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As filed with the Securities and Exchange Commission on December ___, 1999.
File No. 0-27087
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
General Form for Registration of Securities
of Small Business Issuers under Section 12(b) or (g)
of the Securities Exchange Act of 1934
LITEGLOW INDUSTRIES, INC.
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(Name of Small Business Issuer in its Charter)
UTAH 65-05164035
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(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
2301 N.W. 33RD COURT, UNIT 104, POMPANO BEACH, FLORIDA 33069
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(Address of Principal Executive Offices) (Zip Code)
(954) 971-4569
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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LITEGLOW INDUSTRIES, INC.
FORM 10-SB - GENERAL FORM FOR REGISTRATION OF SECURITIES
TABLE OF CONTENTS
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Part I
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Item 1. Description of Business.........................................................................4
Item 2. Management's Discussion and Analysis
or Plan of Operation...........................................................................15
Item 3. Description of Property........................................................................20
Item 4. Security Ownership of Certain Beneficial
Owners and Management..........................................................................21
Item 5. Directors, Executive Officers, Promoters
and Control Persons............................................................................22
Item 6. Executive Compensation.........................................................................24
Item 7. Certain Relationships and Related Transactions.................................................26
Item 8. Description of Securities......................................................................27
Part II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters....................................................29
Item 2. Legal Proceedings..............................................................................31
Item 3. Changes in and Disagreements with Accountants..................................................31
Item 4. Recent Sales of Unregistered Securities........................................................32
Item 5. Indemnification of Directors and Officers......................................................34
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Part F/S
Financial Statements.............................................................................................35
Part III
Item 1. Index to Exhibits........................................................................................36
Signatures.......................................................................................................37
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This Registration Statement contains certain forward looking
statements. These forward looking statements include statements regarding (i)
the Registrant's research and development plans, marketing plans, capital and
operations expenditures, and results of operations; (ii) potential financing
arrangements; (iii) potential utility and acceptance of the Registrant's
existing and proposed products; and (iv) the need for, and availability of,
additional financing.
The forward looking statements included herein are based on current
expectations and involve a number of risks and uncertainties. These forward
looking statements are based on assumptions regarding the Registrant's business
which involve judgments with respect to, among other things, future economic and
competitive conditions and future business decisions, all of which are difficult
or impossible to predict accurately and many of which are beyond the control of
the Registrant. Although the Registrant believes that the assumptions underlying
the forward looking statements are reasonable, any of the assumptions could
prove inaccurate and, therefore, actual results may differ materially from those
set forth in the forward looking statements. In light of the significant
uncertainties inherent in the forward looking information contained herein, the
inclusion of such information should not be regarded as any representation by
the Registrant or any other person that the objectives or plans of the
Registrant will be achieved.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Liteglow Industries, Inc. (the "Company") is engaged in the design,
manufacture and sale to wholesalers and retailers, of automotive aftermarket
accessories and specialty products. The Company was incorporated in Utah on
April 25, 1984, under the name Graphic Connections, Inc. In September 1984, the
Company completed an offering of $30,000 of its common stock on a "blind-pool,
blank-check" basis, so that the Company had no specific use of proceeds at the
time that the offering was completed. In the fall of 1984 the Company changed
its name to Monte de Oro of Utah, Inc., and entered into the mining business,
which was not successful. In 1985 the Company changed its name to Confetti,
Inc., pursuant to a merger with a Utah corporation of that name and assumed the
operation of an Italian style restaurant. The restaurant failed in October 1985,
at which time the Company ceased doing business.
The Company remained inactive from October 1985 until its merger with
Liteglow Industries, Inc., a Florida corporation ("Liteglow Florida"), on August
8, 1996. The merger was effected by the Company to provide the Company with an
operating business. Liteglow Florida entered into the merger to provide access
to investment capital which
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Liteglow Florida believed would be available to it upon its merger into the
public Company. Pursuant to the merger agreement between the Company and
Liteglow Florida, the shareholders of Liteglow Florida were issued one share of
the Company's common stock for each of their shares of Liteglow Florida common
stock, so that upon the completion of the merger the shareholders of Liteglow
Florida held 7,335,000 shares, or 77.69%, and the existing outstanding
shareholders of the Company held 2,105,943 shares, or 22.31%, of the Company's
outstanding common stock. Upon completion of the merger the shareholders of
Liteglow Florida assumed control of the Company. Concurrently with the merger,
the Company assumed the ongoing business of Liteglow Florida, which business is
described in the succeeding paragraphs under this caption "Description of
Business," and the Company changed its name to Liteglow Industries, Inc.
THE COMPANY
The Company's existing business was established by its founder, Spencer
Krumholz, upon the incorporation of Liteglow Florida on August 8, 1994. With his
wife, Arlene Krumholz, Mr. Krumholz, organized that corporation to design,
manufacture and market, under the Liteglow(R) trademark and other trademarks and
trade names, a diverse line of automotive aftermarket accessories and specialty
products. Liteglow Florida's business initially focused on developing a line of
automotive accessories designed to enhance vehicle appearance, including neon
license plate frames and neon under-car lighting lights, all of which operate on
the 12-volt electrical system common in automobiles. Since the 1996 merger
between Liteglow Florida and the Company, the Company has expanded its product
offerings to include automotive products such as driving and fog lights, which
both improve vehicle operation, as well as decorative accessories such as
lighted dice.
The Company's neon under-car light products and its neon light rod
products, both of which are described under the caption "Products," below, are
each anticipated to account for approximately fifteen percent (15%) of the
Company's product sales revenues in 1999. No other product line is anticipated
to account for more than five percent (5%) of the Company's 1999 revenues. As
the Company continuously develops new products and consumer tastes change, its
revenues from a particular product line can be expected to change.
The Company is seeking to position itself in the niche market catering
to the automotive and electronics enthusiasts. This market is characterized by
owners who are generally more affluent than the typical automobile owner and
view their automobiles as a personal statement or means of recreation rather
than just basic transportation. By maintaining and enhancing close relationships
with its suppliers, customers and ultimate consumers, the Company believes that
it is well positioned to anticipate and identify the changing interests of
consumers. The Company's business objectives are to establish itself
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rapidly as the largest specialty distributor of automotive aftermarket
accessories using the common automotive 12-volt electrical system and to expand
its position in the automotive aftermarket and electronics industries by
introducing new products, acquiring compatible businesses, and expanding its
presence in all channels of distribution. The Company's customers are limited to
wholesale and retail businesses, and the Company does not sell to consumers. The
Company currently offers over 200 products to approximately 2,000 customers. The
Company intends to continue its efforts to expand and diversify its product
lines in order to respond more effectively to consumer needs and to broaden its
customer base, in each case while maintaining high growth margins on overall
product sales.
On October 10, 1997, Liteglow Acquisition Corp., a subsidiary of the
Company, merged with KJK Marketing, Inc. ("Low Glow"), a Florida corporation,
with Liteglow Acquisition Corp. being the surviving corporation. Pursuant to the
merger agreement between Liteglow Acquisition Corp. and Low Glow, the
shareholders of Low Glow received 450,000 shares of the Company's common stock
and cash of $100,000 payable $50,000 at closing and $50,000 thirty (30) days
after closing. Subsequent to closing, the Company paid the promissory note in
full. The Company was required to provide additional shares to the shareholders
of Low Glow in the event that the fair market value of their shares was less
than $150,00 on October 10, 1999. In October 1999 the Company issued 92,200
shares of its common stock to the former shareholders of Low Glow pursuant to
that provision of the merger agreement. The number of shares issued to Low Glow
shareholders in October 1997, and the number of shares issued to the owner of
B&B Associates as described in the second succeeding paragraph, have been
calculated on the basis of the Company's capitalization as it existed prior to
the Company's one-for-sixty share reverse stock split which occurred on December
31, 1998. See "Description of Securities--Common Stock.
On October 10, 1998, the Company, through its wholly-owned subsidiary,
Liteglow Industries of California, Inc. ("Liteglow California"), acquired
certain assets of Ronald Basoff, an individual doing business as B&B Associates
in Van Nuys, California. Mr. Basoff's business consisted of the manufacture, but
not the installation, of car alarms for sale on a wholesale and retail basis,
which the Company's management believed to be a good business opportunity for
the Company. The B&B Associates assets consisted primarily of car alarm parts
and accessories. In consideration of the assets acquired, Liteglow California
paid Mr. Basoff $50,000 in cash at closing, delivered to him its $100,000
promissory note, and also delivered to him 1,000,000 restricted shares of the
Company's common stock. The asset purchase agreement also required that the
Company provide Mr. Basoff with additional shares of common stock in the event
that the shares of common stock delivered to him at closing did not have a
market value of at least $100,000 on the second anniversary of the closing.
Subsequent to the closing of the B&B Associates acquisition, the
parties had a series of disagreements. These disagreements included disputes
over accounts payable and receivable, inventory control, and reports which
Company management anticipated that B&B Associates would provide on a daily and
other periodic basis. In February 1999 the Company paid $15,000 of the principal
amount of the $100,000 promissory note, but did not make any additional payment
after it determined that Mr. Basoff was not operating the business of Liteglow
California in accordance with his agreement with the Company and standard
business practices. Liteglow California terminated its B&B Associates business
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in March 1999, and has recorded an estimated loss of $382,899 from its
investment in B&B Associates. The Company believes that this loss had a material
adverse impact on the Company in 1999, but that the loss will not have a
continuing adverse impact on the Company's business or operations in the future.
The Company does not intend to engage in the future in the car alarm business.
See Part 2, Item 2, "Legal Proceedings," for a description of the outstanding
litigation among the Company, Liteglow California, and Mr. Basoff.
MARKET OVERVIEW
The retail automotive aftermarket products market is large and diverse.
According to the United States Department of Commerce, Bureau of Economic
Analysis, sales of automotive parts and accessories through automotive
aftermarket retailers in the United States have increased to $15 billion in
1997, up 5.5% from the previous year. From 1988 to 1997, industry sales grew at
an average of 5.4% annually. According to a 1998 market study published by the
Specialty Equipment Market Association ("SEMA"), a national automotive equipment
trade association, sales by manufacturers of specialty automotive equipment
parts in the United States exceeded $6.85 billion in 1997, and the specialty
automotive equipment parts market grew at an annual rate of nearly 8% from 1987
through 1997. The 1998 SEMA survey also found that in 1997 manufacturer sales of
street performance specialty equipment products were $531 million, an increase
of 5% from 1996 sales.
The Company's business strategy is to direct its sales and marketing
efforts to outlets that cater to the niche market of automotive and electronic
enthusiasts purchasing automotive aftermarket accessories and specialty
products. The Company believes that its products are unusual and, consequently,
not sensitive to the normal discounting pressures faced by products that are
more of a commodity-like nature and sold in more conventional outlets. In the
year ended December 31, 1998, approximately 75% of the Company's sales were made
to wholesalers and independent retailers of electronic and automotive products.
The balance of the Company's sales during that period were made to mass
merchandisers and chain stores.
The Company employs several principal marketing programs to reach its
targeted outlets. These programs, which are explained below under the caption
"Distribution, Sales and Marketing," include the use of independent sales
representatives nationally, a significant presence at the three principal
industry trade shows held annually, the use of its internal telemarketing
department, and advertising in magazines and trade publications.
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BUSINESS STRATEGY
The business objective of the Company is to establish itself rapidly as
the largest specialty distributor of 12-volt electronic auto accessories and to
expand its position in the automotive aftermarket products market by introducing
new products and expanding its presence in all channels of distribution. The
Company plans to achieve its business objective by continuing to actively
research and identify new and innovative products that it believes will provide
attractive profit margins, promoting brand name recognition and maintaining a
strong commitment to customer service. The Company's strategy to achieve this
objective includes the following key elements:
INNOVATIVE PRODUCTS. The Company intends to focus its efforts on
developing lines of accessory and specialty, rather than replacement,
aftermarket products and to differentiate its product offerings by manufacturing
or acquiring products incorporating the latest technology, innovative designs
and advanced components. For example, the Company's Neon Under-Car Lighting Kits
incorporate innovative electronic components and high impact glass of a standard
that is higher than the industry norm.
QUALITY CONTROL; BRAND NAME RECOGNITION. The Company is committed to
providing high quality products. The Company closely monitors the manufacturing
process of its suppliers and tests its products in order to assure quality and
reliability, which the Company believes are critical elements for success in the
automotive aftermarket products market. Historically, the Company's rate of
return for defective products averages only approximately two to two and
one-half percent of sales. However, in 1998 the Company lost approximately
$300,000 to $400,000 in sales from defective neon under-car lighting kits as a
consequence of what the Company believes to be a one-time problem with a Chinese
supplier. The Company has changed its supplier for this product and has engaged
persons in China to perform quality control inspections at manufacturing sites.
The Company believes that by consistently offering high-quality products it will
continue to build brand name recognition and loyalty. Brand name recognition is
important because, among other things, brand name products often command premium
prices but can be produced at relatively low cost, resulting in higher margins.
COMMITMENT TO MULTIPLE PRODUCT CATEGORIES. The Company is committed to
consistently offering products in multiple categories in order to enhance
loyalty among its customers and brand name recognition. In addition, the Company
believes that by diversifying its product offerings it will be better able to
respond more effectively to changes in consumer needs. The Company intends to
increase its product offerings by entering into distribution agreements with
manufacturers of products that meet the Company's criteria. In addition, the
Company intends to identify and acquire single
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proprietary products and other manufacturers with promising product lines that
lack sufficient resources or know-how to effectively market their products.
SERVICE COMMITMENT. The Company emphasizes a high level of service in
all aspects of its business, including identifying consumer demand for new
products, providing fast and efficient product delivery, maintaining responsive
warranty service, and maintaining product and market knowledge.
MARKETING. The Company's marketing efforts are conducted by Mr.
Krumholz and, by Lou Wiener and Michael Krumholz, who are both vice presidents
of the Company, and through independent sales representative agencies. The
Company has recently developed an in-house telemarketing department.
PRODUCTS
The Company currently markets a broad line of 12-volt,
appearance-enhancing automotive accessories and related replacement parts to
electronic dealers and specialty auto stores, including the following products:
NEON UNDER-CAR LIGHTING KITS: These kits contain two or four 25mm neon
hi-impact neon light tubes. The two-tube kit contains two three-foot tubes and
the four-tube kit contains two three-foot and two four-foot tubes. The lights
are available in six brilliant colors and can be attached to spring loaded
mounting brackets installed on the sides, front and back of a vehicle. The top
surface of the tubes has chrome reflective foil for maximum lighting effect. The
tubes are factory pre-wired for extra safety and simplified installation.
NEON LITE RODS: The neon light rods are suitable for exterior and
interior use on all vehicles, as well as boats. The light rods can be purchased
in three sizes: the WARP-8 (eight-inch tubes), the WARP-15 (fifteen-inch tubes),
and the WARP-24 (twenty-four inch tubes). Each light rod kit contains wire, one
switch, one in-line fuse and built in electronic transformer plus hardware. All
WARP neon light rods are available in six bright neon colors.
NEON SHIFT KNOBS: The Mood Glow neon shift knobs feature a 3-way
switch, which turns the lighted knob on or off or causes it to flash. The shift
knobs fit most standard shift vehicles, are easily installed and are available
in six bright neon colors.
NEON LICENSE PLATE FRAMES: The neon license plate frames are made from
high impact optical acrylic and have a 12-volt built-in transformer. The kits
contain mounting hardware, instructions and a reversible frame for light
diffusion. The neon license plate
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frames are available in eight bright neon colors.
STROBE LIGHTS: The Company's strobe lights can be used on all vehicles,
including boats, snowmobiles and all-terrain vehicles. The strobe lights produce
an intense flash twice per second making them an excellent emergency, safety
light and back-up warning light. They also enhance alarm systems and can give
dramatic under-car lighting effects. The strobe lights are available in five
bright colors.
MINI-BEAM FOG LIGHT KITS: These kits consist of two fog lights that
feature a hi-tech, unique ion-coated lens, an 50-watt halogen bulb, a compact
aluminum housing, and plug-in connectors with relay, and are SAE, DOT and E-Mark
approved. The glare free convex lens system creates a flat beam for excellent
road illumination in inclement weather. Their lights are offered in a blue or
yellow tint.
MINI-BEAM DRIVING LIGHT KITS: These kits consist of two driving lights
that feature a hi-tech ion-coated lens, an 85-watt halogen bulb, a compact,
composite housing, and plug-in connectors with relay, and are SAE, DOT and
E-Mark approved. The ion-coated lens increases the effectiveness of the light
source. The lights are easily installed and fit most cars, trucks and off-road
vehicles. The lights are offered in a blue or yellow tint.
NEON SPEAKER RING KITS: The Company manufactures 10-inch and 12-inch
neon speaker ring kits. Each kit contains two speaker rings with built-in light
dancer and a supersensitive switch unit which allows neon to dance to music. The
speaker rings come in four colors.
LIGHT DANCER MUSIC INTERFACE: This product allows any 12-volt neon
accessory to dance to music. This kit can be installed with any under car kit,
neon tube, speaker ring assembly, antenna rod, neon shift knob, or other neon
accessory.
BLACK LIGHT: The Company manufactures a 12-volt DC black light which
enhances the intensity of colors by making them appear to glow in the dark. The
kit consists of an 18-inch black light, switch, online fuse, and accessory wire
and hardware.
STANDARD UNDERBODY KIT: The Company's Low Glow subsidiary manufactures
a standard underbody kit in thirteen vibrant colors. Each kit contains two
48-inch tubes, two 32-inch tubes, mounting hardware, heavy duty on/off switch
and an efficient power supply, and is all American made.
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RADICOLOR UNDERBODY KIT: Low Glow's radicolor underbody kit is 100%
American made and combines two or more colors in the same neon tube. The kit
consists of two 48-inch tubes, two 42-inch tubes, mounting hardware, heavy duty
on/off switch, and an American made power supply (transformer). It is presently
the only multi-color neon underbody kit on the market.
The Company has recently begun shipping several new accessory items,
such as hang-up lighted dice, lighted soccer ball, lighted eight-ball, and a
brand new lighted skeleton (battery powered). These accessories will be carried
by auto accessory chains, mass merchandisers, retailers and mail order
marketers.
Management believes it understands the needs and preferences of
consumers based on a combination of its own extensive experience and the
continual input it receives from wholesales, retailers, auto enthusiasts and
others regarding new products or improvements to existing products. The Company
remains in close contact with its wholesalers, retailers and consumers through
participation in industry trade shows and other events in order to anticipate
new trends and introduce innovative accessories in advance of its competitors.
As a result, the Company believes it is well positioned to introduce new
products that are responsive to the needs of its customers and ultimate
consumers.
DISTRIBUTION, SALES AND MARKETING
Management is responsible for approximately 65% of the Company's sales
revenues. In addition to the marketing and sales efforts of management, the
Company currently markets and sells its products directly through independent
sales representatives, who account for about 35% of sales revenues. As of
December 31, 1998, the Company employed fifteen sales representative agencies
having in the aggregate approximately eighty-five individual sales
representatives. The sales representatives generally sell to customers on a
non-exclusive territorial basis. They are paid monthly commissions averaging
approximately 5% of all orders shipped to their accounts and are free to market
products other than the Company's. All orders for the Company's products are
processed and filled at the Company's executive offices and warehouse located at
2301 N.W. 33rd Court, Pompano Beach, Florida, and, as to Low Glow products, at
Low Glow's office located at 2649 Mercy Drive, Orlando, Florida 32808. Although
management believes that the use of independent sales representatives is an
effective method to market its products, the Company intends to develop its own
sales force and uses an in-house telemarketing staff to augment the marketing
efforts of the independent sales representatives.
All aspects of the Company's product development and advertising
program are done in house. The Company's products are sold in distinctive,
full-color, bilingual clamshell packaging designed to build brand name
recognition and to easily identify the product
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as being supplied by the Company, regardless of the manufacturing source.
The Company engages in direct consumer advertising and sells its
products through major retailers such as Pep Boys, Trak Auto, J. C. Whitney
Company, Circuit City, and Joe Amato's Keystone Warehouse. Presently, no
retailer other than Circuit City accounts for more than 3% of annual sales. In
1998, the Company's sales to Circuit City accounted for nearly eight percent
(8%) of its annual sales. The Company's export customers in Europe, Canada,
South America and the Pacific Rim. The Company intends to seek sales agreements
with other major retailers in order to increase its product distribution and
sales.
The Company regularly exhibits at major trade shows, including the
Consumer Electronics, SEMA, and Automotive Parts and Accessories shows held
annually in Las Vegas.
MANUFACTURING AND SOURCES OF SUPPLY
The Company currently purchases its products from several manufacturers
based in the Far East, principally China. The Company's Low Glow products are
manufactured in the United States. The Company continues to maintain direct
working relationships with its manufacturers and regularly monitors their
performance. All products are randomly tested by the Company to assure quality
and reliability. The Company works closely with its manufacturers to assure
timely delivery of high-quality, low-cost products that meet the Company's
specifications. By using outside manufacturers for its products, the Company is
able to minimize capital expenditures while maintaining flexibility in response
to changing production costs and market demands.
The Company's products are manufactured according to management's
projections of product sales based on recent sales results, current economic
conditions and prior experience with manufacturing sources. In order to be able
to quickly fill orders from customers, the Company must maintain significant
inventories. The average lead time from the commitment to purchase products
through production and shipment ranges from approximately 30 to 45 days. The
Company acquires its products on a purchase order basis. As is common in the
industry, the Company experiences short-term inventory shortages with respect to
a limited number of products. However, management believes that inadequate
working capital and financing lines of credit, rather than manufacturing
difficulties, have been the primary cause for any inventory shortages. The
Company has generally experienced no material difficulties in obtaining adequate
quantities of most products from its manufacturers.
Although the Company has an excellent relationship with its
manufacturers, consistent with the general practice in the industry the Company
has no long-term contracts with these manufacturers. The Company's suppliers
require payment of the purchase price
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by wire transfer upon shipment. None of the Company's suppliers requires letter
of credit financing. The Company believes that it could arrange for alterative
suppliers within a reasonable time period on terms that would not be materially
different from those currently available to the Company.
The Company currently has a $400,000 line of credit from Colonial First
Bank, Boca Raton, Florida. The line of credit bears interest at the rate of 2%
over the prime rate of interest, is secured by a personal guarantee from Mr.
Krumholz and expires on September 30, 2000. The Company uses the proceeds of
this line of credit to finance purchases of products from its suppliers. The
Company expects that upon the expiration of its line of credit the line of
credit will be renewed.
As a substantial portion of the Company's products are manufactured in
the Far East, the availability and cost of products manufactured could be
adversely affected if political or economic conditions in this region were to
deteriorate. The cost of the Company's products could also be affected by the
tariff structure imposed on imports or other trade policies of the United States
or other governments, which could adversely affect the Company. The prices for
products purchased by the Company are stated in United States dollars at the
time orders are placed. As a result, the Company does not bear the risk of
fluctuations in currency rates between the time its products are ordered and the
time they are shipped.
COMPETITION
The automotive aftermarket industry is highly fragmented and
competitive. Key competitive factors in the automotive aftermarket include the
ability to promptly fill orders from inventory, the range of unique products
offered, and the speed and cost of product delivery. The Company intends to
compete on these bases, as well as on the bases of product quality and brand
name recognition. The Company competes with companies involved in the
manufacture, assembly and distribution of aftermarket automotive products, some
of which companies are substantially larger and have significantly greater
resources than those of the Company. The cost of entry into the niche occupied
by the Company today is rather substantial, including start-up costs, and
tooling. In addition, many of the products that the Company offers are purchased
on an exclusive basis from outside vendors. However, these exclusive vendor
agreements are oral rather than written and the Company does not believe that
they are enforceable.
The Company does not believe that there is available information
published by its competitors or industry sources concerning the market share or
size of its competitors in the 12-volt electronic auto accessories market.
Accordingly, the Company is unable to determine accurately its market share or
its position among its competitors. However, based upon its experience in the
auto accessories marketplace and discussions with retail
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outlets, the Company believes that its sales, range of products, and number of
wholesale and of retail outlets make it one of the principal competitors in its
market. The Company's principal competitors are American Auto Accessories in New
York; Street Glow, Inc., in New Jersey; and Toucan Industries, Inc., in Florida.
TRADEMARKS
In the course of its business, the Company employs, and intends to
increase the usage of, various trademarks, trade names and service marks,
including its logo, in the packaging and advertising of its products. The
Company believes that the use of service marks, trademarks and trade names are
of considerable value and importance to its business and intends to continue to
protect and promote its marks as appropriate. The Company's Liteglow(R) and Low
Glow(R) trademarks are registered with the United States Patent and Trademark
Office. The Company believes that its trademarks and the associated recognition,
reputation and customer loyalty will contribute to the success of the Company's
business.
REGULATION
Certain of the Company's operations are subject to governmental
regulations. Compliance with federal, state, local and foreign laws and
regulations has not had, and is not anticipated to have, a material adverse
effect on the business of the Company. The Company believes that it is in
material compliance with all such regulations, and is not aware of any
regulatory initiatives that areas expected to have a material adverse affect on
the business.
Occasionally the Company had been made aware by a consumer that a state
or local motor vehicle law has been interpreted and enforced to restrict or
prohibit the use of a specialty light installed in a particular vehicle. In
virtually all states, however, the installation of specialty lights on vehicles
is not prohibited. The Company believes that the only states placing restriction
on the use of specialty lights are Virginia, which restricts lights mounted on
the front and rear of vehicles and Michigan, which restricts lights mounted on
vehicle undercarriages. The Company does not believe these restrictions to have
any material impact on sales.
EMPLOYEES
As of June 30, 1999, the Company employed thirty-five persons, fifteen
of whom are based at the Company's headquarters facility and twenty of whom work
in its Orlando, Florida, manufacturing plant. The Company's employees are not
represented by a union and the Company believes that its relations with its
employees are good.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Financial Statements appearing elsewhere in this Registration
Statement.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998.
Net sales for the year ended December 31, 1998, increased to $2,890,513
compared to $2,673,387 for the year ended December 31, 1997. For those same
periods cost of sales increased from $1,523,689 to $1,849,993, and gross profit
decreased from $1,149,698 to $1,040,520. For the same periods, the Company's
selling, general and administrative expenses increased from $1,723,499 to
$2,398,490, resulting in an increased operating loss from $573,801 to
$1,357,970. The Company experienced a substantial increase in selling, general
and administrative expenses in 1998 as it increased its staff and purchased
increased amounts of advertising in anticipation of a significant increase in
business, which did not occur. In 1998, the Company's management believed that
the Company would see material sales increases from its Low Glow acquisition in
1997 and its acquisition of the assets of B&B Associates in 1998, which is
described in the next paragraph. Both purchases did not meet management's
expectations for increased sales. The Company also incurred substantial
professional fees in connection with initiating the process of becoming a
reporting company and filing this Registration Statement. The Company incurred
additional expenses as a consequence of legal actions in which it became or
continued to be involved in 1998, as compared to 1997, and lost net sales and
gross profit from the purchase of defective products from its manufacturers.
In the six months ended December 31, 1998, the Company experienced
substantial defects in its neon undercar lighting kits made in China. As a
consequence, management believes that the Company lost approximately $300,000 to
$400,000 in sales, which in turn resulted in lost profits. While defective
products were substantially returnable to suppliers, the Company could not
recover its lost sales or the profits from those sales. Further, management
believes that the Company lost significant numbers of customers, substantially
all of which were wholesale customers during that period and is unable to
determine whether the customers will return as buyers of the Company's products
in the future.
In September 1998, the Company acquired the assets and assumed certain
liabilities of B&B Associates, a California proprietorship engaged in the car
security business. The Company experienced substantial difficulties in
implementing its business plan with respect to the B&B business that it acquired
and discontinued its B&B business in the first quarter of 1999. The Company
recorded an estimated loss for the disposal of its B&B Associates assets in the
amount of $382,889 in the year ended December 31, 1998. This loss,
15
<PAGE> 16
together with the Company's loss from continuing operations in 1998 of
$1,491,540, resulted in a net loss of $1,917,540 in the year ended December 31,
1998, compared to a loss of $614,034 for calendar year 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999.
The Company's revenues increased from $2,158,412 for the nine months
ended September 30, 1998, to $3,547,435 for the nine months ended September 30,
1999, and for these periods the Company's gross profit increased from $1,058,590
to $1,981,216. The Company had net income of $416,379 for the nine months ended
September 30, 1999, compared to a net loss of $535,403 for the nine months ended
September 30, 1998. The Company substantially decreased trade show, convention,
travel and magazine advertising expenses for the nine months ended September 30,
1999, compared to the comparable 1998 period. However, overall selling, general
and administrative expenses ("SG&A") remained substantially the same in each of
these periods as the Company's sales increased.
In the nine months ended September 30, 1999, the Company instituted a
cost-cutting program and implemented more stringent financial controls. The
Company increased sales from its Low Glow business by approximately 50%
substantially as a result of increased sales at car shows. The Company had an
increase in the sales of its Liteglow products of approximately 60% for the nine
months ended September 30, 1999, compared to the comparable 1998 period as a
result of the introduction of new products and increased sales to chain stores.
The Company's cost of goods sold increased from $1,099,822 to $1,566,219 for the
nine months ended September 30, 1999, compared to the comparable 1998 period.
The increase in gross profit from approximately 49% in the first nine months of
1998 to approximately 56% of sales resulted from more cost-effective purchases
from Chinese suppliers and increased margins from the sales of new products. The
Company reduced selling expenses by reducing travel costs, trade show expenses
and an officer's salary. The Company also reduced product packaging costs and
the cost of product development.
Management believes that its focus on more cost-advantaged purchases
from its overseas suppliers, together with a reduction in selling, general and
administrative expenses, will result in increased profit margins. Management
further believes that the Company will continue to develop relationships with
its principal retailers and, through the development of those relationships and
the continuing introduction of new products, will increase both its sales and
net profits. Management is aware, however, that the Company's products are
discretionary items and that their purchase is dependent in large part on local,
regional and national economic conditions existing from time-to-time.
Accordingly, the Company's operating results for the first nine months of
calendar year 1999 reflect the cost controls, marketing programs, new and
improved customer relationships, and new product introductions which the Company
implemented during that
16
<PAGE> 17
period, but there can be no assurance that the Company will experience similar
results in the future.
LIQUIDITY AND CAPITAL RESOURCES
YEARS ENDED DECEMBER 31, 1997 AND 1998.
Total current assets increased from $660,663 at December 31, 1997, to
$836,505 at December 31, 1998, primarily as a result of an increase in accounts
receivable and, to a lesser extent, increases in inventory, cash and prepaid
expenses. The Company's total assets increased from $1,169,455 to $1,347,106 for
the comparable periods, also primarily as a result of increased current assets.
The Company increased its line of credit from $270,000 at December 31,
1997, to $380,000 at December 31, 1998, to meet increased cash demands of its
business. Accounts payable decreased from $296,297 at December 31, 1997, to
$134,663 at December 31, 1998, as the Company used its line of credit and income
from operations to reduce its accounts payable. The Company had substantial
increase in accrued liabilities from $15,923 at December 31, 1997, to $142,684
at December 31, 1998, and a loss on the disposal of its subsidiary. Both the
increase in accrued liabilities and the accrued loss on disposal of its
subsidiary resulted from the Company's acquisition and disposition of its B&B
assets.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999.
The Company's cash increased from $68,296 at December 31, 1998, to
$91,798 at September 30, 1999. For the same period, its accounts receivable
increased from $245,964 to $560,323. Inventory increased from $457,634 at
December 31, 1998, to $648,884 at September 30, 1999, and prepaid expenses
increased from $64,611 to $135,378 during the same period. The increase in
accounts receivable, inventory and prepaid expenses resulted from substantial
increases in sales, as the Company purchased additional inventory and prepaid
suppliers to meet demand for its product.
The accounts payable increased from $134,663 at December 31, 1998, to
$169,345 at September 30, 1999. Accrued liabilities decreased from $142,684 to
$52,124 during that period due to the payment in 1999 of accrued liabilities.
The accrued loss on disposal of subsidiary decreased from $105,088 at December
31, 1998, to $20,532 at September 30, 1999, as a consequence of the Company's
disposal of its B&B assets and business and the payment in 1999 of accrued
liabilities.
The Company had a loss from operations in 1998 and 1997 and negative
cash flows from operations at December 31, 1998 and 1997. For the first nine
months of 1999, the
17
<PAGE> 18
Company had an operating profit, but negative cash flow from operations, of
$263,540. The Company used cash provided by financing activities of $359,740 to
meet its cash requirements for the nine months ended September 30, 1999. The
Company's negative cash flow from operations in the first nine months of 1999
was due to increase in accounts receivable, inventory and prepaid expenses.
The Company's loss from operations in 1997 and 1998 and negative cash
flows from operations at December 31, 1997 and 1998 raise substantial doubt
about the Company's ability to continue as a going concern. Management's plan is
to operate profitably through increased sales, introduction of new products,
increases in margins, and reduction of selling, general and administrative
expenses. Management believes these efforts will generate positive cash flow
during the balance of 1999 and in 2000.
Management believes that the Company's current capital resources are
sufficient for its needs if the Company continues to operate its business solely
from cash from operations. However, management believes that in order for the
Company to continue to expand its revenues and business base at the same rate as
has occurred in the first nine months of 1999, the Company will need additional
capital resources. Management does not believe that the Company can obtain
significant capital from additional borrowing and, accordingly, anticipates that
the Company will undertake to raise additional equity capital on a private or
public basis in 2000. The Company has not had any discussions with any
investment banking firm or underwriter with respect to any such placement or
underwriting and is unable to anticipate whether or when any such financing may
occur or, if it does occur, to what extent a financing will benefit the Company.
The Company believes that its results will continue to be subject to
prevailing economic conditions, over which it has no control; to competition;
and to the quality of its relationships with its suppliers and retailers. The
Company anticipates that it will be able to compete effectively in the
automotive accessories market through the merchandising and improvement of its
existing products and the development of new products. The Company continues to
develop new manufacturing sources to improve the quality and cost of its
products.
YEAR 2000 ISSUES
The Company presently believes that its computers are Y2K compliant and
anticipates no Y2K impact in connection with its suppliers or customers. The
Company continues to assess its Year 2000 compliance status and the compliance
status of its suppliers and customers.
Based on ongoing assessments through December 20, 1999, the Company
believes that no significant modifications of existing computer software will be
required. The
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<PAGE> 19
Company believes that its computer systems will function properly with respect
to dates in the Year 2000 and thereafter. The Company also believes that any
costs related to the Year 2000 issue will not be significant.
In the event that the Company experiences Y2K problems, the Company
will acquire such technical advice and new software and hardware as may be
necessary to be compliant.
19
<PAGE> 20
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases an aggregate of 16,000 square feet of office and
warehouse space within a 500,000 square foot industrial park located at 2301
N.W. 33rd Court, Pompano Beach, Florida 33069. The Company's Low Glow subsidiary
leases 3000 square feet of office, warehouse and manufacturing space in an
industrial park located at 2649 Mercy Drive, Orlando, Florida 32808. The Company
intends to move its headquarters into a 25,000 square foot space in the same
industrial park in January 2000, but has not completed negotiations for that
space.
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<PAGE> 21
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information with respect to the beneficial
ownership of the Common Stock by (i) each of the directors of the Company, (ii)
each person known by the Company to be the beneficial owner of five percent or
more of the outstanding Common Stock, and (iii) all executive officers and
directors as a group, as of December 1, 1999. Unless otherwise indicated, the
Company believes that the beneficial owner has sole voting and investment power
over such shares.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage
Beneficial Owner of Beneficially Owned Ownership of Class
------------------- --------------------- ------------------
<S> <C> <C>
Spencer Krumholz(1)(2)(3) 5,087,918 56.97%
2301 NW 33rd Court #104
Pompano Beach, FL 33069
Arlene Krumholz(1)(3) 79,168 2.01%
2301 NW 33rd Court #104
Pompano Beach, FL 33069
Michael Krumholz(4) 1,667 .04%
2301 NW 33rd Court #104
Pompano Beach, FL 33069
Louis Weiner(1) 834 .02%
2301 NW 33rd Court #104
Pompano Beach, FL 33069
All Executive Officers 5,169,587 57.88%
and Directors as a group
(4 persons)(2)
</TABLE>
- ----------------------------
(1) Officer and Director.
(2) Pursuant to Rule 13d-3, includes 5,000,000 shares of Common Stock into
which Mr. Krumholz's 1,000,000 shares of Preferred Stock are
convertible.
(3) Spencer Krumholz and Arlene Krumholz are husband and wife. Mrs.
Krumholz disclaims beneficial ownership of her husband's shares of both
Common and Preferred Stock.
(4) Officer. Michael Krumholz is the son of Spencer and Arlene Krumholz.
- ----------------------------
The Company has authorized, issued and outstanding 1,000,000 shares of
preferred stock, all of which are designated Series A Convertible Preferred
Stock and are owned of record and beneficially by Spencer Krumholz. See Item 8,
"Description of Securities," for a description of the Series A Convertible
Preferred Stock.
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<PAGE> 22
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth the names and ages of the Company's officers
and directors. The directors of the Company are elected annually by the
shareholders, and the officers are appointed annually by the board of directors.
NAME AGE POSITION
- ---- --- --------
Spencer Krumholz 55 Chairman of the Board, President,
Chief Executive Officer
Arlene Krumholz 54 Vice President, Secretary
Louis Wiener 62 Vice President, Chief Operating Officer
Michael Krumholz 27 Vice President-Sales and Marketing
SPENCER KRUMHOLZ has been Chairman and Chief Executive Officer of the
Company and its predecessor since 1994. Mr. Krumholz founded K&S Speed Shop,
which sold high performance and specialty automotive parts, in Long Island, New
York, in 1961 and was its president from that time until 1972. In 1973, he
founded Specialty Representatives, Inc., a sales representative agency which
marketed and sold basic automotive accessories to major chains. Mr. Krumholz
founded Tech Guard Industries, Ltd., in 1984 to market and sell a two-wire
remote car alarm system, and served as the president of that company until 1990.
In June 1991 Mr. Krumholz founded Koolglow Industries, Inc., to market and sell
neon license plate frames. In December 1992 Mr. Krumholz sold Koolglow
Industries, Inc., to Bluechip Computerware, a NASDAQ company.
ARLENE KRUMHOLZ has been an officer and director of the Company and its
predecessor, Liteglow Industries, Inc., a Florida corporation, since 1994.
LOUIS WIENER has been a graphic designer and artist for thirty-five
years. He joined the Company's predecessor in 1994. Prior to that time, Mr.
Wiener had his own independent graphics design business.
MICHAEL KRUMHOLZ joined the Company in 1997, when he graduated from
college. He has a Masters Degree in sports marketing from the University of
Miami. Mr. Krumholz works with and trains the Company's sales representatives.
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<PAGE> 23
Directors are elected annually and hold office until the next annual
meeting of the shareholders of the Company or until their successors are elected
and qualify. Officers serve at the discretion of the Board of Directors. The
Company does not pay any cash compensation for attendance at directors meetings
or participation at directors functions.
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<PAGE> 24
ITEM 6. EXECUTIVE COMPENSATION
The following tables and notes present for the three years ended
December 31, 1998, the compensation paid by the Company to the Company's chief
executive officer. No other executive officer of the Company received
compensation which exceeded $100,000 during any of the three years ended
December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------------------------------------
Awards Payouts
-------------------------------- ---------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Year Salary ($) Award(s)($) Options/SARs(#) Compensation($)
(a) (b) (c) (f) (g) (i)(2)
- ------------------ ---- ---------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Spencer Krumholz 1998 $150,000 $55,000(1) -- $27,000
Chairman, President, 1997 $ 75,000 -- -- $22,800
CEO 1996 $ 50,000 -- -- $10,000
</TABLE>
- --------------
(1) The value of the restricted stock award has been determined by
multiplying the shares of common stock into which Mr. Krumholz's
1,000,000 shares of Series A Convertible Preferred Stock are
convertible by a value of .011 per share, which is the closing bid
price of the Company's Common Stock on December 31, 1998. The bid price
at December 31, 1998, does not reflect the Company's 1 share for 60
share reverse stock split which occurred prior to that date and which
was not reflected in the trading price for the common stock until
January 13, 1999. Shares of Common Stock were issued to Mr. Krumholz
and members of his family in 1998 and 1997. The issuances were
rescinded in December 1998 and the Company recorded no compensation for
the issuance of the Common Stock. See Note 11 to the Company's audited
consolidated financial statements.
(2) Consists of cash payments for premiums on life insurance policies owned
by Mr. Krumholz and payments for Company-owned or leased vehicles used
by Mr. Krumholz.
- ---------------
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<PAGE> 25
As of December 31, 1998, the number and value of the aggregate
restricted stockholdings of the persons named in this table, including shares
held by them indirectly, was as follows:
NAME SHARES VALUE(1)
----------------- --------- --------
Spencer Krumholz 5,087,918 $55,967
Arlene Krumholz 79,168 $ 871
Louis Weiner 834 $ 9
Michael Krumholz 1,667 $ 18
- ---------------
(1) The value of the restricted shares of common stock has been determined
using the closing bid price at December 31, 1998, of $.011 per share.
The number of shares of common stock which appear in this table are
stated on a post-split basis, although the Company's common stock did
not begin trading on a post-split basis until January 13, 1999. In
accordance with Rule 13d-3, Mr. Krumholz's shares include the shares of
Common Stock underlying his shares of Preferred Stock. January 13,
1999, the Company's stock traded at a high and low bid price of
approximately $.20 per share.
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<PAGE> 26
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 8, 1996, the Company merged with Liteglow Florida. In
connection with the merger, the shareholders of Liteglow Florida received
7,385,000 shares of the Company's common stock.
In 1997 and 1998, the Company issued approximately 56,500,000 shares of
common stock to Spencer Krumholz and family members at no cost. The shares
issued to him during 1997 and 1998 were rescinded retroactively in December
1998. Subsequent to that recision, on December 31, 1998, Mr. Krumholz was issued
1,000,000 shares of Series A Convertible Preferred Stock.
The Company employs both Spencer Krumholz and his son, Michael Krumholz
on a salaried basis. Neither Spencer nor Michael Krumholz has a written
employment agreement with the Company.
In October 1997, the Company redeemed 1,250,000 shares of the Company's
common stock for $187,500 in settlement of a portion of an outstanding
receivable from Mr. Krumholz, which was incurred over a period of time. At
December 31, 1998, Spencer Krumholz had $58,355 outstanding in loans to the
Company.
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<PAGE> 27
ITEM 8. DESCRIPTION OF SECURITIES
The following statements do not purport to be complete and are
qualified in their entirety by reference to the detailed provisions of the
Company's Articles of Incorporation and Bylaws, copies of which will be
furnished to an investor upon written request therefor. See "Additional
Information."
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock,
par value $.001 per share. As of December 1, 1999, the Company had 3,931,087
shares of common stock issued and outstanding. On December 31, 1998, the
Company's shares were reverse-split on a 1 share for 60 share basis and the
Company's authorized shares of Common Stock were reduced at the same time from
200,000,000 to 10,000,000 shares.
The holders of shares are entitled to equal dividends and distributions
per share with respect to the Common Stock when, as and if declared by the Board
of Directors from funds legally available therefor. No holder of any shares has
a pre-emptive right to subscribe for any securities of the Company nor are any
common shares subject to redemption or convertible into other securities of the
Company. Upon liquidation, dissolution or winding up of the Company, and after
payment of creditors and preferred stockholders, if any, the assets will be
divided pro-rata on a share-for-share basis among the holders of the shares.
Each share is entitled to one vote with respect to the election of any director
or any other matter upon which shareholders are required or permitted to vote.
Holders of the Company's common shares do not have cumulative voting rights, so
that the holders of more than 50% of the combined shares voting for the election
of directors may elect all of the directors, if they choose to do so and, in
that event, the holders of the remaining shares will not be able to elect any
members to the Board of Directors.
PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock, all of
which are designated Series A Convertible Preferred Stock ("Preferred Stock")
and all of which were issued and outstanding at December 1, 1999.
Each holder of shares of Preferred Stock is entitled to the number of
votes equal to the number of whole shares of common stock into which the shares
of preferred stock are convertible. Except as otherwise provided by law, holders
of Preferred Stock vote together with holders of Common Stock as a single class.
The consent of not less than two-thirds of the outstanding shares of Preferred
Stock, voting separately as a class, is necessary for the Company to sell all or
substantially all of its assets or to effect any
27
<PAGE> 28
merger, consolidation, share exchange or similar transaction to which the
Company is a party, or to enter into any other transaction resulting in the
acquisition of a majority of the outstanding voting stock of the Company by
another corporation or entity.
Holders of the Preferred Stock have the right to convert their shares
into shares of Common Stock on the basis of five shares of Common Stock for each
share of Preferred Stock, so that the 1,000,000 shares of Preferred stock are
convertible into 5,000,000 shares of Common Stock. The conversion rate is
subject to adjustment for certain stock splits and combinations, a stock
dividend or distribution by the Company, and certain other changes in the
Company's capital structure, including any change on merger or reorganization.
The holders of Preferred Stock have a liquidation preference equal to
$.10 per share of Preferred Stock, plus accrued and unpaid dividends, if any,
and interest thereon. The Preferred Stock does not have a dividend preference.
DIVIDEND POLICY
The Company has not paid any dividend to its shareholders for any class
of stock and does not anticipate paying any such dividend in the foreseeable
future.
TRANSFER AGENT
The Company's registrar and transfer agent is Alpha Tech Stock
Transfer, 4505 S. Wasaich Blvd., Suite 205-A, Salt Lake City, Utah 84124.
28
<PAGE> 29
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock is traded on the NASD OTC Bulletin Board
under the symbol LTGL.
The following bid quotations have been reported for the period which
began October 1, 1997, and ended September 30, 1999.
BID PRICES
--------------------
PERIOD HIGH LOW
------ ---- ---
Quarter Ended December 31, 1997 .18 .050
Quarter Ended March 31, 1998 .10 .033
Quarter Ended June 30, 1998 .082 .044
Quarter Ended September 30, 1998 .047 .010
Quarter Ended December 31, 1998 .011 .0051
Quarter Ended March 31, 1999(1) .46 .201
Quarter Ended June 30, 1999 .90 .21
Quarter Ended September 30, 1999 .625 .34
- --------------
(1) On January 13, 1999, the Company's common stock began trading on a
basis reflecting its 1998 year-end 1 for 60 share reverse stock split.
- --------------
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission. Such quotes are not necessarily representative of
actual transactions or of the value of the Company's securities, and are in all
likelihood not based upon any recognized criteria of securities valuation as
used in the investment banking community.
The Company has been advised that 15 member firms of the NASD are
currently acting as market makers for the common stock.
As of December 1, 1999, there were 264 holders of record of the
Company's common stock. Certain of the shares of common stock are held in
"street" name and may, therefore, be held by several beneficial owners.
As of December 1, 1999, there were 3,931,087 shares of common stock
issued and outstanding. Of those shares 203,251 shares are "restricted"
securities of the Company within the meaning of Rule 144(a)(3) promulgated under
the Securities Act of 1933, as
29
<PAGE> 30
amended, because such shares were issued and sold by the Company in private
transactions not involving a public offering. Of these restricted securities,
168,753 shares held by affiliates may be sold pursuant to a registration
statement or pursuant to Rule 144.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (in general, a person who has a control relationship with the
company) who has owned restricted securities of common stock beneficially for at
least one year is entitled to sell, within any three-month period, that number
of shares of a class of securities that does not exceed the greater of (i) one
percent (1%) of the shares of that class then outstanding or, if the common
stock is quoted on NASDAQ, (ii) the average weekly trading volume of that class
during the four calendar weeks preceding such sale. A person who has not been an
affiliate of the company for at least the three months immediately preceding the
sale and has beneficially owned shares of common stock for at least two (2)
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
No prediction can be made as to the effect, if any, that future sales
of shares of common stock or the availability of common stock for future sale
will have on the market price of the common stock prevailing from time-to-time.
Sales of substantial amounts of common stock on the public market could
adversely affect the prevailing market price of the common stock.
The Company has never paid a cash dividend on its common stock. The
payment of dividends may be made at the discretion of the Board of Directors of
the Company and will depend upon, among other things, the Company's operations,
its capital requirements, and its overall financial condition.
30
<PAGE> 31
ITEM 2. LEGAL PROCEEDINGS
The Company is a party to the following legal proceedings.
In April 1999, Ronald Basoff d/b/a B&B Associates sued Liteglow
Industries, Inc., and Spencer Krumholz in Los Angeles County, California,
Superior Court. In May 1999 the Company sued Ronald Basoff individually and
d/b/a B&B Associates, and his brother, David Basoff, in the same court. Both
actions arose out of the acquisition of Ronald Basoff's automobile accessories
business, B&B Associates, by the Company in 1998. The Basoff complaint alleges,
among other things, breach of contract by the Company and seeks to recover
damages and to foreclose on the assets sold by Mr. Basoff to the Company's
subsidiary, Liteglow Industries of California, Inc. The complaint does not
specify the dollar amount claimed and Mr. Basoff's counsel has advised the
Company's counsel that no dollar amount has been established. The Company's
complaint seeks, among other things, the appointment of a receiver and damages
from Mr. Basoff. The action by Mr. Basoff also claims a breach of his employment
agreement with Liteglow Industries of California, Inc. The Los Angeles County
Superior Court has ordered arbitration of both matters in Fort Lauderdale,
Florida, in accordance with the terms of the original asset purchase agreement
between Liteglow Industries of California, Inc., and Ronald Basoff, and both
California actions have been stayed pending completion of arbitration. The
Company believes that Mr. Basoff's complaint against the Company is without
merit. The Company intends to proceed with arbitration expeditiously and does
not anticipate that either of these suits, nor the arbitration, will have a
material adverse impact upon the Company. The Company intends to dispose of any
B&B assets remaining after the conclusion of this litigation.
The Company is a party to routine litigation incidental to its business
from time-to-time.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
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<PAGE> 32
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company's Common Stock was reverse splint on a one-for-sixty share
basis on December 31, 1999. In the discussion which follows, share issuances for
the period until January 1, 1999 are stated on a pre-reverse split basis. See
"Description of Securities."
In October 1997, the Company issued 450,000 shares of Common Stock as
part of the consideration for its acquisition of the assets of KJK Marketing,
Inc., which does business under the name "Low Glow." The Company has assigned a
value of $.33 per share to these securities. These securities were issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act").
In 1997, the Company issued 2,395,000 shares of Common Stock to various
consultants for services rendered. The Company has valued the consideration for
these shares at $168,100. In 1998, 2,145,000 of these shares were repurchased by
the Company for a cash payment of $127,800. The sale and repurchase of these
securities were effected pursuant to Section 4(2) of the Securities Act.
In 1997, the Company issued 16,500,000 shares to the Company's
president and family members at no cost. The Company issued an additional 40,000
shares of Common Stock to the President and family members in 1998, also at no
cost. All of these issuances were rescinded in December 1998 and the Company has
not recorded any compensation in connection with the issuance of these shares.
All of these shares were issued and rescinded pursuant to Section 4(2) of the
Securities Act.
In October 1998 the Company issued 1,000,000 shares of Common Stock as
part of the consideration for its acquisition of the assets of B&B Associates.
The Company assigned a value of $.10 per share to these securities. These
securities were issued pursuant to Section 4(2) of the Securities Act.
In December 1998 the Company issued 1,000,000 shares of Preferred Stock
to its president under Section 4(2) of the Securities Act for compensation which
the Company has valued at $50,000.
During the course of 1998 the Company issued 19,894,995 shares of
Common Stock to private investors pursuant to Regulation D, Rule 504. The price
of the stock ranged from $.20 per share to $.05 per share throughout the year.
The total consideration obtained from the issuance of these shares was $814,991.
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<PAGE> 33
In January and February 1999, the Company issued 1,300,000 shares of
Common Stock to private investors pursuant to Regulation D, Rule 504, for cash
consideration of $225,000.
In April 1999, the Company issued 250,000 shares of common stock to
private investors at a price of $50,000 pursuant to Regulation D, Rule 504.
In December 1999 the Company issued 50,000 shares to a sophisticated
person in settlement of a Utah suit pursuant to Section 4(2) of the Act. Also in
December 1999, the Company issued 92,200 shares to the shareholders of KJK
Marketing, Inc., as additional consideration payable to them under the October
1997 asset acquisition agreement with the Company. These shares were issued
under Section 4(2) of the Securities Act.
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<PAGE> 34
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes, charter provisions, by-laws, contracts or other
arrangements under which controlling persons, directors or officers of the
Company are insured or indemnified in any manner against any liability which may
occur in such capacity are as follows:
Utah Revised Business Corporation Act Section 16-10a-902 provides that
a corporation may indemnify an individual made a party to a proceeding because
he is or was a director against liability incurred in the proceeding if (a) his
conduct was in good faith; (b) he reasonably believed that his conduct was in,
or not opposed to, the corporation's best interests; and (c) in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. The corporation may not indemnify a director under Section 16-10a-902
in connection with the proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation or in connection with any
other proceeding charging that the director derived an improper personal
benefit, whether or not involving action in its official capacity, in which
proceeding he was adjudged liable on the basis that he derived an improper
personal benefit.
Utah Revised Business Corporation Act Section 16-10a-903 states that
unless limited by its articles of incorporation, a corporation shall indemnify a
director who is successful on the merits or otherwise, in the defense of any
proceeding, or in the defense of any claim, issue, or other matter in the
proceeding to which he was a party because he is or was a director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
Utah Revised Business Corporation Act Section 16-10a-907 states that an
officer of a corporation is entitled to mandatory indemnification under Section
16-10a-903 to the same extent as a director, and that a corporation may
indemnify and advance expenses to an officer of the corporation to the same
extent as to a director. Section 16-10a-907 also provides that a corporation may
indemnify and advance expenses to an officer who is not a director to a greater
extent, if not inconsistent with public policy, as provided by its articles of
incorporation, by-laws, general or specific action of its board of directors, or
contract.
Utah Revised Business Corporation Act Section 16-10a-909 states that a
provision treating a corporation's indemnification of or advance of expenses to
directors is valid if and only to the extent the provision is not inconsistent
with Part 9 of the Revised Business Corporation Act, which contains the
provisions discussed in the preceding portions of this Item 5.
34
<PAGE> 35
PART F/S
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)
Report of Independent Certified Public
Accountant......................................................
Consolidated Balance Sheets-Assets
December 31, 1998 and 1997......................................
Consolidated Balance Sheets-Liabilities and
Stockholders' Equity-December 31, 1998 and 1997.................
Consolidated Statement of Operations
Year Ended December 31, 1998 and 1997...........................
Consolidated Statements of Changes in
Stockholders' Equity-December 31, 1998 and 1997.................
Consolidated Statements of Cash Flows
Year Ended December 31, 1998 and 1997...........................
Notes to Financial Statements....................................
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets-Assets
September 30, 1999 and December 31, 1998........................
Consolidated Balance Sheets-Liabilities and Stockholders'
Equity-September 30, 1999 and December 31, 1998.................
Consolidated Statement of Operations
Nine Months Ended September 30, 1999 and 1998...................
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998...................
Notes to Financial Statements....................................
35
<PAGE> 36
PART III
ITEM 1. INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Plan and Agreement of Merger*
3.1 Articles of Incorporation, as amended*
3.2 By-Laws*
4.1 Form of common stock certificate*
4.2 Form of preferred stock certificate*
10.1 Merger Agreement and Plan of Reorganization dated
October 10, 1997, by and among KJK Marketing, Inc.,
Liteglow Industries, Inc., Liteglow Acquisition
Corp., and Keith and Judith Kowatch (without
exhibits)
10.2 Asset Purchase Agreement dated September 15, 1998, by and
between Ronald Basoff individually and d/b/a B&B Associates, and
Liteglow Industries of California, Inc. (without exhibits)
10.3 Business Consulting Agreement dated November 11, 1999, between
Xcel Associates, Inc., and Liteglow Industries, Inc.
23.1 Consent of Independent Certified Public Accountant.
* Filed Previously.
ITEM 2. DESCRIPTION OF EXHIBITS
None.
36
<PAGE> 37
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
LITEGLOW INDUSTRIES, INC.
Dated: December 22, 1999 By: /s/ Spencer Krumholz
----------------------------------
Spencer Krumholz,
President and Director
37
<PAGE> 38
DASZKAL BOLTON MANELA DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100, BOCA RATON, FLORIDA 33431
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN., CPA, P.A.
MICHAEL S. KRIDEL, CPA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Liteglow Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Liteglow
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the management of Liteglow Industries, Inc. and
subsidiaries. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Liteglow Industries,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company experienced a loss
from operations in 1998 and 1997 and had negative cash flows from operations at
December 31, 1998 and 1997. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those matters are described in Note 17. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ DASZKAL BOLTON MANELA DEVLIN & CO, CPAs
Boca Raton, Florida
May 21, 1999
-1-
<PAGE> 39
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
1998 1997
----------- ------------
<S> <C> <C>
Current assets:
Cash $ 68,296 $ 48,248
Accounts receivable, net 245,964 162,860
Inventory 457,634 406,955
Prepaid expenses 64,611 42,600
----------- -----------
Total current assets 836,505 660,663
----------- -----------
Property and equipment:
Property and equipment, at cost 277,398 268,817
Less accumulated depreciation (49,153) (58,786)
----------- -----------
Property and equipment, net 228,245 210,031
----------- -----------
Other assets:
Goodwill, net 209,097 220,250
Advances to stockholder 58,355 57,811
Deposits 14,904 18,576
Other -- 2,124
----------- -----------
Total other assets 282,356 298,761
----------- -----------
Total assets $ 1,347,106 $ 1,169,455
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 40
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1998
----------- -----------
<S> <C> <C>
Current liabilities:
Line-of-credit $ 380,000 $ 270,000
Accounts payable 134,663 296,297
Accrued liabilities 142,684 15,923
Accrued loss on disposal of subsidiary 105,088 --
Current maturities of note payable 19,215 7,245
Current maturities of capital leases 12,974 4,273
----------- -----------
Total current liabilities 794,624 593,738
----------- -----------
Long-term liabilities (exclusive of current maturities):
Note payable 140,716 31,012
Capital leases payable 26,216 2,315
----------- -----------
Total long-term liabilities 166,932 33,327
----------- -----------
Total liabilities 961,556 627,065
----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.001 par value, authorized
1,000,000 shares; issued and outstanding
1998- 1,000,000 and 1997 - 0 shares 1,000 --
Common stock, $0.001 par value; authorized,
10,000,000 shares - 1998; 100,000,000 -
1997, issued and outstanding 1998
2,376,740 and 1997 - 810,768 2,377 811
Additional paid-in capital 3,146,768 1,388,634
Accumulated deficit (2,764,595) (847,055)
----------- -----------
Total stockholders' equity 385,550 542,390
----------- -----------
Total liabilities and stockholders' equity $ 1,347,106 $ 1,169,455
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 41
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues $ 2,890,513 $ 2,673,387
Cost of sales 1,849,993 1,523,689
----------- -----------
Gross profit 1,040,520 1,149,698
Selling, general administrative expenses 2,398,490 1,723,499
----------- -----------
Operating loss (1,357,970) (573,801)
----------- -----------
Other (expenses):
Interest expense (43,384) (30,809)
Loss on disposal of assets (90,186) --
----------- -----------
Total other expenses (133,570) (30,809)
----------- -----------
Loss from continuing operations before income taxes (1,491,540) (604,610)
Provision for income taxes -- (9,424)
----------- -----------
Loss from continuing operations (1,491,540) (614,034)
----------- -----------
Discontinued operations (Note 18)
Loss from operations of discontinued subsidiary
B&B Associates (43,111) --
Estimated loss on disposal of B&B Associates,
provision for 1999 losses including provision of
$105,088 for operating losses during phase out period (382,889) --
----------- -----------
Net loss $(1,917,540) $ (614,034)
=========== ===========
Net loss per share (basic & diluted):
Loss from continuing operations $ (0.86) $ (1.23)
Loss from discontinued operations (0.24) --
----------- -----------
Net loss per share $ (1.10) $ (1.23)
=========== ===========
Weighted average common shares outstanding 1,743,572 500,912
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 42
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
Page 1 of 2
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON PREFERRED ADDITIONAL TOTAL
--------------------- ---------------- PAID-IN TREASURY ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT EQUITY
---------- --------- ------- ------- -------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 10,656,069 $ 10,656 -- $ -- $ 246,948 $ -- $(46,771) $ 210,833
Net proceeds from issuance
of common stock 19,894,995 19,895 -- -- 795,096 -- -- 814,991
Stock acquired to repay
officer debt -- -- -- -- -- (187,500) -- (187,500)
Retirement of treasury
stock (1,250,000) (1,250) -- -- -- 187,500 (186,250) --
Stock issued for services
and compensation 18,895,000 18,895 -- -- 149,205 -- -- 168,100
Issuance of common stock
for the purchase of
subsidiary 450,000 450 -- -- 149,550 -- -- 150,000
Net loss -- -- -- -- -- -- (614,034) (614,034)
---------- --------- ------- -------- ---------- --------- --------- ---------
Balance, December 31, 1997 48,646,064 $ 48,646 -- $ -- $1,340,799 $ -- $(847,055) $ 542,390
========== ========= ======= ======== ========== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 43
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
Page 2 of 2
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON PREFERRED ADDITIONAL TOTAL
--------------------- ----------------- PAID-IN TREASURY ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT EQUITY
---------- --------- ------- ------- -------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 48,646,064 $ 48,646 -- $ -- $ 1,340,799 $ -- $ (847,055) $ 542,390
Repurchase and retirement
of common stock (15,475,000) (15,475) -- -- 15,475 -- -- --
Issuance of common stock
for purchase of
subsidiary 1,000,000 1,000 -- -- 99,000 -- -- 100,000
Issuance of common stock 110,578,333 110,578 -- -- 1,627,922 -- -- 1,738,500
Issuance of preferred
stock for services -- -- 1,000,000 1,000 49,000 -- -- 50,000
Repurchase of common stock (2,145,000) (2,145) -- -- (125,655) -- -- (127,800)
------------ -------- --------- ------- ----------- -------- ----------- -----------
Subtotal 142,604,397 142,604 1,000,000 1,000 3,006,541 -- (847,055) 2,303,090
Reverse stock split
(Note 11) (140,227,657) (140,227) -- -- 140,227 -- -- --
Net loss -- -- -- -- -- -- (1,917,540) (1,917,540)
------------ -------- --------- ------- ----------- -------- ----------- -----------
Balance, December 31, 1998 2,376,740 $ 2,377 1,000,000 $ 1,000 $ 3,146,768 $ -- $(2,764,595) $ 385,550
============ ======== ========= ======= =========== ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 44
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,917,540) $ (614,034)
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 45,036 37,235
Loss on disposal of assets 90,186 --
Deferred income taxes -- 9,424
Consulting and professional fees paid in common stock -- 168,100
Compensation paid in preferred stock 50,000 --
Allowance for doubtful accounts (8,342) --
Allowance for inventory obsolescence 41,500 --
Estimated loss on disposal of subsidiary 382,889 --
Changes in operating assets and liabilities net of
effects from purchase of subsidiary:
Accounts receivable (74,762) (51,839)
Inventory (92,179) (183,544)
Prepaid expenses (22,011) 16,300
Deposits and other assets 5,796 (5,166)
Accounts payable (161,634) 98,537
Accrued liabilities 126,761 (6,242)
----------- -----------
Net cash used by operating activities: (1,534,300) (531,229)
----------- -----------
Cash flows from investing activities:
Purchase of subsidiary net of cash acquired -- (92,473)
Purchase of subsidiary (50,000) --
Purchases of property and equipment (64,821) (106,590)
----------- -----------
Net cash used by investing activities (114,821) (199,063)
----------- -----------
Cash flows from financing activities:
Loan to shareholder, net (544) (133,908)
Borrowings on line-of-credit 195,000 270,000
Repayments on line-of-credit (85,000) --
Issuance of note payable -- 42,148
Repayment of note payable (14,228) (203,891)
Repayment of capital leases (9,934) (14,349)
Issuance of common stock 110,578 814,990
Rescission of common stock previously issued (127,800) --
Increase in additional paid-in capital 1,627,922 --
Advances to subsidiary (26,825) --
----------- -----------
Net cash provided by financing activities 1,669,169 774,990
----------- -----------
Net increase in cash 20,048 44,698
Cash at beginning of year 48,248 3,550
----------- -----------
Cash at end of year $ 68,296 $ 48,248
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 45
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements represent those of Liteglow
Industries, Inc. and subsidiaries (the "Company"). The Company was incorporated
April 25, 1984, in the State of Utah, as Confetti, Inc. Liteglow Industries,
Inc. (formerly Liteglow Industries of Florida, Inc., a Florida corporation), was
merged into Confetti, Inc. on August 8, 1996. The Company primarily engages in
the business of designing, manufacturing and marketing a diverse line of
automotive aftermarket accessory and specialty products. The Company initially
focused its efforts on developing a line of 12-volt automotive accessories
designed to enhance vehicle appearance, including neon license plate frames and
neon under-car lighting kits. More recently, the Company has expanded its
product offerings to include automotive products such as driving lights and fog
lights.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its subsidiaries.
All material intercompany accounts and transactions have been eliminated.
Operations for the subsidiaries acquired are included in the consolidated
results of operations since the date of acquisition.
INVENTORY
Inventory consists of merchandise held for sale and is stated at the lower of
cost or market, with cost determined on the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company 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 expenses during the reporting period.
Actual results could differ from those estimates.
ADVERTISING
Advertising costs are expensed when incurred. The advertising cost incurred for
the year ended December 31, 1998 and 1997 was $206,441 and $86,991,
respectively.
-8-
<PAGE> 46
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of common
shares outstanding during the year after taking into effect the stock split.
Convertible preferred stock outstanding are common stock equivalents and are
included in the calculation of earnings per share to the extent they are
dilutive using the treasury-stock method. Basic and diluted earnings per share
are the same.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investment purchases with an original
maturity date of three months or less to be cash equivalents.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivables are recorded net of an allowance for doubtful accounts of
$29,415 and $37,757 for December 31, 1998 and 1997, respectively.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, accounts receivable, accounts
payable, and notes payable approximates fair value because of their short
maturities.
NOTE 5 - MERGERS AND ACQUISITIONS
On October 10, 1997, the Company, through a wholly owned subsidiary, acquired
all of the outstanding common stock of KJK Marketing, Inc. (subsequently known
as Lowglow Neon Industries). As consideration, the Company paid $50,000 in cash,
$50,000 note payable, due 30 days after the close, and 450,000 shares of common
stock with an agreed upon market value of $150,000 on October 10, 1999, for a
total purchase price of $250,000. If the total market value is less than
$150,000 the Company will issue additional shares valued at the difference
between the then market price and the guaranteed amount. The acquisition was
accounted for using the purchase method of accounting. The results of operation
are included in the consolidated statement operations since the date of
acquisition. Goodwill of $223,050 was recorded in this transaction, which is
being amortized over 20 years using the straight-line method.
The following summarizes the fair value of the assumed assets and liabilities of
KJK Marketing, Inc.:
Cash $ 15,382
Accounts receivable 11,626
Inventory 16,140
Property and equipment 4,698
Accrued liabilities (11,041)
Shareholder loans (9,855)
---------
Net assets $ 26,950
=========
-9-
<PAGE> 47
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5 - MERGERS AND ACQUISITION, CONTINUED
On September 25, 1998, the Company, through a wholly owned subsidiary, acquired
the assets and assumed the liabilities of B&B Associates. As consideration, the
Company paid $50,000 in cash, note payable of $100,000, payable in two
installments of $50,000 each due July 1 and July 31, 1999, and 1,000,000 shares
of the Company's common stock with an agreed upon market value of $100,000, for
a total purchase price of $250,000. If the total market value is less than
$100,000 on the second anniversary of the closing, the Company will issue
additional shares valued at the difference between the then market price and the
guaranteed amount. The acquisition was accounted for using the purchase method
of accounting. Goodwill of $250,000 has been recorded in this transaction, which
is being amortized over 20 years using the straight-line method.
The following summarizes the fair value of the assets acquired and liabilities
assumed:
Current assets $ 48,107
Non-current assets 3,323
Current liabilities (51,430)
--------
Net assets $ --
========
The Company is currently in litigation with the former owner-operator, with whom
the Company has an employment contract to manage the operations of B&B
Associates. As a result of the litigation and the loss of control over the daily
operations, the acquired subsidiary's assets and operations are not included in
the consolidated financial statements. The investment in the subsidiary has been
accounted for using the equity method. The Company has decided to discontinue
the operations of the subsidiary upon resolution of the litigation and has
recorded estimated losses of $382,889 during this phase out period. See Note 18.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Depreciation and amortization were $33,883 and $33,299 for the years ended
December 31, 1998 and 1997, respectively.
1998 1997
-------- --------
Automobile $ 86,059 $ 48,009
Machinery and equipment 126,455 179,047
Equipment under capital lease 48,203 12,250
Furniture and fixtures 3,615 16,445
Leasehold improvements 13,066 13,066
-------- --------
277,398 268,817
Less: accumulated depreciation
and amortization (49,153) (58,786)
-------- --------
Total property and equipment $228,245 $210,031
======== ========
-10-
<PAGE> 48
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7 - LINE-OF-CREDIT
The Company has established a $400,000 revolving line-of-credit with a bank. The
line-of-credit carries a variable interest rate, which is the prime rate plus
1.5 percent and is due on demand. The line-of-credit is collateralized by the
assets of the Company and is guaranteed by major stockholders. At December 31,
1998, the Company owed $380,000 on this line-of-credit, and the interest rate
was 9.25%.
NOTE 8 - NOTE PAYABLE
Notes payable consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Note payable monthly payments of $861,
including interest at 8.8%, due June 2002. $ 30,780 $ 38,257
Note payable monthly payments of $500,
including interest at 13%, due December 1999. 5,534 --
Note payable monthly payments of $621,
including interest at 8%, due August 2002. 23,617 --
Note payable, non-interest bearing 100,000 --
-------- --------
Total 159,931 38,257
Less: Current portion
(19,215) (7,245)
-------- --------
Notes payable $140,716 $ 31,012
======== ========
</TABLE>
Debt maturities for the next five years are as follows:
YEARS ENDING
DECEMBER 31,
-------------
1999 $ 119,215
2000 14,886
2001 16,198
2002 9,632
2003 --
----------
Total $ 159,931
==========
-11-
<PAGE> 49
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9 - LEASE COMMITMENTS
The Company leases its corporate offices, warehouse space and various office
equipment under long-term operating lease agreements. The rental expense
amounted to $103,686 and $56,288 for the year ended December 31, 1998 and 1997,
respectively.
The Company is obligated under various capital leases. The leased property under
capital leases as of December 31, 1998, has a cost of $48,203 and amortization
of $9,516. Amortization of the leased property is included in depreciation
expense.
Future minimum lease payments for these leases are as follows:
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ --------- ----------
1999 $ 17,437 $ 119,137
2000 14,073 --
2001 9,172 --
2002 7,893 --
2003 -- --
--------- ----------
Total minimum lease payments 48,575 $ 119,137
==========
Less: amount representing interest (9,385)
---------
Present value of net minimum lease
payments 39,190
Less: current maturities (12,974)
---------
Long-term obligation $ 26,216
=========
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is involved in various legal proceedings incident to the character
of its business. Although it is not possible to predict the outcome of these
proceedings, or any claims against the Company related thereto, the Company
believes that such proceedings will not, individually or in the aggregate, have
a material effect on its financial condition or results of operations. See Notes
5 and 18.
NOTE 11 - STOCKHOLDERS' EQUITY
COMMON STOCK ISSUED FOR CASH
The Company issued 19,894,995 shares of common stock through a Regulation D
offering. The price of the stock ranged from $0.20 per share to $0.05 per share
throughout the year. The total amount obtained from the issuance of these common
shares was $814,991.
-12-
<PAGE> 50
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11 - STOCKHOLDERS' EQUITY, CONTINUED
NON-CASH STOCK TRANSACTIONS
The Company issued 1,000,000 shares of common stock as part of the consideration
for B & B Associates, in September 1998. These shares were assigned a value of
$0.10 per share.
In 1997, the Company issued 450,000 shares of common stock as part of the
consideration for KJK Marketing, Inc. These shares were assigned a value of
$0.33 per share.
In 1997, the Company issued 2,395,000 shares to consultants for services
rendered. This transaction resulted in $168,100 of compensation and professional
fees expense, which was included in the statement of operations. In 1998,
2,145,000 of these shares were repurchased for $127,800.
During 1998 and 1997, approximately 40,000,000 and 16,500,000 shares of common
stock were issued to the President at no cost, but were retroactively rescinded
in December 1998, and no compensation was recorded on the issuance of the common
stock.
TREASURY STOCK
In 1997, the Company redeemed 1,250,000 shares in partial settlement of a
receivable for a shareholder. The treasury stock is recorded at cost, which was
determined based on the market price and the outstanding receivable balance on
the date that the shares were redeemed. The treasury stock was subsequently
retired.
PREFERRED STOCK
At December 17, 1998, the Company created and authorized 1,000,000 shares, par
value $.001 per share of Series A Convertible Preferred Stock. The preferred
stockholders are entitled to the number of votes equal to the number of whole
shares of common stock into which the shares are convertible. The shares are
convertible into 5 shares of common stock, or 5,000,000 shares of common stock,
and without the payment of additional consideration. The holders of Preferred
Stock have a liquidation preference equal to $.10 per share of Preferred Stock,
plus accrued and unpaid dividends, if any, and interest thereon. The Preferred
Stock does not have a dividend preference.
The Company has issued the 1,000,000 shares of the preferred stock to the
President of the Company. This transaction resulted in $50,000 of compensation
expense to the President, which is included in the statement of operations at
December 31, 1998. In addition, this transaction resulted in the President
obtaining voting control of the Company.
STOCK SPLIT
On December 14, 1998, the Company's Board of Directors authorized a 1-for-60
reverse stock split effective December 31, 1998 for stockholders on record on
December 31, 1998. This resulted in the retirement of 140,227,657 shares of
common stock. Stockholders' equity for December 31, 1997 has been restated to
reflect the stock split. This resulted in a $140,227 reduction in common stock,
with a corresponding increase in additional paid-in capital.
-13-
<PAGE> 51
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in what it believes to be credit worthy financial
institutions. The balances, at times, may exceed federally insured limits. At
December 31, 1998, the Company was within the insured limit. The Company
routinely assesses the financial strength of its customers and, as a
consequence, believes its trade accounts receivable exposure is limited.
NOTE 13 - RELATED PARTY TRANSACTIONS
At December 31, 1998, the Company had an outstanding receivable from a
stockholder in the amount of $58,355, due on demand. In 1997, the Company
redeemed 1,250,000 shares of the Company's common stock on October 17, 1997 for
$187,500, which represents $0.15 per share in settlement of a portion of the
outstanding receivable from a stockholder/officer. The transactions involving
the stockholder/officer are summarized below:
Balance at January 1, 1997 $ 111,403
Advances to stockholder 133,908
Settlement in advances in exchange for
Liteglow Industries, Inc. common stock (187,500)
---------
Balance at December 31, 1997 57,811
---------
Advances to stockholder, net 544
---------
Balance at December 31, 1998 $ 58,355
=========
NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash paid during the year for:
Interest $ 33,003 $ 30,809
========= =========
Income taxes $ -- $ --
========= =========
Non-cash investing and financing transactions
Acquisition of equipment $ 74,003 $ --
Vehicle loans (35,902) --
Capital leases payable (35,953) --
--------- ---------
Cash down payment for vehicle $ 2,148 $ --
========= =========
Issuance of common shares for the purchase of subsidiary $ 100,000 $ 150,000
========= =========
Issuance of preferred stock for compensation $ 50,000 $ --
========= =========
</TABLE>
-14-
<PAGE> 52
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 15 - GOODWILL
Goodwill of $223,050, net of $13,953 of amortization, represents the amount by
which the purchase price of businesses acquired exceeds the fair market value of
their net assets under the purchase method of accounting. Goodwill is being
amortized on a straight-line basis over 20 years. The Company periodically
evaluates the realizability of goodwill and other intangible assets to determine
whether any impairment has occurred in the value of such assets. Impairments are
recognized when the present value of the future cash flow is less than the
Company's value.
Amortization expense for the years ended December 31, 1998 and 1997 was $11,152
and $2,800 respectively.
NOTE 16 - INCOME TAXES
The provision (benefit) for income taxes includes these components:
1998 1997
------- -------
Current $ -- $ --
Deferred -- 9,424
------- ------
Total $ -- $9,424
======= ======
A reconciliation of income tax expense at the statutory rate of the Company's
actual income tax expense is shown below:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Computed at the statutory rate (39.5%) $ (757,215) $ (238,821)
Increase (decrease) resulting from:
Non-deductible expenses 166,986 12,007
State income taxes and other, net
of federal tax benefit (164,876) (11,040)
Change in deferred tax asset
valuation allowance 755,105 247,278
---------- ----------
Provision for income taxes $ -- $ 9,424
========== ==========
</TABLE>
-15-
<PAGE> 53
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 16 - INCOME TAXES, CONTINUED
The tax effects of temporary differences related to deferred taxes shown on the
balance sheets were:
1998 1997
----------- ------------
Deferred tax assets:
Allowance for doubtful accounts $ 19,415 $ 14,914
Loss in disposal of subsidiary 151,285
Net operating loss carryforward 841,227 242,103
----------- -----------
1,011,927 257,017
Deferred tax liabilities:
Accumulated depreciation (9,544) (9,739)
----------- -----------
Net deferred tax asset before
valuation allowance 1,002,383 247,278
----------- -----------
Valuation allowance:
Beginning balance -- --
----------- -----------
(Increase) decrease during the period (1,002,383) (247,278)
----------- -----------
Ending Balance (1,002,383) (247,278)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The Company has the following net operating loss carryforwards:
Year
Expiring
------------------
2011 $ 7,195
2012 604,610
2013 1,500,345
----------
Total $2,112,150
==========
-16-
<PAGE> 54
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 17 - MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
As shown in the accompanying consolidated financial statements, the Corporation
incurred a net loss of $1,917,540 during the year ended December 31, 1998, and
$614,034 for the year ended December 31, 1997. The ability of the Corporation to
continue as a going concern is dependent on returning to profitable operations
and obtaining additional capital and financing. The financial statements do not
include any adjustments that might be necessary if the Corporation is unable to
continue as a going concern.
Management plans to increase sales by the addition of new products and sales
customers. Management also plans to reduce costs by the disposal of a
subsidiary. The Company also plans on raising additional capital through private
placement offerings of common stock, which during the period from January 1,
1999 through May 31, 1999 have raised approximately $200,000. Management
believes these actions will provide the necessary capital and cash requirements
to ensure the Company's ability to continue as a going concern.
No estimate has been made should management's plan be unsuccessful.
NOTE 18 - DISCONTINUED OPERATIONS
At September 25, 1998, the Company acquired B & B Associates in California for
$250,000. See Note 5. The seller maintained the management of the acquired
subsidiary. Disputes arose over the reporting of operations by the subsidiary to
the Company. Consequently, the Company has defaulted on its note payments to the
former owner resulting in litigation between the parties. The subsidiary has
incurred a loss at December 31, 1998 of approximately $43,000. The Company has
decided to dispose of its investment in the subsidiary after the outcome of the
litigation.
The Company has estimated $382,889 as costs of disposal and loss from operations
during the disposal period estimated to be September 30, 1999.
NOTE 19 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
WEIGHTED
(LOSS) AVG. SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -------------
<S> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997
- ------------------------------------
Loss from continuing operations $ (614,034) -- $ --
----------- ----------- --------
Basic and diluted EPS loss available to common
stockholders before retroactive stock split (614,034) 30,054,724 (0.02)
Retroactive effect of 1 for 60 reverse
stock split in 1998 -- (29,553,812) --
----------- ----------- --------
Loss available to common stockholders
after retroactive effect of stock split $ (614,034) 500,912 $ (1.23)
=========== =========== ========
FOR THE YEAR ENDED DECEMBER 31, 1998
- -------------------------------------
Loss from continuing operations $(1,491,540) -- $ --
----------- ----------- --------
Basic and diluted EPS income available
to common stockholders $(1,491,540) 1,743,572 $ (0.86)
=========== =========== =======
</TABLE>
There are 1,000,000 shares of Series A convertible preferred stock outstanding
at December 31, 1998 (See Note 11). The shares are convertible into 5,000,000
shares of common stock, but were not included in the computation of diluted EPS
because their inclusion would be anti-dilutive to the loss per share amount.
-17-
<PAGE> 55
TABLE OF CONTENTS
Independent Auditor's Report............................................1
Consolidated Financial Statements:
Consolidated Balance Sheets...................................... 2-3
Consolidated Statements of Operations...............................4
Consolidated Statements of Changes in Stockholders' Equity........5-6
Consolidated Statements of Cash Flows...............................7
Notes to Consolidated Financial Statements.......................8-17
<PAGE> 56
LITEGLOW INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE> 1
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT ("Agreement") made and entered into as of this 10th day
of October, 1997, by and among KJK Marketing, Inc., a Florida corporation
("KJK"), Liteglow Industries, Inc., a Utah corporation ("Liteglow"), Liteglow
Acquisition Corp., a Florida corporation ("LAC"), and Keith and Judith Kowatch
("Kowatch"), the sole shareholders of KJK.
RECITALS
The Boards of Directors of KJK, Liteglow and LAC deem a merger of KJK
into LAC, a wholly-owned subsidiary of Liteglow ("Merger"), advisable and in the
best interests of the respective shareholders and have authorized the Merger in
accordance with the laws of their various states of organization and adopted a
Plan of Merger in substantially the form of Exhibit "A" attached hereto.
Keith and Judith Kowatch, the sole shareholders of KJK, are making
certain representations and warranties on behalf of themselves and KJK as a
condition to LAC and its shareholder, Liteglow, entering into this Agreement.
NOW, THEREFORE in consideration of the foregoing and the
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms of this Agreement and the Plan of
Merger, on the Effective Date (as defined in paragraph 1(b) of the Plan of
Merger) KJK will be merged into LAC and the separate existence of KJK will
cease. In the Merger, shares of KJK common stock issued and outstanding
immediately prior to the Effective Date shall be cancelled and converted into
the right to receive at Closing (as defined in Section 2.1) 450,000 shares of
Liteglow common stock, par value $.01 (the "KJK Shares"), representing
approximately 1.36% of Liteglow's common stock to be outstanding immediately
after the Effective Date, and cash in the amount of One Hundred Thousand Dollars
($100,000). The number of KJK Shares is subject to adjustment in accordance with
Section 3.3 hereof. The cash of $100,000 to be distributed to the shareholders
of KJK shall be paid $50,000 at Closing and the balance of $50,000 shall be
evidenced by LAC's note in the form of Exhibit 1.1.1 (the "Note") payable thirty
(30) days after Closing, without interest, secured by the assets of LAC and
guaranteed by Liteglow. As evidence of the security for the Note, LAC shall
execute and deliver to the shareholders of KJK at Closing a Security Agreement
in the form of Exhibit 1.1.2.
ARTICLE II
CLOSING
2.1 CLOSING DATE. The closing of the Merger shall occur at 10 a.m. on
October 10, 1997 (the "Closing") at Liteglow's office at 2301 NW 33rd Court
#104, Pompano Beach, Florida 33069, or at such other time or place as the
parties may mutually agree.
- 1 -
<PAGE> 2
ARTICLE III
CASH AND STOCK TO BE DELIVERED AT CLOSING
3.1 CERTIFICATES, CASH AND NOTE. As set forth in Article I hereof,
Kowatch shall receive at Closing a certificate or certificates for the KJK
Shares, cash in the amount of $50,000, and the Note.
3.2 KJK STOCK RESTRICTED. The KJK Shares shall be "restricted" shares
within the meaning of Securities and Exchange Commission Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Act"), and accordingly the
certificate or certificates representing the KJK Shares shall bear a restrictive
legend in accordance with the requirements of Rule 144.
3.3 MAKE-UP. Liteglow's current stock trading price may not adequately
reflect the value of Liteglow. Accordingly, in the event that the KJK Shares
have a "fair market value" (as hereinafter defined) of less than One Hundred
Fifty Thousand Dollars ($150,000) on the second anniversary of the Closing,
Liteglow shall deliver to Kowatch that number of shares of Liteglow common stock
(or like shares of its successor, if any) of which shall have a fair market
value equal to the difference between the fair market value of the KJK Shares
and $150,000. For purposes of this paragraph 3.3, "fair market value" shall mean
the average daily high bid and low asking price of the Liteglow's common stock
for the five business days immediately preceding the second anniversary date of
the Closing. By their execution of this Agreement, the parties confirm their
understanding that the bid price of the Liteglow's common stock as of the date
of this Agreement is approximately $.08 per share and that the KJK Shares, as
presently constituted, would have to have a fair market value of $.333 per Share
in order to have an aggregate fair market value of $150,000 as determined in
accordance with the terms of this paragraph 3.3. The maximum number of shares
that can be granted to Kowatch under this Section 3.3 shall be 450,000 shares.
The rights provided to Kowatch under this Section 3.3 may not be assigned, sold
or transferred except by operation of law.
3.4 NO REPRESENTATION OF VALUE. KJK and Kowatch hereby confirm that
neither Liteglow or LAC, any officer, director or shareholder of Liteglow or
LAC, or any agent of or professional employed by Liteglow or LAC, has made any
representation to KJK or Kowatch as to the present or future value of the
shares, the KJK Shares, Liteglow, or LAC, nor has Liteglow, LAC or any such
person made any representation with respect to the ability of Kowatch to sell
all or any part of the KJK Shares at the current market price or any other
price. Further, KJK and Kowatch hereby confirm their understanding that the
future bid or asking price of Liteglow's common stock, including the KJK Shares,
may not bear any relationship to the net tangible book value of Liteglow's
common stock and, further, may be unrelated to any other generally accepted
method of valuation of the KJK Shares.
ARTICLE IV
CLOSING
4.1 PERFORMANCE BY KJK AND KOWATCH. Prior to or at Closing KJK and
Kowatch shall deliver to LAC:
a. All third-party consents, assignments or approvals
otherwise required for
- 2 -
<PAGE> 3
LAC's assumption of any contracts, leases and agreements described hereunder.
b. Employment agreements in the form of Exhibit 4.1(b) hereto
executed by Keith Kowatch and Judith Kowatch.
c. The certificate of KJK and Kowatch that the
representations, warranties, covenants and agreements of KJK in this Agreement
shall be true, accurate and complete both on the date of the Agreement and at
Closing and that KJK has performed and complied with all agreements, covenants
and conditions required by this Agreement on their part to be performed or
complied with prior to or at Closing.
d. The opinion of counsel to KJK and Kowatch to the effect
that:
(1) KJK duly incorporated and a validly existing
corporation in good standing under the laws of the State of Florida and is duly
qualified to carry on its business and is in good standing in Florida.
(2) KJK has the requisite power and authority to
execute and deliver, and has taken all necessary corporate action to authorize
the execution and delivery of, this Agreement and the other documents and
transactions contemplated hereby.
(3) All necessary corporate proceedings, of KJK have
been taken to fully, validly and effectively authorize the Merger.
(4) The execution and delivery by KJK of this
Agreement, the performance by KJK of its obligations hereunder, and the
consummation of the transactions contemplated herein will not result in the
breach of or violate the Articles of Incorporation or ByLaws of KJK.
(5) This Agreement has been duly executed and
delivered by KJK.
(e) The obligation set forth in Section 4.1(a) shall be a
"best efforts" obligation. If KJK and Kowatch are unable to provide any consent,
assignment or approval required by Section 4.1(a), Liteglow and LAC shall have
the right, at their sole election, to complete closing of the Merger or to
terminate this Agreement, in which latter event the parties shall have no
further liability to each other with respect to this Agreement or the
transactions contemplated hereby.
4.2 LAC'S PERFORMANCE. Prior to or at Closing of this Agreement, LAC
shall deliver to KJK or Kowatch, as appropriate:
a. The cash payment, Note and certificate(s) for the KJK
Shares to be delivered at Closing and to be paid as provided in Article 3 above.
b. Employment agreements in the form of Exhibit 4.1(c) hereto
executed by LAC.
- 3 -
<PAGE> 4
c. Other Documents. All other documents or instruments
necessary or appropriate for the consummation of this transaction.
After Closing, the parties shall execute such other
instruments and documents and perform such other acts as may be necessary or
appropriate for the full implementation and consummation of this Agreement.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF KJK AND KOWATCH
KJK, Keith Kowatch and Judith Kowatch jointly and severally represent,
warrant and covenant as of the date of execution of this Agreement and as of
Closing, as follows:
5.1 EXISTENCE AND POWER. KJK is a Florida corporation duly organized
and validly existing under the laws of the State of Florida with full power
under its Articles of Incorporation and Bylaws to carry on its business as now
being conducted and to enter into and to perform this Agreement.
5.2 BINDING AGREEMENT. The execution, delivery and performance of this
Agreement by KJK has been duly authorized by all necessary action of KJK. This
Agreement has been duly executed and delivered to Liteglow and LAC by KJK and
Kowatch and constitutes a legal, valid and binding agreement of KJK and Kowatch
enforceable in accordance with its terms.
5.3 NO VIOLATION. The execution, delivery and performance of this
Agreement by KJK and Kowatch and the consummation of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both, violate, contravene, or conflict with or result in a material
breach of or constitute a default or accelerate the performance required under
(i) any writ, order, judgment or decree of any court, arbitrator or governmental
agency applicable to KJK or Kowatch; (ii) KJK's Articles of Incorporation and
Bylaws; (iii) to the best of KJK and Kowatch's knowledge, any law, rule or
regulation applicable to KJK or to the operation of its business; or (iv) any
mortgage, deed of trust, lien, lease, restriction or other contract or agreement
to which KJK or Kowatch is a party or to which any of their property is bound.
5.4 CAPITALIZATION OF KJK. The authorized capital stock of KJK consists
of only 1,000 shares of KJK common stock, $1.00 par value, of which, as of the
date hereof, 100 shares are validly issued and outstanding, fully paid and
non-assessable, and were not issued in violation of any preemptive rights. KJK
has no commitment to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person the right to acquire from it, any shares of its capital stock and no such
securities or obligations are issued or outstanding.
5.5 CONSENTS AND APPROVALS. Except for the filing of Articles of Merger
in the office of the Secretary of State of Florida, there is no requirement
applicable to KJK to make any filing with, or to obtain any permit,
authorization, consent or approval of any public body as a condition to the
consummation of the Merger. There is no requirement that any party to any
material contract of KJK, including any lease, license or permit, nor any loan
agreement to which KJK is a party or to which it is bound, consent to the
execution of this Agreement by KJK or to the consummation of the Merger.
- 4 -
<PAGE> 5
5.6 COMPLIANCE WITH APPLICABLE LAWS. To the best knowledge of KJK and
Kowatch, (i) KJK is not in default in any material respect under any executive,
legislative, judicial, administrative or private (such as arbitration) ruling,
order, writ, injunction or decree; and (ii) no material permits, licenses or
approvals of any governmental or administrative authorities are required for KJK
to own, lease and operate its properties and to carry on its business as
presently conducted.
5.7 TITLE TO PROPERTY. At Closing, KJK shall have and convey good and
marketable title to all of its property free and clear of all mortgages, liens,
pledges, security interests and encumbrances or other defects in title.
5.8 CONTRACTS. To the knowledge of KJK and Kowatch: (i) each material
contract of KJK is in full force and effect and is unimpaired by any acts or
omissions of KJK or KJK's employees or agents; (ii) there has not occurred as to
any such contract any material default by KJK or any event which, with the lapse
of time or otherwise, will become a material default of KJK; and (iii) to the
best of KJK's knowledge, without investigation, there has not occurred as to any
such contract any material default by the other parties thereto or any event
which, with the lapse of time or the election of any person other than KJK or
Kowatch, will become a default under such contract.
5.9 COPYRIGHTS, TRADEMARKS, PATENTS. To the best knowledge of KJK and
Kowatch all copyrights, trademarks, patents, tradenames, logos, service marks,
and other similar intangible property rights of KJK are in good standing and
uncontested, and neither KJK nor Kowatch has any knowledge of any material
infringement or unlawful or unauthorized use of such property rights. To the
best knowledge of KJK and Kowatch, the operation of KJK's business as presently
conducted by KJK does not infringe, and no one has asserted to KJK or Kowatch
that such operations infringe, any copyright, patent, trademark, tradename,
service mark, or other similar right of any other party.
5.10 COMPLIANCE WITH LABOR LAWS. To the best knowledge of KJK and
Kowatch, KJK is in compliance with all applicable laws, rules and regulations
relating to the employment of labor, including those relating to wages, hours,
equal employment opportunity, collective bargaining, pension and welfare benefit
plans, and the payment of Social Security and similar taxes, and is not liable
for any arrears of wages or any tax penalties for failure to comply with any of
the foregoing, except as noted on Exhibit 5.10, attached hereto and made a part
hereof.
5.11 ENVIRONMENTAL MATTERS. KJK has obtained all environmental permits
required to conduct its business as it is presently being conducted including,
without limitation, those relating to (i) emissions, discharges or threatened
discharges of pollutants, contaminants, hazardous or toxic substances or
petroleum into the air, surface water, ground water or the ocean, or on or into
the land, and (ii) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, hazardous
or toxic substances or petroleum. KJK has not received notice of, or is
otherwise aware of, any facts, events or conditions which (x) interfere with,
prevent, or, with the passage of time, could interfere with continued
substantial compliance with any of the aforementioned environmental laws,
regulations, policies, guidelines, orders, judgments or decrees, (y) may give
rise to any liability (whether based in contract, tort, implied or express
warranty, criminal or civil stature or otherwise) under any law, regulation,
- 5 -
<PAGE> 6
policy or guideline relating to hazardous emissions or handling hazardous
substances, or (z) obligate KJK or, with the passage of time, could cause KJK to
be obligated to clean up, remedy or otherwise restore to a former condition, by
itself or jointly with others, any contaminated surface water, ground water,
soil or any natural resource associated therewith.
5.12 EMPLOYEES. None of KJK's employees is represented by a union or
other collective bargaining unit, no application of recognition as a collective
bargaining unit is currently pending before the National Labor Relations Board
with respect to any of KJK's employees, and, to the best of KJK's knowledge, no
concerted effort to unionize any of its employees is currently in progress.
There are no material controversies pending or threatened between KJK and any of
its employees, and KJK and Kowatch are not aware of any facts which would
reasonably result in any such controversy.
5.13 LITIGATION. There is no litigation, action, suit, investigation or
other proceeding pending or threatened that may give rise to any claim against
any of KJK's property or adversely affect KJK's ability to perform in accordance
with the terms of this Agreement, and neither KJK nor Kowatch is aware of any
facts that could reasonably result in any such proceeding.
5.14 LIABILITIES. The financial information referenced in Section 5.17
contains a complete, correct and accurate list of all liabilities of KJK as of
the date noted in such financial information. KJK shall deliver to Liteglow and
LAC at Closing a complete, correct and accurate statement of all of KJK's
liabilities at Closing.
5.15 INVENTORY. The raw materials, work-in-process, and finished goods,
and store supplies and spare parts, which are owned by KJK, wherever they are
located, are hereinafter referred to as the "KJK Inventory." The KJK Inventory
(i) is salable in the ordinary course of business, (ii) is sufficient but not
excessive in kind or amount for the conduct of the business of KJK as it is
presently being operated, and (iii) is carried on the books of KJK at an amount
which reflects valuations not in excess of the lower of cost or market
determined in accordance with generally accepted accounting principals supplied
on a consistent basis.
5.16 ACCOUNTS RECEIVABLE. The accounts receivable for KJK as of October
6, 1997 were $12,000. Such accounts receivable and those acquired by KJK prior
to the Closing (and not collected prior to Closing) have or will have arisen in
the ordinary course of business and will have been collected or be collectible
in amounts not less than the aggregate amount thereof (net of reserves
established in accordance with the prior practice) carried on the books of KJK.
Except as reflected in Schedule 5.16, each of such accounts receivable, and
those acquired prior to the Closing, is not and will not be the subject of a
pledge or assignment, is and will be free of any and all liens, encumbrances and
charges whatsoever, and has not been and will not be placed for collection with
any attorney, collection agency or similar individual firm.
5.17 FINANCIAL STATEMENTS. KJK has previously furnished Liteglow true
and complete copies of unaudited financial statements of KJK for the fiscal year
ended December 31, 1996, and the period ended August 31, 1997, including the
notes thereto (the "KJK Unaudited Financial Statements"), together with the
report on such financial statements of KJK's accountants. The
- 6 -
<PAGE> 7
KJK Unaudited Financial Statements fairly represent the financial position of
KJK as of such dates and the results of its operations and changes in financial
position for such periods and have been prepared in accordance with generally
accepted accounting principals applied on a consistent basis.
5.18 TAX MATTERS.
(a) The provision for taxes made by KJK are sufficient for
payment of all taxes of KJK, whether or not disputed, which are properly
accruable. There are no agreements by KJK for the extension of time, or waiver
of any statute of limitations, for the assessment of any taxes, and all taxes
due and payable by KJK on or before the date of this Agreement have been paid or
provided for, and are not delinquent.
(b) KJK has filed all tax returns that it was required to
file. All such tax returns were correct and complete in all respects. No claim
has ever been made by an authority in a jurisdiction where KJK does not file tax
returns that it is or may be subject to taxation by that jurisdiction. There are
no liens on any of the assets of KJK that arose in connection with any failure
(or alleged failure) to pay any tax.
(c) KJK has withheld and paid all taxes required to have been
withheld and paid through August 31, 1997, in connection with the amounts paid
or owing to any employee, independent contractor, creditor, stockholder or other
third party.
(d) There is no dispute or claim concerning any tax liability
of KJK either claimed or raised by any authority in writing or as to which any
of the directors and officers of KJK have knowledge based upon personal contact
with any agent of such authority.
5.19 FULL DISCLOSURE. None of the representations and warranties of KJK
and Kowatch which are made in Article V of this Agreement contains and untrue
statement of material fact or omits to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
5.20 NO BROKERS OR COMMISSIONS. Neither KJK nor Kowatch has engaged any
broker, finder or similar individual in connection with this transaction for
which Liteglow or LAC shall have any liability.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF LITEGLOW AND LAC
Liteglow and LAC hereby jointly and severally represent, warrant and
covenant as of the date of execution of this Agreement and as of the Closing as
follows:
6.1 EXISTENCE AND POWER. Liteglow and LAC are corporations duly
organized, validly existing and in good standing under the laws of their states
of organization, with full power under their articles of incorporation and
bylaws to enter into and to perform this Agreement.
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<PAGE> 8
6.2 BINDING AGREEMENT. The execution, delivery and performance of this
Agreement and the other instruments contemplated by this Agreement by Liteglow
and LAC have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered to KJK and Kowatch and
constitutes the legal, valid and binding agreement of Liteglow and LAC,
enforceable in accordance with its terms.
6.3 NO VIOLATION. The execution, delivery and performance of this
Agreement by KJK and Kowatch and the consummation of the transaction
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both, violate, contravene or conflict with or result in a breach of
or constitute a default under (i) any writ, order, judgment or decree of any
court arbitrator or governmental agency applicable to Liteglow and LAC; (ii) the
articles of incorporation or bylaws of Liteglow or LAC; (iii) any contract,
lease or other agreement to which Liteglow or LAC is a party or by which
Liteglow or LAC is bound; or (iv) to the best knowledge of Liteglow or LAC, any
law, rule or regulation applicable to Liteglow or LAC.
6.4 NO BROKERS OR COMMISSIONS. Neither Liteglow nor LAC has engaged any
brokers, finders or similar individuals in connection with this transaction for
which KJK or Kowatch shall have any liability.
6.5 LITIGATION. There is no litigation, action, suit, investigation or
other proceeding pending or threatened against Liteglow or LAC that may give
rise to any claim against any of Liteglow or LAC's assets or other property, and
Liteglow or LAC is not aware of any facts that could reasonably result in any
such proceeding.
6.6 COMPLIANCE WITH APPLICABLE LAWS. To the best knowledge of LAC and
Liteglow, (i) neither LAC nor Liteglow is not in default in any material respect
under any executive, legislative, judicial, administrative or private (such as
arbitration) ruling, order, writ, injunction or decree; and (ii) no material
permits, licenses or approvals of any governmental or administrative authorities
are required for Liteglow or LAC to own, lease and operate their properties and
to carry on their business as presently conducted.
6.7 FINANCIAL STATEMENTS. Liteglow has previously furnished KJK and
Kowatch true and complete copies of audited financial statements of Liteglow for
the fiscal year ended December 31, 1996, and unaudited financial statements for
the period ended August 31, 1997 (the "Liteglow Financial Statements"), together
with the report on such audited financial statements of Liteglow's accountants.
The Liteglow Financial Statements fairly represent the financial position of
Liteglow as of such dates and the results of its operations and changes in
financial position for such periods and have been prepared in accordance with
generally accepted accounting principals applied on a consistent basis. KJK and
Kowatch confirm that they have been advised by LAC that LAC is a newly-organized
corporation and accordingly has no assets or liabilities.
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<PAGE> 9
6.8 TAX MATTERS.
(a) The provision for taxes made by Liteglow are sufficient
for payment of all taxes of Liteglow, whether or not disputed, which are
properly accruable. There are no agreements by Liteglow for the extension of
time, or waiver of any statute of limitations, for the assessment of any taxes,
and all taxes due and payable by Liteglow on or before the date of this
Agreement have been paid or provided for, and are not delinquent.
(b) Liteglow has filed all tax returns that it was required to
file. All such tax returns were correct and complete in all respects. No claim
has ever been made by an authority in a jurisdiction where Liteglow does not
file tax returns that it is or may be subject to taxation by that jurisdiction.
There are no liens on any of the assets of Liteglow that arose in connection
with any failure (or alleged failure) to pay any tax.
(c) Liteglow has withheld and paid all taxes required to have
been withheld and paid through August 31, 1997, in connection with the amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party.
(d) There is no dispute or claim concerning any tax liability
of Liteglow either claimed or raised by any authority in writing or as to which
any of the directors and officers of Liteglow have knowledge based upon personal
contact with any agent of such authority.
ARTICLE VII
CERTAIN REPRESENTATIONS AND WARRANTIES
CONCERNING LITEGLOW AND LAC
KJK and Kowatch hereby jointly and severally represent, warrant,
acknowledge and covenant to Liteglow and LAC, their officers, directors, agents
and professional advisors, as follows:
7.1 OPPORTUNITY TO EXAMINE. KJK and Kowatch have examined or have had
an opportunity to examine, and to ask questions of the management of Liteglow
and LAC about, all applicable documents and such applicable information as are
relevant to the Merger, including the delivery of cash and the KJK Shares in
consideration therefor. Among the documents made available to KJK and Kowatch
are Liteglow's private placement memorandum dated March 25, 1996, Liteglow's
audited financial statements for the year ended December 31, 1996, and the
Liteglow's unaudited profit and loss statement and balance sheet for the period
ended August 31, 1997. With respect to Liteglow's private placement memorandum
dated March 25, 1996, such memorandum has been provided to KJK and Kowatch based
upon their confirmation that KJK and Kowatch understand that such memorandum
describes Liteglow, its business, and its financial condition as of the date of
the memorandum, but does not necessarily reflect the current business or
financial condition of the Liteglow. LAC is recently organized and has no
operating history or assets as of the date of this Agreement.
7.2 AUTHORIZED AND OUTSTANDING SHARES. KJK and Kowatch confirm that (i)
Liteglow has represented to them that Liteglow has authorized 50,000,000 shares
of common stock, par value $.01 per share, of which approximately 32,601,568
shares are issued and outstanding, and
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<PAGE> 10
that of the issued and outstanding shares an aggregate of approximately
14,000,000 shares are held by Spencer Krumholz, who is the President of
Liteglow, and his wife, Arlene Krumholz, who is Liteglow's secretary; and (ii)
LAC has represented to them that LAC has authorized 1000 shares of common stock,
no par value, all of which are held, or to be held, by Liteglow.
7.3 NO PRESENTATIONS AS TO PROFIT OR LOSS. No representation or
warranty of any kind has been made to KJK or Kowatch with respect to the
percentage of profit and/or amount or type of consideration, profit or loss that
are to be realized, if any, as a result of the acquisition of the KJK Shares
(including any additional shares of Liteglow which may be received by Kowatch
pursuant to this Agreement) including, without limitation, any representation by
KJK or Kowatch, or any agent, professional advisor, employee or affiliate of
them, and that in entering into this transaction KJK and Kowatch are not relying
upon any information other than that derived from the results of their own
independent investigation, or the investigation of their counsel and other
professional advisors, or from information furnished in writing by Liteglow or
LAC to them. KJK and Kowatch have had an opportunity to ask questions of and
receive answers from Liteglow or LAC concerning Liteglow or LAC and the terms
and conditions of the Merger and all such questions have been answered to their
full satisfaction.
7.4 KJK SHARES REGISTERED. KJK and Kowatch understand that the sale of
the KJK Shares has not been registered under the Act nor under the securities
laws of any state in reliance on exemptions therefrom for non-public offerings,
and further understand that the KJK Shares have not been approved or disapproved
by the Securities and Exchange Commission nor has any state securities
administrator or agency passed on the accuracy or adequacy of any written
information provided by Liteglow or LAC to KJK or Kowatch.
7.5 INVESTMENT INTEREST. Kowatch is acquiring the KJK Shares for their
own account for investment purposes only and not with a view to the sale or
other distribution thereof, in whole or in part.
7.6 NO OBLIGATION TO REGISTER KJK SHARES. Kowatch acknowledge that
neither Liteglow nor LAC is under no obligation to them or any assignee of them
to obtain any exemption from the registration requirements of the Act or any
state securities act, and in any event Kowatch shall be responsible for
compliance with all conditions on transfer imposed by any securities
administrator of any state for any expenses incurred by Liteglow for legal or
accounting services in connection with reviewing such a proposed transfer and/or
issuing opinions in connection therewith.
7.7 NO ASSURANCES AS TO TAX CONSEQUENCES. No assurances are or have
been made regarding the federal income tax consequences of the Merger or the
receipt of the KJK Shares or any additional common stock of Liteglow, nor has
any assurance been given that any federal income tax consequences of such
transactions will not be changed through adoption of new laws, amendments to
existing laws or regulations, or changes in the interpretation of existing laws
and regulations; and KJK and Kowatch confirm that it has consulted its own tax
advisor with respect to the tax consequences and aspects of the Merger,
including the payment of cash and the delivery of the KJK Shares.
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<PAGE> 11
7.8 RELIANCE ON REPRESENTATIONS. KJK and Kowatch acknowledge that KJK
and Kowatch understand the meaning and legal consequences of the
representations, warranties, acknowledgements and covenants in this Article VII
and that Liteglow and LAC have relied and will rely thereon.
ARTICLE VIII
INDEMNIFICATION
8.1 LITEGLOW'S RIGHT TO INDEMNIFICATION. KJK and Kowatch jointly and
severally undertake and agree to hold Liteglow and LAC harmless against any and
all losses, costs, liabilities, claims, obligations and expenses, including
reasonable attorneys' fees, incurred or suffered by Liteglow or LAC arising from
(i) the breach, misrepresentation or other violation of any covenants, warranty
or representation of or by KJK or Kowatch contained in this Agreement, and (ii)
all liabilities of KJK not disclosed in writing to Liteglow and LAC prior to the
execution of this Agreement. This indemnity provision shall survive Closing for
a period of two (2) years.
8.2 KOWATCH'S RIGHT TO INDEMNIFICATION. Liteglow and LAC jointly and
severally undertake and agree to hold KJK and Kowatch harmless against any and
all losses, costs, liabilities, claims, obligations and expenses, including
reasonable attorneys' fees, incurred or suffered by KJK or Kowatch arising from
(i) the breach, misrepresentation or other violation of any covenants,
warranties and representations of Liteglow or LAC contained in this Agreement,
(ii) all liabilities of KJK or Kowatch which are assumed by LAC pursuant to this
Agreement, and (iii) all liabilities of KJK accruing after Closing. This
indemnity provision shall survive Closing for a period of two (2) years.
8.3 PROCEDURE. If any claim or proceeding covered by the foregoing
agreements to indemnify and hold harmless shall arise, the party who seeks
indemnification (the "Indemnified Party") shall given written notice thereof to
the other party (the "Indemnitor") promptly (but in no event more than ten (10)
days) after it learns of the existence of such claim or proceeding. Any claim
for indemnification hereunder shall be accompanied by evidence demonstrating the
Indemnified Party's right or possible right to indemnification, including a copy
of all supporting documents relevant thereto. The Indemnitor shall have the
right to employ counsel reasonably acceptable to the Indemnified Party to defend
against any such claim or proceeding, or to compromise, settle or otherwise
dispose of the same; PROVIDED, HOWEVER, that no settlement or compromise shall
be effected without the consent of the Indemnified Party, which consent shall
not be unreasonably withheld, and PROVIDED FURTHER that in the event the
Indemnified Party does not consent to a BONA FIDE offer of settlement made by a
third party and the settlement involves only the payment of money, then the
Indemnitor may, in lieu of payment of such settlement to such third party, pay
such amount to the Indemnified Party. After the payment to the Indemnified
Party, the Indemnitor shall have no further liability with respect to such claim
or proceeding and the Indemnified Party shall assume full responsibility to
defend the same. After notice from the Indemnitor to the Indemnified Party of
its election to assume the defense of such claim or proceeding, the Indemnitor
shall not be liable to the Indemnified Party under this paragraph for any legal
or other expenses subsequently incurred by the Indemnified Party in connection
with the defense thereof; PROVIDED, HOWEVER, that the Indemnified Party shall
have the right to employ counsel to represent it if, in the Indemnified Party's
sole judgment, it is advisable for the Indemnified Party to be represented by
separate counsel, and in that event the fees and expenses
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<PAGE> 12
of such separate counsel shall be paid by the Indemnified Party. The parties
will fully cooperate in any such action, making available to each other books or
records for the defense of any such claim or proceeding. If the Indemnitor fails
to acknowledge in writing its obligation to defend against or settle such claim
or proceeding within ten (10) days after receiving notice of the claim or
proceeding from the Indemnified Party (or such shorter time specified in the
notice as the circumstances of the matter may dictate), the Indemnified Party
shall be free to dispose of the matter, at the expense of the Indemnitor (but
subject to the Indemnitor's right subsequently to contest through appropriate
proceedings its obligation to provide indemnification), in any way which the
Indemnified Party deems in its best interest.
8.4 LIMITATIONS ON INDEMNIFICATION RIGHTS. Indemnification shall be due
only to the extent of the loss or damage actually suffered (i.e., reduced by any
offsetting or related asset or service received and by any recovery from any
third party, such as an insurer), net after the amount equal to any reduction in
federal, state or local income, franchise or other taxes occasioned by such loss
or damage (even though the tax return by which such reduction would have been
realized is not yet due), but including an amount equal to any increase in
federal, state and local income, franchise or other taxes occasioned by the
indemnification payment and then only to the extent of the excess over the
Agreed De Minimis Amount (hereinafter defined). In the event that Kowatch is the
Indemnitor, the Indemnified Party shall first apply as a set-off any amount due
Kowatch under Section 3.3. The Indemnitor shall be subrogated to all rights of
the Indemnified Party against any third party with respect to any claim for
which indemnification is paid. Notwithstanding the foregoing, the Indemnitor
shall not be liable to the Indemnified Party for any individual
misrepresentation, breach of warranty or violation of covenant where the
otherwise indemnifiable amount does not exceed $500.00 and, as regards all such
indemnifiable misrepresentations or breaches of warranty that do not exceed
$500, the Indemnitor shall not be liable except to the extent that the aggregate
amount thereof exceeds $1,000 (such sum being herein referred to as the "Agreed
De Minimis Amount"); PROVIDED, HOWEVER, that the Agreed De Minimis Amount shall
not apply with respect to the indemnification otherwise due for any third-party
claims.
ARTICLE IX
GENERAL PROVISIONS
9.1 BULK SALES ACT. The parties agree to waive compliance with any bulk
sales statute that may be applicable to the transactions contemplated by this
Agreement.
9.2 EXPENSES. Except as otherwise provided herein, each party shall pay
its own expenses incident to the negotiation and preparation of this Agreement
and the transaction contemplated hereby. All other recording costs for bills of
sale and other instruments of transfer, and all stamp, sales, use and transfer
taxes shall be paid by LAC.
9.3 NOTICES. All notices, requests, demands and other communications
pertaining to this Agreement shall be in writing and shall be deemed duly given
when delivered personally with a receipt, when delivered by an overnight courier
service or mailed by certified mail, return receipt requested, postage prepaid,
addressed as follows:
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<PAGE> 13
(a) To: Liteglow or LAC: Liteglow Industries, Inc.
2301 NW 33rd Court #104
Pompano Beach, FL 33069
With a copy to: Jonathan L. Shepard, Esquire
Siegel, Lipman, Dunay & Shepard
5355 Town Center Road, Suite 801
Boca Raton, Florida 33486
(b) To KJK or Kowatch: KJK Marketing, Inc.
2649 Mercy Drive
Orlando, Florida 32808
With a copy to: Ed Alexander, Esquire
Suite I, 7491 Conroy Windemere Road
Orlando, Florida 32835
Either party may change its address for notices by written notice to the other
given pursuant to this paragraph.
9.4 CERTAIN BREACHES. Neither party shall have any liability to the
other party with respect to a breach by a party of which the other party has
received written notice at or prior to Closing.
9.5 PRIOR NEGOTIATIONS. This Agreement supersedes in all respects all
prior and contemporaneous oral and written negotiations, understandings and
agreements between the parties with respect to the subject matter hereof. All of
said prior and contemporaneous negotiations, understandings and agreements are
merged herein and superseded hereby.
9.6 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Exhibits to
this Agreement set forth the entire understanding between the parties in
connection with the transaction contemplated herein, there being no terms,
conditions, warranties or representations other than those contained herein,
referenced herein or provided for herein. Neither this Agreement nor any term or
provision hereof may be altered or amended in any manner except as an instrument
in writing signed by the party against whom the enforcement of any such change
is sought.
9.7 EXHIBITS. The Exhibits attached hereto or referred to herein are a
material part of this Agreement, as if set forth in full herein. In the event
any Exhibit is not attached hereto at the time of execution of this Agreement,
KJK and Kowatch shall attach such Exhibit as soon as practicable following the
date of execution of this Agreement.
9.8 SEVERABILITY. If any term of this Agreement is illegal or
enforceable at law or in equity, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. Any illegal or unenforceable term shall be deemed to be void
and of no force and effect only to the minimum extent necessary to bring such
term within the provisions of any applicable law or laws and such term, as so
modified, and the balance of this Agreement shall then be fully enforceable.
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<PAGE> 14
9.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise
specifically noted herein, the several representations, warranties and covenants
of the parties contained herein shall survive the closing for a period of two
(2) years from the Closing date. Thereafter neither party shall have any
liability to the other based upon any of the representations, warranties and
covenants set forth herein.
9.10 WAIVER. Unless otherwise specifically agreed in writing to the
contrary: (i) the failure of either party at any time to require performance by
the other of any provision of this Agreement shall not affect such party's right
thereafter to enforce the same, (ii) no waiver by either party of any default by
the other shall be taken or held to be a waiver by such party of any other
preceding or subsequent default, and (iii) no extension of time granted by
either party for the performance of any obligation or act by the other party
shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
9.11 NUMBER AND GENDER. Whenever the context so requires, words used in
the singular shall be construed to mean or include the plural and vice versa,
and pronouns of any gender shall be construed to mean or include any other
gender or genders.
9.12 HEADINGS AND CROSS-REFERENCES. The headings of this Agreement are
included for convenience of reference only, and shall in no way limit or affect
the meaning or interpretation of the specific provisions hereof. All
cross-references to paragraphs herein shall mean the paragraphs of this
Agreement unless otherwise stated or clearly required by the context. All
references to Exhibits herein shall mean the Exhibits to this Agreement. Words
such as "herein" and "hereof" shall be deemed to refer to this Agreement as a
whole and not to any particular provision of this Agreement unless otherwise
stated or clearly required by the context.
9.13 CHOICE OF LAWS. This Agreement is to be construed and governed by
the laws of the State of Florida, except for the choice of law rules utilized in
that jurisdiction.
9.14 ARBITRATION. Any dispute arising under or related to this
Agreement that the parties are unable to resolve by themselves shall be settled
by arbitration in the State of Florida, by a panel of three arbitrators.
Liteglow and LAC shall together designate one disinterested arbitrator and
Kowatch shall designate another disinterested arbitrator, and the two
arbitrators so designated shall select the third arbitrator. The persons
selected as arbitrators need not be professional arbitrators, and persons such
as accountants, appraisers and bankers shall be acceptable. Before undertaking
to resolve the dispute, each arbitrator shall be duly sworn faithfully and
fairly to hear and examine the matters in controversy and to make a just award
according to the best of his or her understanding. The arbitration hearing shall
be conducted in accordance with the rules of the American Arbitration
Association. The written decision of a majority of the arbitrators shall be
final and binding on the parties. Costs and expenses of the arbitration
proceeding shall be assessed between the parties in a manner to be decided by a
majority of the arbitrators, and the assessment shall be set forth in the
decision and award of the arbitrators. No action at law or suit in equity based
upon any claim arising out of or relating to this Agreement shall be instituted
in any court by a party against another except an action to compel arbitration
pursuant to this paragraph, an action to enforce the award of the arbitration
panel rendered in accordance with this paragraph, or a suit for specific
performance as may be specifically provided herein.
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<PAGE> 15
9.15 SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns.
9.16 THIRD PARTIES. Nothing in this Agreement, whether expressed or
implied, is intended to (i) confer any rights or remedies on any person other
than the parties and their respective successors and assigns, (ii) relieve or
discharge the obligation or liability of any third party, or (iii) or give any
third party any right of subrogation or action against any party hereto.
9.17 COUNTERPARTS. This Agreement may be signed in counterparts with
the same effect as if the signature on each counterpart were on the same
instrument. Each of the counterparts, when signed, shall be deemed to be an
original, and all of the signed counterparts together shall be deemed to be one
and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first above written.
ATTEST: KJK Marketing, Inc., a Florida
corporation
By: /s/ Keith Kowatch
- ----------------------------------- -----------------------------------
Keith Kowatch, President
(Corporate Seal)
Liteglow Industries, Inc., a
Delaware corporation
By: /s/ Spencer Krumholz
- ----------------------------------- -----------------------------------
Spencer Krumholz, President
(Corporate Seal)
Liteglow Acquisition Corp., a
Florida corporation
By: /s/ Spencer Krumholz
- ----------------------------------- -----------------------------------
Spencer Krumholz, President
(Corporate Seal)
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<PAGE> 16
/s/ Keith Kowatch
- ----------------------------------- -----------------------------------
Keith Kowatch, individually
/s/ Judith Kowatch
- ----------------------------------- -----------------------------------
Judith Kowatch, individually
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<PAGE> 1
ASSET PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") made and entered into as of this 15th day
of September, 1998, by and between RONALD BASOFF, individually and d/b/a B&B
Associates, 14141 Cobello Street, Unit 5-A, Van Nuys, California 91405
("Seller"), and LITEGLOW INDUSTRIES OF CALIFORNIA, INC., a corporation organized
under the laws of the State of Florida.
W I T N E S S E T H :
WHEREAS, Seller owns and operates an automobile accessories business as
a sole proprietorship under the name B&B Associates at 14141 Cobello Street,
Unit 5-A, Van Nuys, California 91405 (the "Business"); and
WHEREAS, the parties desire that Buyer purchase all of the assets of
Seller used or useful in the operation of the Business as described herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties, intending to be legally bound, agree as follows:
1. PROPERTY AND LIABILITIES.
1.1 ASSETS TO BE CONVEYED. Seller hereby agrees to sell,
assign, transfer, convey and deliver to Buyer the following (the "Assets"):
(a) All the fixed and tangible personal property used
in the operation of the Business, which is described in Exhibit "1.1(a)"
attached hereto and made a part hereof, together with all inventory, equipment,
fixtures, furniture and other tangible property of Seller.
(b) The contracts, leases (including, without
limitation, the lease for the Business premises at the location described above)
and other agreements listed or described in Exhibit "1.1(b)," attached hereto
and made a part hereof (the "Contracts").
(c) All of Seller's right, title and interest in and
to the names "B&B Associates," "Baretta," "Force," and all other tradenames,
servicemarks, logos, copyrights and similar materials or rights used to identify
or promote the Business (the "Promotional Rights"). Immediately after closing,
Seller shall discontinue all use of the Promotional Rights, including without
limitation the names "B&B Associates," "Baretta," "Force," and all similar names
and abbreviations thereof.
(d) The goodwill and other intangible property used
in the operation of the Business, including, but not limited to, all magnetic
media, electronic data processing files,
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<PAGE> 2
systems and programs, telephone number or numbers, patents, trade secrets,
know-how, sales and operating plans and non-competition covenants.
(e) All Seller's right, title and interest in any
licenses, permits and authorizations issued by any federal, state or local
regulatory agencies that are used in the operation of the Business to the extent
the same are transferrable.
(f) All business records of Seller used in the
operation of the Business and not relating solely to Seller's internal affairs,
in whatever medium they may be stored (the "Business Records"), subject to
Seller's right, after closing, to have access thereto and make copies thereof
pursuant to Article 11 hereof. The Business Records shall include, without
limitation, all books of account, customer lists, supplier lists, employee
personal files, business studies, consultants' reports, budgets and financial
reports and projections.
(g) All accounts receivable arising from the
operation of the Business (the "Accounts Receivable") (i) as described in
Exhibit "1.1(g)" attached hereto and made a part hereof, and (ii) otherwise
outstanding as of the Closing Date (as hereinafter defined).
(h) Seller's insurance policies in effect in the date
of this Agreement as described on Exhibit "1.1(h)" attached hereto and made a
part hereof.
(i) Property not otherwise included in subparagraphs
(a) through (h) above shall be INCLUDED property and shall be conveyed or
transferred by Seller to Buyer; provided, however, that the following shall be
EXCLUDED property (the "Excluded Property") and shall not be conveyed to Buyer:
(1) Such books and records as pertain solely
to the organization, existence and capitalization of Seller;
(2) Seller's cash and cash equivalents on
hand or in banks, certificates of deposit, money market funds, securities and
similar type investments as of the closing date (hereinafter defined);
(3) Except to the extent otherwise noted
herein, all employee pension benefit and profit-sharing plans, all trusts
established thereunder and all assets thereof.
1.2 LIABILITIES TO BE ASSUMED. On the closing date
(hereinafter defined), Buyer shall assume only those Business liabilities of
Seller specifically set forth in Exhibit "1.2" hereto (the "Liabilities").
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<PAGE> 3
2. CLOSING DATE AND INSPECTION PERIOD.
2.1 The closing of this Agreement (the "Closing") shall occur
on September 25, 1998, at 10:00 A.M. (the "Closing Date") in the offices of
Seller's counsel or at such other location as is mutually agreed to by Buyer and
Seller. The Closing Date may be extended only by the mutual written consent of
the parties.
2.2 Commencing upon the date of execution of this Agreement
and continuing until the Closing Date (the "Investigation Period"), the Buyer
may, in Buyer's sole discretion, review all books and records relating to the
Business and the Assets, including but not limited to all accounting records and
support documents, all governmental licenses, all inventory, customer lists,
material contracts, the premises at which the Business is located, and all
documents relating to the management, operation, maintenance or ownership or use
of the Assets and the Business. Buyer and its agents shall have the right to
make copies of such books, documents and records and to conduct such review as
Buyer deems appropriate.
2.3 Buyer shall have the right to enter into any real property
owned, leased or managed by the Seller and review the books and records of the
Seller, wherever located, for the purpose of undertaking such investigations and
review as the Buyer shall deem appropriate. The Buyer shall conduct all visits,
inspections and reviews in a reasonable manner as to minimize the inconvenience
to the Seller. The Buyer shall not disclose any information or the content of
any documents to any person or entity without the prior written consent of the
Seller, except that the Buyer may disclose such information to Buyer's
attorneys, accountants, and proposed lenders, if any, acting on Buyer's behalf
in connection with this Agreement.
2.4 At any time if before the Closing Date, at Buyer's sole
discretion Buyer may provide written notice of termination of this Agreement to
the Seller based upon the Buyer's investigation described in this Article 2. In
the event that this Agreement is terminated by the Buyer in accordance with this
Paragraph 2.4, the Deposit (hereinafter defined) plus all accrued interest
thereon, if any, shall be returned to the Buyer and the Agreement shall be
terminated and null and void.
3. PURCHASE PRICE AND METHOD OF PAYMENT.
3.1 PURCHASE PRICE. The purchase price for the Assets shall be
Two Hundred Fifty Thousand Dollars ($250,000) (the "Purchase Price"), subject to
adjustment and payable in cash, note and stock, as provided in this Agreement.
An adjustment to the Purchase Price (the "Purchase Price Adjustment") will be
made at Closing as follows:
(a) All tangible personal property taxes on the
Assets shall be prorated on the basis of the taxes for the preceding year unless
the current year's taxes are available; and, if prorated on the basis of the
preceding year, the same will be adjusted and reprorated between
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the parties after the closing whenever the taxes for the current year are
available. Such taxes are to be prorated as of the end of the day immediately
preceding the date of closing and shall be based upon the net taxes remaining
after the deduction for the maximum allowable discount.
(b) All rent prepaid by Seller on the lease covering
the Business premises shall be prorated to the date of Closing and Seller shall
receive all unearned portion thereof from Buyer in cash at the time of the
Closing. Also, Buyer shall reimburse Seller at Closing for any security deposit
paid by Seller to and on deposit with landlord on such lease, provided that such
deposit shall be credited to the Buyer by the landlord.
(c) All deposits heretofore paid by Seller for
utilities, telephone services and other similar services shall remain the
property of Seller, which must obtain refunds of same from the firms to which
the deposits have been paid.
(d) Should Buyer elect to assume and transfer any of
the existing insurance policies of Seller covering the business activities
described herein or the assets described herein, the premium on such policies
which is prepaid past Closing shall be prorated as of the end of the day
immediately preceding Closing and Buyer shall reimburse Seller in cash at
closing for the amount of such premiums which have been prepaid past said date.
3.2 PAYMENT AT CLOSING. On the Closing Date, Buyer shall pay
to Seller the Purchase Price, subject to the Purchase Price Adjustment described
in Paragraph 3.1(a) above, which Purchase Price shall be paid in the following
manner:
(a) At closing Buyer shall deliver to Seller Buyer's
check in the amount of Fifty Thousand Dollars ($50,000).
(b) At closing Buyer shall deliver to Seller Buyer's
promissory note in the principal amount of One Hundred Thousand Dollars $100,000
in the form of Exhibit "3.2(b)" hereto (the "Note"). The Note shall not bear
interest. The Note shall be secured by a lien on the Assets payable in
accordance with a security agreement between Buyer and Seller to be executed and
delivered at closing and shall be evidenced by a financing statement on Form
UCC-1 which Seller shall execute and deliver to Buyer at closing.
(c) At closing Buyer shall deliver to Seller
1,000,000 shares of the common stock, par value $.001 (the "Stock"), of Buyer's
parent company, Liteglow Industries, Inc. ("Liteglow").
3.3 The Stock shall be "restricted" shares within the meaning
of Securities and Exchange Commission Rule 144 promulgated under the Securities
Act of 1933, as amended (the "Act"), and accordingly the certificate or
certificates representing the shares shall bear a restrictive legend restricting
the resale or transfer of the Stock.
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3.4 Buyer has advised Seller that Liteglow's current common
stock trading price may or may not necessarily reflect the value of Liteglow or
the Stock. In the event that the Stock has a "fair market value" (as hereinafter
defined) of less than One Hundred Thousand Dollars ($100,000) on the second
anniversary of the Closing, Liteglow shall deliver to Seller that number of
shares of Liteglow common stock (or like shares of its successor, if any) of
which shall have a fair market value equal to the difference between the fair
market value of the Stock and $100,000. For purposes of this paragraph 3.4,
"fair market value" shall mean the average daily high bid and low asking price
of the Liteglow's common stock for the five business days immediately preceding
the anniversary date of the Closing. By their execution of this Agreement, the
parties confirm their understanding that the bid price of the Liteglow's common
stock as of the date of this Agreement is approximately $.014 per share and that
the Stock, as presently constituted, would have to have a fair market value of
$.10 per share in order to have an aggregate fair market value of $100,000 as
determined in accordance with the terms of this paragraph 3.4. The rights
provided to Seller under this Section 3.4 may not be assigned, sold or
transferred.
3.5 Seller hereby confirms that neither Liteglow nor Buyer,
nor any officer, director or shareholder of Liteglow or Buyer, or any agent of
or professional employed by Liteglow or Buyer, has made any representation to
Seller as to the present or future value of the Stock, Liteglow, or Buyer, nor
has Liteglow, Buyer or any such person made any representation with respect to
the ability of Seller to sell all or any part of the Stock at the current market
price or any other price. Further, Seller hereby confirms his understanding that
the future bid or asking price of Liteglow's common stock, including the Stock,
may not bear any relationship to the net tangible book value of Liteglow's
common stock and, further, may be unrelated to any other generally accepted
method of valuation of the Stock.
3.6 By his execution of this Agreement, Seller hereby
confirms, warrants and represents to Buyer and Liteglow that (i) Seller has
received such information concerning Seller and Liteglow as Buyer has requested
in connection with the sale of the Assets to Buyer and the receipt of Stock in
partial payment of the purchase price of the Assets; and (ii) Seller has had an
opportunity to ask questions of Liteglow and Buyer, and of the management of
both companies, with respect to their respective companies and businesses,
including, without limitation, the existing and anticipated financial condition
and prospects of both companies; and (iii) Buyer has employed such accounting,
legal and other professionals as Seller has deemed appropriate or necessary in
connection with the transactions described in this Agreement, including the
acquisition of Stock as a part of the purchase price of the Business, and such
professional advisors have been given access to such materials, and have asked
such questions of management of Liteglow and Buyer, as they or Seller have
deemed necessary.
4. APPORTIONMENT OF INCOME AND EXPENSES.
In the event this transaction is ultimately closed on the
Closing Date or another date mutually agreeable to Seller and Buyer, Seller
shall be entitled to all income received by Seller
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from the operation of the Business until 11:59 p.m. on the day immediately
preceding the Closing. Upon Closing, Buyer shall be entitled to all income
received by Buyer from the operation of the Business (notwithstanding whether
such income is received on account of operations before or after Closing) after
11:59 p.m. on the day immediately preceding the Closing. In the event this
transaction does not close, no such apportionment of income shall occur.
5. EMPLOYEES.
Seller shall be responsible for the payment of all
compensation due to Seller's employees through 11:59 p.m. on the day immediately
preceding Closing, including without limitation all sales commissions,
profit-sharing and the like arising from the operation of the Business.
6. NONCOMPETITION COVENANT.
6.1 Except as otherwise provided herein, Seller, Seller's
wife, Kathleen Basoff, and Seller's brother, David Basoff (collectively the
"Covenantors"), covenant and agree that for a period of two (2) years after the
termination of Seller's employment contract with Buyer executed concurrently
herewith, they shall not, within any of the United States or within any foreign
country in which the Buyer or Liteglow now or may hereafter do business,
individually or collectively, directly or indirectly: (i) compete against Buyer
or Liteglow in the automotive security business; (ii) take any action to finance
or provide any other material assistance to any person or entity engaged in such
competition in the automotive security business against Buyer or Liteglow; or
(iii) without Buyer's prior written consent, offer employment to or solicit an
offer of employment from any employee of Buyer or Liteglow or attempt to
influence any employee of Buyer or Liteglow to terminate his or her employment
with Buyer or Liteglow.
6.2 Notwithstanding anything to the contrary in this Article
6, the Covenantors shall each have the right to be employed by a competitor of
Employer or Liteglow within the automotive security business, provided that the
Covenantors shall not be an owner of, or have an equity interest in, any such
employer and may not use confidential or proprietary information of the Employer
or Liteglow in connection with such other employment. As used in this Section
6.2, confidential and proprietary information shall include, without limitation,
information concerning any supplier, customer, the price paid for products, the
sale price of products to other than retail customers, or any other information
concerning the manner of operation, plans, processes of Employer or Liteglow.
6.3 The Covenantors each acknowledge that compliance with the
provision of this paragraph is of material importance to Buyer, and that in the
event of any breach of the foregoing provisions, Buyer could not be reasonably
or adequately compensated by monetary damages. Therefore, each Covenantor agrees
that Buyer shall be entitled to injunctive or other equitable relief in the
event of a breach or threatened breach of this paragraph by such
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Covenantor, in addition to, and not in lien of, any other relief to which Buyer
may be entitled.
7. CLOSING.
7.1 SELLER'S PERFORMANCE. Prior to or on the Closing Date of
this Agreement, Seller shall deliver to Buyer:
(a) THIRD-PARTY CONSENTS. Except as otherwise
provided herein, all third-party consents, assignments or approvals otherwise
required for Buyer's assumption of any contracts, leases and agreements
described hereunder (including, but not limited to, Seller's lease with respect
to premises at 14141 Cobello Street, Unit 5-A, Van Nuys, California 91405, so
that Buyer will enjoy all the rights and privileges of Seller under such
contracts or obligations, subject only to the same terms and conditions as are
binding on Seller pursuant to the present terms of such contracts, leases and
agreements. This provision shall not require Seller to undertake any
extraordinary measures to secure any required third-party consents, assignments
or approvals and shall not require Seller to pay for or to undertake any
extraordinary measures or to institute litigation against any third-party
failing to give such required consent, assignment or approval; however, if
Seller fails to deliver any covenant, assignment or approval required by this
Paragraph 7.1(a), Buyer shall have the absolute right to terminate this
Agreement.
(b) LESSORS' CERTIFICATES. Except as otherwise
provided herein, certificates from the lessors of all personal and real property
interests leased by Seller stating (i) that the lease is in full force and
effect and has not been modified, (ii) the date to which all rent and other sums
due thereunder have been paid, and (iii) that, to the best of lessor's
knowledge, Seller, as lessee, is not in default under the lease and no event has
occurred that, with notice, the passage of time or both, would constitute a
default thereunder by Seller.
(c) OPINION OF SELLER'S COUNSEL. The written opinion
of Seller's counsel dated as of Closing, to the following effect:
(1) This Agreement has been duly executed by
Seller and (i) the execution and delivery of this Agreement, (ii) the
consummation of the transactions contemplated by this Agreement, and (iii)
compliance with the terms and conditions hereof will not conflict with, or
violate any law, regulation, judgment, decree, order, agreement or other
instrument to which Seller is a party or by which Seller is legally bound.
(2) This Agreement constitutes the legal,
valid and binding obligation of Seller enforceable in accordance with its terms
except as its enforceability may be limited by bankruptcy, insolvency,
moratorium and other laws relating to or affecting creditors' rights generally
and by the exercise of judicial discretion in accordance with general equitable
principles.
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(3) There are no outstanding judgments,
suits, actions or claims pending, threatened or deemed by Seller to be probable
of assertion, or governmental proceeding that would have a material adverse
effect upon the Business or upon the Assets after closing, except as noted on
Exhibit "7.1(c)(3)" attached hereto and made a part hereof.
(4) No action or proceeding is pending or
threatened against Seller that questions or may affect the validity of any
action to be taken by Seller pursuant to this Agreement, or that seeks to
restrain Seller from carrying out the transaction contemplated by the Agreement
or Seller's obligation's hereunder.
(5) The foregoing opinions shall be for the
sole benefit of, and may be relied upon by, Buyer.
(d) Employment agreements of Ronald and David Basoff
in the forms of Exhibit 7.1(d) hereto.
(e) Unaudited income statement for the nine months
ended September 30, 1998, and an unaudited balance sheet dated September 30,
1998, together with Seller's certification to be delivered in accordance with
paragraph 8.15.
7.2 BUYER'S PERFORMANCE. Prior to or at Closing Buyer shall
deliver to Seller the cash payment and a certificate for the Stock to be
delivered at Closing as provided in Article 3 above and the delivery of all
other documents or instruments necessary or appropriate for the consummation of
this transaction, including but not limited to the delivery of the original Note
and security agreement described in Paragraph 3.2(b), above. After closing, the
parties shall execute such other instruments and documents and perform such
other acts as may be necessary or appropriate for the full implementation and
consummation of this Agreement.
8. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
Seller hereby represents, warrants and covenants as of the
date of execution of this Agreement and as of the Closing Date, as follows:
8.1 BINDING AGREEMENT. The execution, delivery and performance
of this Agreement by Seller has been duly authorized by all necessary action.
This Agreement has been duly executed and delivered to Buyer and constitutes a
legal, valid and binding agreement of Seller, enforceable in accordance with its
terms.
8.2 EFFECT OF AGREEMENT. The execution, delivery and
performance of this Agreement by Seller and the consummation of the transactions
contemplated hereby will not, with or without the giving of notice and the lapse
of time, or both, (a) violate any provision of law, statute, rule or regulation
to which the Seller is subject; (b) violate any judgment, order, writ or
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decree of any court applicable to the Seller; (c) have any effect on any of the
permits, licenses, orders or approvals referred to in Paragraph 8.3 hereof or
the ability of Buyer to make use of such permits, licenses, orders or approvals;
or (d) result in the breach of or conflict with any term, covenant, condition or
provision of, result in the modification or termination of, constitute a default
under, or result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Seller
pursuant to its articles of incorporation, by-laws, commitments, contracts or
other agreements or instruments to which the Seller is a party or by which any
of its respective Assets is or may be bound or affected.
8.3 NO VIOLATION. The execution, delivery and performance of
this Agreement by Seller and the consummation of the transaction contemplated
hereby will not, with or without the giving of notice or the lapse of time or
both, violate, contravene, or conflict with or result in a material breach of or
constitute a default or accelerate the performance required under (i) any writ,
order, judgment or decree of any court, arbitrator or governmental agency
applicable to Seller; (ii) any law, rule or regulation applicable to Seller or
to the operation of the Business; or (iii) any mortgage, deed of trust, lien,
lease, restriction or other contract or agreement to which Seller is a party or
by which any of the Assets is bound.
8.4 COMPLIANCE WITH APPLICABLE LAWS. To the best of Seller's
knowledge, (i) Seller is not in default in any material respect under any
executive, legislative, judicial, administrative or private (such as
arbitration) ruling, order, writ, injunction or decree; and (ii) no material
permits, licenses or approvals of any governmental or administrative authorities
are required for Seller to own, lease and operate its properties and to carry on
the Business substantially as presently conducted except as set forth in Exhibit
"8.4" hereto.
8.5 GOVERNMENT AND OTHER CONSENTS. No consents, authorization
or approval of, or exemption by, any governmental or public body or authority is
required in connection with the execution, delivery and performance by the
Seller of this Agreement or any of the instruments or agreements herein referred
to, or the taking of any action herein contemplated.
8.6 NECESSARY PROPERTY. The Assets include all of Seller's
assets reasonably necessary for the operation of the Business as it is now being
operated by Seller.
8.7 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES,
ETC. The Seller owns in fee and has good and marketable title to all of its real
property and good title to all other properties and assets free and clear of all
mortgages, claims, liens, charges and encumbrances except (i) as referred to in
the Financial Statements (as defined in Paragraph 8.15) or disclosed in the
notes thereto, (ii) as referred to in Exhibit "8.7" to this Agreement, and (iii)
such imperfections of title, if any, which do not materially detract from the
value, or interfere with the use, of the properties of the Seller or otherwise
materially impair its business operations. The fixed assets of the Seller
referred to in the financial statements are all located on real property owned
or leased by the Seller. The leases and other agreements or instruments under
which the
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Seller holds, leases or is entitled to the use of any real or personal property
are in full force and effect and all rentals, royalties or other payments
accruing thereunder prior to the date hereof have been duly paid. No default or
event of default exists and no event which with notice or lapse of time (or
both) would constitute a default has occurred and is continuing under the terms
or provisions, express or implied, of any of such leases, agreements or other
instruments or under the terms or provisions of any agreement to which any of
such properties is subject. The Seller has not received notice of violation of
any applicable law, ordinance, regulation, order or requirement relating to its
operations or its owned or leased properties.
8.8 CONDITION OF BUILDINGS, EQUIPMENT. The buildings and
equipment owned, operated, or leased by the Seller are in good condition and
repair and suitable for the uses for which intended. All such buildings and
equipment are in conformity with all applicable laws, ordinances, regulations,
orders, and other requirements relating thereto currently in effect or scheduled
to come into effect.
8.9 CONTRACTS. The contracts listed or described in Exhibit
"8.9" include all the contracts to which Seller is a party or by which Seller is
bound and which have a material effect on Seller's revenues or expenses. To the
best of Seller's knowledge: (i) each contract is in full force and effect and is
unimpaired by any acts or omissions of Seller or Seller's officers, directors,
employees or agents; (ii) there has not occurred as to any contract any material
default by Seller or any event which, with the lapse of time or otherwise will
become a material default of Seller; and (iii) there has not occurred as to any
contract any material default by the other parties thereto or any event which,
with the lapse of time or the election of any person other than Seller, will
become a default under such contract. Neither the Seller, nor to the knowledge
of the Seller any other party, is in arrears in respect of the performance or
satisfaction of the terms or conditions on its part to be performed or satisfied
under any of the contractual commitments and no waiver or indulgence has been
granted by any of the parties thereto. Seller has no knowledge of any loss or
expected loss of any business relationship of the Seller, whether with a
customer, supplier, or significant employee. There are no existing laws,
regulations or decrees nor, to the knowledge of the Seller, any proposed laws,
regulations or decrees which adversely affect or might adversely affect the
rights of the Seller under any of its existing contracts by reason of the
present ownership by the Business or by reason of the proposed sale of the
Assets by the Seller to the Buyer as contemplated by this Agreement.
8.10 COMPLIANCE WITH LABOR LAWS. To the best of Seller's
knowledge, Seller is in compliance with all applicable laws, rules and
regulations relating to the employment of labor, including those relating to
wages, hours, equal employment opportunity, collective bargaining, pension and
welfare benefit plans, and the payment of Social Security and similar taxes, and
is not liable for any arrears of wages or any tax penalties for failure to
comply with any of the foregoing.
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8.11 EMPLOYEES. None of Seller's employees are represented by
a union or other collective bargaining unit, no application of recognition as a
collective bargaining unit is currently pending before the National Labor
Relations Board with respect to any of the Business' employees, and, to the best
of Seller's knowledge, no concerted effort to unionize any of its employees is
currently in progress. There are no material controversies pending or threatened
between the Seller and any of its employees, and Seller is not aware of any
facts which would reasonably result in any such controversy. There are no
discrimination, harassment, or unemployment claims threatened or pending against
Seller. Exhibit "8.11," attached hereto and made a part hereof, contains an
accurate list of all persons currently employed by Seller together with a
description of the terms and conditions of their respective employment as of the
date of this Agreement.
8.12 LITIGATION. There is no litigation, action, suit,
investigation or other proceeding pending or threatened that may give rise to
any claim against any of the Assets, or which may adversely affect the Business
to be acquired by the Buyer hereunder, or which may adversely affect Seller's
ability to perform in accordance with the terms of this Agreement, and Seller is
not aware of any facts that could reasonably result in any such proceeding.
8.13 LIABILITIES. The financial information contained in
Exhibit "8.15" delivered simultaneously with the execution of this Agreement
contains a complete, correct and accurate list of all liabilities of Seller as
of the date noted in such financial information.
8.14 TAX MATTERS. The Seller has: (i) prepared and filed with
the appropriate governmental agencies, and all foreign countries and political
subdivisions thereof, if applicable, all tax returns required to be filed; (ii)
paid all taxes shown on such tax returns to be payable or which have become due
pursuant to any assessment, deficiency, notice, 30-day letter or similar notice
received by it; and (iii) paid all withholding, FICA and other federal, state
and local tax payments required to be paid. Any provisions for income taxes
payable in the financial statements are sufficient for all accrued and unpaid
domestic and foreign taxes, whether or not disputed and for all periods to and
including the date of the Financial Statements. The Seller has not executed or
filed with the Internal Revenue Service or any other taxing authority any
agreement extending the period for assessment or collection of any income taxes
nor is it a party to any pending action or proceeding by any governmental
authority for assessment or collection of taxes, and no claim for assessment or
collection of taxes has been, or with reasonable cause could be, asserted
against it.
8.15 FINANCIAL INFORMATION. Seller has furnished Buyer with
the unaudited financial information and the Federal corporate tax returns listed
in Exhibit "8.15," attached hereto and made a part hereof (the "Financial
Statements"). All financial information contained in Exhibit "8.15": (i) has
been prepared in accordance with Seller's books and records for the Business on
a consistent basis throughout the periods involved and as compared with prior
periods, and, subject to normal year-end adjustments where applicable, is true,
complete and correct in all
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material respects and fairly presents the Business' financial position, income,
expenses, assets, liabilities and equity and the results of operation of the
Business as of the dates and for the periods indicated; (ii) is true, complete
and correct in all material respects; and (iii) fairly presents the Business'
financial position, income, expenses, assets, liabilities and shareholders'
equity, and the results of operation of the Business as of the dates and for the
periods indicated. The Seller shall provide Buyer at Closing a certificate
signed by him certifying as to the matters contained in the preceding sentence
of this Paragraph 8.15.
8.16 ABSENCE OF UNDISCLOSED LIABILITIES. The Financial
Statements described in Paragraph 8.15 make full and adequate provisions for all
obligations, liabilities and commitments of the Seller and as of the dates of
the Financial Statements the Seller shall not have had any additional
obligations, liabilities or commitments required to be reserved in the financial
statements.
8.17 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the dates of
the Financial Statements described in Paragraph 8.15 above, the Business has
not:
(a) incurred any obligation or liability (fixed or
contingent) except (i) trade or business obligations incurred in the ordinary
course of business, none of which is materially adverse, and (ii) obligations
and liabilities under this Agreement;
(b) suffered any material adverse change in its
financial condition, results of operations, properties, business or prospects
nor had any material contract or business relationship terminated or curtailed
except routine contracts of the kind generally performed by the Business;
(c) suffered the occurrence of any events which,
individually or in the aggregate, have had, or might reasonably be expected to
have, a material adverse effect on its financial condition, results of
operations, properties, business or prospects;
(d) incurred damage or destruction in any material
amount of its assets by fire, storm, or other like or unlike casualty, whether
or not covered by insurance;
(e) mortgaged, pledged or subjected to lien or any
other encumbrance any of its assets or properties;
(f) sold, transferred or leased any of its assets or
properties, except for sale, transfers or leases of assets or property in the
ordinary course of business and which is not material in the aggregate;
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(g) canceled or compromised any debt or claim except
for adjustments made with respect to contracts for its services in the ordinary
course of business, which in the aggregate are not material;
(h) waived or released any rights of any material
value;
(i) transferred or granted any rights under any
leases, licenses, agreements, patents, inventions, trademarks, trade names,
copyrights, or with respect to know-how;
(j) made or granted any general wage or salary
increase or engaged any new officer or employee or entered into any employment
agreement with any officer or employee for a period of employment of more than
30 days or given any bonus or other extra compensation to Seller or any employee
of Seller;
(k) made any increase in or commitment to increase
any employee benefits or adopted or made any commitments to adopt any additional
employee benefit plan;
(l) entered into any transaction other than in the
ordinary course of business;
(m) suffered any operating loss or any other loss
except as previously disclosed to Buyer and noted in the Financial Statements;
or
(n) made or entered into any contract or commitment
to make any capital expenditures in excess of $5,000 in the aggregate.
8.18 OPERATIONS PRIOR TO CLOSING. Between the date of this
Agreement and the Closing:
(a) Seller will operate the Business in the usual,
regular and ordinary manner; and, to the extent consistent with such operation,
has used and will use its best efforts to (i) preserve Seller's present business
organization intact; (ii) keep available the services of Seller's employees; and
(iii) preserve Seller's business relationship with customers, suppliers and
others having business dealings with it.
(b) Seller will advise Buyer of any material changes
in the financial condition or the results of its operations.
(c) Seller will not sell, factor or discount any
Accounts Receivable, or otherwise take any action, including but not limited to
offering discounts, bonuses or other consideration for prompt payment, to
accelerate or anticipate the collection of any Accounts
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Receivable except as is consistent with Seller's past practices and is in the
ordinary course of Seller's Business.
8.19 NO BROKERS OR COMMISSIONS. Buyer shall be solely
responsible for the payment of, and shall pay, to such broker employed any and
all commissions due such broker. Seller hereby agrees to indemnify, defend and
hold harmless Buyer on account of any commissions, fees, expense, or other
compensation due to such broker or any other broker which Seller has employed,
or which claims to have been employed, in connection with the sale of the
Business to the Buyer.
8.20 ABSENCE OF COUPONS, BONUS CERTIFICATES AND OTHER
PROMOTIONAL ARRANGEMENTS. Seller has not provided to any person any coupon,
discount arrangement, or bonus certificate or other promotional arrangement of
any kind for promotional or other purposes entitling any person to purchase
goods or services at less than the price normally charged by Seller for such
goods or services. Notwithstanding Seller's representation, in the event that
any such certificate, coupon or arrangement is presented to Buyer after the
Closing Date, or if Buyer independently learns of any such coupon, bonus
certificate or arrangement after the Closing Date, then Buyer may deduct the
amount of such discount, bonus certificate, or other promotional device from the
amount payable on the Note.
8.21 AGREEMENTS, PLANS, ARRANGEMENTS. Except as set forth in
Exhibit "8.9," or on any other Exhibit hereto, the Seller is not a party to, nor
are any of its respective properties and assets bound or affected by, any
(a) lease agreement (whether as lessor or lessee)
relating to real or personal property;
(b) license or franchise agreement or contract
relating to trademarks, patents, copyrights (or applications therefor),
unpatented designs or styles, know-how or technical assistance;
(c) agreements for the purchase or sale of goods,
materials, supplies, machinery or capital assets in excess of $5,000 in any one
case or in excess of $10,000 in the aggregate;
(d) agreement with any labor union;
(e) agreement with any distributor, dealer, sales
agent or representative;
(f) agreement with any manufacturer or supplier with
respect to discounts or allowances;
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<PAGE> 15
(g) agreement guaranteeing, indemnifying or otherwise
becoming liable for the obligations or liabilities of another;
(h) agreement granting any person a lien, security
interest or mortgage on any property or asset of the Seller, including, without
limitation, any factoring agreement or agreement for the assignment of accounts
receivable or inventory;
(i) agreement for the construction or modification of
any building or structure or for the incurrence of any other capital
expenditure;
(j) bonus, deferred compensation, profit sharing,
pension, retirement, stock option, stock purchase, hospitalization, insurance or
other plan, arrangement or practice providing employee or executive benefits;
(k) advertising agreement with a newspaper, magazine
or radio or television station;
(l) agreement which restricts it from doing business
anywhere in the world;
(m) agreement, statute or regulation giving any party
the right to renegotiate or require a reduction in prices or the repayment of
any amount previously paid;
(n) policy of insurance (including surety bonds) in
force with respect to Seller or any of its properties, assets or executive
officers; or
(o) other agreement affecting the Seller or the
business except written contracts for the purchase or sale of goods or services
made in the usual and ordinary course of business terminable without liability
to the Seller upon notice to the other party thereto of not more than thirty
(30) days and not otherwise referred to above.
8.22 ACCOUNTS RECEIVABLE. The Accounts Receivable arose and
will arise from bonafide transactions in the ordinary course of business and
will have been collected in full within a reasonable period of time after the
date of Closing. As provided in Paragraph 3.1(b) the Seller guarantees the
collection by the Buyer within six (6) months of the date of Closing of all
Accounts Receivable outstanding as of Closing. Such guarantee shall be
enforceable by the right of set off provided in Paragraph 3.1(b).
8.23 PURCHASE OR SALE OBLIGATIONS. All unfilled purchases and
sales orders and other commitments for purchases and sales made by the Seller
were made in the usual and ordinary course of its business at the then current
market prices. None of such orders or commitments call for deliveries thereunder
beyond a period of ninety (90) days from the Closing.
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<PAGE> 16
8.24 BOOKS AND RECORDS. The books of account and other
financial and corporate records of the Seller are in all material respects
complete and correct, are maintained in accordance with good business practices,
and are accurately reflected in the financial statements. The minute books of
the Seller as previously made or to be made available to Buyer contain accurate
records of all meetings and accurately reflect all other corporate action of the
stockholders and directors of the Seller.
8.25 ENVIRONMENTAL MATTERS. To the best knowledge of Seller
(a) there is no real or personal property now or in the past owned or leased by
the Seller (i) on which property there has ever been stored hazardous material,
waste, or other environmentally regulated substances which have created a
hazardous waste problem, or (ii) which property was or is environmentally
contaminated and Seller has received notice of such contamination; and (b) the
Seller and any property now or in the past owned or leased by the Seller are in
compliance with all federal, state, and local environmental laws and
regulations.
8.26 NO MATERIAL MISREPRESENTATIONS OR OMISSIONS. The
representations of Seller in this Agreement and the Exhibits hereto do not now,
nor shall they at Closing, contain any untrue statement of a material fact, nor
do this Agreement and the Exhibits hereto now omit, nor will they omit at
Closing, to state any material fact, necessary to make the representations of
Seller not misleading.
9. BUYER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Buyer hereby
represents, warrants and covenants as of the date of execution of this Agreement
and as of Closing as follows:
9.1 EXISTENCE AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, with full power under its Articles of Incorporation and Bylaws to enter
into and to perform this Agreement.
9.2 BINDING AGREEMENT. This Agreement has been duly executed
and delivered to Seller and constitutes the legal, valid and binding agreement
of Buyer enforceable in accordance with its terms.
9.3 NO VIOLATION. The execution, delivery and performance of
this Agreement by Buyer and the consummation of the transaction contemplated
hereby will not, with or without the giving of notice or the lapse of time or
both, violate, contravene or conflict with or result in a breach of or
constitute a default under (i) any writ, order, judgment or decree of any court
arbitrator or governmental agency applicable to Buyer; (ii) Buyer's Articles of
Incorporation or Bylaws; (iii) any contract, lease or other agreement to which
Buyer is a party or by which Buyer is bound; or (iv) to the best of Buyer's
knowledge, any law, rule or regulation applicable to Buyer.
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<PAGE> 17
9.4 NO BROKERS OR COMMISSIONS. Buyer has engaged no brokers,
finders or similar individuals in connection with this transaction.
10. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Seller and the Buyer herein contained
shall survive the Closing for a period of twelve (12) months with respect to any
investigation made by or on behalf of either party and with respect to any
breach thereof.
10.2 BUYER'S RIGHT TO INDEMNIFICATION. Seller undertakes and
agrees to (a) indemnify, defend and hold harmless Buyer against and in respect
of, (b) reimburse Buyer upon demand for and against, and (c) give Buyer a right
of set off against Buyer's Note indebtedness to Seller under Section 3.2(b)
hereof, with respect to, any and all losses, costs, liabilities, claims,
obligations and expenses, including reasonable attorneys' fees, incurred or
suffered by Buyer arising from (i) the operation of the Business or ownership of
the Assets prior to Closing; (ii) the breach, misrepresentation or other
violation of any of Seller's covenants, warranties or representations contained
in this Agreement; (iii) all liabilities of Seller not expressly assumed by
Buyer pursuant to this Agreement; (iv) all liens, charges or encumbrances on any
of the Assets which are not expressly permitted by this Agreement; and (v) all
claims for damages made by any party to a Contract who refuses to consent to the
assignment hereof to Buyer and whose claim for damages is based on the premise
that Seller breached that Contract by assigning same to Buyer. The obligations
under this Paragraph 10.1 shall cease and terminate three years from the Closing
Date and Buyer shall have no right of indemnification unless such claim for
indemnification is made within three years from the Closing Date.
10.2 SELLER'S RIGHT TO INDEMNIFICATION. Buyer undertakes and
agrees to hold Seller harmless against any and all losses, costs, liabilities,
claims, obligations and expenses, including reasonable attorneys' fees, incurred
or suffered by Seller arising from (i) the operation of the Business after
Closing; (ii) breach, misrepresentation or other violation of any of Buyer's
covenants, warranties and representations contained in this Agreement; (iii) all
liabilities of Buyer and all Liabilities of Seller which are assumed by Buyer;
and (iv) all liabilities of the Business accruing after the Closing Date.
Buyer's obligations under this Paragraph 10.2 shall cease and terminate three
years from the Closing Date and Seller shall have no right of indemnification
unless such claim for indemnification is made within three years from the
Closing Date.
10.3 PROCEDURE. If any claim or proceeding covered by the
foregoing agreements to indemnify and hold harmless shall arise, the party who
seeks indemnification (the "Indemnified Party") shall given written notice
thereof to the other party (the "Indemnitor") promptly (in no event more than
ten (10) days) after it learns of the existence of such claim or proceeding. Any
claim for indemnification hereunder shall be accompanied by evidence
demonstrating the Indemnified Party's right or possible right to
indemnification, including a copy of all supporting
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<PAGE> 18
documents relevant thereto. The Indemnitor shall have the right to employ
counsel reasonably acceptable to the Indemnified Party to defend against any
such claim or proceeding, or to compromise, settle or otherwise dispose of the
same; PROVIDED, HOWEVER, that no settlement or compromise shall be effected
without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld and PROVIDED FURTHER, that in the event the Indemnified
Party does not consent to a BONA FIDE offer of settlement made by a third party
and the settlement involves only the payment of money, then the Indemnitor may,
in lieu of payment of such settlement to such third party, pay such amount to
the Indemnified Party. After the payment to the Indemnified Party, the
Indemnitor shall have no further liability with respect to such claim or
proceeding and the Indemnified Party shall assume full responsibility to defend
the same. After notice from the Indemnitor to the Indemnified Party of its
election to assume the defense of such claim or proceeding, the Indemnitor shall
not be liable to the Indemnified Party under this paragraph for any legal or
other expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof; PROVIDED, HOWEVER, that the Indemnified Party shall have
the right to employ counsel to represent it if, in the Indemnified Party's sole
judgment, it is advisable for the Indemnified Party to be represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Indemnified Party. The parties will fully cooperate
in any such action, making available to each other books or records for the
defense of any such claim or proceeding. If the Indemnitor fails to acknowledge
in writing its obligation to defend against or settle such claim or proceeding
within twenty (20) days after receiving notice of the claim or proceeding from
the Indemnified Party (or such shorter time specified in the notice as the
circumstances of the matter may dictate), the Indemnified Party shall be free to
dispose of the matter, at the expense of the Indemnitor (but subject to the
Indemnitor's right subsequently to contest through appropriate proceedings its
obligation to provide indemnification), in any way which the Indemnified Party
deems in its best interest.
10.4 LIMITATIONS ON INDEMNIFICATION RIGHTS. Indemnification
shall be due only to the extent of the loss or damage actually suffered (i.e.,
reduced by any offsetting or related asset or service received and by any
recovery from any third party, such as an insurer), net after the amount equal
to any reduction in federal, state or local income, franchise or other taxes
occasioned by such loss or damage (even though the tax return by which such
reduction would have been realized is not yet due), but including an amount
equal to any increase in federal, state and local income, franchise or other
taxes occasioned by the indemnification payment and then only to the extent of
the excess over the Agreed De Minimis Amount (hereinafter defined). The
Indemnitor shall be subrogated to all rights of the Indemnified Party against
any third party with respect to any claim for which indemnification is paid.
Notwithstanding the foregoing, the Indemnitor shall not be liable to the
Indemnified Party for any individual misrepresentation, breach of warranty or
violation of covenant where the otherwise indemnifiable amount does not exceed
$500.00 and, as regards all such indemnifiable misrepresentations or breaches of
warranty that do not exceed $500.00, the Indemnitor shall not be liable except
to the extent that the aggregate amount thereof exceeds $2,000.00 (such sum
being herein referred to as the "Agreed De Minimis Amount"); PROVIDED, HOWEVER,
that the Agreed De Minimis Amount shall not apply
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<PAGE> 19
with respect to the indemnification otherwise due for any third-party claims.
11. ACCESS TO INFORMATION AND DOCUMENTS AFTER CLOSING.
At Buyer's request, Seller shall permit Buyer to have reasonable
access, after closing, to the corporate books and records included in the
Excluded Property to the extent Buyer has legitimate need therefor, and to make
copies of such materials for Buyer's own and confidential use.
12. GENERAL PROVISIONS.
12.1 EXPENSES. Except as otherwise provided herein, each party
shall pay its own expenses incident to the negotiation and preparation of this
Agreement and the transaction contemplated hereby. All documentary stamp taxes
on the Note and the costs of filing or recording any security instrument
pertaining to the Note shall be paid by Buyer. All other recording costs for
bills of sale and other instruments of transfer, and all stamp, sales, use and
transfer taxes shall be paid by Seller.
12.2 NOTICES. All notices, requests, demands and other
communications pertaining to this Agreement shall be in writing and shall be
deemed duly given when delivered personally with a receipt, when delivered by an
overnight courier service or mailed by certified mail, return receipt requested,
postage prepaid, addressed as follows:
(a) To Buyer: Liteglow Industries of California, Inc.
2301 N.W. 33rd Court #104
Pompano Beach, Florida 33069
With a copy to: Jonathan L. Shepard, Esquire
Siegel, Lipman, Dunay & Shepard
5355 Town Center Road, Suite 801
Boca Raton, Florida 33486
(a) To Seller: Ronald Basoff
9253 Petit Avenue
Sepulveda, California 91343
With a copy to:
--------------------------------------
--------------------------------------
--------------------------------------
Either party may change its address for notices by written notice to the other
given pursuant to this paragraph.
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<PAGE> 20
12.3 PRIOR NEGOTIATIONS. This Agreement supersedes in all
respects all prior and contemporaneous oral and written negotiations,
understandings and agreements between the parties with respect to the subject
matter hereof. All of said prior and contemporaneous negotiations,
understandings and agreements are merged herein and superseded hereby.
12.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Exhibits to this Agreement set forth the entire understanding between the
parties in connection with the transaction contemplated herein, there being no
terms, conditions, warranties or representations other than those contained
herein, referenced herein or provided for herein. Neither this Agreement nor any
term or provision hereof may be altered or amended in any manner except as an
instrument in writing signed by the party against whom the enforcement of any
such change is sought.
12.5 EXHIBITS. The Exhibits attached hereto or referred to
herein are a material part of this Agreement, as if set forth in full herein. In
the event any Exhibit is not attached hereto at the time of execution of this
Agreement, Seller shall attach such Exhibit as soon as practicable following the
date of execution of this Agreement.
12.6 SEVERABILITY. If any term of this Agreement is illegal or
enforceable at law or in equity, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. Any illegal or unenforceable term shall be deemed to be void
and of no force and effect only to the minimum extent necessary to bring such
term within the provisions of any applicable law or laws and such term, as so
modified, and the balance of this Agreement shall then be fully enforceable.
12.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless
otherwise specifically noted herein, the several representations, warranties and
covenants of the parties contained herein shall survive the closing for a period
of two years from the Closing Date. Thereafter neither party shall have any
liability to the other based upon any of the representations, warranties and
covenants set forth herein.
12.8 WAIVER. Unless otherwise specifically agreed in writing
to the contrary: (i) the failure of either party at any time to require
performance by the other of any provision of this Agreement shall not affect
such party's right thereafter to enforce the same, (ii) no waiver by either
party of any default by the other shall be taken or held to be a waiver by such
party of any other preceding or subsequent default, and (iii) no extension of
time granted by either party for the performance of any obligation or act by the
other party shall be deemed to be an extension of time for the performance of
any other obligation or act hereunder.
12.9 NUMBER AND GENDER. Whenever the context so requires,
words used in the singular shall be construed to mean or include the plural and
vice versa, and pronouns of any gender shall be construed to mean or include any
other gender or genders.
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<PAGE> 21
12.10 HEADINGS AND CROSS-REFERENCES. The headings of this
Agreement are included for convenience of reference only, and shall in no way
limit or affect the meaning or interpretation of the specific provisions hereof.
All cross-references to paragraphs herein shall mean the paragraphs of this
Agreement unless otherwise stated or clearly required by the context. All
references to Exhibits herein shall mean the Exhibits to this Agreement which
have been separately initialed by Seller and Buyer. Words such as "herein" and
"hereof" shall be deemed to refer to this Agreement as a whole and not to any
particular provision of this Agreement unless otherwise stated or clearly
required by the context.
12.11 COUNSEL. Each party has been represented by its own
counsel in connection with the negotiation and preparation of this Agreement
and, consequently, each party hereby waives the application of any rule or law
that would otherwise be applicable in connection with the interpretation of this
Agreement, including, but not limited to, any rule of law to the effect that any
provision of this Agreement shall be interpreted or construed against the party
whose counsel drafted that provision.
12.12 CHOICE OF LAWS; VENUE. This Agreement is to be construed
and governed by the laws of the State of Florida, except for the choice of law
rules utilized in that jurisdiction. Venue for the resolution of any dispute
hereunder shall be Fort Lauderdale, Florida.
12.13 ARBITRATION. Any dispute arising under or related to
this Agreement that Seller and Buyer are unable to resolve by themselves shall
be settled by arbitration in Fort Lauderdale, Florida, by a panel of three
arbitrators. Seller and Buyer shall each designate one disinterested arbitrator,
and the two arbitrators so designated shall select the third arbitrator. The
persons selected as arbitrators need not be professional arbitrators, and
persons such as accountants, appraisers and bankers shall be acceptable. Before
undertaking to resolve the dispute, each arbitrator shall be duly sworn
faithfully and fairly to hear and examine the matters in controversy and to make
a just award according to the best of his or her understanding. The arbitration
hearing shall be conducted in accordance with the rules of the American
Arbitration Association. The written decision of a majority of the arbitrators
shall be final and binding on Seller and Buyer. Costs and expenses of the
arbitration proceeding shall be assessed between Seller and Buyer in a manner to
be decided by a majority of the arbitrators, and the assessment shall be set
forth in the decision and award of the arbitrators. No action at law or suit in
equity based upon any claim arising out of or relating to this Agreement shall
be instituted in any court by Seller or Buyer against the other except an action
to compel arbitration pursuant to this paragraph, an action to enforce the award
of the arbitration panel rendered in accordance with this paragraph, or a suit
for injunction or other equitable relief pursuant to Article 6.
12.14 SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.
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<PAGE> 22
12.15 THIRD PARTIES. Nothing in this Agreement, whether
expressed or implied, is intended to (i) confer any rights or remedies on any
person other than Buyer, Seller and their respective successors and assigns,
(ii) relieve or discharge the obligation or liability of any third party, or
(iii) or give any third party any right of subrogation or action against either
Buyer or Seller.
12.16 COUNTERPARTS. This Agreement may be signed in
counterparts with the same effect as if the signature on each counterpart were
on the same instrument. Each of the counterparts, when signed, shall be deemed
to be an original, and all of the signed counterparts together shall be deemed
to be one and the same instrument.
12.17 NO OFFER. This Agreement has been provided for
examination only and does not constitute an offer. This Agreement shall become
effective only after execution hereof (or counterparts hereof) by both Seller
and Buyer.
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
executed by their duly authorized officers as of the date and year first above
written.
ATTEST/WITNESS: SELLER:
/s/ Estelle Basoff /s/ Ronald Basoff
- ------------------------------------ ------------------------------------
Estelle Basoff Ronald Basoff
BUYER:
LITEGLOW INDUSTRIES OF
CALIFORNIA, INC.
/s/ Kim Crespo By: /s/ Spencer Krumholz
- ------------------------------------ ------------------------------------
Kim Crespo Spencer Krumholz, President
As to Article 6 only:
/s/ David Basoff
------------------------------------
David Basoff
Kathleen Basoff executes this Agreement for purposes of confirming her
agreement to the sale of the Assets and waiving any marital rights which she may
have in connection with the Assets, the Business, and the sale contemplated
herein.
/s/ Kathleen Basoff
------------------------------------
Kathleen Basoff
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<PAGE> 23
ASSET PURCHASE AGREEMENT
BETWEEN RONALD BASOFF
AND LITEGLOW INDUSTRIES OF CALIFORNIA, INC.
EXHIBIT INDEX
Exhibit 1.1(a) Fixed and Tangible Personal Property
Exhibit 1.1(b) Contracts, Leases, Other Agreements to be sold
Exhibit 1.1(g) Accounts Receivable
Exhibit 1.1(h) Insurance Policies
Exhibit 1.2 Liabilities
Exhibit 3.2(b) Promissory Note
Exhibit 7.1(c)(3) Judgments, Suits, Actions or Claims
Exhibit 7.1(d) Employment Agreements of Ronald and David Basoff
Exhibit 8.4 Compliance with Laws
Exhibit 8.7 Title, Liens, Encumbrances
Exhibit 8.9 Material Contracts
Exhibit 8.11 Employees
Exhibit 8.15 Federal Corporate Tax Returns and Financial Statements
(Income Statement for the seven months ended July 31, 1998,
and Balance Sheet dated July 31, 1998)
<PAGE> 1
BUSINESS CONSULTING AGREEMENT
AGREEMENT, made and entered into as of the 11th day of November, 1999,
by and between Xcel Associates, Inc. a New Jersey Corporation, with offices
located at 224 Middle Road, 2nd floor, Hazlet, New Jersey 07730 ("XAI") and
Liteglow Industries, Inc., a Nevada Corporation with offices located at 2301 NW
33rd Court, Unit 104, Pompano Beach, Florida 33069 (LTGL)
W I T N E S S E T H:
WHEREAS, XAI provides consultation and advisory services relating to
business management and marketing; and
WHEREAS, LTGL desires to utilize XAI services in connection with its
operations.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, XAI and LTGL hereby agree as follows:
1. CONSULTING SERVICES. Effective as of November 11, 1999, by and subject to the
terms and conditions herein contained, XAI shall provide business management,
marketing consultation and advisory services to LTGL. Such services shall
include (a) the preparation, implementation and monitoring of business and
marketing plans, (b) advice concerning production layout and planning and
internal controls and (c) such other managerial assistance as XAI shall deem
necessary or appropriate for LTGL's business.
2. PAYMENT. In consideration for the services of XAI to be provided hereunder,
LTGL agrees to issue or transfer to XAI or its designee the two hundred thousand
(200,000) shares of LTGL common stock. The shares shall be investment shares
that are restricted pursuant to SEC, Rule 144 but fully paid, non-accessible. If
XAI identifies an Investment Banker, Investment Fund, or other such Financial
Institution and LTGL agrees to utilize its service XAI or its designee shall be
issued 100,000 shares of LTGL common stock. The shares shall be fully paid,
non-accessible, and freely tradable shares, issued pursuant to an appropriate
registration or an acceptable exemption.
3. EXPENSES. LTGL shall reimburse XAI for all pre-approved travel and other
expenses incurred by it in rendering services hereunder, including any expenses
incurred by consultants when such consultants are temporarily located outside of
the metropolitan New York, area for the purpose of rendering services to or for
the benefit of LTGL pursuant to this Agreement. XAI shall provide receipts and
vouchers to LTGL for all expenses for which reimbursement is claimed.
- 1 -
<PAGE> 2
4. INVOICES. All pre-approved invoices for services provided to LTGL and
expenses incurred by XAI in connection therewith shall be payable in full within
ten (10) days of the date of such invoice. Payment of invoices shall be made by
wire transfer to: Summit Bank, ABA: 021202162, Account: 4247021126, FBO Xcel
Associates, Inc.
5. PERSONNEL. XAI shall be an independent contractor and no personnel utilized
by XAI in providing services hereunder shall be deemed an employee of LTGL.
Moreover, neither XAI nor any such person shall be empowered hereunder to act on
behalf of LTGL. XAI shall have the sole and exclusive responsibility and
liability for making all reports and contributions, withholdings, payments and
taxes to be collected, withheld, made and paid with respect to persons providing
services to be performed hereunder on behalf of LTGL, whether pursuant to any
social security, unemployment insurance, worker's compensation law or other
federal, state or local law now in force and effect or hereafter enacted.
6. XAI ASSISTANCE. LTGL agrees to provide XAI with such secretarial, clerical
and bookkeeping assistance as XAI may reasonably request and shall otherwise
cooperate with XAI personnel in their rendering of services hereunder. LTGL
further agrees to provide XAI monthly a certified shareholders list and on a
weekly basis the DTC sheets.
7. TERM AND TERMINATION. This Agreement shall be effective from November 11,
1999, and shall continue in effect for a period of six months thereafter. This
Agreement may be renewed for a provisional three-month periods thereafter, upon
mutual agreement of the parties.
8. NON-ASSIGNABILITY. The rights, obligations, and benefits established by this
Agreement shall not be assignable by either party hereto. This Agreement shall,
however, be binding upon and shall inure to the benefit of the parties and their
successors.
9. CONFIDENTIALITY. Neither XAI nor any of its consultants, other employees,
officers, or directors shall disclose knowledge or information concerning the
confidential affairs of LTGL with respect to LTGL's business or finances that
was obtained in the course of performing services provided for herein.
10. LIMITED LIABILITY. Neither XAI nor any of its consultants, other employees,
officers or directors shall be liable for consequential or incidental damages of
any kind to LTGL that may arise out of or in connection with any services
performed by XAI hereunder.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey without giving effect to the
conflicts of law principles thereof or actual domicile of the parties.
- 2 -
<PAGE> 3
12. NOTICE. Notice hereunder shall be in writing and shall be deemed to have
been given at the time when deposited for mailing with the United States Postal
Service enclosed in a registered or certified postpaid envelope addressed to the
respective party at the address of such party first above written or at such
other address as such party may fix by notice given pursuant to this paragraph.
13. NO OTHER AGREEMENTS. This Agreement supersedes all prior understandings,
written or oral, and constitutes the entire Agreement between the parties hereto
with respect to the subject matter hereof. No waiver, modification or
termination of this Agreement shall be valid
unless in writing signed by the parties hereto.
IN WITNESS WHEREOF, LTGL and XAI have dully executed this Agreement as of the
day and year first above written.
LITEGLOW INDUSTRIES, INC.
By:
------------------------------------
Mr. Spencer Krumholz, Chairman
XCEL ASSOCIATES, INC.
By:
------------------------------------
Edward T. Whelan, President
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<PAGE> 1
DASZKAL, BOLTON, MANELA, DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N. W. BOCA RATON BOULEVARD, SUITE #100, BOCA RATON, FL 33431
TELEPHONE (561)367-1040 FAX (561)750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN, CPA. P.A.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement on Form 10-SB of our
report dated May 21, 1999, relating to the consolidated financial statements of
Liteglow Industries, Inc. and subsidiaries for the years ended December 31, 1998
and 1997.
Boca Raton, Florida /s/ Daszkal, Bolton, Manela, Devlin &Co.
November 1, 1999
