, and Discus
Dental, Inc., which markets its product through a direct sales force.
Companies that offer dentist-prescribed home bleaching products include
Opalescence, which
is offered by Ultra Dent, Inc., Night White, which is offered by Discus Dental,
Inc., Platinum, which is offered by Colgate, Crest Strips (Procter & Gamble) and
NuProGold, which is offered by Dentsply International, Inc., and Rembrandt,
which is offered by DenMat, Inc.
The company believes the Company's products and services compete
favorably with the products and services offered by in-office and storefront
products and service providers, since the LumaArch system provides comparable or
superior tooth-whitening services (on average, eight shades of whitening
difference) for a price point that is significantly lower than the cost of its
competitors' products and services. For example, laser-based bleaching systems
typically retail for between $10,000 and $50,000, and cost patients between $750
and $2,000, while less effective power bleaching systems cost dentist between
$1,000 and $5,000, with a cost to the patient of $500 to $1,250. The Company's
primary competitor in the marketplace, which offers a comparable whitening
system that produces results similar to those produced by LumaArch, with a
minimum chair time, is available to dental practitioners reportedly through 10
year exclusive contracts and at a cost per procedure to the dental practitioners
of $250, resulting in a customer cost of approximately $500 to $600. With
respect to in-home professional or over-the-counter products, The Company
believes the competitive advantages of its products and services include
significantly reduced processing time, and better results.
RESULTS OF OPERATIONS
The Company has experienced material and significant changes in its structure
and operations during the six months ended June 30, 2002 (see "History of the
Company"). As a result of these changes, the comparative financial statements as
reported herein contain the accounts of the Company for the six months and three
months ended June 30, 2002 as if the Merger were completed as of the beginning
of the six months ended June 30, 2002 and therefore, consolidated into the
Company for such period. In addition, for the six months and three months ended
June 30, 2001, the financial statements for the Company are presented based on
the LLI figures so that a relevant comparison can be made between the operations
of the company during these periods.
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THE SIX MONTHS ENDED JUNE
30, 2001
As a result of the Merger, the Company includes the results of operations of LLI
for the six months ended June 30, 2001 for comparison to the results of
operations of the Company for the six months ended June 30, 2002. For the six
months ended June 30, 2002, the Company reported a net income of $49,999, as
compared to net income of $148,017 for the six months ended June 30, 2001. This
decrease in net income is primarily due to the increased marketing and insurance
costs related to manufacturing and product launch this year. In the six months
ended June 30, 2001 a one time non- recurring reduction in expenses as a result
of a favorable settlement of a dispute, increased profits for that year.
For the Six Months
Ended June 30,
---------------------
2002 2001
Revenues 100% 100%
Cost of revenues 40% 53%
60% 47%
Selling, general and administrative
expenses 52% 26%
Other income (expense) 0% 0%
Income before tax 8% 21%
Income taxes 3% 9%
Net income 4% 12%
==========
REVENUES
Revenues of the Company were $1,161,052 for the six months ended June
30, 2002 as compared to $1,246,770 for the six months ended June 30, 2001, a
decrease of 7%. This decrease is primarily a result of the market response in
the United States to a competitive tooth-whitening system introduced in the
three months ended March 31, 2002. The competitive product was more favorably
priced and attracted some buyers in the U.S. market that otherwise would have
purchased the Company's product. The Company is developing a lower priced
alternative for the U.S. market that is expected to be launched in the fourth
quarter.
COST OF SALES
Cost of sales decreased from $665,302 for the six months ended June 30,
2001 to $466,654 for the six months ended June 30, 2001, a decrease of 30%. As a
percentage of sales, cost of sales for the six months ended June 30, 2002 were
40% as compared to cost of sales as a percentage of sales of 53% for the six
months ended June 30, 2001. This favorable decrease in the cost of sales as a
percentage of sales is due primarily to the improved manufacturing and assembly
processes of the Company for the six months ended June 30, 2002 of the six
months ended June 30, 2001.
GROSS PROFIT
As a result of the improvement in cost of sales, gross profit for the
six months ended June 30, 2002 increased $112,930, or 19%, over the gross profit
for the six months ended June 30, 2001. The gross profit for the six months
ended June 30, 2002 was $694,398, or 60% of sales, as compared to $581,468, or
47% of sales. This increase of 19% in gross profit was realized in spite of the
decrease in sales of 7% primarily as a result of the 30% decrease in cost of
sales due to the improved efficiency of the manufacturing and assembly process
of the Company's primary product.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $280,269 from
$328,121 for the six months ended June 30, 2001to $608,390 for the six months
ended June 30, 2002. This increase was primarily due to the realization of a
one-time reduction of costs in the six months ended June 30, 2001 and an
increase in the marketing expenses in the six months ended June 30, 2002
associated with the product launch and expansion of product distribution. In the
six months ended June 30, 2001, the one-time reduction in expenses was
approximately $111,000 and associated with the favorable settlement of a
dispute. In the six months ended June 30, 2002, the increase in marketing
expenses were primarily due to an increase of approximately $121,000 in
advertising and commissions along with an increase in insurance costs as a
result of the company becoming a public company.
NET INCOME
Net income decreased $98,018 from $148,017 for the six months ended June
30, 2001 to $49,999 for the six months ended June 30, 2002. This decrease is
primarily due to the increase in selling, general and administrative expenses
incurred in the six months ended June 30, 2002 but not incurred in the six
months ended June 30, 2001, which includes approximately $183,000 in additional
advertising, commissions and insurance costs associated with the product launch
and manufacturing. In addition, the Company benefited from a one-time reduction
in expenses in the six months ended June 30, 2001 of approximately $111,000
resulting from the favorable settlement of a dispute.
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 2001
For the three months ended June 30, 2002, the Company reported a net
income of $114,977, an increase in net income of $25,719, as compared to net
income of $89,258 for the three months ended June 30, 2001. This increase in
profitability is primarily due to the increase in gross margin in excess of the
increase in costs associated with the product launch and increased manufacturing
expenses.
or the Three Months
F Ended June 30,
2002 2001
Revenues 100% 100%
Cost of revenues 31% 49%
69% 51%
Selling, general and administrative
expenses 49% 32%
20% 19%
Other income (expense) 0% 0%
Income before tax 20% 19%
Income taxes 5% 7%
Net income 15% 12%
REVENUES
Revenues of the Company were $744,223 for the three months ended June
30, 2002 as compared to $696,516 for the three months ended June 30, 2001, an
increase of 7%. This increase is primarily a result of the increase in sales of
the Company's products in the international markets.
COST OF SALES
Cost of sales decreased from $338,314 for the three months ended June
30, 2001 to $230,828 for the three months ended June 30, 2001, a decrease of
32%. As a percentage of sales, cost of sales for the three months ended June 30,
2002 were 31% as compared to cost of sales as a percentage of sales of 49% for
the three months ended June 30, 2001. This favorable decrease in the cost of
sales as a percentage of sales is due primarily to the improved manufacturing
and assembly processes of the Company for the three months ended June 30, 2002
of the three months ended June 30, 2001.
GROSS PROFIT
As a result of the increase in sales and improvements in cost of sales,
gross profit for the three months ended June 30, 2002 increased $155,193, or
43%, over the gross profit for the three months ended June 30, 2001. The gross
profit for the three months ended June 30, 2002 was $513,395, or 69% of sales,
as compared to $358,202, or 51% of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $142,083 from
$220,137 for the three months ended June 30, 2001 to $362,220 for the three
months ended June 30, 2002. This increase was primarily due to the realization
of a one-time reduction in costs in the three months ended June 30, 2001
associated with the approximately $111,000 favorable settlement of a dispute.
INCOME FROM CONTINUING OPERATIONS
Net income increased $25,719 from $89,258 for the three months ended
June 30, 2001 to $114,977 for the three months ended June 30, 2002. This
increase is primarily due to (a) the increase in sales of $47,707 and the
improvement in cost of sales of $107,486 resulting in an increase in gross
profit of $155,193 as realized in the three months ended June 30, 2002, over (b)
the increase in selling, general and administrative expenses of $142,083 as
realized in the three months ended June 30, 2002, net of the income tax affect.
CAPITAL RESOURCES AND LIQUIDITY
Cash increased $7,302 for the six months ended June 30, 2002 to $59,794
at June 30, 2002, as compared with $52,492 at December 31, 2001.
At June 30, 2002, the Company had a deficiency between the current
assets and current liabilities of $100,619 as compared to the excess of current
assets over current liabilities of $115,253 at December 31, 2001. This change of
$215,872 was primarily as a result of (a) the Company incurring a short term
note payable to related parties of $100,000 in the six months ended June 30,
2002and (b) the decrease in accounts receivable of $121,164 at June 30, 2002 as
compared to December 31, 2001. Of the current components, with respect to the
balance sheet of June 30, 2002 as compared to December 31, 2001, there was an
increase in inventory of $17,781, an increase in prepaid expenses and other
current assets of $27,257 and an increase in accounts payable of $47,048.
Net cash used in investing activities for the six months ended June 30,
2002 was $356,799 consisting primarily of the cash acquisition of intangible
assets of $179,933 and the cash acquisition of equipment of $176,866.
Net cash provided by financing activities was $173,260 for the six
months ended June 30, 2002, consisting primarily of $100,000 from the proceeds
of the loan from related parties and the net differential of $73,260 resulting
from the reverse merger.
On June 11, 2002 , the Company borrowed $100,000 from three officers of
the Company. The note is unsecured and bears an annual interest rate of 15%.
On June 28, 2002, the Company established a $100,000 line of credit with
the California Bank & Trust , secured by the assets of the Company. The note
bears interest at an annual rate of 6.75%.
As of the date of this report, the Company has not received payment
pursuant to a stock purchase agreement dated January 2, 2002 and the buyers are
in monetary default. This stock purchase agreement was executed prior to the
Merger pursuant to which LLI sold an aggregate of 502,758 shares of common stock
of LLI to five investors for an aggregate purchase price of $1.5 million. The
shares of LLI were issued and in accordance with the stock purchase agreement,
the buyers were to pay six equal monthly installment beginning on May 1, 2002.
The buyers are now in monetary default under the terms of the stock purchase
agreements and the Company, after review of the matter and analysis of, among
other matters, the cost of litigation, has negotiated with the buyers to rescind
the stock purchase and sale transaction. Although as of the date of this report,
the rescission has not been completed, it is the Company's intent to complete
such a rescission. Accordingly, the Company has not recorded the receivable from
the buyers of $1.5 million and the corresponding increase to additional paid in
capital. However, since the shares of common stock of the Company are issued and
outstanding and the Company has not received nor does the Company expect to
receive any consideration for such issuance, the Company has recorded the
issuance of 502,758 shares of common stock on the Company and has reduced
additional paid in capital in the aggregate amount of $178, representing the
aggregate of the par value of such shares that has not or wil not be collected.
If the rescission
is completed, the Company will reduce the number of outstanding shares of common
stock by 502,758 as if such shares of common stock were never issued and
correspondingly increase the additional paid in capital by $178.
The Company will need additional working capital to finance the
short-term liquidity needs of the Company's operations. However, there can be no
assurances that the Company will be able to secure adequate working capital
financing or any other financing suitable for the purposes of the Company at
prices that the Company will deem to be acceptable to the Company. While the
Company has plans to increase the scope of its operations that will require
investment in fixed assets and additional working capital, there are no
assurances that the Company will be successful in obtaining such additional
capital on terms that are acceptable to the Company. If the Company is unable to
successfully obtain additional capital, it may be forced to significantly and
materially alter its operations and/or change or modify its plans for growth and
expansion.
CAPITAL EXPENDITURES
The Company purchased additional equipment of $176,866 in the six months
ended June 30, 2002, primarily to initiate manufacturing and assembly operations
for the Vera-Cam. In addition, the Company purchased $179,933 in intangible
assets during the six months ended June 30, 2002, consisting primarily of
research and development investment in new products.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None/Not Applicable.
ITEM 2. CHANGES IN SECURITIES
In January 2002, prior to the Merger, we completed a private placement of
12,500,000 shares of common stock for an aggregate purchase price of $500,000 to
three accredited investors. Following the "reverse split" (described below) and
after taking into effect the terms of the Merger, the private placement resulted
in the issuance of 500,000 shares of common stock and is reflected on the
accompanying balance sheet in such amount. The issuance was an isolated
transaction made without general solicitation pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
On April 11, 2002, we effected a reduction in our outstanding capitalization by
effecting a "reverse split" pursuant to which we issued one share of our common
stock in exchange for every twenty-five (25) outstanding shares of our common
stock. As a result of the reverse split, the pre-merger number of issued and
outstanding shares of our common stock was reduced from 21,949,707 shares to
approximately 877,988 shares. The rights and preferences of our common stock
were not modified or amended in connection with the reverse split.
On April 16, 2002, we completed the Merger pursuant to which the Company issued
17,800,000 "restricted" shares of common stock of the Company to the former
shareholders of LLI for all of the issued and outstanding shares of common stock
of LLI. The issuance was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None/Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None/Not Applicable.
ITEM 5. OTHER INFORMATION
None/Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
(B) Reports on Form 8-K. Four reports on Form 8-K were filed during the period
covered by this Form 10-QSB.
On May 20, 2002, the Company filed a Current Report on Form 8-K dated
May 13, 2002 relating to changes in the registrant's certifying accountant.
On May 20, 2002, the Company filed Amendment Number 1 to the Current Report
on Form 8-K dated March 5, 2002 relating to changes in the registrant's
certifying accountant.
On May 17, 2002, the Company filed a Current Report on Form 8-K dated
April 16, 2002 relating to the change in control of the registrant.
On April 1, 2002, the Company filed a Current Report on Form 8-K dated
March 5, 2002 relating to changes in the registrant's certifying accountant.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 19th day of August, 2002.
LumaLite Holdings, Inc.
/s/ Dale A. Rorabaugh
--------------------------------------------
Dale A. Rorabaugh
Chief Executive Officer
/s/ Hank Schumer
--------------------------------------------
Hank Schumer
Chief Financial Officer