As filed with the Securities and Exchange Commission on August ___, 1999.
File No. ___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
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
Part I
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.......................33
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Part F/S
Financial Statements........................................................34
Part III
Item 1. Index to Exhibits...............................................35
Signatures..................................................................36
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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"), 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, on August 26, 1996. Pursuant
to the merger agreement between the Utah and Florida corporations, the
shareholders of the Florida corporation were issued a majority of the Company's
outstanding shares upon the completion of the merger and accordingly assumed
control of the Company. Concurrently with the
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merger, the Utah corporation assumed the ongoing business of the Florida
corporation, which business is described in the succeeding paragraphs under this
caption "Description of Business."
The Company
The Company's existing business was established by its founder, Spencer
Krumholz, upon the incorporation of Liteglow Industries of Florida, Inc.
("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's business
initially focused on developing a line of 12-volt automotive accessories
designed to enhance vehicle appearance, including neon license plate frames and
neon under-car lighting lights. Since the 1996 merger between Liteglow Florida
and the Company, the Company has expanded its product offerings to include
functional, yet popular, automotive products such as driving and fog lights,
lighted dice, and other auto accessories.
The Company is seeking to position itself in the niche market catering to
the automotive and electronics enthusiasts. This unique 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 objective is to establish itself rapidly as
the largest specialty distributor of 12-volt automotive aftermarket accessories,
to expand its position in the automotive aftermarket and electronics industries
by introducing new products, acquiring the Company's compatible businesses, and
expanding its presence in all channels of distribution. 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, purchased all of the shares of KJK Marketing, Inc. ("Low Glow"), a
Florida corporation manufacturing neon automotive accessories under the name
"Low Glow." The Company's Low Glow subsidiary manufactures sixty neon automotive
products at its Orlando, Florida, facility. The Low Glow acquisition permitted
the Company to combine certain redundant operations, to source products at
material cost savings in combination with its Low Glow subsidiary, and to
significantly increase its volume of business and customer base.
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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. The assets consisted primarily of car alarm parts and
accessories, which the Company's management believed to be a good business
opportunity for the Company. In consideration of the assets acquired, Liteglow
California paid Mr. Basoff $50,000 in cash at closing, delivered to him with a
$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, the parties had a series of disagreements and
Liteglow California terminated its B&B Associates business. See Part 2, Item 2,
"Legal Proceedings," for a description of the outstanding litigation among the
Company, Liteglow California, and Mr. Basoff.
The Company's principal office is located at 2301 NW 33rd Court, Unit 104,
Pompano Beach, Florida, 33069, and its telephone number is 954-971-4569. The
Company's website may be found at www.liteglow.com.
Market Overview
More than 500,000 outlets of varying types sold automotive products to
United States consumers in 1997, including 62,200 "traditional" aftermarket
outlets, auto parts stores, jobbers, and tire stores. "Nontraditional"
aftermarket outlets, including discount hardware and membership warehouses,
generally sell automotive aftermarket products that are fast moving and highly
profitable.
According to the Specialty Equipment Market Association ("SEMA") 1998
market study (the "SEMA Survey"), sales by manufacturers of specialty automotive
equipment parts in 1997 in the United States exceeded $6.85 billion. The
specialty automotive equipment parts market, according to the SEMA Survey, grew
from 1987 through 1997 at an annual rate of nearly 8%.
The Company's products are largely targeted to drivers of performance
automobiles and light trucks. The Motor Vehicle Facts and Figures for 1993
prepared by the American Automobile Manufacturer's Association indicated that
over 1.2 million Ford Mustangs, Pontiac Firebirds, and Chevrolet Corvettes and
Camaros have been sold in the United States in the five preceding years.
Moreover, in 1993, United States retail sales of these classes of performance
automobiles increased by 16.5% relative to 1992. Retail sales of domestic light
trucks have increased by 17.8% and 17.7% in 1992 and 1993, respectively. These
sales gains have increased by 16.5% relative to 1992. Retail sales of domestic
light trucks have increased the aggregate number of vehicles in use in the
United States whose owners are anticipated to be among the most likely
purchasers of the Company's products.
Two-thirds of all specialty equipment consumers own a second or third
vehicle, with the average respondent owning 2.4 cars. Respondents to a 1993 SEMA
Survey on average
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purchased $1,255 in specialty automotive equipment products per year compared to
approximately $398 per year for the ordinary consumer. The 1993 SEMA Survey
indicates that the typical consumer of specialty automotive equipment products
is between 30 and 50 years old with an annual income in excess of $35,000. Over
30% of these consumers had an annual income in excess of $50,000. In light of
this data, the Company intends to focus its efforts on expanding its product
line of functional automotive accessories, as well as continuing to aggressively
market its 12-volt, appearance-enhancing, automotive accessories.
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 from approximately
$7.8 billion in 1983 to $12 billion in 1992. The Company believes that this
growth in sales of auto parts through retail channels will expose its products
to a much larger segment of the American population and will enable the Company
to market its products to a new demographic segment of the population.
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. The Company believes that by consistently offering
high quality products it will continue to build brand name recognition and
loyalty. Such brand name products can often command premium prices and be
produced at relatively low cost, resulting in higher margins.
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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 proprietary products and other
manufacturers with promising product lines that lack sufficient resources or
know-how to effectively market their products.
Customer Service Commitment. The Company emphasizes a high level of
service in all aspects of its business, including identifying customer demand
for new products, providing fast and efficient product delivery, maintaining
responsive warranty service, and maintaining product and market knowledge. The
Company is committed to servicing wholesalers as well as individual retails who
cater to the automotive enthusiast.
Marketing. The Company's marketing efforts are conducted by Mr. Krumholz;
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
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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 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,
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and is all American made.
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.
Distribution, Sales and Marketing
More than 500,000 outlets of varying types sold automotive products to
consumers in the United States in 1993, including 62,200 "traditional"
aftermarket outlets, auto parts stores, jobbers, and tire stores.
"Nontraditional" aftermarket outlets, including discount hardware and membership
warehouses, also sold aftermarket products. However, they tend to carry only
fast-moving, highly profitable items. Chain operators, such as Trak Auto, Auto
Zone and Pep Boys, account for only 14,400 of the 41,000 auto parts stores. The
national retailers that do sell auto accessories, such as Sears, only carry a
limited line of high moving items and do not cater to the high performance
automotive "speed shop" enthusiast.
The Company believes that its efforts to market its products to outlets
that cater to the niche market of automotive and electronic enthusiasts will
enable it to realize attractive margins on its specialty products. As a result
of the unique nature of most of the Company's products, the Company believes
that these products are not sensitive to the normal pressures faced by products
that are more of a commodity-like nature and, therefore, will not require
significant price discounting to generate demand.
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
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chain stores.
Originally 12-volt automotive products, such as neon license plate frames,
were offered almost exclusively by automotive aftermarket product retailers. The
advent of neon under-car lighting systems, however, gave rise to an increasing
number of electronics retailers that offered 12-volt automotive products. Neon
under-car lighting systems, unlike neon license plate frames or other simple
12-volt automotive products, require significantly more time and skill to
install. Many electronic retailers provide installation services. As these
consumers typically desire to further enhance the appearance of their cars and
trucks with additional 12-volt automotive products, electronic retailers have
become a logical source for a diverse line of such products. The Company expects
that, as it continues to diversify its product line, sales of its products to
wholesalers and retailers of specialty automotive products will increase.
In addition to the marketing and sales efforts of management, the Company
currently markets and sells its products through independent sales
representatives. 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 receive commissions
payable monthly 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 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, primarily through Spencer Krumholz and Louis Weiner, who are
officers of the Company. The Company's products are sold in distinctive,
full-color, bilingual clam-shell packaging designed to build brand name
recognition and to easily identify the product 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 and wholesalers such as Pep Boys, Trak Auto, J. C.
Whitney Company, Circuit City, and Joe Amato's Keystone Automotive Warehouse.
Presently, no retailer 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 also has many 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
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Electronics and SEMA/APAA 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 by wire transfer upon shipment. None of the
Company's suppliers requires letter of credit financing. The Company believes
that it could arrange for alternative 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,
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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.
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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.
Certain state or local motor vehicle laws restrict or prohibit the use of
specialty lighting, such as certain of the Company's neon lights products, on
state and local roadways. In virtually all of such states, however, the
installation of such lights is not prohibited nor is the use of such lights for
off-road driving prohibited.
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. 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 products caused by its overseas suppliers. 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 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, together with
the Company's loss from continuing operations in 1998 of $1,491,540, resulted in
a net
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loss of $1,917,540 in the year ended December 31, 1998, compared to a loss of
$614,034 for calendar year 1997.
Six Months Ended June 30, 1998 and 1999.
The Company's revenues increased from $1,355,953 for the six months ended
June 30, 1998, to $2,334,768 for the six months ended June 30, 1999, and for
these periods the Company's gross profit increased from $651,052 to $1,277,920.
Selling, general and administrative expenses remained substantially the same in
each of these periods. The Company had net income of $325,940 for the six months
ended June 30, 1999, compared to a net loss of $366,998 for the six months ended
June 30, 1998.
In the six months ended June 30, 1999, the Company instituted a
cost-cutting program and implemented more stringent financial controls. Also in
that period 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 six months ended June 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
$705,000 to $1,056,000 for the six months ended June 30, 1999, compared to the
comparable 1998 period, while gross profit increased from $651,000 to $1,277,000
for the comparable periods. The increase in gross profit from approximately 48%
to approximately 55% 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 six 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 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.
16
<PAGE>
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, 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 a 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 Liteglow California
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.
Six Months Ended June 30, 1998 and 1999.
The Company's cash increased from $68,296 at December 31, 1998, to
$111,142 at June 30, 1999. For the same period, its accounts receivable
increased from $245,964 to $587,111. Inventory increased from $457,634 at
December 31, 1998, to $543,615 at June 30, 1999, and prepaid expenses increased
from $64,611 to $208,111 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.
Also as a consequence of increased sales, the Company's accounts payable
increased from $134,663 at December 31, 1998, to $249,663 at June 30, 1999.
Accrued liabilities decreased from $142,684 to $61,601 during that period as a
consequence of the Company's disposal of its B&B assets and business.
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 six months of
1999, the Company had an operating profit, but negative cash flow from
operations, of $258,118. The Company used cash provided by financing activities
of $368,574 to meet its cash requirements for the six months ended June 30,
1999. The Company's negative cash flow from operations in the first six months
of 1999 was due to an 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
17
<PAGE>
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 six 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, the Company believes that no significant
modifications of existing computer software will be required. The 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.
18
<PAGE>
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>
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.
20
<PAGE>
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 executive officers and
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 August 1, 1999.
Unless otherwise indicated, the Company believes that the beneficial owner has
sole voting and investment power over such shares.
Name and Address of Number of Shares Percentage
Beneficial Owner of Beneficially Owned Ownership of Class
- ---------------- --------------------- ------------------
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)
- ----------
(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.
21
<PAGE>
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.
22
<PAGE>
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.
23
<PAGE>
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.
- ----------
24
<PAGE>
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 is 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. On January 13, 1999, the
Company's stock traded at a high and low bid price of approximately $.20
per share.
- ----------
25
<PAGE>
Item 7. Certain Relationships and Related Transactions
On August 8, 1996, the Company merged with Liteglow Industries of Florida,
Inc. In connection with the merger, the shareholders of Liteglow Industries of
Florida, Inc., 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.
26
<PAGE>
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 August 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 shares
(which was the number of shares authorized in October 1998) to 10,000,000.
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 August 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 merger, consolidation,
27
<PAGE>
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. 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>
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 beginning
September 30, 1997, and ending June 30, 1999.
Bid Prices
----------
Period High Low
------ ---- ---
Quarter Ended September 30, 1997 .11 .050
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
- ----------
(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 August 1, 1999, there were 352 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 August 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 amended, because such shares were issued and sold by
the Company in private transactions
29
<PAGE>
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>
Item 2. Legal Proceedings
The Company is a party to the following legal proceedings.
In September 1997, the Company, its transfer agent, and Russo Securities,
Inc., a broker-dealer, were sued by Michael Angelo in the Third Judicial
District Court for Salt Lake County, Utah. The complaint seeks revision of the
sale to the Plaintiff of securities of the Company's predecessor, Liteglow
Industries, Inc., a Florida corporation, in 1996. The complaint alleges that the
plaintiff purchased securities which he believed were free-trading shares, but
that the Company's transfer agent, Alpha Tech, refused to transfer the shares
when they were presented for transfer. The complaint also alleges
misrepresentation by a person claimed to be a selling agent of the Company and
that the sale of the shares should have been registered under the Utah blue sky
law. The complaint seeks recision of the original $50,000 stock purchase and
additional damages of $38,750. The Company has vigorously defended the suit and
believes that it will prevail if the matter goes to trial. No trial date has
been set.
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 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 Company has been
advised by its California counsel that 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 that 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 is a party to routine litigation incidental to its business
from time-to-time.
Item 3. Changes In and Disagreements With Accountants
None.
31
<PAGE>
Item 4. Recent Sales of Unregistered Securities.
In 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 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 sophisticated 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.
In January and February 1999, the Company issued 1,300,000 shares of
Common Stock to sophisticated 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
sophisticated private investors at a price of $50,000 pursuant to Regulation D,
Rule 504.
32
<PAGE>
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.
33
<PAGE>
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
June 30, 1999 and December 31, 1998..........................................
Consolidated Balance Sheets-Liabilities and Stockholders'
Equity-June 30, 1999 and December 31, 1997...................................
Consolidated Statement of Operations
Six Months Ended June 30, 1999 and 1998......................................
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998......................................
Notes to Financial Statements.................................................
34
<PAGE>
DASZKAL, BOLTON & MANELA
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
240 W. PALMETTO PARK ROAD, SUITE 300 o BOCA RATON, FLORIDA 33432
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.
INDEPENDENT AUDITORS' 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 audit.
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 provides 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 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.
Boca Raton, Florida
May 21, 1999
-1-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1999 1998
---------- ----------
Current assets:
Cash $ 68,296 $ 48,248
Accounts receivable 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
========== ==========
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<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:
Common stock, $.001 par value; authorized, 10,000,000 shares -
1998; 100,000,000 - 1997, issued and outstanding 1998 -
2,376,740 and 1997 - 48,646,064 shares 2,377 48,646
Preferred stock, $.001 par value, authorized 1,000,000 shares;
issued and outstanding 1998 - 1,000,000 and 1997 - 0 shares 1,000 --
Additional paid-in capital 3,146,768 1,340,799
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>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR 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 and administrative expenses 2,398,490 1,723,499
----------- -----------
Operating loss (1,357,970) (573,801)
Other income (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 17)
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 and diluted) $ (1.10) $ (1.23)
=========== ===========
Weighted average common shares outstanding 500,912 1,743,572
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON Preferred
------------------------ -----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 10,656,069 $ 10,656 -- $ --
Net proceeds from issuance of common stock 19,894,995 19,895 -- --
Stock acquired to repay officer debt -- -- -- --
Retirement of treasury stock (1,250,000) (1,250) -- --
Stock issued for services and compensation 18,895,000 18,895 -- --
Issuance of common stock for the
purchase of subsidiary 450,000 450 -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balance, December 31, 1997 48,646,064 $ 48,646 -- $ --
========== ========== ========== ==========
<CAPTION>
Additional Total
Paid-in Treasury Accumulated Stockholders'
Capital Stock Deficit Equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ 246,948 $ -- $ (46,771) $ 210,833
Net proceeds from issuance of common stock 795,096 -- -- 814,991
Stock acquired to repay officer debt -- (187,500) -- (187,500)
Retirement of treasury stock -- 187,500 (186,250) --
Stock issued for services and compensation 149,205 -- -- 168,100
Issuance of common stock for the
purchase of subsidiary 149,550 -- -- 150,000
Net loss -- -- (614,034) (614,034)
---------- ---------- ---------- ----------
Balance, December 31, 1997 $1,340,799 $ -- $ (847,055) $ 542,390
========== ========== ========== ==========
</TABLE>
(Continued on next page)
See accompanying notes to financial statements.
-5-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
(Continued from previous page)
<TABLE>
<CAPTION>
COMMON Preferred
---------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 48,646,064 $ 48,646 -- $ --
Repurchase and retirement of common stock (15,475,000) (15,475) -- --
Issuance of common stock for
purchase of subsidiary 1,000,000 1,000 -- --
Issuance of common stock 110,578,333 110,578 -- --
Issuance of preferred stock
for services -- -- 1,000,000 1,000
Repurchase of common stock (2,145,000) (2,145) -- --
------------ ------------ ------------ ------------
Subtotal 142,604,397 142,604 1,000,000 1,000
Reverse stock split (Note 11) (140,227,657) (140,227) -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1998 2,376,740 $ 2,377 1,000,000 $ 1,000
============ ============ ============ ============
<CAPTION>
Additional Total
Paid-in Treasury Accumulated Stockholders'
Capital Stock Deficit Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 $ 1,340,799 $ -- $ (847,055) $ 542,390
Repurchase and retirement of common stock 15,475 -- -- --
Issuance of common stock for
purchase of subsidiary 99,000 -- -- 100,000
Issuance of common stock 1,627,922 -- -- 1,738,500
Issuance of preferred stock
for services 49,000 -- -- 50,000
Repurchase of common stock (125,655) -- -- (127,800)
------------ ------------ ------------ ------------
Subtotal 3,006,541 -- (847,055) 2,303,090
Reverse stock split (Note 11) 140,227 -- -- --
Net loss -- -- (1,917,540) (1,917,540)
------------ ------------ ------------ ------------
Balance, December 31, 1998 $ 3,146,768 -- $ (2,764,595) $ 385,550
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR 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 loss 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 common stock 50,000 --
Allowance for doubtful account (8,342) --
Allowance for inventory obsolescence 41,500 --
Estimated loss on sale 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 130,752 (6,242)
----------- -----------
Net cash used by operating activities (1,530,309) (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
Recision of common stock previously issued (127,800) --
Increase in additional paid-in capital 1,627,922 --
Advances to subsidiary (70,912) --
----------- -----------
Net cash provided by financing activities 1,625,082 774,990
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------- -------
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
======= =======
See accompanying notes to consolidated financial statements.
-8-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements represent those of Liteglow
Industries, Inc. and subsidiary (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 subsidiary.
All material intercompany accounts and transactions have been eliminated.
Operations for the subsidiary 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
first-in, first-out (FIFO) cost or market.
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 cost are expensed when incurred. The advertising cost incurred for
the year ended December 31, 1998 and 1997, was $206,441 and $86,991,
respectively.
-9-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
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 ACQUISITION
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. 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.
-10-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - MERGERS AND ACQUISITION (Continued)
The following summarizes the fair value of the assets and liabilities of KJK
Marketing, Inc. assumed.
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
========
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 (51,431)
--------
Net assets $ --
========
The Company is currently in litigation with the former owner-operator, whom the
Company has an employment contract with 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 on 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.
-11-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31,:
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
======== ========
Depreciation and amortization was $33,883 and $33,299 for the year ended
December 31, 1998 and 1997, respectively.
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:
Note payable monthly payments of $861, including
interest at 8.8%, due June 2002 $ 30,780
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
Less: current portion (19,215)
--------
$140,716
========
-12-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - NOTE PAYABLE (Continued)
Debt maturities for the next five years are as follows:
Year ending
December 31,
------------
1999 $119,215
2000 14,886
2001 16,198
2002 9,632
--------
Total $159,931
========
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, have 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:
Year 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 portion of capital lease obligations (12,974)
--------
Long-term capital lease obligations $ 26,216
========
-13-
-13-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
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. in 1997. 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.
Treasury Stock
In 1997, the Company redeemed 1,250,000 shares in partial settlement of a
receivable for a shareholder in 1997. 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
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.
-14-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
Preferred Stock (Continued)
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 five shares of common stock, 5,000,000 shares of common stock
or without the payment of additional consideration.
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 31, 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.
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 of 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
=========
-15-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplementary information:
Cash paid during the year for:
Interest $ 33,003
========
Income taxes $ --
========
Non-cash transactions:
Issuance of common shares for the purchase of subsidiary $100,000
========
Issuance of preferred stock for compensation $ 50,000
========
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 value.
Amortization expense for the year ended December 31, 1998 is $11,152.
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:
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 (164,876) (11,040)
tax benefit
Change in deferred tax asset valuation allowance 755,105 247,278
--------- ---------
Provision for income taxes $ -- $ 9,424
========= =========
-16-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
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:
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
==========
NOTE 17 - MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
As shown in the accompanying 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.
-17-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS (Continued)
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 management of the acquired subsidiary was maintained
by the seller. 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.
-18-
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
Consolidated Balance Sheets,
June 30, 1999 and December 31, 1998 1
Consolidated Statements of Operation,
Six months ended June 30, 1999 and June 30, 1998 3
Consolidated Statements of Cash Flows,
Six months ended June 30, 1999 and June 30, 1998 4
Notes to Consolidated Financial Statements 5
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
UNAUDITED
ASSETS
------
June 30 December 31
1999 1998
----------- -----------
Current assets:
Cash $ 111,142 $ 68,296
Accounts receivable 587,111 245,964
Inventory 543,615 457,634
Prepaid expenses 208,111 64,611
----------- -----------
Total current assets 1,449,979 836,505
----------- -----------
Property and equipment:
Property and equipment, at cost 345,008 277,398
Less accumulated depreciation (73,754) (49,153)
----------- -----------
Property and equipment, net 271,254 228,245
----------- -----------
Other Assets:
Goodwill, net 203,697 209,697
Advances to stockholder 12,632 58,355
Deposits 15,237 14,904
Total other assets 231,566 282,356
----------- -----------
Total assets $ 1,952,799 $ 1,347,106
=========== ===========
See accompanying notes to consolidated financial statements.
1
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
---- ----
<S> <C> <C>
Current liabilities:
Line-of-credit $ 400,000 $ 380,000
Accounts payable 249,663 134,663
Accrued liabilities 61,601 142,684
Accrued loss on disposal of subsidiary 28,071 105,088
Current maturities of note payable 24,000 19,215
Current maturities of capital leases 21,000 12,974
----------- -----------
Total current liabilities 784,335 794,624
----------- -----------
Long-term liabilities (exclusive of current maturities):
Note payable 144,722 140,716
Capital leases payable 37,251 26,216
----------- -----------
Total long-term liabilities 181,973 166,932
----------- -----------
Total liabilities 966,308 961,556
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.001 par value; authorized, 10,000,000 shares -
1998; 100,000,000 - 1997, issued and outstanding 1998 -
2,376,740 and 1997 - 48,646,064 shares 3,931 2,377
Preferred stock, $.001 par value, authorized 1,000,000 shares;
issued and outstanding 1998 - 1,000,000 and 1997 - 0 shares 1,000 1,000
Additional paid-in capital 3,420,214 3,146,768
Accumulated deficit (2,438,654) (2,764,595)
----------- -----------
Total stockholders' equity 986,491 385,550
----------- -----------
Total liabilities and stockholders' equity $ 1,952,799 $ 1,347,106
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
UNAUDITED
June 30 June 30
1999 1998
------- -------
Revenues $ 2,334,768 $ 1,355,953
Cost of sales 1,056,848 704,901
----------- -----------
Gross profit 1,277,920 651,052
Selling, general and administrative expenses 930,178 998,643
Income (loss) from operations 347,742 (347,591)
Other income (expenses):
Interest expense (21,802) (19,407)
--
-----------
Total other (expenses) (21,802) (19,407)
----------- -----------
Income (loss) from continuing operations
before income taxes (325,940) (366,998)
Provision for income taxes -- --
----------- -----------
Net income (loss) 325,940 (366,998)
=========== ===========
Net income (loss) per share-basic $ 0.10 $ (0.45)
----------- -----------
Net income (loss) per share-diluted $ 0.04 $ (0.45)
=========== ===========
Weighted average common shares outstanding 3,156,087 810,824
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
UNAUDITED
<TABLE>
<CAPTION>
June 30 June 30
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 325,940 $ (366,998)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 30,000 8,122
Changes in operating assets and liabilities
(increase) decrease in:
Accounts receivable (341,147) (89,262)
Inventory (85,981) (152,538)
Prepaid expenses (143,500) (141,478)
Deposits and other assets (330) 4,482
(Decrease) Increase in:
Accounts payable 115,000 (119,591)
Accrued liabilities (158,100) 3,072
----------- -----------
Net cash used by operating activities (258,118) (854,191)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (67,610) (74,206)
----------- -----------
Net cash used by investing activities (67,610) (74,206)
----------- -----------
Cash flows from financing activities:
Repayment from (loan) to shareholder, net 47,723 (14,191)
Borrowings on line-of-credit 20,000
Repayments on line-of-credit -- (30,000)
Issuance of common stock 19,061 (1,380)
Recision of common stock previously issued -- (127,800)
Increase in additional paid-in capital 273,446 1,145,559
Net cash provided by financing activities 360,230 976,784
----------- -----------
Net increase in cash 42,846 48,387
Cash at beginning of period 68,296 48,248
----------- -----------
Cash at end of period $ 111,142 $ 96,635
----------- -----------
Supplementary Disclosure of Cash Flow Information:
Cash paid during the period for Interest $ 21,082 $ 19,407
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Note 1: BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of
Liteglow Industries , Inc. and its wholly owned subsidiary, Liteglow
Acquisitions, Inc. (collectively "The Company"). All necessary adjustments to
the financial statements have been made, and significant inter-company accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements , which are
interim periods, do not include all disclosures provided in the annual
consolidated financial statements . These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the footnotes thereto contained in the independent auditors'
report for the year ended December 31, 1998 of Liteglow Industries , Inc. dated
May 21, 1999.
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contains all adjustments (which are of a normal recurring nature)
necessary for fair presentation of the financial statements . The results for
interim periods are not necessarily indicative of results to be expected for the
complete fiscal year.
Per share data was computed by dividing net income by the weighted average
number of shares o during the period. The difference between basi Consolidated
and diluted earnings per share is the result of 1,000,000 preferred shares
converting into 5,000,000 common shares.
Note 2: STOCKHOLDERS' EQUITY
Common Stock Issued for Cash
The Company issued 1,550,000 shares of common stock through Regulation D
offering during the first quarter of 1999. The total amount obtained from the
issuance of these common shares was $275,000.
5
<PAGE>
Management's Discussion and Analysis of Financial Condition And Results of
Operations
RESULTS OF OPERATIONS
The following table summarizes the results of operations, stated as a
percentage of sales, for the six months ended June 30, 1999, and 1998
Six Months
----------
1999 1998
---- ----
Sales 100.0% 100.0%
Cost of Sales 45 % 52 %
----- -----
Gross Profit 55 % 48 %
Selling, General and
Administrative Expenses 40 % 74 %
----- -----
Income (loss) from Operations 14 % (26) %
Interest Expense (1) % (1) %
----- -----
Net Income (loss) 14 % (27) %
Sales of $2,334,768 for the six months ended June 30, 1999, were $978,815,
or approximately 73%, more than comparable 1998 sales of $ 1,335,953. Liteglow
sales increased by 60% and the subsidiary sales increase by 50%.
The Company's gross profit margin improved by nearly 7% of sales in the
first six months of 1999 compared to the same period in 1998, reflecting lower
product costs.
Selling, general and administrative expenses for the six months ended June
30, 1999 decreased $68,465. This was largely due to a reduction in convention,
trade shows and travel expenses.
The Company's selling, general and administrative expenses represented 40%
of sales in the first six months of 1999, compared to 74% in the same period of
1998.
The Company's income (loss) from continuing operations for the first six
months ending June 30, 1999 was $325,940 compared to a loss of ($366,898) in the
same period in 1998. The reason for the increase was an increase in sales, an
increase in profit margins and a reduction in selling expenses. The Company's
basic earnings per share in the first six months of 1999 were $0.10 compared to
a loss of ($0.45) in the same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets increased by $613,474 to $1,449,979 at June
30, 1999, compared to $836,505 at December 31, 1998.The increase is due to
increase in cash, accounts receivable, inventory, and advances to suppliers. Net
working capital increased from $41,881 on December 31, 1998, to $665,664 on June
30, 1999, and the Company's current ratio increased to 1.85 at June 30, 1999,
compared to 1.05 at December 31, 1998. Borrowings under the Company's line of
credit increased by $20,000.
6
<PAGE>
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
Item 2. Description of Exhibits
None.
35
<PAGE>
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: 8/19/1999 By: /s/ Spencer Krumholz
--------------------------------------------
Spencer Krumholz, President and Director
36
ARTICLES OF MERGER
OF
LITEGLOW INDUSTRIES, INC.
a Florida corporation
INTO
CONFETTI, INC.,
a Utah corporation
-----------------------------------------
Under Section 16-10a-1105 of the Utah
Business Corporation Act
-----------------------------------------
Pursuant to the provisions of Section 16-10a-1105 of the Utah Business
Corporations Act (the "Act"), Confetti, Inc., a Utah corporation (the "Surviving
Corporation" ), and Liteglow Industries, Inc., a Florida corporation )the
"Non-Surviving Corporation"), hereby adopt and file the following Articles of
Merger relating to the merger of the Non-Surviving Corporation with and into the
Surviving Corporation.
FIRST: The name and place of incorporation of each corporation which is a
party to this merger are as follows:
Name of Corporation Place of Incorporation
Confetti, Inc. Utah
Liteglow Industries, Inc. Florida
SECOND: A true and correct copy of the Agreement and Plan of Merger
between the Surviving Corporation and the Non-Surviving Corporation is attached
hereto as Exhibit A (the "Plan"). Pursuant to the Plan, the Non-Surviving
Corporation will merge with and into the Surviving Corporation.
THIRD: Pursuant to the Plan, the Articles of Incorporation of the
Surviving Corporation are hereby amended in order to change the name of the
Surviving Corporation to "Liteglow Industries, Inc."
FOURTH: The designation, number and votes of the outstanding shares of
each class and series of the constituent corporations are as follows:
<TABLE>
<CAPTION>
Name of Corporation Class Shares Entitled to Vote Votes in Favor Votes Against
<S> <C> <C> <C> <C>
Liteglow Industries, Inc. Common 7,335,000 5,850,000 0
Confetti, Inc. Common 12,635,660 7,830,040 0
</TABLE>
As to the Non-Surviving Corporation, the Plan was duly approved on August
8, 1996.
As to the Surviving Corporation, the Plan was duly approved on July 10,
1996
IN WITNESS WHEREOF, we hereto sign this certificate this 13th day of
August, 1996.
Confetti, Inc. Liteglow Industries, Inc.
/s/ Justin Regan /s/ Spencer Krumholz
President president
<PAGE>
ANNEX A
PLAN AND AGREEMENT
Relating to the Merger of
LITEGLOW INDUSTRIES, INC.
Into
CONFETTI, INC.
Dated: August 13, 1996
PLAN AND AGREEMENT OF MERGER
This PLAN AND AGREEMENT OF MERGER ("Agreement") entered into this 13th day
of August, 1996 by and among LITEGLOW INDUSTRIES, INC., a Florida corporation
("Liteglow"), and CONFETTI, Inc., a Utah corporation ("CI"). Liteglow and CI are
sometimes collectively referred to herein as the "Constituent Corporations."
BACKGROUND OF AGREEMENT
WHEREAS, Liteglow has authorized capital stock consisting of 20,000,000 shares
of common stock, par value $0.01 per share (the "Liteglow Common Stock"), of
which 7,385,000 shares are issued and outstanding, and 1,000,000 shares of
preferred stock, par value $0.01 per share, of which no shares are issued and
outstanding.
WHEREAS, CI has authorized capital stock consisting of 50,000,000 shares of
common stock, par value $0.01 per share (the "CI Common Stock"), of which
12,635,660 shares are issued and outstanding.
WHEREAS, the Boards of Directors of Liteglow and CI have determined that a
merger of Liteglow with and into CI is in the best interests of Liteglow and CI,
and such companies desire to set forth in this Agreement their entire agreement
respecting such merger (hereinafter, the "Merger").
WHEREAS, the parties intend that the Merger qualify as a tax-free reorganization
within the meaning of the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I MERGER OF LITEGLOW
Section 1.1 Closing
The closing of the transaction contemplated by this Agreement shall take place
no later than five (5) business days after all conditions necessary to
consummate the Merger, as provided in this Agreement, have been complied with
(the "Closing") at the offices of Pryor, Cashman, Sherman & Flynn, 410 Park
Avenue, New York, New York 10022 or such other place or date as the parties
hereto may agree to in writing, at which time the filing of Articles of Merger
(as described in Section 4.1) will be performed.
Section 1.2 Merger
<PAGE>
On the Effective Date, as defined in Section 4.2, Liteglow will merger with and
into CI, which will be the surviving corporation (the "Surviving Corporation").
The separate existence of Liteglow shall cease upon the Effective Date, and CI
shall thereafter possess all of the rights, privileges, immunities, powers,
licenses, permits and franchises, both of public and private nature, and all the
property, real, personal and mixed, all debts due on any account and all chooses
in action belonging to or inuring to either of the Constituent Corporations, and
shall be subject to all the restrictions, disabilities and duties of each of the
Constituent Corporations. Any claim existing or action or proceeding pending by
or against either of the Constituent Corporations may be prosecuted as if the
Merger had not taken place or the Surviving Corporation may be substituted in
its place. Neither the rights of creditors nor any liens upon the property of
either of the Constituent Corporations shall be impaired by the Merger.
ARTICLE II ARTICLES, BYLAWS, DIRECTORS AND OFFICERS
Section 2.1 CI Articles and By-laws
The Articles of Incorporation and By-laws of CI, shall be the Articles of
Incorporation and By-laws of the Surviving Corporation until amended in
accordance with applicable law; provided, however, that the Effective Date of
the Articles of Incorporation of the Surviving Corporation shall be amended to
provide that the name of the Surviving Corporation shall be "Liteglow
Industries, Inc."
Section 2.2 CI's Directos and Officers
Upon the closing and consummation of the Merger, the directors and officers of
the Surviving Corporation then in office shall resign as the directors and
officers of the Surviving Corporation, and Spencer Krumholz, Arlene Krumholz and
Louis Wiener shall be duly elected and qualified as directors of the Surviving
Corporation to fill the vacancies created in the Board of Directors.
Section 2.3 Chairman of the Board and President
Spencer Krumholz shall be appointed as Chairman of the Board of Directors and
President of the Surviving Corporation as soon as reasonably practicable
following consummation of the Merger.
ARTICLE III CONVERSION AND CANCELLATION OF SHARES
Section 3.1 CI Capital Stock
(a) Prior to Closing hereunder, CI shall effectuate a reverse split of each
share of common stock of CI that shall be issued and outstanding
immediately prior to the date hereof, and without any additional action
required to be taken by the holder thereof, with the CI Common Stock
outstanding converted automatically into one share of CI Common Stock for
each six shares of CI Common Stock. Thus as of Closing hereunder, there
shall be a total of 2,105,943 shares of CI Common Stock.
(b) Upon the Effective Date, each share of Litglow Common Stock which shall
have been issued and outstanding immediately prior thereto, other than
Liteglow Dissenting Shares (as defined in Section 3.5), if any, shall by
reason of the Merger be converted automatically into the right to receive
one (1) share of Surviving Corporation Common Stock. The Surviving
Corporation Common Stock issued in respect of the Liteglow Common Stock
shall be registered on the books of the Surviving Corporation in the name
of, and in each case delivered to, the holder of such Liteglow Common
Stock on the Effective Date or as soon as practical thereafter (as
provided in Section 3.3 hereof) upon surrender of the share certificate
(s) of Liteglow Common Stock (the " Liteglow Certificate (s)"), together
with the related stock power (s) endorsed in blank, or such lost
certificate affidavits and bonds as are deemed appropriate by the
Surviving Corporation's officers.
Section 3.2 Treasury Shares
Each share of Liteglow Common Stock, if any, held in the treasury of Liteglow,
as the case may be, shall by virtue of the Merger, be cancelled and cease to
exist, and no payment shall be made with respect to such stock.
<PAGE>
Section 3.3 Surviving Corporation Common Stock
Upon surrender of the Liteglow Certificate (s), to the Surviving Corporation or,
a bank or trust company or other agent selected by the Surviving Corporation to
act as exchange agent for the exchange of Liteglow Common Stock (the "Exchange
Agent"), for cancellation, each holder of the Liteglow Certificate (s) shall be
entitled to receive, in exchange, a certificate representing that number of
shares of Surviving Corporation Common Stock into which the shares of Liteglow
Common Stock represented by the surrendered certificates were converted under
the provisions of this Article III, and the surrendered Liteglow certificate (s)
shall forthwith be canceled.
(b) Dividends.
No dividends or other distribution in respect of Surviving Corporation Common
Stock declared after the Effective Date and payable to holders of record after
the Effective Date shall be paid to the holder of any unsurrendered Liteglow
Certificate (s) for the shares of Surviving Corporation Common Stock for which
such certificate (s) may be exchanged until the holder of record surrenders the
Liteglow Certificate (s). Subject to the effect, if any, of applicable law,
after the subsequent surrender and exchange of Liteglow Certificate (s), the
holder shall be entitled to receive any dividends or other distributions,
without interest, which previously became payable on the shares of the Surviving
Corporation Common Stock represented by the Liteglow Certificate (s).
(c) Share Transfers Prior to Surrender
If any certificate representing shares of Surviving Corporation Common Stock is
to be issued in a name other than that in which any Liteglow Certificate
surrendered is registered, it shall be a condition of such registration that the
surrendered Liteglow Certificate shall be properly endorsed or otherwise in
proper form for transfer. In addition, the person requesting such registration
shall pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of the surrendered Liteglow Certificate
or establish to the satisfaction of the Surviving Corporation that the tax has
been paid or is not applicable.
(d) Effect of Conversion
All shares of Surviving Corporation Common Stock into which shares of Liteglow
Common Stock are converted into shall be deemed to have been issued in full
satisfaction of all rights pertaining to the converted shares of Liteglow
Common.
(e) Company Stock Transfer Books
After the Effective Date , there shall be no further registrations of transfer
on the stock transfer books of the Surviving Corporation of the shares of
Liteglow Common Stock which were outstanding immediately prior to the Effective
Date . If, after the Effective Date, Liteglow Certificates representing shares
of Liteglow Common Stock are presented to the Surviving Corporation, they shall
be canceled and exchanged for shares of Surviving Corporation Common Stock as
provided in this Article III.
Section 3.4 Dissenting Shares
(a) Notwithstanding anything in this Agreement to the contrary, except as
otherwise provided by applicable law, shares of CI Common Stock that are
outstanding immediately prior to the Effective Date and that are held by
stockholders who have properly demanded payment for such CI Common Stock
(the "CI Dissenting Shares") in accordance with the applicable provisions
of the Utah Business Corporation Act relating to dissenters' rights shall
be entitled to payment for such shares only under the applicable
provisions of the Utah Business Corporation Act. However, if any holder of
CI Dissenting Shares fails to establish, or properly waives, such holder's
entitlement to appraisal rights as provided in the Utah Business
Corporation Act, such holder shall forfeit the right to appraisal of the
CI Dissenting Shares.
(b) Notwithstanding anything in this Agreement to the contrary, except as
otherwise provided by applicable law, shares of Liteglow Common Stock that
are outstanding immediately prior to the Effective Date and that are held
by stockholders who have properly demanded payment for such Liteglow
Common Stock (the " Liteglow Dissenting Shares") in accordance with
applicable provisions of the Florida Business Corporation Act relating to
dissenters' rights shall not be convertible into the right to receive
consideration provided in Section 3.1 (b) of this Agreement. The holders
of Liteglow Dissenting Shares shall be entitled to payment for such shares
only under applicable provision of the Florida Business Corporation Act.
However, if any holder of Liteglow Dissenting Shares fails to
<PAGE>
establish, or properly waives, such holder's entitlement to appraisal
rights as provided in the Florida Business Corporation Act, such Holder
shall forfeit the right to appraisal of the Liteglow Dissenting Shares,
and the Liteglow Dissenting Shares shall then be deemed converted into, as
of the Effective Date , shares of the Surviving Corporation Common Stock
as provided in this Agreement.
ARTICLE IV MERGER PROCEDURE
Section 4.1 Filing Articles of Merger
At the Closing of the Articles of Merger shall be filed by Liteglow and recorded
in accordance with the Florida Business Corporation Act and Articles of Merger
shall be filed by CI and recorded in accordance with the Utah Business
Corporation Act.
Section 4.2 Effective Date
For purposes of the Florida Business Corporation Act, the Merger contemplated
hereunder shall become effective on the date on which Articles of Merger have
been filed with the Secretary of State of the State of Florida. For purposes of
the Utah Business Corporation Act and for operational and accounting purposes,
the Merger shall be effective on the date on which the Articles of Merger have
been filed with the Secretary of State of the State of Utah (the" Effective Date
").
ARTICLE V REPRESENTATIONS AND WARRANTIES OF LITEGLOW
In order to induce CI to enter into this Agreement and to consummate the
transactions contemplated hereby, Liteglow makes the following representations
and warranties to CI:
Section 5.1 Organization and Good Standing
Liteglow is a corporation duly organized, validly existing in good standing
under the laws of the State of Florida. Liteglow has no subsidiary or affiliated
companies. Liteglow has the power to carry on its business as and where
conducted and is entitled to own, lease or operate its business assets. Liteglow
has delivered to CI complete and correct copies of its Articles of Incorporation
, as amended, and By-laws, as in effect on the date of this Agreement. As of the
date hereof, the authorized capital stock of Liteglow shall consist of
20,000,000 shares of Liteglow Common Stock, of which 7,385,000 shares are issued
and outstanding , and 1,000,000 shares of preferred stock, par value $0.01 per
share, of which no shares are issued and outstanding ., and Liteglow has no
outstanding stock options, warrants or other obligations to issue its capital
stock.
Section 5.2 Authorization of Agreement
This Agreement and all other agreements and instruments to be executed by
Liteglow (collectively, the " Liteglow Ancillary Agreements") in connection
herewith have been duly authorized by all requisite corporate and shareholder
action on the part of Liteglow. This Agreement has been duly executed and
delivered by Liteglow and constitutes the legal, valid and binding obligation of
Liteglow enforceable against Liteglow in accordance with its terms. The Liteglow
Ancillary Agreements, upon execution delivery by Liteglow in accordance with the
terms of this Agreement , shall constitute the valid and binding obligation of
Liteglow enforceable against Liteglow in accordance with their respective terms.
Section 5.3 Liteglow Shares
Each issued share of Liteglow Common Stock is validly issued, fully paid and
nonassessable, and each outstanding share of Liteglow Common Stock is entitled
to one vote. No such shares were issued in violation of any pre-emptive rights.
Section 5.4 Financial Statements
<PAGE>
Liteglow has delivered to CI the balance sheet and income statement of Liteglow
as at June 30, 1996. Such financial statements are true and complete as of their
respective dates. Such financial statements set forth fairly and accurately as
of June 30, 1996 Liteglow`s financial condition, results of operations and
assets and liabilities for the period then ended. There has been no material
adverse change in the financial condition of Liteglow since June 30, 1996.
Section 5.5 Litigation
Except as listed on Schedule 5.5, there is no claim, action, investigation, suit
or proceeding of any nature pending before any court or governmental agency,
authority or body and, to the knowledge of Liteglow , there is no such claim,
action, investigation, suit or proceeding threatened or contemplated by any
third party which, if it were to result in a decision adverse to Liteglow, would
materially and adversely affect the business operations, properties, assets or
financial condition of Liteglow. Neither Liteglow nor its business or assets are
subject to or directly affected by any order, judgment, decree or ruling of any
court or governmental agency, except any of the foregoing as they may be of
general application to businesses similar to that conducted by Liteglow.
Section 5.6 No Conflict
(a) The consummation of the transactions contemplated by this Agreement will
not result in the breach of any term or provision of or constitute a
default under any indenture, mortgage, deed of trust, or other material
Agreement or instrument to which Liteglow is a party.
(b) The execution, delivery and performance by Liteglow of this Agreement and
the consummation of the transactions contemplated hereby by Liteglow
requires no consent, approval, order or authorization of, action by or in
respect of, or registration or filing with, any governmental body, court,
agency, official or authority (collectively, "Governmental Body") other
than (i) the filing of applicable Articles of Merger ; and (ii) such other
filings or registrations with, or authorizations, consents or approvals
of, any Governmental Body, the failure of which to make or obtain would
not materially adversely affect the ability of Liteglow or CI to
consummate the transactions contemplated hereby.
ARTICLE VI ADDITIONAL COVENANTS AND AGREEMENTS OF LITEGLOW
Liteglow hereby covenants and agrees to the following, the fulfillment of each
of which shall constitute, at and as the Effective Date , a condition precedent
to the obligations of CI hereunder:
Section 6.1 Existence, Rights and Franchises
From and after the date of this Agreement and until the Effective Date, Liteglow
shall comply with all applicable laws and regulations (except where such failure
to comply would not have a material adverse effect on the financial condition of
Liteglow), take all necessary actions to keep in full force and effect its
existence, rights and franchises, and shall not amend its Articles of
Incorporation or By-laws except as may be necessary to carry out the provisions
of this Agreement .
Section 6.2 Conduct of Business Before the Closing
From and after the date of this Agreement and until the Effective Date :
(a) Diligent Conduct
Except as consented to by CI, Liteglow shall conduct its business diligently in
the ordinary course. Liteglow shall use its best efforts to preserve its
business organization intact, to keep available to CI the services of Liteglow`s
present officers and to preserve for the benefit of CI the goodwill of
Liteglow`s suppliers, customers and others having business relations with
Liteglow.
(b) Properties and Assets
Liteglow shall not, without the prior written consent of CI, sell or transfer
any of its assets, other than in the ordinary course of business or subject any
of its assets to any mortgage, pledge, lien, charge or encumbrance of any kind.
<PAGE>
(c) Contracts; Liabilities
Liteglow shall not, without the prior written consent of CI: (i) amend, alter or
terminate any contract to which it is a part except in the ordinary course of
business, (ii) enter into or become a party to any plan, contract or Agreement
except in the ordinary course of business; (iii) borrow or agree to borrow any
funds, or otherwise become subject to, by way of guarantee or otherwise, any
obligations or liability except in the ordinary course of business and
consistent with past practice; or (iv) pay or discharge any claim, liability or
obligation, except in the ordinary course of business and consistent with past
practice.
(d) Distributions
Liteglow shall not make any distributions with respect to or in redemption or
partial redemption of any of its shares of capital stock, or any payment of any
indebtedness to shareholders or any bonus or other increase in compensation to
employees, including without limitation employees who are shareholders, except
compensation in the ordinary course of business.
Section 6.3 Access and Information
Liteglow will afford to CI and its counsel, accountants and other
representatives reasonable access to books, records, and assets of Liteglow and
shall furnish to CI and its counsel, accountants and other representatives all
information that CI may reasonably request.
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF CI AND PRINCIOTTI
In order to induce Liteglow to enter into this Agreement and to consummate the
transactions contemplated hereby, CI and Victor Princiotti ("Princiotti")
jointly and severally make the following representations and warranties to
Liteglow:
Section 7.1 Organization and Good Standing; Capital
CI is a corporation duly organized and validly existing and in good standing
under the laws of the State of Utah. CI has no subsidiary or affiliated
companies. CI has the power to carry on its business as and where conducted, and
is entitled to own, lease or operate its business assets. CI has delivered to
Liteglow complete and correct copies of the Articles of Incorporation , as
amended, and By-laws, as amended, of CI as in effect on the date of this
Agreement. As of the date hereof and as of the Effective Date, the entire
authorized capital stock of CI shall consist of 50,000,000 shares of Common
Stock , of which 12,635,660 shares are issued and outstanding , and CI shall
not, as of such dates, have any outstanding stock options, warrants or other
obligations to issue its capital stock.
Section 7.2 Authorization of Agreement
This Agreement and all other agreements and instruments to be executed by CI
(collectively, the "CI Ancillary Agreements") in connection herewith have been
duly authorized by all requisite corporate and shareholder action on the part of
CI. This Agreement has been duly executed and delivered by CI and constitutes
the legal, valid and binding obligation of CI enforceable against CI in
accordance with its terms. The CI Ancillary Agreements, upon execution delivery
by CI in accordance with the terms of this Agreement, shall constitute the valid
and binding obligation of CI enforceable against CI in accordance with their
respective terms.
Section 7.3 Issuance of CI Stock
Each issued share of CI Common Stock is validly issued, fully paid and
nonassessable, and each outstanding share of CI Common Stock is entitled to one
vote. No such shares were issued in violation of pre-emptive rights. The
Surviving Corporation will have the full power and authority to issue the
Surviving Corporation Common Stock to the Liteglow shareholders under this
Agreement . When issued, the Surviving Corporation Common Stock will be fully
paid and nonassessable, each share will be entitled to one (1) vote, free and
clear of all liens, mortgages, pledges, security interests, restrictions, prior
assignments, encumbrances or claims of any kind or nature whatsoever, and each
share shall be registered and fully transferable in the public market in
compliance with all securities laws and regulations.
<PAGE>
Section 7.4 Financial Statements
CI has delivered to Liteglow the balance sheets and related statements of
operations, stockholders' equity and cash flows as at and for the years ending
December 31, 1993, December 31, 1994 and December 31, 1995. All such financial
statements are true and complete of their respective dates, and have been
prepared in accordance with generally accepted accounting principles and
practices consistently applied, except as otherwise indicated in the notes
thereto. Such financial statements set forth fairly and accurately as of its
date CI's financial condition, results of operations and assets and liabilities
for the period then ended. On the date hereof and as of the Effective Date there
is and will have been no increase in liabilities or adverse change in the
financial condition of CI since December 31, 1995.
Section 7.5 Litigation
There is no claim, action, investigation, suit or proceeding of any nature
pending before any court or governmental agency, authority or body and, to the
knowledge of CI or Princiotti there are no such actions, suits or proceedings
threatened or contemplated by any third party. Neither CI nor its business and
assets are subject to or directly affected by any order, judgment, decree or
ruling of any court or Governmental Body.
Section 7.6 No Conflict
(a) The consummation of the transaction contemplated by this Agreement will
not result in the breach of any term or provision of or constitute a
default under any indenture, mortgage, deed of trust, or other agreement
or instrument to which CI is a party.
(b) The execution, delivery and performance by CI of this Agreement and the
consummation of the transactions contemplated hereby by CI requires no
consent, approval, order or authorization of, action by or in respect of,
or registration or filing with, any Governmental Body other than (i) the
filing of the applicable Articles of Merger ; and (ii) such other filings
or registrations with, or authorizations, consents or approvals of, any
Governmental Body, the failure of which make or obtain would not
materially adversely affect the ability of Liteglow or CI to consummate
the transaction contemplated hereby.
Section 7.7 Employee Relations
CI has no written employment Agreements, collective bargaining agreements,
retirement, welfare, pension, profit sharing, compensation, bonus,
hospitalization, vacation or other employee benefit plan, practice agreement or
undertaking, and no oral employment contracts obligating CI beyond the minimum
requirements imposed on an employer under applicable state or federal law. CI
has not ceased operation at any facility or withdrawn from or terminated any
pension plan or other employee benefit plan in a manner which could subject it
to liability under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
Section 7.8 Liabilities and Contractual Commitments
CI has no undisclosed liabilities or contractual commitments, whether accrued,
absolute, contingent or otherwise, to any third party or any shareholder,
director or employee of CI.
Section 7.9 Tax Payments
CI has timely filed all federal, state and local tax returns required to be
filed as of the date of this Agreement and shall timely file all of such returns
as of the Effective Date, and has fully paid or shall pay all taxes, penalties
and interest reflected on such returns or otherwise owing for the period covered
thereby. At the Effective Date, there shall be no federal, state or local tax
due and payable with respect to the business or assets of CI with respect to any
tax reporting period ending on or before the Effective Date . Adequate accruals
shall have been established on the books of CI prior to Effective Date for all
federal,
<PAGE>
state and local taxes (including taxes, if any, incurred by CI in connection
with the transactions contemplated in this Agreement ) accrued prior to
Effective Date but unpaid. No extension of time for the assessment of taxes by
any taxing authority having jurisdiction over CI is in effect, and neither CI or
Princiotti has any knowledge of any unassessed tax deficiency proposed or
threatened against it.
Section 7.10 Property; Leases and Contingent Obligations
CI does not own any right, title or interest in any land, buildings or other
property, and is not subject to any liens, claims encumbrances with regard to
any land, buildings or other property. CI has no leases under which it is
entitled to occupy and use any real property or use any personal property.
Section 7.11 Licenses and Permits; Government Approvals
No governmental licenses, permits, approvals and permissions, are necessary to
conduct CI's operations as they are now conducted. Neither CI nor Princiotti has
any knowledge of any violations of law, governmental rules or regulations,
applicable to CI's operations.
Section 7.12 Hazardous Substances and Hazardous Wastes
(a) Hazardous Materials Disposal or Release. Neither CI nor Princiotti has
knowledge of any presence, disposals, releases, or threatened releases of any
hazardous or toxic substance, material or waste that is regulated by any local,
state or federal governmental authority (collectively, "Hazardous Materials")
on, from or under any of the properties ever owned, leased or utilized by CI.
The terms "disposal," "release" and "threatened release" shall have the
definitions assigned to them by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C., Section 9601, et seq., as
amended.
(b) Hazardous Materials Use or Storage
During the time that CI had owned, leased or utilized any properties, to CI's or
Princiotti's knowledge, neither CI nor any third party has used, generated,
manufactured or stored on, under or about such properties or transported to or
from such properties, any Hazardous Materials in violation of any applicable law
or regulation.
Section 7.13 Brokerage and Finder's Fees
There is no broker, investment banker or finder involved on behalf of or by CI
or any of its officers or directors, in connection with the transaction
contemplated under this Agreement.
ARTICLE VIII COVENANTS AND AGREEMENTS OF CI
CI hereby covenants and agrees to the following, the fulfillment of each of
which shall constitute a condition precedent to the obligations of Liteglow
hereunder.
Section 8.1 Existence, Rights and Franchises
From and after the date of this Agreement and until the Effective Date , CI
shall comply with all applicable laws and regulations, take all necessary
actions to keep in full force and effect its existence, rights and franchises,
and shall not amend its Articles of Incorporation or By-laws except as may be
necessary to carry out the provisions of this Agreement .
Section 8.2 Conduct of Business Before the Closing
From and after the date of this Agreement and until the Effective Date :
(a) Diligent Conduct
Except as consented to by Liteglow, CI shall conduct its business diligently in
the ordinary course. CI shall use its best efforts to preserve its business
organization intact, to keep available to Liteglow the services of
<PAGE>
CI's present officers and to preserve for the benefit of Liteglow the goodwill
of suppliers, customers and others having business relations with CI.
(b) Properties and Assets
CI shall not, without the prior written consent of Liteglow, sell or transfer
any of its assets, other than in the ordinary course of business or subject any
of its assets to any mortgage, pledge, lien, charge or encumbrance of any kind.
(c) Contracts; Liabilities
CI shall not, without the prior written consent of Liteglow: (i) amend, alter or
terminate any contract to which it is a part except in the ordinary course of
business, (ii) enter into or become a party to any plan, contract or agreement
except in the ordinary course of business; (iii) borrow or agree to borrow any
funds, or otherwise become subject to, by way of guarantee or otherwise, any
obligations or liability except in the ordinary course of business and
consistent with past practice; or (iv) pay or discharge any claim, liability or
obligation, except in the ordinary course of business.
(d) Distributions
CI shall not make any distributions with respect to or in redemption or partial
redemption of any of its shares of capital stock, or any payment of any
indebtedness to shareholders or any bonus or other increases in compensation to
employees, including without limitations employees who are shareholders.
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF CI
The Closing shall not take place unless all of the following conditions not
waived by CI have been fulfilled before, or will be fulfilled on, the Effective
Date.
Section 9.1 Correctness of Representations and Warranties
All representations and warranties of Liteglow contained in this Agreement shall
be true and accurate in all respects on the Effective Date with the same effect
as if made on the Effective Date .
Section 9.2 Delivery of Documents by Liteglow
CI shall have received on or prior to the Effective Date copies of all stock
books, minute books, tax returns, financial records, and all material
Agreements, records and documents pertaining to the business and organization of
Liteglow.
Section 9.3 Adverse Changes
No material adverse changes shall have occurred in the financial condition,
working capital, assets, liabilities, reserves, business, sales, customer lists,
operations, or prospects of Liteglow since June 30, 1996.
Section 9.4 No Governmental Proceedings or Litigation
No suit, action, investigation, inquiry or other proceeding by any governmental
body has been instituted or threatened which questions the validity or legality
of the transactions planned under this Agreement or which, if successfully
asserted, would otherwise have a material adverse effect on the conduct of
Liteglow `s business assets or on its properties.
ARTICLE X CONDITIONS PRECEDENT TO OBLGATIONS OF LITEGLOW
The Closing shall not take place unless all of the following conditions not
waived by Liteglow have been fulfilled before, or will be fulfilled on, the
Effective Date.
Section 10.1 Correctness of Representations and Warranties
All the representations and warranties of CI contained in this Agreement shall
be true and accurate in all respects on the Effective Date with the same effect
as if made on the Effective Date .
<PAGE>
Section 10.2 Performance Covenants and Agreements
All of the covenants and Agreements of CI contained in this Agreement and
required to be performed before the Effective Date shall have been performed in
all material.
Section 10.3 Adverse Changes
No material adverse changes shall have occurred in the financial condition,
working capital, assets, liabilities, reserves, business, sales, customer lists,
operations, or prospects of CI since December 31, 1995.
Section 10.4 No Governmental Proceeding or Litigation
No suit, action, investigation, inquiry or other proceeding by any governmental
body shall have been instituted or threatened which questions the validity or
legality of the transactions planned under this Agreement or which, if
successfully asserted, would otherwise have a material adverse effect on the
conduct of CI's business assets or on its properties.
ARTICLE XI TERMINATION
In the event that either CI or Liteglow shall refuse to close the transactions
contemplated in this Agreement by reason of failure of any condition precedent
to closing set forth in Articles IX and X (absent waiver by applicable party
thereunder), then this Agreement shall terminate and neither party shall have
any obligation or liability to the other hereunder by reason of any provision
hereof or any action taken in contemplation or anticipation of the Closing.
Liteglow may terminate this Agreement at any time prior to the Effective Date ,
without any further obligation to CI, by delivery of written notice to CI.
ARTICLE XII INDEMNIFICATION
Section 12.1 Indemnification by CI
CI and its successors and assigns shall indemnify and hold Liteglow and its
directors, officers, employees, agents, counsel, assigns or representatives
harmless from and against any and all losses, liabilities, obligations, damages
( whether actual, punitive or consequential), deficiencies, costs or expenses
(including interest, penalties and reasonable attorney's fees and
disbursements), arising from, asserted against or associated with:
(a) a breach of any representation or warranty made by CI herein;
(b) failure by CI to perform any covenant, obligation or Agreement made
herein; or
(c) the past, present or future operations of CI.
Section 12.2 Indemnification by Princiotti
Princiotti, together with CI, jointly and severally shall indemnify, defend and
hold harmless Liteglow and its directors, officers, employees, agents, counsel,
successors and assigns from and against losses, liabilities, obligations,
damages (whether actual, punitive or consequential), deficiencies, costs or
expenses (including without limitation, interest, penalties and reasonable
attorney's fees and disbursements) (the"Indemnifiable Items") of any of the
foregoing persons or entities, arising from, asserted against or associated
with:
(a) a breach of any representation or warranty made by CI or Princiotti
herein;
(b) failure by CI to perform any covenant, obligation or agreement made
herein; or
(c) the past operations of CI, including but not limited to any property or
other taxes owing by CI due to CI's prior operations.
Section 12.3 Termination of Indemnification
<PAGE>
An Indemnified Party shall not be entitled to indemnification for any loss,
damage or expense unless the right to such indemnification is asserted on or
before the fifth anniversary of the date of the Closing, except that if there
then shall be pending any such assertion, dispute, claim, proceeding or action
under this Agreement, the Indemnified Party shall continue to have the right to
indemnification with respect to such pending assertion, dispute, claim,
proceeding or action.
ARTICLE XIII MISCELLANEOUS PROVISIONS
Section 13.1 Application
This Agreement shall be construed and enforced in accordance with the laws of
the State of Florida, except as to any technical Utah requirements of corporate
merger pertaining to CI.
Section 13.2 Notices
All notices, requests, demands and other communications called for or
contemplated hereunder shall be in writing and shall be deemed to have been duly
given when (i) hand delivered; (ii) sent by telegram, telecopier, telex or wire
following by confirming letter; or (iii) sent by United States certified or
registered mail, postage prepaid, addressed to the parties, their successors in
interest, or their assignees at the following addresses (or at such other
addresses as the parties may designate by like written notice):
CI: Mr. Justin Regan, President
775 Palisade Ave.
Yonkers, New York 10703
Facsimile (914) 476-0343
Princiotti: Mr. Victor Princiotti
62 Washington St. Ste 305
Hoboken, NJ 07030
Liteglow: Spencer Krumholz, President
2301 Northwest 33rd Court, Unit 104
Pompano Beach, FL 33069
Facsimile (305) 971-5117
With a copy to: Eric M. Hellige, Esq.
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Facsimile (212) 326-0806
Section 13.3 Payment of Expenses
Liteglow shall pay all fees and expenses incurred by it in connection with the
preparation, negotiation, execution, delivery and completion of this Agreement
and the transactions contemplated hereunder.
Section 13.4 Assignment
This Agreement shall not be assignable by any party without the written consent
of the other party hereto.
Section 13.5 Amendment and Waiver
(a) Subject to the applicable law, this Agreement may be amended, modified,
and supplemented at any time prior to or at the Closing by written
agreement approved by the Boards of Directors of CI and Liteglow;
provided, however, no such amendment, modification or supplement may be
made which in
<PAGE>
any way materially adversely affects the rights of any class of
shareholders CI or Liteglow without a further vote by the affected
shareholders to approve such amendment, modification or supplement.
(b) The conditions to each of the parties' obligations to consummate the
Merger are for the sole benefit of such party and may be waived by such
party in whole or in part to the extent permitted by applicable law;
provided, however, that any waiver by a party must be in writing.
Section 13.6 Survival of Representations and Warranties
All representations and warranties made hereunder by the parties hereto shall
survive the Closing and any investigation at any time made by or on behalf of
the parties hereto. All representations and warranties herein which are made by
any party shall require that such party make reasonable investigation and
inquiry with respect thereto to ascertain the correctness and validity thereof.
Section 13.7 Counterparts
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
Section 13.8 Captions
Captions used herein are for the convenience of reference only; such captions
are not part hereof and shall not be used in construing the Agreement.
Section 13.9 Reference to Sections
References to articles and sections herein include all subsections subsidiary to
the sections referred to.
Section 13.10 Entire Agreement
This Agreement contains the entire Agreement of the parties regarding the
subject matter hereof. It supersedes any and all other Agreements, either oral
or in writing, between the parties hereto with respect to the subject matter of
this Agreement. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement , statement or promise with respect
to the subject matter hereof not contained in this Agreement shall be valid or
binding.
Section 13.11 Word Meanings
Any reference herein to the singular form of a word shall include reference to
the plural form thereof, and any reference herein to the plural form of a word
shall include reference to the singular form thereof, as the context may
require. Words such as "herein", "hereinafter", "hereof", and "hereunder" refer
to this Agreement as a whole and not merely to a subdivision in which the words
appear unless the context otherwise requires.
Section 13.12 Exhibits, Schedules and Attachments
Each exhibit, schedule and attachment to this Agreement is incorporated herein
by reference for all purposes.
Section 13.13 Further Assurances, Documents
Each party hereto agrees to use their best efforts to perform any further act,
to cooperate with the other parties and to execute, deliver and file any further
documents and instruments that may be reasonably necessary to carry out the
provisions of this Agreement and the transactions contemplated hereby as soon as
reasonably practicable.
<PAGE>
IN WITNESS WHEREOF, The parties have executed or caused this Agreement to be
signed by their respective duly authorized officers on the date first stated
above.
LITEGLOW INDUSTRIES
/s/ Spencer Krumholz, President
CONFETTI, INC.
/s/ Justin Regan, President
For purposes of Article VII and Section 12.2 only:
/s/ Victor Princiotti
SCHEDULE 5.5
GSL Consumer Products, Ltd. Vs. Liteglow Industries, Inc. et al
United States District Court, Eastern District of New York 96 Civ. 2968
(Nickerson, J.)
On or about June 18, 1996, GSL filed an action against Liteglow and Spencer
Krumholz, individually, for Liteglow`s alleged failure to pay for goods sold and
delivered in the amount of $94,283.72. From June 25, 1996 (the date the
complaint was allegedly served on Liteglow) through August 6, 1996, Liteglow`s
time to answer or move against the complaint was adjourned while Liteglow`s and
GSL's counsel have been trying to reach a settlement of this matter. Given the
breakdown in settlement negotiations, Liteglow`s answer or motion is due to be
server and filed on August 12, 1996.
ARTICLES OF INCORPORATION
OF
CONFETTI, INC.
ARTICLE I
The name of the proposed corporation shall be CONFETTI, INC.
ARTICLE II
The general nature of the business shall be operating a specialty gift
retail store as an establishment where goods are regularly offered for sale to
the public; to employ such persons, firms or corporations as may be reasonably
necessary to assist in the business of the corporation; and to otherwise engage
in any activity or business permitted under the laws of the United States and of
the State of Florida. The corporation shall also have the power to issue bonds,
debentures or obligations for any lawful purpose of the corporation and to
secure the same by encumbering any or all of its property and to sell or
otherwise dispose of any or all of such bonds, debentures or obligations, all in
such manner and upon such terms as the directors may deem proper; and to lend
and advance money or give credit to such persons and on such terms as the
directors may deem expedient, and in particular to customers and others doing
business with the corporation and to give guarantee or become surety for any
persons; to assist in the organization, development, financing and refinancing
of other worthy business enterprises heretofore or hereafter carried on by any
corporation, co-partnership, individual or individuals; to hold, vote
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<PAGE>
and exercise all of the rights of holders and owners of stock of other
corporations and to delegate to any of its officers the power to hold, vote and
exercise all the rights of owners of holders of such stock; to exercise all the
powers of any corporation, the stock of which shall be owned or controlled by
this corporation, except as prohibited by law; to act as such agent, broker or
factor in any lawful business for any party or parties; and to adopt and
prescribe bylaws, rules and regulations appropriate for the transaction of the
business of this corporation, either by the term of this charter, by law in
express terms, or by implication, and to amend the same; and to do all and
everything necessary, suitable, convenient or proper for the accomplishment of
any of the purposes or the attainment of any of the objects herein enumerated,
or incidental to the powers herein named, or which shall at any time appear
conducive or expedient for the protection or benefit of the corporation; with
all the [ILLEGIBLE] now or hereafter conferred by the laws of the State of
Florida.
The foregoing [ILLEGIBLE] shall be construed both as objects and powers,
and it is hereby expressly provided that the foregoing enumeration of specific
powers shall not be held to limit or restrict in any manner the powers of this
corporation.
ARTICLE III
The amount of the capital stock authorized for the corporation is a
maximum of five thousand (5,000) shares of common stock having a par value of
$1.00 per share and which shall be issued as fully paid and non-assessable. The
stock of this corporation shall be so assigned, issued and transferred only in
accordance with an Agreement entered into by the shareholders to cause the
corporation to be eligible to issue $1244 stock and such bylaws as the
corporation shall from time to time make, change or alter with a lien reserved
in favor of the corporation upon all of its capital stock for any indebtedness
which may at any time be due by the holder of the same unto the company.
- 2 -
<PAGE>
ARTICLE IV
The amount of capital with which this corporation shall commence business
is at least Five Hundred Dollars ($500.00).
ARTICLE V
This corporation shall have a perpetual existence unless sooner dissolved
according to law.
ARTICLE VI
The principal place of business of said corporation is to be Vero Beach,
Florida, with the privilege of having branch offices at other places within or
without the State of Florida as may be designated.
ARTICLE VII
The registered agent of the corporation shall be Suzanne M. Boden, located
1025 Flamevine Lane, Suite 7, P. O. Box 3087, Vero Beach, Forida.
ARTICLE VIII
The number of directors of this corporation shall be not less than three.
ARTICLE IX
The names and addresses of the first Board of Directors of this
corporation who, subject to the provisions of the certificate of Articles of
Incorporation, the bylaws and Florida Statutes, shall hold office for the first
year of this corporation's existence or until their successors are chosen and
have qualified, are as follows:
Suzanne M. Boden
1025 Flamevine Lane, Suite 7
Vero Beach, Florida 32960
Paul Boden
1025 Flamevine Lane, Suite 7
Vero Beach, Florida 32960
Rita Murdocca
1025 Flamevine Lane, Suite 7
Vero Beach, Florida 32960
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<PAGE>
ARTICLE X
The names and street addresses of the subscribers of this certificate of
Articles of Incorporation and the number of shares of stock which each agree to
take are as follows:
Suzanne M. Boden 100 shares
1025 Flamevine Lane, Suite 7
Vero Beach, Florida 32960
Paul Boden 100 shares
1025 Flamevine Lane, Suite 7
Vero Beach, Florida 32960
Rita Murdocca 50 shares
1025 Flamevine Lane, Suite 7
Vero Beach, Florida 32960
ARTICLE XI
In furtherance, and not in limitation, of the powers conferred by the laws
of the State of Florida, the Board of Directors is expressly authorized:
To make and alter the bylaws of this corporation;
To fix the amount to be reserved as working capital over and above the
paid-in capital stock of this corporation;
To borrow money for the use of the corporation and to authorize and cause
to be executed mortgages and liens upon the real and personal property of this
corporation;
If the bylaws so provide, to designate two or more of its number to
constitute an Executive Committee, which Committee shall, for the time being, as
provided in said resolution or bylaws of this corporation, have and exercise any
or all of the powers of the Board of Directors in the management of the business
and affairs of the corporation and have power to authorize the seal of this
corporation to be affixed to all papers which may require it.
This corporation may in its bylaws confer power upon its directors in
addition to the foregoing and in addition to the powers and authorities
conferred upon them by statute.
- 4 -
<PAGE>
ARTICLE XII
In case of loss or destruction of a certificate of stock, no new
certificate shall be issued in lieu thereof, except upon satisfactory proof to
the Board of Directors of such loss or destruction and upon the giving of
satisfactory security by bond or otherwise against loss to the corporation. Any
such new certificate shall be plainly marked "duplicate" upon its face.
ARTICLE XIII
No contract or other transaction between the corporation and any other
corporation shall be affected or invalidated by the fact that any one or more of
the directors of this corporation is or are stockholders in, or is a director or
officer, or are directors or officers of, such other corporation, and any
director or directors individually or jointly may be a party or parties to, or
may be interested in, any contract or transaction of this corporation, or in
which this corporation is interested and no contract, act or transaction of this
corporation with any person or persons, firm or corporation, shall be affected
or invalidated by the fact that any director or directors of this corporation is
a party or are parties to, or interested in, such contract, act or transaction,
or in any way connected with such person or persons, firm or corporation, and
each and every person who may become a director of this corporation is hereby
relieved from any liability that might otherwise exist from contracting with the
corporation for the benefit of herself or himself or any firm, association or
corporation in which she or he may be in any way interested.
ARTICLE XIV
The corporation or the stockholders may include in their agreement between
themselves the following as valid matters of agreement:
- 5 -
<PAGE>
(A) Any limitations or restraint upon the transferability, alienation or
assignment of stock;
(B) Any limitations or restraint upon the encumbrance or pledge of stock;
(C) Any agreements conferring pre-emptive right of purchase upon
stockholders as conditions precedent to the sale of any stock;
(D) Management agreements, solicitation agreements or other employment
agreements with persons who may or may not be stockholders; and,
(E) Any and all such other agreements as may be reasonably necessary in
the ownership, conduct or furtherance of the business of the corporation and to
implement the said agreement by bylaws of the corporation.
ARTICLE XV
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this certificate of Articles of Incorporation in the
manner now or hereafter prescribed by applicable provisions of law, and all
rights and powers conferred herein upon stockholders, directors and officers are
subject to this reserved power.
IN WITNESS WHEREOF, we, the undersigned, being each and all of the
original subscribers to the capital stock hereinabove named, for the purpose of
forming a corporation to do business within and without the State of Florida,
and in pursuance of Florida law, do hereby make, subscribe, acknowledge and file
Certificate, hereby jointly severally declaring and certifying that the facts
herein stated are true and that we have associated ourselves together for the
purpose of becoming a corporation under the laws of the State of Florida, and do
- 6 -
<PAGE>
hereby respectively agree to take the number of shares of stock hereinbefore set
forth and stated, and accordingly we have set our hands and seals at Vero Beach,
Indian River County, Florida, this [ILLEGIBLE] day of [ILLEGIBLE], 1977.
/s/ Suzanne M. Boden (SEAL)
-----------------------------------
Suzanne M. Boden
/s/ Paul Boden (SEAL)
-----------------------------------
Paul Boden
/s/ Rita Murdocca (SEAL)
-----------------------------------
Rita Murdocca
- 7 -
<PAGE>
STATE OF FLORIDA
COUNTY OF INDIAN RIVER
BE IT REMEMBERED that on this [ILLEGIBLE] day of [ILLEGIBLE], 1977,
personally appeared before me, a Notary Public of the State of Florida, SUZANNE
M. BODEN, PAUL BODEN, and RITA MURDOCCA, parties to the foregoing certificate of
Articles of Incorporation, and known to me personally as such, and jointly and
severally acknowledged the said Certificate to be the act and deed of each of
them respectively, and that the facts therein stated are truly set forth, and
that they have associated themselves together for the purpose of becoming a
corporation under the laws of the State of Florida.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal at
Indian River County, Florida, on this the day and year last above written.
/s/ [ILLEGIBLE]
--------------------------------
Notary Public, State of Florida
at Large. My Commission expires:
[ILLEGIBLE]
- 8 -
<PAGE>
CERTIFICATE DESIGNATING PLACE OF BUSINESS OR DOMICILE FOR THE SERVICE OF PROCESS
WITHIN THIS STATE, NAMING AGENT UPON WHOM PROCESS MAY BE SERVED.
In pursuance of Chapter 48.091, Florida Statutes, the following is
submitted, in compliance with said Act:
FIRST: That CONFETTI, INC. desiring to organize under the laws of the
State of Florida, with its principal office at 2917 Cardinal Drive, Vero Beach,
Florida, has named SUZANNE M. BODEN located 2025 Flameville Lane, Suite 7, P.O.
Box 3087, Vero Beach, State of Florida, as its agent to accept service of
process within this state.
ACKNOWLEDGMENT:
Having been named to accept service of process for the above stated
corporation at the above-designated address, I hereby accept to act in this
capacity, and agree to comply with the provision of said Act relative to keeping
open said office.
/s/ [ILLEGIBLE]
--------------------------------
Resident Agent
<PAGE>
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
LITEGLOW INDUSTRIES, INC.
A UTAH CORPORATION
Pursuant to the provisions of Sections 16-10a-1006 of the Utah Revised
Business Corporation Act, the undersigned corporation hereby adopts the
following Articles of Amendment to its Articles of Incorporation.
1. The name of the Corporation is Liteglow Industries, Inc.
2. The following amendment to the Articles of Incorporation of Liteglow
Industries, Inc., was duly adopted by written consent of the holders of a
majority of the shares outstanding on December 24, 1997, in the manner
prescribed by the Utah Revised Business Corporation Act:
"Article IV
Capitalization. The Corporation shall have the authority to issue one
hundred million (100,000,000) shares of stock each having a par value of 1/10th
of one cent ($0.001)."
3. This Amendment does not provide for any exchange, reclassification or
cancellation of issued shares.
4. The date of adoption of the amendment is December 24, 1997.
5. The designation and number of outstanding shares of each class entitled
to vote thereon as a class are as follows:
Class Number of Shares
Common 47,962,568 shares issued and outstanding
6. The amendment was approved by written action of the holders of
25,113,400 shares.
1
<PAGE>
IN WITNESS WHEREOF, the undersigned President, having been thereunto duly
authorized, has executed the foregoing Articles of Amendment for the Corporation
the 28th day of May, 1998.
LITEGLOW INDUSTRIES, INC.,
a Utah corporation
By:
-----------------------------------
Spencer Krumholz, President
2
<PAGE>
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
LITEGLOW INDUSTRIES, INC.
(a Utah corporation)
Pursuant to the provisions of Sections 16-10a-1006 of the Utah Revised
Business Corporation Act, the undersigned corporation hereby adopts the
following Articles of Amendment to its Articles of Incorporation.
1. The name of the Corporation is Liteglow Industries, Inc.
2. The following amendment to the Articles of Incorporation of Liteglow
Industries, Inc., was duly adopted by written consent of the holders of a
majority of the shares outstanding on July 13, 1998, in the manner prescribed by
the Utah Revised Business Corporation Act:
"Article IV
Capitalization. The Corporation shall have the authority to issue two
hundred million (200,000,000) shares of stock each having a par value of 1/10th
of one cent ($0.001)."
3. This Amendment does not provide for any exchange, reclassification or
cancellation of issued shares.
4. The designation and number of outstanding shares of each class entitled
to vote thereon as a class are as follows:
Class Number of Shares
Common 95,000,000 shares issued and outstanding
5. The amendment was approved by written action of the holders of
51,000,000 shares.
1
<PAGE>
IN WITNESS WHEREOF, the undersigned President, having been thereunto duly
authorized, has executed the foregoing Articles of Amendment for the Corporation
the _________ day of October, 1998.
LITEGLOW INDUSTRIES, INC.,
a Utah corporation
By:
-----------------------------------
Spencer Krumholz, President
2
<PAGE>
AMENDMENT TO
ARTICLES OF INCORPORATION
OF
LITEGLOW INDUSTRIES, INC.
(a Utah corporation)
Pursuant to the provisions of Sections 16-10a-1006 of the Utah Revised
Business Corporation Act, the undersigned Corporation hereby adopts the
following Articles of Amendment to its Articles of Incorporation.
1. The name of the Corporation is Liteglow Industries, Inc.
2. Article IV of the Articles of Incorporation of the Corporation is
hereby amended in its entirety and restated as follows:
"Article IV
a. Capitalization. The aggregate number of shares which the Corporation
shall have the authority to issue is Eleven Million (11,000,000) shares of all
classes of stock, consisting of 10,000,000 shares of common stock, par value
$.001, and 1,000,000 shares of preferred stock, par value $.001. Shares of the
Corporation's common stock issued at the time the Articles of Amendment
containing this Amendment are filed with the Secretary of State shall be hereby
automatically changed and reclassified without further action into one (1) fully
paid and non-assessable share of the Corporation's common stock for each sixty
(60) shares of common stock outstanding, provided that no fractional shares
shall be issued pursuant to such change and reclassification and the holder of
any fractional share shall receive a full share for each fractional share held
by such shareholder.
b. Preferred Stock. Preferred stock may be issued in one or more series.
The Board of Directors of the Corporation is vested with authority to determine
and state the designations and preferences, limitations, relative rights, and
voting rights, if any, of each such series by the adoption and filing in
accordance with the Utah Revised Business Corporation Act, before the issuance
of any shares of such series, of an amendment or amendments to these Articles
determining the terms of such series, which amendment need not be approved by
the shareholders or the holders of any class or series of shares except as
provided by law. All shares of preferred stock of the same series shall be
identical."
Page 1 of 2
<PAGE>
3. The foregoing Amendment to the Articles of Incorporation was duly
adopted by the Board of Directors on December 14, 1998, and by vote of the
shareholders by written consent sufficient for approval on December 14, 1998.
4. The designation and number of outstanding shares of each class entitled
to vote thereon as a class were as follows:
Class Number of Shares
Common 198,079,397 shares issued and outstanding
6. The amendment was approved by written action of the holders of
101,200,000 shares of common stock.
IN WITNESS WHEREOF, the undersigned President, having been thereunto duly
authorized, has executed the foregoing Articles of Amendment for the Corporation
the 14th day of December, 1998.
LITEGLOW INDUSTRIES, INC.,
a Utah corporation
By:
-----------------------------------
Spencer Krumholz, President
Page 2 of 2
<PAGE>
AMENDMENT TO
ARTICLES OF INCORPORATION
OF
LITEGLOW INDUSTRIES, INC.
(a Utah corporation)
The Articles of Incorporation of Liteglow Industries, Inc. (the
"Corporation") have been amended by the Corporation's Board of Directors on
December 17, 1998, pursuant to authority granted to the Board of Directors under
Article IV of the Corporation's Articles of Incorporation by establishing a
Series A Convertible Preferred Stock, as follows.
Pursuant to the provisions of Sections 16-10a-1006 of the Utah Revised
Business Corporation Act, the undersigned Corporation hereby adopts the
following Articles of Amendment to its Articles of Incorporation.
1. The name of the Corporation is Liteglow Industries, Inc.
2. Article IV of the Articles of Incorporation of the Corporation is
hereby amended by adding paragraph "c" as follows:
"c. Series A Convertible Preferred Stock. Pursuant to authority granted to
and vested in the Board of Directors, the Board of Directors hereby creates a
series of preferred stock, par value $.001 per share, of the Corporation, and
hereby states the designation and number of shares, and affixes the relative
rights, preferences, powers, restrictions and limitations (in addition to any
provisions set forth in the Articles of Incorporation of the Corporation
applicable to the preferred stock of all classes in a series) of the series as
follows:
1. Designation and Amount. The shares of such series shall be
designated as Series A Convertible Preferred Stock (the "Series A Convertible
Preferred Stock") and the number of shares constituted in the Series A
Convertible Preferred Stock shall be 1,000,000. Such number of shares may be
increased or decreased by the resolution of the Board of Directors; provided
that no decrease shall reduce the number of shares of Series A Convertible
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Convertible Preferred Stock.
2. Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A Convertible Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any
1
<PAGE>
payment shall be made to the holders of junior stock by reason of their
ownership thereof, an amount equal to $.10 per share of Series A Convertible
Preferred Stock plus the amount of any accrued but unpaid dividends (whether or
not declared) and interest thereon. If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation available
for distribution to stockholders shall be insufficient to pay the holders of
shares of Series A Convertible Preferred Stock the full amount to which they
shall be entitled, the holders of shares of Series A Convertible Preferred Stock
shall share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
3. Voting.
(a) Number of Votes; Voting with Common Stock. Each holder of
outstanding shares of Series A Convertible Preferred Stock shall be entitled to
the number of votes equal to the number of whole shares of Common Stock into
which the shares of Series A Convertible Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 4 hereof) at each
meeting of stockholders of the Corporation (and written actions of stockholders
in lieu of meetings) with respect to any and all matters presented to the
stockholders of the Corporation for their action or consideration. Except as
provided by law, or by the provisions of the following subsections of this
Section 3, holders of Series A Convertible Preferred Stock shall vote together
with the holders of Common Stock as a single class.
(b) Adverse Effects. The Corporation shall not amend, alter or
repeal preferences, rights, powers or other terms of the Series A Convertible
Preferred Stock so as to affect adversely the Series A Convertible Preferred
Stock without the written consent or affirmative vote of the holders of at least
66-2/3% of the then outstanding shares of Series A Convertible Preferred Stock
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a class. For this purpose, without limiting the generality of
the foregoing the authorization or issuance of any series of Preferred Stock
which is on a parity with or has preference or priority over the Series A
Convertible Preferred stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed to affect adversely the Series A Convertible
Preferred Stock.
(c) Mergers, etc. The consent of the holders of not less than
66- 2/3% of the outstanding Series A Convertible Preferred Stock, voting
separately as a single class, in person or by proxy, either in writing without a
meeting or at a special or annual meeting of shareholders called for the
purpose, shall be necessary for the Corporation to sell all or substantially all
of the Corporation's assets or effect any merger, consolidation, share
2
<PAGE>
exchange or similar transaction to which the Corporation is a party, or to enter
into any other transaction resulting in the acquisition of a majority of the
then outstanding voting stock of the Corporation by another corporation or
entity.
4. Optional Conversion. The holders of the Series A Convertible
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Each share of Series A Convertible
Preferred stock shall be convertible, at the option of the holder thereof,
without the payment of additional consideration by the holder thereof, at any
time and from time to time, into five (5) shares of Common Stock (the
"Conversion Rate"). The Conversion Rate shall be subject to adjustment as
provided below.
In the event of a liquidation of the Corporation, the
Conversion Rights shall terminate immediately prior to the payment of any
amounts distributable on liquidation to the holders of Series A Convertible
Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Convertible Preferred Stock. In
lieu of fractional shares, the Corporation shall pay by a whole share of Common
Stock.
(c) Mechanics of Conversion.
(i) In order to convert shares of Series A Convertible
Preferred Stock into shares of Common Stock, the holder shall surrender the
certificate or certificates for such shares of Series A Convertible Preferred
Stock at the principal office of the Corporation, together with written notice
that such holder elects to convert all or any number of the shares represented
by such certificate or certificates. Such notice shall state such holder's name
or the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the Corporation shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at the place requested by such holder, or to
his nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share. Notwithstanding the preceding sentence, shares of Series A
Convertible Stock tendered for conversion in accordance with the other
provisions of this subparagraph (i) shall be deemed converted into shares of
common stock, and their owner or owners shall be deemed the beneficial and
record owner of such common stock for all purposes, at the time of tender
conforming to the provisions of this subparagraph
3
<PAGE>
(i).
(ii) The Corporation shall at all times during which the
Series A Convertible Preferred Stock shall be outstanding reserve and keep
available out of its authorized but unissued stock, for the purpose of effecting
the conversion of the Series A Convertible Preferred Stock, such number of its
duly authorized shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series A Convertible Preferred
Stock. Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value of the shares of Common Stock issuable
upon conversion of the Series A Convertible Preferred Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
(iii) All shares of Series A Convertible Preferred Stock
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding, and all rights with respect to such shares, including the rights,
if any, to receive dividends, notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock and cash in lieu of fractional shares in
exchange therefor. Any shares of Series A Convertible Preferred Stock so
converted shall be retired and canceled and shall not be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to reduce the number of shares of authorized Series A Convertible
Preferred Stock accordingly.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the date on which any
Series A Convertible Preferred Stock is first issued ("the Original Issue Date")
effect a subdivision of the outstanding Common Stock, the Conversion Rate then
in effect immediately before that subdivision shall be proportionately adjusted.
If the Corporation shall at any time or from time to time after the Original
Issue Date combine the outstanding shares of Common Stock, the Conversion Rate
then in effect immediately before the combination shall be proportionately
adjusted. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective.
(e) Adjustments for Certain Dividends and Distributions. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall make or issue a dividend or other distribution payable in
shares of Common Stock, then and in each such event the Conversion Rate shall be
increased as of the time of such issuance, by multiplying the Conversion Rate by
a fraction,
(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance plus
4
<PAGE>
the number of shares of Common Stock issuable in payment of such dividend or
distribution, and
(ii) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance.
(f) Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall make or issue a dividend or other distribution payable in securities
of the Corporation other than shares of Common Stock, then and in each such
event provision shall be made so that the holders of shares of the Series A
Convertible Preferred Stock shall receive upon conversion thereof in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation that they would have received had their Series A
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period given application to all adjustments called for
during such period, under this paragraph with respect to the rights of the
holders of the Series A Convertible Preferred Stock.
(g) Adjustment for Reclassification, Exchange, or
Substitution. If the Common Stock issuable upon the conversion of the Series A
Convertible Preferred Stock shall be changed into the same or a different number
of shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, share exchange or sale of assets for below), then and in each
such event the holder of each share of Series A Convertible Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series A Convertible Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
(h) Adjustment for Merger or Reorganization, etc. In case of
any consolidation, merger or share exchange of the Corporation with or into
another corporation or the sale of all or substantially all of the assets of the
Corporation to another corporation to which the holders of Series A Convertible
Preferred Stock shall have consented in accordance with Section 3 hereof, then
each share of Series A Convertible Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities
5
<PAGE>
or property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A Convertible Preferred
Stock would have been entitled upon such consolidation, merger or sale; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 4
set forth with respect to the rights and interest thereafter of the holders of
the Series A Convertible Preferred Stock, to the end that the provisions set
forth in this Section 4 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series A Convertible
Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid. the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Convertible Preferred Stock against impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Convertible Preferred Stock a certificate setting forth such adjustment
and showing in detail the facts upon which such adjustment or readjustment is
based and shall file a copy of such certificate with its corporate records. The
Corporation shall, upon the written request at any time of any holder of Series
A Convertible Preferred Stock, furnish or cause to be furnished to such holder a
similar certificate setting forth (1) such adjustments and readjustments, (2)
the Conversion Rate then in effect, and (3) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series A Convertible Preferred Stock. Despite such adjustment or
readjustment, the form of each or all stock certificate representing Series A
Convertible Preferred Stock, if the same shall reflect the initial or any
subsequent conversion price, need not be changed in order for the adjustments or
readjustments to be valued in accordance with the provisions of this Certificate
of Designation, which shall control.
(k) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock;
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<PAGE>
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock consolidation, merger or share
exchange of the Corporation into or with another corporation, or of the sale of
all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation; then the Corporation shall cause
to be filed at its principal office and shall cause to be mailed to the holders
of the Series A Convertible Preferred Stock at their last addresses as shown on
the records of the Corporation, at least 20 days prior to the record date
specified in (A) below or 20 days before the date specified in (B) below, a
notice stating:
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be taken,
the date as to which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, share exchange, sale, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or winding up.
5. Sinking Fund. There shall be no sinking fund for the payment of
dividends or liquidation preference on Series A Convertible Preferred Stock or
the redemption of any shares thereof.
7
<PAGE>
6. No Mandatory Redemption. The Series A Convertible Preferred Stock
is not subject to mandatory redemption by the Corporation."
3. The foregoing Amendment to the Articles of Incorporation were duly
adopted by the Board of Directors on December 17, 1998, without shareholder
action, which was not required, and shall be effective upon filing of the
Amendment to the Articles of Incorporation authorizing the Corporation's class
of preferred stock.
4. This Amendment does not provide for any exchange, reclassification or
cancellation of issued shares.
5. This Amendment shall be effective, and shall be filed, on December 30,
1998.
IN WITNESS WHEREOF, the undersigned President, having been thereunto duly
authorized, has executed the foregoing Articles of Amendment for the Corporation
the ______ day of December, 1998.
LITEGLOW INDUSTRIES, INC.,
a Utah corporation
By:
-----------------------------------
Spencer Krumholz, President
8
BYLAWS
OF
LITEGLOW INDUSTRIES, INC.
(a Utah Corporation)
ARTICLE I
SHAREHOLDERS
1. SHARE CERTIFICATES. Certificates evidencing fully-paid shares of the
corporation shall set forth thereon the statements prescribed by Section
16-10a-625 of the Utah Revised Business Corporation Act ("Revised Business
Corporation Act") and by any other applicable provision of law, shall be signed
by any two of the following officerS: The President, a Vice-President, the
Secretary, an Assistant Secretary, the Treasurer, an Assistant Treasurer, or by
any two officers designated by the Board of Directors, and may bear the
corporate seal or its facsimile. The signature of the officers upon a share
certificate may be facsimile if the share certificate is countersigned by a
transfer agent, or registered by a registrar, other than the corporation itself
or an employee of the corporation. In case any officer who has signed or whose
facsimile signature has been placed upon a share certificate ceases to be an
officer before the share certificate is issued, the share certificate may be
issued by the corporation with the same effect as if the person were an officer
at the date of its issue.
2. FRACTIONAL SHARES OR SCRIP. The corporation may: (a) issue fractions of
a share or pay in money the value of fractions of a share; (b) arrange for
disposition of fractional shares of the shareholders; or (c) issue scrip in
registered or bearer from entitling the holder to receive a full share upon
surrendering enough scrip to equal a full share. Each certificate representing
scrip must be conspicuously labeled "scrip" and must contain the information
required by Subsections 16-10a-625(2) and (3) and Section 16-10a-627 of the
Revised Business Corporation Act. The holder of a fractional share is entitled
to exercise the rights of a shareholder, including the right to vote, to receive
dividends, and to participate in the assets of the corporation upon liquidation.
The holder of scrip is not entitled to any of these rights unless the scrip
provides for them. The Board of Directors may authorize the issuance of scrip
subject to any condition considered desirable, including (a) that the scrip will
become void if not exchanged for full shares before a specified date; and (b)
that the shares for which the scrip is exchangeable may be sold and the proceeds
paid to the scripholders.
3. SHARE TRANSFERS. Upon compliance with any provisions restricting the
transferability of shares that may be set forth in the articles of
incorporation, these Bylaws, or any written agreement in respect thereof,
transfers of shares of the corporation
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shall be made only on the books of the corporation by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation, or with a transfer
agent or a registrar and on surrender of the certificate or certificates for
such shares properly endorsed and the payment of all taxes thereon, if any.
Except as may be otherwise provided by law or these Bylaws, the person in whose
name shares stand on the books of the corporation shall be deemed the owner
thereof for all purposes as regards the corporation; provided that whenever any
transfer of shares shall be made for collateral security, and not absolutely,
such fact, if known to the Secretary of the corporation, shall be so expressed
in the entry of transfer.
4. RECORD DATE FOR SHAREHOLDERS. For the purpose of determining
shareholders entitled to be given notice of a shareholders' meeting, to
determine shareholders entitled to take action without a meeting, to demand a
special meeting, to vote, or to take any other action, the Board of Directors of
the corporation may fix a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy days before the
meeting or action requiring such determination of shareholders. A determination
of shareholders entitled to notice of or to vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it must do if the meeting is adjourned to a date more
than one hundred twenty days after the date fixed for the original meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of shareholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "shareholder" or "shareholders"
refers to an outstanding share or shares and to a holder or holders of record of
outstanding shares when the corporation is authorized to issue only one class of
shares, and said reference is also intended to include any outstanding share or
shares and any holder or holders or record of outstanding shares of any class
upon which or upon whom the articles of incorporation confer such rights where
there are two or more classes or series of shares or upon which or upon whom the
Revised Business Corporation Act confers such rights notwithstanding that the
articles of incorporation may provide for more than one class or series of
shares, one or more of which are limited or denied such rights thereunder.
6. SHAREHOLDER MEETINGS.
-TIME.The annual meeting shall be held on the date fixed from time to time
by the directors. A special meeting shall be held on the date fixed from time to
time by the directors except when the Revised Business Corporation Act confers
the right to call a special meeting upon the shareholders.
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-PLACE. Annual meetings and special meetings shall be held at such place
in or out of the State of Utah as the directors shall from time to time fix.
-CALL. Annual meetings may be called by the directors or the Chairman of
the Board of Directors, the President, or the Secretary or by any officer
instructed by the directors or the President to call the meeting. Special
Meetings may be called in like manner.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. The corporation shall
give notice to shareholders of the date, time, and place of each annual and
special shareholders' meeting. Such notice shall be given no fewer than ten nor
more than sixty days before the meeting date. Unless the Revised Business
Corporation Act or the articles of incorporation require otherwise, notice of an
annual meeting need not include a description of the purpose or purposes for
which the meeting is called. Notice of a special meeting must include a
description of the purpose or purposes for which the meeting is called. Unless
the Revised Business Corporation Act or the articles of incorporation require
otherwise, the corporation is required to give notice only to shareholders
entitled to vote at the meeting. A shareholder may waive any notice required by
the Revised Business Corporation Act, the articles of incorporation, or the
Bylaws before or after the date and time stated in the notice as the date or
time when any action will occur or has occurred. The waiver must be in writing,
be signed by the shareholder entitled to the notice, and be delivered to the
corporation for inclusion in the minutes or filing with the corporate records. A
shareholder's attendance at a meeting waives objection to lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting
because of lack of notice or defective notice, and waives objection to
consideration of a particular matter at the meeting that is not within the
purposes described in the meeting notice, unless the shareholder objects to
considering the matter when it is presented. The term "notice" as used in this
paragraph shall mean notice as defined in Section 16-10a-103 of the Revised
Business Corporation Act.
-SHAREHOLDERS' VOTING LIST FOR MEETING. After fixing a record date for a
meeting, the corporation shall prepare a list of the names of all its
shareholders who are entitled to be given notice of the meeting. The list must
be arranged by voting group, and within each voting group by class or series of
shares. The list must be alphabetical within each class or series of shares, and
must show the address of, and the number of shares held by, each shareholder.
The shareholders' list must be available for inspection by any shareholder,
beginning on the earlier of ten days before the meeting for which the list was
prepared or two business days after notice of the meeting is given and
continuing through the meeting and any meeting adjournments, as the
corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder or a shareholder's agent
or attorney is entitle don written demand to the
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corporation and, subject to the requirements of Subsections 16-10a-1602(3) and
(7), and the provisions of Subsections 16-10a-1603(2) and (3) of the Revised
Business Corporation Act, to inspect and copy the list, during regular business
hours and during the period it is available for inspection. The corporation
shall make the shareholders' list available at the meeting, and any shareholder,
or a shareholder's agent or attorney is entitled to inspect the list at any time
during the meeting or any adjournment, for any purposes germane to the meeting.
-CONDUCT OF MEETING. Meetings of the shareholders shall be presided over
by one of the following officers in the order of seniority and if present and
acting the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, if any, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the shareholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but, if neither the Secretary nor an
Assistant Secretary is present, the chairman of the meeting shall appoint a
secretary of the meeting.
-PROXY REPRESENTATION. A shareholder may appoint a proxy to vote or
otherwise act for the shareholder by signing an appointment form, either
personally or by the shareholder's attorney-in-fact, or in any other manner
prescribed by the provisions of Section 16-10a-722 of the Revised Business
Corporation Act.
-SHARES HELD BY NOMINEES. The corporation may establish a procedure by
which the beneficial owner of shares that are registered in the name of a
nominee is recognized by the corporation as the shareholder. The extent of this
recognition may be determined in the procedure.
-QUORUM. Unless the articles of incorporation or the Revised Business
Corporation Act provides otherwise, a majority of the votes entitled to be cast
on a matter by a voting group constitutes a quorum of that voting group for
action on that matter. Shares entitled to vote as a separate voting group may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting.
-VOTING. Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action unless the articles of incorporation or the Revised Business
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Corporation Act requires a greater number of affirmative votes.
-MEETINGS BY TELECOMMUNICATION. Any or all of the shareholders may
participate in an annual or special meeting by, or the meeting may be conducted
through the use of, any means of communication by which all persons
participating in the meeting can hear each other during the meeting. A
shareholder participating in a meeting by this means is considered to be present
in person at the meeting.
7. ACTION WITHOUT MEETING. Except as otherwise required by the Revised
Business Corporation Act, and subject to the requirements of Section 16-10a-704
thereof, any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting or vote if one or more consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take the action at a meeting at which all shares
entitled to vote on the action were present and voted. Notwithstanding the
foregoing provisions, directors may not be elected by written consent except by
unanimous written consent of all shares entitled to vote for the election of
directors.
ARTICLE II
BOARD OF DIRECTORS
1. FUNCTIONS GENERALLY - COMPENSATION. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation managed under the direction of, a Board of Directors. The Board may
fix the compensation of directors.
2. QUALIFICATIONS AND NUMBER. A director need not be a shareholder, a
citizen of the United States, or a resident of the State of Utah. The initial
Board of Directors shall consist of 3 persons, which shall be the number of
directors until changed. Thereafter, the number of directors shall not be less
than 3 nor more than 7. The number of directors may be fixed or changed from
time to time, within such minimum and maximum, by the shareholders or by the
Board of Directors. If not so fixed, the number shall be 3. The number of
directors composing the Board of Directors shall never be less than three,
except that before any shares are issued, the Board of Directors may consist of
one or more individuals, and except that after shares are issued and for as long
as the corporation has fewer than three shareholders entitled to vote for the
election of directors, the Board of Directors may consist of a number of
individuals equal to or greater than the number of those shareholders. After
shares are issued, only the shareholders may change the range for the
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size of the Board of Directors or change from a fixed to a variable-range Board
or vice versa.
3. TERMS AND VACANCIES. The terms of the initial directors of the
corporation expire at the first shareholders' meeting at which directors are
elected. The terms of all other directors expire at the next annual
shareholders' meeting following their election. A decrease in the number of
directors does not shorten an incumbent director's term. A director elected to
fill a vacancy created other than by an increase in the number of directors
shall be elected for the unexpired term of the director's predecessor in office,
or for any lesser term which may be prescribed by the Board of Directors. If a
director is elected to fill a vacancy created by reason of an increase in the
number of directors, then the term of the director so elected expires at the
next shareholders' meeting at which directors are elected, unless the vacancy is
filled by a vote of the shareholders, in which case the term shall expire on the
later of: (a) the next meeting of shareholders at which directors are elected;
or (b) the term designated for the director at the time of the creation of the
position being filled. Despite the expiration of a director's term, the director
continues to serve until the election and qualification of a successor, or until
there is a decrease in the number of directors. If a vacancy occurs on the Board
of Directors, including a vacancy resulting from an increase in the number of
directors, the shareholders or the Board of Directors may fill the vacancy; or
if the directors remaining in office constitute fewer than a quorum of the Board
of Directors, they may fill the vacancy by the affirmative vote of a majority of
all the directors remaining in office.
4. MEETINGS.
-TIME.Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
-PLACE. The Board of Directors may hold regular or special meetings in or
out of the State of Utah at such place as shall be fixed by the Board.
-CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of
the President, or of a majority of the directors in office.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. Regular meetings of the Board of
Directors may be held without notice of the date, time, place, or purpose of the
meeting. Written, or oral, notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. The
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notice of any meeting need not describe the purpose of the meeting. A director
may waive any notice required by the Revised Business Corporation Act or by
these Bylaws before or after the date and time of the meeting stated in the
notice. A director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the
beginning of the meeting, or promptly upon the director's arrival, objects to
holding the meeting or transacting business at the meeting because of lack of
notice or defective notice, and does not thereafter vote for or assent to action
taken at the meeting. Except as hereinbefore provided, a waiver must be in
writing, signed by the director entitled to the notice, and filed with the
minutes or corporate records. The term "notice" as used in this paragraph shall
mean notice as defined in Section 16-10a-103 of the Revised Business Corporation
Act.
-QUORUM AND ACTION. A quorum of the Board of Directors consists of a
majority of the number of directors prescribed in or fixed in accordance with
these Bylaws. If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the Board of Directors, unless
the Revised Business Corporation Act or the articles of incorporation require
the vote of a greater number of directors. The Board of Directors may permit any
or all directors to participate in a regular or special meeting by, or conduct
the meeting through use of, any means of communication by which all directors
participating may hear each other during the meeting. A director participating
in a meeting by this means is considered to be present in person at the meeting.
-CHAIRMAN OF THE MEETING. Meetings of the Board of Directors shall be
presided over by the following directors in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, or any other director chosen by the Board.
-REMOVAL OF DIRECTORS. The shareholders may remove one or more directors
with or without cause pursuant to the provisions of Section 16-10a-808 of the
Revised Business Corporation Act.
-COMMITTEES. The Board of Directors may create one or more committees and
appoint members of the Board of Directors to serve on them. Each committee must
have two or more members, who serve at the pleasure of the Board of Directors.
The creation of a committee and appointment of members to it must be approved by
the greater of (a) a majority of all the directors in office when the action is
taken, or (b) the number of directors required by the articles of incorporation
or these Bylaws to take action under the provisions of Section 16-10a-824 of the
Revised Business Corporation Act. The provisions of Sections 16-10a-820 through
16-10a-824 of the Revised Business Corporation Act,which govern meetings, action
without meetings, notice, waiver of notice, and quorum and voting requirements,
apply to committees
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and their members as well. To the extent specified by the Board of Directors or
these Bylaws, each committee may exercise the authority of the Board of
Directors under section 16-10a-801 of the Revised Business Corporation Act
except such authority as may not be delegated under the Revised Business
Corporation Act.
7. ACTION WITHOUT MEETING. Action required or permitted by the Revised
Business Corporation Act to be taken at a Board of Directors' meeting may be
taken without a meeting if all members of the Board consent to the action in
writing, pursuant to the provisions of Section 16-10a-821 of the Revised
Business Corporation Act.
ARTICLE III
OFFICERS
The corporation shall have a President, and a Secretary, and such other
officers as may be deemed necessary, who may be appointed by the directors. The
same individual may simultaneously hold more than one office in the corporation.
A duly appointed officer may appoint one or more officers or assistant
officers if authorized by the Board of Directors.
Each officer of the corporation has the authority and shall perform the
duties prescribed by the Board of Directors or by direction of an officer
authorized by the Board of Directors to prescribe the duties of other officers;
provided, that the Secretary shall have the responsibility for preparing minutes
of the directors' and shareholders' meetings and other records and information
required to be kept by the corporation under Section 16- 10a-1601 of the Revised
Business Corporation Act and for authenticating records of the corporation.
The Board of Directors may remove any officer at any time with or without
cause.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the corporation and the
name of the initial registered agent of the corporation are set forth in the
original articles of incorporation.
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ARTICLE V
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and shall be in such form and contain such other words and/or
figures as the Board of Directors shall determine or the law require.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BYLAWS
The Board of Directors may amend these Bylaws at any time except to the
extent that the articles of incorporation or the Revised Business Corporation
Act reserve this power exclusively to the shareholders in whole or in part. The
shareholders may amend these Bylaws at any time even though the Bylaws may also
be amended at any time by the Board of Directors. A Bylaw that fixes a greater
quorum or voting requirement for the Board of Directors may be amended or
repealed only in accordance with the provisions of Section 16-10a-1022 of the
Revised Business Corporation Act. No provision of this Article shall be
construed as purporting to negate the requirements of Section 16-10a-1021 of the
Revised Business Corporation Act.
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of
the Bylaws of Liteglow Industries, Inc., a corporation of the State of Utah, as
in effect on the date hereof.
WITNESS my hand and the seal of the corporation.
Dated:
-------------------------------------
, Secretary of
LITEGLOW INDUSTRIES, INC.
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