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As filed with the Securities and Exchange Commission on March 23, 2000.
File No. 0-27087
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
General Form for Registration of Securities
of Small Business Issuers under Section 12(b) or (g)
of the Securities Exchange Act of 1934
LITEGLOW INDUSTRIES, INC.
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(Name of Small Business Issuer in its Charter)
UTAH 65-05164035
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(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
2301 N.W. 33RD COURT, UNIT 104, POMPANO BEACH, FLORIDA 33069
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(Address of Principal Executive Offices) (Zip Code)
(954) 971-4569
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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LITEGLOW INDUSTRIES, INC.
FORM 10-SB - GENERAL FORM FOR REGISTRATION OF SECURITIES
TABLE OF CONTENTS
Part I
Item 1. Description of Business..........................................4
Item 2. Management's Discussion and Analysis
or Plan of Operation...................................16
Item 3. Description of Property.........................................21
Item 4. Security Ownership of Certain Beneficial
Owners and Management..................................22
Item 5. Directors, Executive Officers, Promoters
and Control Persons....................................23
Item 6. Executive Compensation..........................................25
Item 7. Certain Relationships and Related Transactions..................27
Item 8. Description of Securities.......................................28
Part II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters............30
Item 2. Legal Proceedings...............................................32
Item 3. Changes in and Disagreements with Accountants...................32
Item 4. Recent Sales of Unregistered Securities.........................33
Item 5. Indemnification of Directors and Officers.......................35
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Part F/S
Financial Statements......................................................36
Part III
Item 1. Index to Exhibits................................................37
Signatures................................................................38
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This Registration Statement contains certain forward looking
statements. These forward looking statements include statements regarding (i)
the Registrant's research and development plans, marketing plans, capital and
operations expenditures, and results of operations; (ii) potential financing
arrangements; (iii) potential utility and acceptance of the Registrant"s
existing and proposed products; and (iv) the need for, and availability of,
additional financing.
The forward looking statements included herein are based on current
expectations and involve a number of risks and uncertainties. These forward
looking statements are based on assumptions regarding the Registrant's business
which involve judgments with respect to, among other things, future economic and
competitive conditions and future business decisions, all of which are difficult
or impossible to predict accurately and many of which are beyond the control of
the Registrant. Although the Registrant believes that the assumptions underlying
the forward looking statements are reasonable, any of the assumptions could
prove inaccurate and, therefore, actual results may differ materially from those
set forth in the forward looking statements. In light of the significant
uncertainties inherent in the forward looking information contained herein, the
inclusion of such information should not be regarded as any representation by
the Registrant or any other person that the objectives or plans of the
Registrant will be achieved.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Liteglow Industries, Inc. (the "Company") is engaged in the design,
manufacture and sale to wholesalers and retailers, of automotive aftermarket
accessories and specialty products. The Company was incorporated in Utah on
April 25, 1984, under the name Graphic Connections, Inc. In September 1984, the
Company completed an offering of $30,000 of its common stock on a "blind-pool,
blank-check" basis, so that the Company had no specific use of proceeds at the
time that the offering was completed. In the fall of 1984 the Company changed
its name to Monte de Oro of Utah, Inc., and entered into the mining business,
which was not successful. In 1985 the Company changed its name to Confetti,
Inc., pursuant to a merger with a Utah corporation of that name and assumed the
operation of an Italian style restaurant. The restaurant failed in October 1985,
at which time the Company ceased doing business.
The Company remained inactive from October 1985 until its merger with
Liteglow Industries, Inc., a Florida corporation ("Liteglow Florida"), on August
8, 1996. The merger was effected by the Company to provide the Company with an
operating business. Liteglow Florida entered into the merger to provide access
to investment capital which
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Liteglow Florida believed would be available to it upon its merger into the
public Company. Pursuant to the merger agreement between the Company and
Liteglow Florida, the shareholders of Liteglow Florida were issued one share of
the Company's common stock for each of their shares of Liteglow Florida common
stock, so that upon the completion of the merger the shareholders of Liteglow
Florida held 122,250 shares, or 77.69%, and the existing outstanding
shareholders of the Company held 35,099 shares, or 22.31%, of the Company's
outstanding common stock. Upon completion of the merger the shareholders of
Liteglow Florida assumed control of the Company. Concurrently with the merger,
the Company assumed the ongoing business of Liteglow Florida, which business is
described in the succeeding paragraphs under this caption "Description of
Business," and the Company changed its name to Liteglow Industries, Inc.
On December 31, 1998, the Company's shares of common stock were reverse
split on a one share for sixty share basis. This Registration Statement states
all shares of the Company's common stock on a post-reverse basis. See
"Description of Securities--Common Stock."
THE COMPANY
The Company's existing business was established by its founder, Spencer
Krumholz, upon the incorporation of Liteglow Florida on August 8, 1994. With his
wife, Arlene Krumholz, Mr. Krumholz, organized that corporation to design,
manufacture and market, under the Liteglow' trademark and other trademarks and
trade names, a diverse line of automotive aftermarket accessories and specialty
products. Liteglow Florida's business initially focused on developing a line of
automotive accessories designed to enhance vehicle appearance, including neon
license plate frames and neon under-car lighting lights, all of which operate on
the 12-volt electrical system common in automobiles. Since the 1996 merger
between Liteglow Florida and the Company, the Company has expanded its product
offerings to include automotive products such as driving and fog lights, which
both improve vehicle operation, as well as decorative accessories such as
lighted dice.
The Company's neon under-car light products and its neon light rod
products, both of which are described under the caption "Products," below, are
each anticipated to account for approximately fifteen percent (15%) of the
Company's product sales revenues in 1999. No other product line is anticipated
to account for more than five percent (5%) of the Company's 1999 revenues. As
the Company continuously develops new products and consumer tastes change, its
revenues from a particular product line can be expected to change.
The Company is seeking to position itself in the niche market catering
to the automotive and electronics enthusiasts. This market is characterized by
owners who are
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generally more affluent than the typical automobile owner and view their
automobiles as a personal statement or means of recreation rather than just
basic transportation. By maintaining and enhancing close relationships with its
suppliers, customers and ultimate consumers, the Company believes that it is
well positioned to anticipate and identify the changing interests of consumers.
The Company's business objectives are to establish itself rapidly as the largest
specialty distributor of automotive aftermarket accessories using the common
automotive 12-volt electrical system and to expand its position in the
automotive aftermarket and electronics industries by introducing new products,
acquiring compatible businesses, and expanding its presence in all channels of
distribution. The Company's customers are limited to wholesale and retail
businesses, and the Company does not sell to consumers. The Company currently
offers over 200 products to approximately 2,000 customers. The Company intends
to continue its efforts to expand and diversify its product lines in order to
respond more effectively to consumer needs and to broaden its customer base, in
each case while maintaining high growth margins on overall product sales.
On October 10, 1997, Liteglow Acquisition Corp., a subsidiary of the
Company, merged with KJK Marketing, Inc. ("Low Glow"), a Florida corporation,
with Liteglow Acquisition Corp. being the surviving corporation. Pursuant to the
merger agreement between Liteglow Acquisition Corp. and Low Glow, the
shareholders of Low Glow received 7,500 shares of the Company's common stock
having an agreed value of $150,000 and cash of $100,000 payable $50,000 at
closing and $50,000 thirty (30) days after closing. Subsequent to closing, the
Company paid the promissory note in full. The Company was required by the merger
agreement to provide additional shares to the shareholders of Low Glow in the
event that the fair market value of their shares was less than $150,000 on
October 10, 1999. In October 1999 the Company issued 92,200 shares of its common
stock to the former shareholders of Low Glow pursuant to that provision of the
merger agreement. See "Description of Securities--Common Stock."
On October 10, 1998, the Company, through its wholly-owned subsidiary,
Liteglow Industries of California, Inc. ("Liteglow California"), acquired
certain assets of Ronald Basoff, an individual doing business as B&B Associates
in Van Nuys, California. Mr. Basoff"s business consisted of the manufacture, but
not the installation, of car alarms for sale on a wholesale and retail basis,
which the Company's management believed to be a good business opportunity for
the Company. The B&B Associates assets consisted primarily of car alarm parts
and accessories. In consideration of the assets acquired, Liteglow California
paid Mr. Basoff $50,000 in cash at closing, delivered to him its $100,000
promissory note, and also delivered to him 16,667 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.
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Subsequent to the closing of the B&B Associates acquisition, the
parties had a series of disagreements. These disagreements included disputes
over accounts payable and receivable, inventory control, and reports which
Company management anticipated that B&B Associates would provide on a daily and
other periodic basis. In February 1999 the Company paid $15,000 of the principal
amount of the $100,000 promissory note, but did not make any additional payment
after it determined that Mr. Basoff was not operating the business of Liteglow
California in accordance with his agreement with the Company and standard
business practices. Liteglow California terminated its B&B Associates business
in March 1999, and has recorded an estimated loss of $382,899 from its
investment in B&B Associates. The Company believes that this loss had a material
adverse impact on the Company in 1999, but that the loss will not have a
continuing adverse impact on the Company's business or operations in the future.
The Company does not intend to engage in the future in the car alarm business.
See Part 2, Item 2, "Legal Proceedings," for a description of the outstanding
litigation among the Company, Liteglow California, and Mr. Basoff.
MARKET OVERVIEW
The retail automotive aftermarket products market is large and diverse.
According to the United States Department of Commerce, Bureau of Economic
Analysis, sales of automotive parts and accessories through automotive
aftermarket retailers in the United States have increased to $15 billion in
1997, up 5.5% from the previous year. From 1988 to 1997, industry sales grew at
an average of 5.4% annually. According to a 1998 market study published by the
Specialty Equipment Market Association ("SEMA"), a national automotive equipment
trade association, sales by manufacturers of specialty automotive equipment
parts in the United States exceeded $6.85 billion in 1997, and the specialty
automotive equipment parts market grew at an annual rate of nearly 8% from 1987
through 1997. The 1998 SEMA survey also found that in 1997 manufacturer sales of
street performance specialty equipment products were $531 million, an increase
of 5% from 1996 sales.
The Company's business strategy is to direct its sales and marketing
efforts to outlets that cater to the niche market of automotive and electronic
enthusiasts purchasing automotive aftermarket accessories and specialty
products. The Company believes that its products are unusual and, consequently,
not sensitive to the normal discounting pressures faced by products that are
more of a commodity-like nature and sold in more conventional outlets. In the
year ended December 31, 1998, approximately 75% of the Company's sales were made
to wholesalers and independent retailers of electronic and automotive products.
The balance of the Company's sales during that period were made to mass
merchandisers and chain stores.
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The Company employs several principal marketing programs to reach its
targeted outlets. These programs, which are explained below under the caption
"Distribution, Sales and Marketing," include the use of independent sales
representatives nationally, a significant presence at the three principal
industry trade shows held annually, the use of its internal telemarketing
department, and advertising in magazines and trade publications.
BUSINESS STRATEGY
The business objective of the Company is to establish itself rapidly as
the largest specialty distributor of 12-volt electronic auto accessories and to
expand its position in the automotive aftermarket products market by introducing
new products and expanding its presence in all channels of distribution. The
Company plans to achieve its business objective by continuing to actively
research and identify new and innovative products that it believes will provide
attractive profit margins, promoting brand name recognition and maintaining a
strong commitment to customer service. The Company's strategy to achieve this
objective includes the following key elements:
INNOVATIVE PRODUCTS. The Company intends to focus its efforts on
developing lines of accessory and specialty, rather than replacement,
aftermarket products and to differentiate its product offerings by manufacturing
or acquiring products incorporating the latest technology, innovative designs
and advanced components. For example, the Company's Neon Under-Car Lighting Kits
incorporate innovative electronic components and high impact glass of a standard
that is higher than the industry norm.
QUALITY CONTROL; BRAND NAME RECOGNITION. The Company is committed to
providing high quality products. The Company closely monitors the manufacturing
process of its suppliers and tests its products in order to assure quality and
reliability, which the Company believes are critical elements for success in the
automotive aftermarket products market. Historically, the Company's rate of
return for defective products averages only approximately two to two and
one-half percent of sales. However, in 1998 the Company lost approximately
$300,000 to $400,000 in sales from defective neon under-car lighting kits as a
consequence of what the Company believes to be a one-time problem with a Chinese
supplier. The Company has changed its supplier for this product and has engaged
persons in China to perform quality control inspections at manufacturing sites.
The Company believes that by consistently offering high-quality products it will
continue to build brand name recognition and loyalty. Brand name recognition is
important because, among other things, brand name products often command premium
prices but can be produced at relatively low cost, resulting in higher margins.
COMMITMENT TO MULTIPLE PRODUCT CATEGORIES. The Company is committed to
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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.
SERVICE COMMITMENT. The Company emphasizes a high level of service in
all aspects of its business, including identifying consumer demand for new
products, providing fast and efficient product delivery, maintaining responsive
warranty service, and maintaining product and market knowledge.
MARKETING. The Company's marketing efforts are conducted by Mr.
Krumholz and, by Lou Wiener and Michael Krumholz, who are both vice presidents
of the Company, and through independent sales representative agencies. The
Company has recently developed an in-house telemarketing department.
PRODUCTS
The Company currently markets a broad line of 12-volt,
appearance-enhancing automotive accessories and related replacement parts to
electronic dealers and specialty auto stores, including the following products:
NEON UNDER-CAR LIGHTING KITS: These kits contain two or four 25mm neon
hi-impact neon light tubes. The two-tube kit contains two three-foot tubes and
the four-tube kit contains two three-foot and two four-foot tubes. The lights
are available in six brilliant colors and can be attached to spring loaded
mounting brackets installed on the sides, front and back of a vehicle. The top
surface of the tubes has chrome reflective foil for maximum lighting effect. The
tubes are factory pre-wired for extra safety and simplified installation.
NEON LITE RODS: The neon light rods are suitable for exterior and
interior use on all vehicles, as well as boats. The light rods can be purchased
in three sizes: the WARP-8 (eight-inch tubes), the WARP-15 (fifteen-inch tubes),
and the WARP-24 (twenty-four inch tubes). Each light rod kit contains wire, one
switch, one in-line fuse and built in electronic transformer plus hardware. All
WARP neon light rods are available in six bright neon colors.
NEON SHIFT KNOBS: The Mood Glow neon shift knobs feature a 3-way
switch, which turns the lighted knob on or off or causes it to flash. The shift
knobs fit most standard shift vehicles, are easily installed and are available
in six bright neon colors.
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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, and is all American made.
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RADICOLOR UNDERBODY KIT: Low Glow's radicolor underbody kit is 100%
American made and combines two or more colors in the same neon tube. The kit
consists of two 48-inch tubes, two 42-inch tubes, mounting hardware, heavy duty
on/off switch, and an American made power supply (transformer). It is presently
the only multi-color neon underbody kit on the market.
The Company has recently begun shipping several new accessory items,
such as hang-up lighted dice, lighted soccer ball, lighted eight-ball, and a
brand new lighted skeleton (battery powered). These accessories will be carried
by auto accessory chains, mass merchandisers, retailers and mail order
marketers.
Management believes it understands the needs and preferences of
consumers based on a combination of its own extensive experience and the
continual input it receives from wholesales, retailers, auto enthusiasts and
others regarding new products or improvements to existing products. The Company
remains in close contact with its wholesalers, retailers and consumers through
participation in industry trade shows and other events in order to anticipate
new trends and introduce innovative accessories in advance of its competitors.
As a result, the Company believes it is well positioned to introduce new
products that are responsive to the needs of its customers and ultimate
consumers.
DISTRIBUTION, SALES AND MARKETING
Management is responsible for approximately 65% of the Company's sales
revenues. In addition to the marketing and sales efforts of management, the
Company currently markets and sells its products directly through independent
sales representatives, who account for about 35% of sales revenues. As of
December 31, 1998, the Company employed fifteen sales representative agencies
having in the aggregate approximately eighty-five individual sales
representatives. The sales representatives generally sell to customers on a
non-exclusive territorial basis. They are paid monthly commissions averaging
approximately 5% of all orders shipped to their accounts and are free to market
products other than the Company's. All orders for the Company's products are
processed and filled at the Company"s executive offices and warehouse located at
2301 N.W. 33rd Court, Pompano Beach, Florida, and, as to Low Glow products, at
Low Glow's office located at 2649 Mercy Drive, Orlando, Florida 32808. Although
management believes that the use of independent sales representatives is an
effective method to market its products, the Company intends to develop its own
sales force and uses an in-house telemarketing staff to augment the marketing
efforts of the independent sales representatives.
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All aspects of the Company's product development and advertising
program are done in house. The Company's products are sold in distinctive,
full-color, bilingual 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 such as Pep Boys, Trak Auto, J. C. Whitney
Company, Circuit City, and Joe Amato's Keystone Warehouse. Presently, no
retailer other than Circuit City accounts for more than 3% of annual sales. In
1998, the Company's sales to Circuit City accounted for nearly eight percent
(8%) of its annual sales. The Company's export customers in Europe, Canada,
South America and the Pacific Rim. The Company intends to seek sales agreements
with other major retailers in order to increase its product distribution and
sales.
The Company regularly exhibits at major trade shows, including the
Consumer Electronics, SEMA, and Automotive Parts and Accessories shows held
annually in Las Vegas.
MANUFACTURING AND SOURCES OF SUPPLY
The Company currently purchases its products from several manufacturers
based in the Far East, principally China. The Company's Low Glow products are
manufactured in the United States. The Company continues to maintain direct
working relationships with its manufacturers and regularly monitors their
performance. All products are randomly tested by the Company to assure quality
and reliability. The Company works closely with its manufacturers to assure
timely delivery of high-quality, low-cost products that meet the Company's
specifications. By using outside manufacturers for its products, the Company is
able to minimize capital expenditures while maintaining flexibility in response
to changing production costs and market demands.
The Company's products are manufactured according to management's
projections of product sales based on recent sales results, current economic
conditions and prior experience with manufacturing sources. In order to be able
to quickly fill orders from customers, the Company must maintain significant
inventories. The average lead time from the commitment to purchase products
through production and shipment ranges from approximately 30 to 45 days. The
Company acquires its products on a purchase order basis. As is common in the
industry, the Company experiences short-term inventory shortages with respect to
a limited number of products. However, management believes that inadequate
working capital and financing lines of credit, rather than manufacturing
difficulties, have been the primary cause for any inventory shortages. The
Company has generally experienced no material difficulties in obtaining adequate
quantities of most products from its manufacturers.
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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 alterative suppliers within a reasonable time
period on terms that would not be materially different from those currently
available to the Company.
The Company currently has a $400,000 line of credit from Colonial First
Bank, Boca Raton, Florida. The line of credit bears interest at the rate of 2%
over the prime rate of interest, is secured by a personal guarantee from Mr.
Krumholz and expires on September 30, 2000. The Company uses the proceeds of
this line of credit to finance purchases of products from its suppliers. The
Company expects that upon the expiration of its line of credit the line of
credit will be renewed.
As a substantial portion of the Company's products are manufactured in
the Far East, the availability and cost of products manufactured could be
adversely affected if political or economic conditions in this region were to
deteriorate. The cost of the Company's products could also be affected by the
tariff structure imposed on imports or other trade policies of the United States
or other governments, which could adversely affect the Company. The prices for
products purchased by the Company are stated in United States dollars at the
time orders are placed. As a result, the Company does not bear the risk of
fluctuations in currency rates between the time its products are ordered and the
time they are shipped.
COMPETITION
The automotive aftermarket industry is highly fragmented and
competitive. Key competitive factors in the automotive aftermarket include the
ability to promptly fill orders from inventory, the range of unique products
offered, and the speed and cost of product delivery. The Company intends to
compete on these bases, as well as on the bases of product quality and brand
name recognition. The Company competes with companies involved in the
manufacture, assembly and distribution of aftermarket automotive products, some
of which companies are substantially larger and have significantly greater
resources than those of the Company. The cost of entry into the niche occupied
by the Company today is rather substantial, including start-up costs, and
tooling. In addition, many of the products that the Company offers are purchased
on an exclusive basis from outside vendors. However, these exclusive vendor
agreements are oral rather than written and the Company does not believe that
they are enforceable.
The Company does not believe that there is available information
published by its competitors or industry sources concerning the market share or
size of its competitors in the 12-volt electronic auto accessories market.
Accordingly, the Company is unable to
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determine accurately its market share or its position among its competitors.
However, based upon its experience in the auto accessories marketplace and
discussions with retail outlets, the Company believes that its sales, range of
products, and number of wholesale and of retail outlets make it one of the
principal competitors in its market. The Company's principal competitors are
American Auto Accessories in New York; Street Glow, Inc., in New Jersey; and
Toucan Industries, Inc., in Florida.
TRADEMARKS
In the course of its business, the Company employs, and intends to
increase the usage of, various trademarks, trade names and service marks,
including its logo, in the packaging and advertising of its products. The
Company believes that the use of service marks, trademarks and trade names are
of considerable value and importance to its business and intends to continue to
protect and promote its marks as appropriate. The Company's Liteglow' and Low
Glow' trademarks are registered with the United States Patent and Trademark
Office. The Company believes that its trademarks and the associated recognition,
reputation and customer loyalty will contribute to the success of the Company"s
business.
REGULATION
Certain of the Company's operations are subject to governmental
regulations. Compliance with federal, state, local and foreign laws and
regulations has not had, and is not anticipated to have, a material adverse
effect on the business of the Company. The Company believes that it is in
material compliance with all such regulations, and is not aware of any
regulatory initiatives that areas expected to have a material adverse affect on
the business.
Occasionally the Company had been made aware by a consumer that a state
or local motor vehicle law has been interpreted and enforced to restrict or
prohibit the use of a specialty light installed in a particular vehicle. In
virtually all states, however, the installation of specialty lights on vehicles
is not prohibited. The Company believes that the only states placing restriction
on the use of specialty lights are Virginia, which restricts lights mounted on
the front and rear of vehicles and Michigan, which restricts lights mounted on
vehicle undercarriages. The Company does not believe these restrictions to have
any material impact on sales.
EMPLOYEES
As of June 30, 1999, the Company employed thirty-five persons, fifteen
of whom are based at the Company's headquarters facility and twenty of whom work
in its Orlando, Florida, manufacturing plant. The Company's employees are not
represented by a union and the Company believes that its relations with its
employees are good.
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RECENT DEVELOPMENTS
In October 1999, the Company settled a suit brought against it in 1997
by Michael Angelo in the Third Judicial District Court for Salt Lake City, Utah.
The suit arose out of the sale of securities to a Utah resident by the Company's
predecessor, Liteglow Industries, Inc., a Florida corporation, in 1996. The
complaint alleged fraud and failure to register the securities under the Utah
blue sky law. Pursuant to its settlement agreement with Michael Angelo, the
Company paid Michael Angelo cash of $30,000 and issued Michael Angelo 50,000
shares of restricted common stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Financial Statements appearing elsewhere in this Registration
Statement.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998.
Net sales for the year ended December 31, 1998, increased to $2,890,513
compared to $2,673,387 for the year ended December 31, 1997. For those same
periods cost of sales increased from $1,523,689 to $1,849,993, and gross profit
decreased from $1,149,698 to $1,040,520. For the same periods, the Company's
selling, general and administrative expenses increased from $1,723,499 to
$2,398,490, resulting in an increased operating loss from $573,801 to
$1,357,970. The Company experienced a substantial increase in selling, general
and administrative expenses in 1998 as it increased its staff and purchased
increased amounts of advertising in anticipation of a significant increase in
business, which did not occur. In 1998, the Company's management believed that
the Company would see material sales increases from its Low Glow acquisition in
1997 and its acquisition of the assets of B&B Associates in 1998, which is
described in the next paragraph. Both purchases did not meet management's
expectations for increased sales. The Company also incurred substantial
professional fees in connection with initiating the process of becoming a
reporting company and filing this Registration Statement. The Company incurred
additional expenses as a consequence of legal actions in which it became or
continued to be involved in 1998, as compared to 1997, and lost net sales and
gross profit from the purchase of defective products from its manufacturers.
In the six months ended December 31, 1998, the Company experienced
substantial defects in its neon undercar lighting kits made in China. As a
consequence, management believes that the Company lost approximately $300,000 to
$400,000 in sales, which in turn resulted in lost profits. While defective
products were substantially returnable to suppliers, the Company could not
recover its lost sales or the profits from those sales. Further, management
believes that the Company lost significant numbers of customers 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,
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<PAGE> 17
together with the Company's loss from continuing operations in 1998 of
$1,491,540, resulted in a net loss of $1,917,540 in the year ended December 31,
1998, compared to a loss of $614,034 for calendar year 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999.
The Company's revenues increased from $2,158,412 for the nine months
ended September 30, 1998, to $3,547,435 for the nine months ended September 30,
1999, and for these periods the Company's gross profit increased from $1,058,590
to $1,981,216. The Company had net income of $456,343 for the nine months ended
September 30, 1999, compared to a net loss of $535,403 for the nine months ended
September 30, 1998. The Company substantially decreased trade show, convention,
travel and magazine advertising expenses for the nine months ended September 30,
1999, compared to the comparable 1998 period. However, overall selling, general
and administrative expenses ("SG&A") remained substantially the same in each of
these periods as the Company"s sales increased.
In the nine months ended September 30, 1999, the Company instituted a
cost-cutting program and implemented more stringent financial controls. The
Company increased sales from its Low Glow business by approximately 50%
substantially as a result of increased sales at car shows. The Company had an
increase in the sales of its Liteglow products of approximately 60% for the nine
months ended September 30, 1999, compared to the comparable 1998 period as a
result of the introduction of new products and increased sales to chain stores.
The Company's cost of goods sold increased from $1,099,822 to $1,566,219 for the
nine months ended September 30, 1999, compared to the comparable 1998 period.
The increase in gross profit from approximately 49% in the first nine months of
1998 to approximately 56% of sales resulted from more cost-effective purchases
from Chinese suppliers and increased margins from the sales of new products. The
Company reduced selling expenses by reducing travel costs, trade show expenses
and an officer's salary. The Company also reduced product packaging costs and
the cost of product development.
Management believes that its focus on more cost-advantaged purchases
from its overseas suppliers, together with a reduction in selling, general and
administrative expenses, will result in increased profit margins. Management
further believes that the Company will continue to develop relationships with
its principal retailers and, through the development of those relationships and
the continuing introduction of new products, will increase both its sales and
net profits. Management is aware, however, that the Company's products are
discretionary items and that their purchase is dependent in large part on local,
regional and national economic conditions existing from time-to-time.
Accordingly, the Company's operating results for the first nine months of
calendar year 1999 reflect the cost controls, marketing programs, new and
improved customer
17
<PAGE> 18
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.
Total current assets increased from $660,663 at December 31, 1997, to
$836,505 at December 31, 1998, primarily as a result of an increase in accounts
receivable and, to a lesser extent, increases in inventory, cash and prepaid
expenses. The Company's total assets increased from $1,169,455 to $1,347,106 for
the comparable periods, also primarily as a result of increased current assets.
The Company increased its line of credit from $270,000 at December 31,
1997, to $380,000 at December 31, 1998, to meet increased cash demands of its
business. Accounts payable decreased from $296,297 at December 31, 1997, to
$134,663 at December 31, 1998, as the Company used its line of credit and income
from operations to reduce its accounts payable. The Company had substantial
increase in accrued liabilities from $15,923 at December 31, 1997, to $142,684
at December 31, 1998, and a loss on the disposal of its subsidiary. Both the
increase in accrued liabilities and the accrued loss on disposal of its
subsidiary resulted from the Company's acquisition and disposition of its B&B
assets.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999.
The Company's cash increased from $68,296 at December 31, 1998, to
$91,798 at September 30, 1999. For the same period, its accounts receivable
increased from $245,964 to $560,323. Inventory increased from $457,634 at
December 31, 1998, to $648,884 at September 30, 1999, and prepaid expenses
increased from $64,611 to $135,378 during the same period. The increase in
accounts receivable, inventory and prepaid expenses resulted from substantial
increases in sales, as the Company purchased additional inventory and prepaid
suppliers to meet demand for its product.
The accounts payable increased from $134,663 at December 31, 1998, to
$169,345 at September 30, 1999. Accrued liabilities decreased from $142,684 to
$52,124 during that period due to the payment in 1999 of accrued liabilities.
The accrued loss on disposal of subsidiary decreased from $105,088 at December
31, 1998, to $20,532 at September 30, 1999, as a consequence of the Company's
disposal of its B&B assets and business and the payment in 1999 of accrued
liabilities.
The Company had a loss from operations in 1998 and 1997 and negative
cash flows
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<PAGE> 19
from operations at December 31, 1998 and 1997. For the first nine months of
1999, the Company had an operating profit, but negative cash flow from
operations, of $263,540. The Company used cash provided by financing activities
of $359,740 to meet its cash requirements for the nine months ended September
30, 1999. The Company's negative cash flow from operations in the first nine
months of 1999 was due to increase in accounts receivable, inventory and prepaid
expenses.
During the years ended December 31, 1998 and 1999, the Company sold shares of
its common stock and received proceeds of $2,013,500 from those sales. The
Company has claimed an exemption for these sales from the registration
provisions of the Securities Act of 1933 pursuant to Regulation D, Rule 504. The
Company believes that certain of these sales may have resulted in the violation
of the registration provisions of Section 5 of the Securities Act of 1933, as
the exemption provided by Rule 504 is limited, in any twelve month period, to
$1,000,000. The Company has been advised by its counsel that persons who
purchased shares from the Company in transactions that were not exempt from the
registration provisions of Section 5 may have the right under state and federal
securities laws to require the Company to repurchase their shares for the amount
originally paid, plus interest. Based on the best information available to the
Company, the Company has calculated the possible exposure that exists for the
Company in light of the potential civil liabilities described above.
Accordingly, in the event that these potential civil liabilities were
successfully asserted, the Company could be liable to those shareholders
purchasing securities directly from the Company in an amount which the Company
has determined was a maximum of $738,500 at December 31, 1998. As the Company
has been advised that there is a one-year statute of limitations for an action
brought for recision of the transactions which have been described, the amount
of the Company's potential liability for recision is reduced by the passage of
time, so that at September 30, 1999, the Company did not record any adjustment
of its equity as being subject to potential redemption.
The Company's loss from operations in 1997 and 1998 and negative cash
flows from operations at December 31, 1997 and 1998 raise substantial doubt
about the Company's ability to continue as a going concern. Management's plan is
to operate profitably through increased sales, introduction of new products,
increases in margins, and reduction of selling, general and administrative
expenses. Management believes these efforts will generate positive cash flow
during the balance of 1999 and in 2000.
Management believes that the Company's current capital resources are
sufficient for its needs if the Company continues to operate its business solely
from cash from operations. However, management believes that in order for the
Company to continue to expand its revenues and business base at the same rate as
has occurred in the first nine months of 1999, the Company will need additional
capital resources. Management does
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<PAGE> 20
not believe that the Company can obtain significant capital from additional
borrowing and, accordingly, anticipates that the Company will undertake to raise
additional equity capital on a private or public basis in 2000. The Company has
not had any discussions with any investment banking firm or underwriter with
respect to any such placement or underwriting and is unable to anticipate
whether or when any such financing may occur or, if it does occur, to what
extent a financing will benefit the Company.
The Company believes that its results will continue to be subject to
prevailing economic conditions, over which it has no control; to competition;
and to the quality of its relationships with its suppliers and retailers. The
Company anticipates that it will be able to compete effectively in the
automotive accessories market through the merchandising and improvement of its
existing products and the development of new products. The Company continues to
develop new manufacturing sources to improve the quality and cost of its
products.
YEAR 2000 ISSUES
The Company presently believes that its computers are Y2K compliant and
anticipates no Y2K impact in connection with its suppliers or customers. The
Company continues to assess its Year 2000 compliance status and the compliance
status of its suppliers and customers.
Based on ongoing assessments through December 20, 1999, the Company
believes that no significant modifications of existing computer software will be
required. The Company believes that its computer systems will function properly
with respect to dates in the Year 2000 and thereafter. The Company also believes
that any costs related to the Year 2000 issue will not be significant.
In the event that the Company experiences Y2K problems, the Company
will acquire such technical advice and new software and hardware as may be
necessary to be compliant.
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<PAGE> 21
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases an aggregate of 16,000 square feet of office and
warehouse space within a 500,000 square foot industrial park located at 2301
N.W. 33rd Court, Pompano Beach, Florida 33069. The Company's Low Glow subsidiary
leases 3000 square feet of office, warehouse and manufacturing space in an
industrial park located at 2649 Mercy Drive, Orlando, Florida 32808. The Company
intends to move its headquarters into a 25,000 square foot space in the same
industrial park in January 2000, but has not completed negotiations for that
space.
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<PAGE> 22
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information with respect to the beneficial
ownership of the Common Stock by (i) each of the directors of the Company, (ii)
each person known by the Company to be the beneficial owner of five percent or
more of the outstanding Common Stock, and (iii) all executive officers and
directors as a group, as of December 1, 1999. Unless otherwise indicated, the
Company believes that the beneficial owner has sole voting and investment power
over such shares.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage
Beneficial Owner of Beneficially Owned Ownership of Class
- ------------------- --------------------- ------------------
<S> <C> <C>
Spencer Krumholz(1)(2)(3).......... 5,087,918 56.97%
2301 NW 33rd Court #104
Pompano Beach, FL 33069
Arlene Krumholz(1)(3).............. 79,168 2.01%
2301 NW 33rd Court #104
Pompano Beach, FL 33069
Michael Krumholz(4)................ 1,667 .04%
2301 NW 33rd Court #104
Pompano Beach, FL 33069
Louis Weiner(1) ................. 834 .02%
2301 NW 33rd Court #104
Pompano Beach, FL 33069
All Executive Officers ............ 5,169,587 57.88%
and Directors as a group
(4 persons)(2)
</TABLE>
- ----------------------------
(1) Officer and Director.
(2) Pursuant to Rule 13d-3, includes 5,000,000 shares of Common Stock into
which Mr. Krumholz's 1,000,000 shares of Preferred Stock are
convertible.
(3) Spencer Krumholz and Arlene Krumholz are husband and wife. Mrs.
Krumholz disclaims beneficial ownership of her husband's shares of both
Common and Preferred Stock.
(4) Officer. Michael Krumholz is the son of Spencer and Arlene Krumholz.
- ----------------------------
The Company has authorized, issued and outstanding 1,000,000 shares of
preferred stock, all of which are designated Series A Convertible Preferred
Stock and are owned of record and beneficially by Spencer Krumholz. See Item 8,
"Description of Securities," for a description of the Series A Convertible
Preferred Stock.
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<PAGE> 23
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth the names and ages of the Company's officers
and directors. The directors of the Company are elected annually by the
shareholders, and the officers are appointed annually by the board of directors.
Name Age Position
- ---- --- --------
Spencer Krumholz 55 Chairman of the Board, President,
Chief Executive Officer
Arlene Krumholz 54 Vice President, Secretary
Louis Wiener 62 Vice President, Chief Operating Officer
Michael Krumholz 27 Vice President-Sales and Marketing
SPENCER KRUMHOLZ has been Chairman and Chief Executive Officer of the
Company and its predecessor since 1994. Mr. Krumholz founded K&S Speed Shop,
which sold high performance and specialty automotive parts, in Long Island, New
York, in 1961 and was its president from that time until 1972. In 1973, he
founded Specialty Representatives, Inc., a sales representative agency which
marketed and sold basic automotive accessories to major chains. Mr. Krumholz
founded Tech Guard Industries, Ltd., in 1984 to market and sell a two-wire
remote car alarm system, and served as the president of that company until 1990.
In June 1991 Mr. Krumholz founded Koolglow Industries, Inc., to market and sell
neon license plate frames. In December 1992 Mr. Krumholz sold Koolglow
Industries, Inc., to Bluechip Computerware, a NASDAQ company.
ARLENE KRUMHOLZ has been an officer and director of the Company and its
predecessor, Liteglow Industries, Inc., a Florida corporation, since 1994.
LOUIS WIENER has been a graphic designer and artist for thirty-five
years. He joined the Company's predecessor in 1994. Prior to that time, Mr.
Wiener had his own independent graphics design business.
MICHAEL KRUMHOLZ joined the Company in 1997, when he graduated from
college. He has a Masters Degree in sports marketing from the University of
Miami. Mr. Krumholz works with and trains the Company's sales representatives.
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<PAGE> 24
Directors are elected annually and hold office until the next annual
meeting of the shareholders of the Company or until their successors are elected
and qualify. Officers serve at the discretion of the Board of Directors. The
Company does not pay any cash compensation for attendance at directors meetings
or participation at directors functions.
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<PAGE> 25
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 $100,000 during any of the three years ended
December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------------------------------------
Awards Payouts
----------------------------------- ---------------------
Restricted
Stock Securities
Name and Principal Salary Award(s) Underlying All Other
Position (a) Year(b) ($)(c) ($)(f) Options/SARs(#)(g) Compensation(i)(2)
- ------------------- ------- -------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Spencer Krumholz Chairman, 1998 $150,000 $55,000(1) -- $27,000
President, 1997 $ 75,000 -- -- $22,800
CEO 1996 $ 50,000 -- -- $10,000
</TABLE>
- --------------
(1) The value of the restricted stock award has been determined by
multiplying the shares of common stock into which Mr. Krumholz's
1,000,000 shares of Series A Convertible Preferred Stock are
convertible by a value of .011 per share, which is the closing bid
price of the Company's Common Stock on December 31, 1998. The bid price
at December 31, 1998, does not reflect the Company's 1 share for 60
share reverse stock split which occurred prior to that date and which
was not reflected in the trading price for the common stock until
January 13, 1999. Shares of Common Stock were issued to Mr. Krumholz
and members of his family in 1998 and 1997. The issuances were
rescinded in December 1998 and the Company recorded no compensation for
the issuance of the Common Stock. See Note 11 to the Company"s audited
consolidated financial statements.
(2) Consists of cash payments for premiums on life insurance policies owned
by Mr. Krumholz and payments for Company-owned or leased vehicles used
by Mr. Krumholz.
- ---------------
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<PAGE> 26
As of December 31, 1998, the number and value of the aggregate
restricted stockholdings of the persons named in this table, including shares
held by them indirectly, was as follows:
Name Shares Value(1)
- ---- --------- --------
Spencer Krumholz.......... 5,087,918 $55,967
Arlene Krumholz........... 79,168 $ 871
Louis Weiner.............. 834 $ 9
Michael Krumholz ......... 1,667 $ 18
- ---------------
(1) The value of the restricted shares of common stock has been determined
using the closing bid price at December 31, 1998, of $.011 per share.
The number of shares of common stock which appear in this table are
stated on a post-split basis, although the Company's common stock did
not begin trading on a post-split basis until January 13, 1999. In
accordance with Rule 13d-3, Mr. Krumholz's shares include the shares of
Common Stock underlying his shares of Preferred Stock. January 13,
1999, the Company's stock traded at a high and low bid price of
approximately $.20 per share.
- ---------------
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<PAGE> 27
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 8, 1996, the Company merged with Liteglow Florida. In
connection with the merger, the shareholders of Liteglow Florida received
123,083 shares of the Company's common stock.
In 1997 and 1998, the Company issued approximately 941,667 shares of
common stock to Spencer Krumholz and family members for services. The shares
issued to these persons 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 for services
performed in 1997 and 1998, which services the Company valued at $50,000.
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 20,833 shares of the Company's
common stock for $187,500 in settlement of a portion of an outstanding
receivable from Mr. Krumholz, which was incurred over a period of time. At
December 31, 1998, Spencer Krumholz had $58,355 outstanding in loans to the
Company.
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<PAGE> 28
ITEM 8. DESCRIPTION OF SECURITIES
The following statements do not purport to be complete and are
qualified in their entirety by reference to the detailed provisions of the
Company's Articles of Incorporation and Bylaws, copies of which will be
furnished to an investor upon written request therefor. See "Additional
Information."
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock,
par value $.001 per share. As of December 1, 1999, the Company had 3,931,087
shares of common stock issued and outstanding. On December 31, 1998, the
Company's shares were reverse-split on a 1 share for 60 share basis and the
Company's authorized shares of Common Stock were reduced at the same time from
200,000,000 to 10,000,000 shares.
The holders of shares are entitled to equal dividends and distributions
per share with respect to the Common Stock when, as and if declared by the Board
of Directors from funds legally available therefor. No holder of any shares has
a pre-emptive right to subscribe for any securities of the Company nor are any
common shares subject to redemption or convertible into other securities of the
Company. Upon liquidation, dissolution or winding up of the Company, and after
payment of creditors and preferred stockholders, if any, the assets will be
divided pro-rata on a share-for-share basis among the holders of the shares.
Each share is entitled to one vote with respect to the election of any director
or any other matter upon which shareholders are required or permitted to vote.
Holders of the Company's common shares do not have cumulative voting rights, so
that the holders of more than 50% of the combined shares voting for the election
of directors may elect all of the directors, if they choose to do so and, in
that event, the holders of the remaining shares will not be able to elect any
members to the Board of Directors.
PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock, all of
which are designated Series A Convertible Preferred Stock ("Preferred Stock")
and all of which were issued and outstanding at December 1, 1999.
Each holder of shares of Preferred Stock is entitled to the number of
votes equal to the number of whole shares of common stock into which the shares
of preferred stock are convertible. Except as otherwise provided by law, holders
of Preferred Stock vote together with holders of Common Stock as a single class.
The consent of not less than two-thirds of the outstanding shares of Preferred
Stock, voting separately as a class, is necessary for the Company to sell all or
substantially all of its assets or to effect any
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<PAGE> 29
merger, consolidation, share exchange or similar transaction to which the
Company is a party, or to enter into any other transaction resulting in the
acquisition of a majority of the outstanding voting stock of the Company by
another corporation or entity.
Holders of the Preferred Stock have the right to convert their shares
into shares of Common Stock on the basis of five shares of Common Stock for each
share of Preferred Stock, so that the 1,000,000 shares of Preferred stock are
convertible into 5,000,000 shares of Common Stock. The conversion rate is
subject to adjustment for certain stock splits and combinations, a stock
dividend or distribution by the Company, and certain other changes in the
Company's capital structure, including any change on merger or reorganization.
The holders of Preferred Stock have a liquidation preference equal to
$.10 per share of Preferred Stock, plus accrued and unpaid dividends, if any,
and interest thereon. The Preferred Stock does not have a dividend preference.
DIVIDEND POLICY
The Company has not paid any dividend to its shareholders for any class
of stock and does not anticipate paying any such dividend in the foreseeable
future.
TRANSFER AGENT
The Company's registrar and transfer agent is Alpha Tech Stock
Transfer, 4505 S. Wasaich Blvd., Suite 205-A, Salt Lake City, Utah 84124.
29
<PAGE> 30
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.
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. The
following bid quotations have been reported for the period which began October
1, 1997, and ended September 30, 1999. All bid prices have been adjusted to
reflect the Company's 1998 reverse stock split.
BID PRICES
---------------------
PERIOD HIGH LOW
------ ---- ----
Quarter Ended December 31, 1997............. .003 .001
Quarter Ended March 31, 1998................ .10 .001
Quarter Ended June 30, 1998................. .082 .001
Quarter Ended September 30, 1998............ .047 .*
Quarter Ended December 31, 1998............. .* .*
Quarter Ended March 31, 1999................ .46 .201
Quarter Ended June 30, 1999................. .90 .21
Quarter Ended September 30, 1999............ .625 .34
* Less than $.001 per share.
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission. Such quotes are not necessarily representative of
actual transactions or of the value of the Company's securities, and are in all
likelihood not based upon any recognized criteria of securities valuation as
used in the investment banking community.
The Company has been advised that 15 member firms of the NASD are
currently acting as market makers for the common stock.
As of December 1, 1999, there were 264 holders of record of the
Company's common stock. Certain of the shares of common stock are held in
"street" name and may, therefore, be held by several beneficial owners.
As of December 1, 1999, there were 3,931,087 shares of common stock
issued and outstanding. Of those shares 203,251 shares are "restricted"
securities of the Company
30
<PAGE> 31
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 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.
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<PAGE> 32
ITEM 2. LEGAL PROCEEDINGS
The Company is a party to the following legal proceedings.
In April 1999, Ronald Basoff d/b/a B&B Associates sued Liteglow
Industries, Inc., and Spencer Krumholz in Los Angeles County, California,
Superior Court. In May 1999 the Company sued Ronald Basoff individually and
d/b/a B&B Associates, and his brother, David Basoff, in the same court. Both
actions arose out of the acquisition of Ronald Basoff's automobile accessories
business, B&B Associates, by the Company in 1998. The Basoff complaint alleges,
among other things, breach of contract by the Company and seeks to recover
damages and to foreclose on the assets sold by Mr. Basoff to the Company's
subsidiary, Liteglow Industries of California, Inc. The complaint does not
specify the dollar amount claimed and Mr. Basoff's counsel has advised the
Company's counsel that no dollar amount has been established. The Company"s
complaint seeks, among other things, the appointment of a receiver and damages
from Mr. Basoff. The action by Mr. Basoff also claims a breach of his employment
agreement with Liteglow Industries of California, Inc. The Los Angeles County
Superior Court has ordered arbitration of both matters in Fort Lauderdale,
Florida, in accordance with the terms of the original asset purchase agreement
between Liteglow Industries of California, Inc., and Ronald Basoff, and both
California actions have been stayed pending completion of arbitration. The
Company believes that Mr. Basoff's complaint against the Company is without
merit. The Company intends to proceed with arbitration expeditiously and does
not anticipate that either of these suits, nor the arbitration, will have a
material adverse impact upon the Company. The Company intends to dispose of any
B&B assets remaining after the conclusion of this litigation.
The Company is a party to routine litigation incidental to its business
from time-to-time.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
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<PAGE> 33
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In October 1997, the Company issued 7,500 shares of Common Stock having
an agreed value of $150,000 as part of the consideration for its acquisition of
the assets of KJK Marketing, Inc., which does business under the name "Low
Glow." 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 39,917 shares of Common Stock to various
consultants for services rendered. The Company has valued the consideration for
these shares at $168,100. In 1998, 35,750 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 and 1998, the Company issued approximately 941,667 shares of
common stock to Spencer Krumholz and family members for services. The shares
issued to these persons 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 for services
performed in 1997 and 1998, which services the Company valued at $50,000. All of
these shares were issued and rescinded pursuant to Section 4(2) of the
Securities Act.
In October 1998 the Company issued 16,667 shares of Common Stock to an
unaffiliated party as part of the consideration for its acquisition of the
assets of B&B Associates. The Company assigned a value of $100,000 to these
securities. These securities were issued pursuant to Section 4(2) of the
Securities Act.
In 1997 the Company issued 331,583 shares of Common Stock to private
investors pursuant to Regulation D, Rule 504, for consideration of $814,991.
In 1998 the Company issued 1,842,972 shares of Common stock to private
investors pursuant to Regulation D, Rule 504, for consideration of $1,738,500.
In 1999, the Company issued 1,350,000 shares of Common Stock to private
investors pursuant to Regulation D, Rule 504, for cash consideration of
$275,000.
Certain of the Company's sales made under the claim of exemption from
registration provided by Rule 504 may have resulted in a violation in the
registration provisions of Section 5 of the Securities Act of 1933. In the event
that these sales were not exempt, investors who purchased shares from the
Company in those sales may have the right under federal and state securities
laws to require the Company to repurchase their shares. The Company has recorded
contingent liabilities for such sales of $738,500 at
33
<PAGE> 34
December 31, 1998. See "Certain Relationships and Related Transactions" and Note
11 to the Company's audited Financial Statements.
In December 1999 the Company issued 50,000 shares to a sophisticated
person in settlement of a Utah suit pursuant to Section 4(2) of the Act. Also in
December 1999, the Company issued 92,200 shares to the shareholders of KJK
Marketing, Inc., as additional consideration payable to them under the October
1997 asset acquisition agreement with the Company. These shares were issued
under Section 4(2) of the Securities Act.
34
<PAGE> 35
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.
35
<PAGE> 36
PART F/S
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)
Report of Independent Certified Public
Accountant............................................................. 1
Consolidated Balance Sheets-Assets
December 31, 1998 and 1997............................................. 2
Consolidated Balance Sheets-Liabilities and
Stockholders" Equity-December 31, 1998 and 1997........................ 3
Consolidated Statement of Operations
Year Ended December 31, 1998 and 1997.................................. 4
Consolidated Statements of Changes in
Stockholders' Equity-December 31, 1998 and 1997........................ 5
Consolidated Statements of Cash Flows
Year Ended December 31, 1998 and 1997.................................. 7
Notes to Financial Statements........................................... 8-18
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets-Assets
September 30, 1999 and December 31, 1998...............................F-1
Consolidated Balance Sheets-Liabilities and Stockholders'
Equity-September 30, 1999 and December 31, 1998........................F-2
Consolidated Statement of Operations
Nine Months Ended September 30, 1999 and 1998
and Year Ended December 31, 1998.......................................F-3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
and Year Ended December 31, 1998.......................................F-5
Notes to Financial Statements...........................................F-7
36
<PAGE> 37
DASZKAL BOLTON MANELA DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100 BOCA RATON, FLORIDA 33431
TELEPHONE (561) 367-1040 FAX (561) 750-3236
<TABLE>
<S> <C>
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN., CPA, P.A.
MICHAEL S. KRIDEL, CPA
</TABLE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Liteglow Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Liteglow
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the management of Liteglow Industries,
Inc. and subsidiaries. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Liteglow
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company experienced a loss
from operations in 1998 and 1997 and had negative cash flows from operations at
December 31, 1998 and 1997. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those matters are described in Note 18. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/S/ Daszkal Bolton Manela Devlin & Co.
Boca Raton, Florida
May 21, 1999, except for Note 11, which is dated
January 28, 2000
-1-
<PAGE> 38
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C> <C>
Current assets:
Cash $ 68,296 $ 48,248
Accounts receivable, net 245,964 162,860
Inventory 457,634 406,955
Prepaid expenses 64,611 42,600
----------- -----------
Total current assets 836,505 660,663
----------- -----------
Property and equipment:
Property and equipment, at cost 277,398 268,817
Less accumulated depreciation (49,153) (58,786)
----------- -----------
Property and equipment, net 228,245 210,031
----------- -----------
Other assets:
Goodwill, net 209,097 220,250
Advances to stockholder 58,355 57,811
Deposits 14,904 18,576
Other -- 2,124
----------- -----------
Total other assets 282,356 298,761
----------- -----------
Total assets $ 1,347,106 $ 1,169,455
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 39
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <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
----------- -----------
Equity subject to potential redemption 738,500 --
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value, authorized
1,000,000 shares; issued and outstanding
1998- 1,000,000 and 1997 - 0 shares 1,000 --
Common stock, $0.001 par value; authorized,
10,000,000 shares - 1998; 100,000,000 -
1997, issued and outstanding 1998
2,376,740 and 1997 - 810,768 2,377 811
Additional paid-in capital 2,408,268 1,388,634
Accumulated deficit (2,764,595) (847,055)
----------- -----------
Total stockholders' equity (352,950) 542,390
----------- -----------
Total liabilities and stockholders' equity $ 1,347,106 $ 1,169,455
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 40
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 2,890,513 $ 2,673,387
Cost of sales 1,849,993 1,523,689
------------ ------------
Gross profit 1,040,520 1,149,698
Selling, general administrative expenses 2,398,490 1,723,499
------------ ------------
Operating loss (1,357,970) (573,801)
------------ ------------
Other (expenses):
Interest expense (43,384) (30,809)
Loss on disposal of assets (90,186) --
------------ ------------
Total other expenses (133,570) (30,809)
------------ ------------
Loss from continuing operations before income taxes (1,491,540) (604,610)
Provision for income taxes -- (9,424)
------------ ------------
Loss from continuing operations (1,491,540) (614,034)
------------ ------------
Discontinued operations (Note 18)
Loss from operations of discontinued subsidiary
B&B Associates (43,111) --
Estimated loss on disposal of B&B Associates,
provision for 1999 losses including provision of
$105,088 for operating losses during phase out period (382,889) --
------------ ------------
Net loss $ (1,917,540) $ (614,034)
============ ============
Net loss per share (basic & diluted):
Loss from continuing operations $ (0.86) $ (1.23)
Loss from discontinued operations (0.24) --
------------ ------------
Net loss per share $ (1.10) $ (1.23)
============ ============
Weighted average common shares outstanding 1,743,572 500,912
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 41
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED COMMON ADDITIONAL
-------------------------------------------------------------- PAID-IN TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK
------------ --------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 -- $ -- 10,656,069 $ 10,656 $ 246,948 $ --
Net proceeds from issuance of
common stock -- -- 19,894,995 19,895 795,096 --
Stock acquired to repay officer
debt -- -- -- -- -- (187,500)
Retirement of treasury stock -- -- (1,250,000) (1,250) -- 187,500
Stock issued for services and
compensation -- -- 18,895,000 18,895 149,205 --
Issuance of common stock for
the purchase of subsidiary -- 450,000 450 149,550 --
Reverse stock split (Note 11) (47,835,296) (47,835) 47,835
Net loss -- -- -- -- -- --
----------- --------- ----------- --------- ----------- ---------
Balance, December 31, 1997 -- $ -- 810,768 $ 811 $ 1,388,634 $ --
=========== ========= =========== ========= =========== =========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance, January 1, 1997 $ (46,771) $ 210,833
Net proceeds from issuance of
common stock -- 814,991
Stock acquired to repay officer
debt -- (187,500)
Retirement of treasury stock (186,250) --
Stock issued for services and
compensation -- 168,100
Issuance of common stock for
the purchase of subsidiary -- 150,000
Reverse stock split (Note 11)
Net loss (614,034) (614,034)
---------- ---------
Balance, December 31, 1997 $ (847,055) $ 542,390
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 42
LITEGLOW INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED COMMON ADDITIONAL
------------------------------------------------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ------------ ------------- ------------ ------------
Balance, January 1, 1998 -- $ -- 810,768 $ 811 $ 1,388,634
Repurchase and retirement of
common stock -- -- (15,475,000) (15,475) 15,475
Issuance of common stock for
purchase of subsidiary -- -- 1,000,000 1,000 99,000
Issuance of common stock -- -- 110,578,333 110,578 1,627,922
Issuance of preferred stock for
services 1,000,000 1,000 -- -- 49,000
Repurchase of common stock -- -- (2,145,000) (2,145) (125,655)
------------ ------------ ------------ ------------ ------------
Subtotal 1,000,000 1,000 94,769,101 94,769 3,054,376
Reverse stock split (Note 11) -- -- (92,392,361) (92,392) 92,392
Equity subject to potential
redemption -- -- -- -- (738,500)
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 1,000,000 $ 1,000 2,376,740 $ 2,377 $ 2,408,268
============ ============ ============ ============ ============
<CAPTION>
TOTAL
TREASURY ACCUMULATED STOCKHOLDERS'
STOCK DEFICIT EQUITY
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1998 $ -- $ (847,055) $ 542,390
Repurchase and retirement of
common stock -- -- --
Issuance of common stock for
purchase of subsidiary -- -- 100,000
Issuance of common stock -- -- 1,738,500
Issuance of preferred stock for
services -- -- 50,000
Repurchase of common stock -- -- (127,800)
------------ ------------ ------------
Subtotal -- (847,055) 2,303,090
Reverse stock split (Note 11) -- -- --
Equity subject to potential
redemption -- -- (738,500)
Net loss -- (1,917,540) (1,917,540)
------------ ------------ ------------
Balance, December 31, 1998 $ -- $ (2,764,595) $ (352,950)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 43
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,917,540) $ (614,034)
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 45,036 37,235
Loss on disposal of assets 90,186 --
Deferred income taxes -- 9,424
Consulting and professional fees paid in common stock -- 168,100
Compensation paid in preferred stock 50,000 --
Allowance for doubtful accounts (8,342) --
Allowance for inventory obsolescence 41,500 --
Estimated loss on disposal of subsidiary 382,889 --
Loss from operations of discontinued subsidiary 43,111 --
Changes in operating assets and liabilities net of
effects from purchase of subsidiary:
Accounts receivable (74,762) (51,839)
Inventory (92,179) (183,544)
Prepaid expenses (22,011) 16,300
Deposits and other assets 5,796 (5,166)
Accounts payable (161,634) 98,537
Accrued liabilities 126,761 (6,242)
------------ ------------
Net cash used by operating activities: (1,491,189) (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 (70,480) (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 1,738,500 814,990
Rescission of common stock previously issued (127,800) --
------------ ------------
Net cash provided by financing activities 1,626,058 774,990
------------ ------------
Net increase in cash 20,048 44,698
Cash at beginning of year 48,248 3,550
------------ ------------
Cash at end of year $ 68,296 $ 48,248
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 44
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements represent those of Liteglow
Industries, Inc. and subsidiaries (the "Company"). The Company was incorporated
April 25, 1984, in the State of Utah, as Confetti, Inc. Liteglow Industries,
Inc. (formerly Liteglow Industries of Florida, Inc., a Florida corporation),
was merged into Confetti, Inc. on August 8, 1996. The Company primarily engages
in the business of designing, manufacturing and marketing a diverse line of
automotive aftermarket accessory and specialty products. The Company initially
focused its efforts on developing a line of 12-volt automotive accessories
designed to enhance vehicle appearance, including neon license plate frames and
neon under-car lighting kits. More recently, the Company has expanded its
product offerings to include automotive products such as driving lights and fog
lights.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the Company and its subsidiaries.
All material intercompany accounts and transactions have been eliminated.
Operations for the subsidiaries acquired are included in the consolidated
results of operations since the date of acquisition.
Inventory
Inventory consists of merchandise held for sale and is stated at the lower of
cost or market, with cost determined on the first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Advertising
Advertising costs are expensed when incurred. The advertising cost incurred for
the year ended December 31, 1998 and 1997 was $206,441 and $86,991,
respectively.
-8-
<PAGE> 45
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Earnings Per Share
Earnings per share are computed based on the weighted average number of common
shares outstanding during the year after taking into effect the stock split.
Convertible preferred stock outstanding are common stock equivalents and are
included in the calculation of earnings per share to the extent they are
dilutive using the treasury-stock method. Basic and diluted earnings per share
are the same.
Cash and Cash Equivalents
The Company considers highly liquid investment purchases with an original
maturity date of three months or less to be cash equivalents.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivables are recorded net of an allowance for doubtful accounts of
$29,415 and $37,757 for December 31, 1998 and 1997, respectively.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, accounts receivable, accounts
payable, and notes payable approximates fair value because of their short
maturities.
NOTE 5 - MERGERS AND ACQUISITIONS
On October 10, 1997, the Company, through a wholly owned subsidiary, acquired
all of the outstanding common stock of KJK Marketing, Inc. (subsequently known
as Lowglow Neon Industries). As consideration, the Company paid $50,000 in
cash, $50,000 note payable, due 30 days after the close, and 450,000 shares of
common stock with an agreed upon market value of $150,000 on October 10, 1999,
for a total purchase price of $250,000. If the total market value is less than
$150,000 the Company will issue additional shares valued at the difference
between the then market price and the guaranteed amount. The acquisition was
accounted for using the purchase method of accounting. The results of operation
are included in the consolidated statement operations since the date of
acquisition. Goodwill of $223,050 was recorded in this transaction, which is
being amortized over 20 years using the straight-line method.
The following summarizes the fair value of the assumed assets and liabilities
of KJK Marketing, Inc.:
<TABLE>
<S> <C>
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
========
</TABLE>
-9-
<PAGE> 46
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - MERGERS AND ACQUISITION, CONTINUED
On September 25, 1998, the Company, through a wholly owned subsidiary, acquired
the assets and assumed the liabilities of B&B Associates. As consideration, the
Company paid $50,000 in cash, note payable of $100,000, payable in two
installments of $50,000 each due July 1 and July 31, 1999, and 1,000,000 shares
of the Company's common stock with an agreed upon market value of $100,000, for
a total purchase price of $250,000. If the total market value is less than
$100,000 on the second anniversary of the closing, the Company will issue
additional shares valued at the difference between the then market price and
the guaranteed amount. The acquisition was accounted for using the purchase
method of accounting. Goodwill of $250,000 has been recorded in this
transaction, which is being amortized over 20 years using the straight-line
method.
The following summarizes the fair value of the assets acquired and liabilities
assumed:
<TABLE>
<S> <C>
Current assets 48,107
Non-current assets 3,323
Current liabilities (51,430)
-------
Net assets $ --
=======
</TABLE>
The Company is currently in litigation with the former owner-operator, with
whom the Company has an employment contract to manage the operations of B&B
Associates. As a result of the litigation and the loss of control over the
daily operations, the acquired subsidiary's assets and operations are not
included in the consolidated financial statements. The investment in the
subsidiary has been accounted for using the equity method. The Company has
decided to discontinue the operations of the subsidiary upon resolution of the
litigation and has recorded estimated losses of $382,889 during this phase out
period. See Note 19.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
Depreciation and amortization were $33,883 and $33,299 for the years ended
December 31, 1998 and 1997, respectively.
-10-
<PAGE> 47
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LINE-OF-CREDIT
The Company has established a $400,000 revolving line-of-credit with a bank.
The line-of-credit carries a variable interest rate, which is the prime rate
plus 1.5 percent and is due on demand. The line-of-credit is collateralized by
the assets of the Company and is guaranteed by major stockholders. At December
31, 1998, the Company owed $380,000 on this line-of-credit, and the interest
rate was 9.25%.
NOTE 8 - NOTE PAYABLE
Notes payable consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Note payable monthly payments of $861,
including interest at 8.8%, due June 2002 $ 30,780 $ 38,257
Note payable monthly payments of $500,
including interest at 13%, due December 1999 5,534 --
Note payable monthly payments of $621,
including interest at 8%, due August 2002 23,617 --
Note payable, non-interest bearing 100,000 --
--------- --------
Total 159,931 38,257
Less: Current portion (19,215) (7,245)
--------- --------
Notes payable $ 140,716 $ 31,012
========= ========
</TABLE>
Debt maturities for the next five years are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1999 $119,215
2000 14,886
2001 16,198
2002 9,632
2003 --
--------
Total $159,931
========
</TABLE>
-11-
<PAGE> 48
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LEASE COMMITMENTS
The Company leases its corporate offices, warehouse space and various office
equipment under long-term operating lease agreements. The rental expense
amounted to $103,686 and $56,288 for the year ended December 31, 1998 and 1997,
respectively.
The Company is obligated under various capital leases. The leased property
under capital leases as of December 31, 1998, has a cost of $48,203 and
amortization of $9,516. Amortization of the leased property is included in
depreciation expense.
Future minimum lease payments for these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------- ------- ---------
<S> <C> <C> <C>
1999 $ 17,437 $119,137
2000 14,073 --
2001 9,172 --
2002 7,893 --
2003 -- --
-------- --------
Total minimum lease payments 48,575 $119,137
========
Less: amount representing interest (9,385)
--------
Present value of net minimum lease
payments 39,190
Less: current maturities (12,974)
--------
Long-term obligation $ 26,216
========
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in various legal proceedings incident to the character
of its business. Although it is not possible to predict the outcome of these
proceedings, or any claims against the Company related thereto, the Company
believes that such proceedings will not, individually or in the aggregate, have
a material effect on its financial condition or results of operations. See
Notes 5 and 19.
NOTE 11 - EQUITY SUBJECT TO POTENTIAL REDEMPTION
During the year ended December 31, 1998, the Company sold shares of its common
stock and received proceeds of $1,738,500 from those sales. The Company has
claimed an exemption for these sales from the registration provisions of the
Securities Act of 1933 pursuant to Regulation D, Rule 504. The Company has been
advised by its counsel that certain of these sales may have resulted in the
violation of the registration provisions of Section 5 of the Securities Act of
1933, as the exemption provided by Rule 504 is limited, in any twelve month
period, to $1,000,000 of sales. The Company has been advised by its counsel that
persons who purchased shares from the Company in transactions that were not
exempt from the registration provisions of Section 5 may have the right under
state and federal securities laws to require the Company to repurchase their
shares for the amount originally paid,
-12-
<PAGE> 49
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - EQUITY SUBJECT TO POTENTIAL REDEMPTION, CONTINUED
plus interest. Based on the best information available to the Company, the
Company has calculated the possible exposure that exists for the Company in
light of the potential civil liabilities described above. Accordingly, in the
event that these potential civil liabilities were successfully asserted, the
Company could be liable to those shareholders purchasing securities directly
from the Company in an amount which the Company has determined was a maximum of
$738,500 at December 31, 1998 and $0 at December 31, 1997.
NOTE 12 - STOCKHOLDERS' EQUITY
Common Stock Issued for Cash
During 1998, the Company issued 110,578,333 shares of common stock through a
Regulation D offering. The price of the stock had an average range of $.016 per
share throughout the year. The total amount obtained form the issuance of these
common shares was $1,738,500.
During 1997, 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. These shares were assigned a value of
$0.33 per share.
In 1997, the Company issued 2,395,000 shares to consultants for services
rendered. This transaction resulted in $168,100 of compensation and professional
fees expense, which was included in the statement of operations. In 1998,
2,145,000 of these shares were repurchased for $127,800.
During 1998 and 1997, approximately 40,000,000 and 16,500,000 shares of common
stock were issued to the President at no cost, but were retroactively rescinded
in December 1998, and no compensation was recorded on the issuance of the
common stock.
Treasury Stock
In 1997, the Company redeemed 1,250,000 shares in partial settlement of a
receivable for a shareholder. The treasury stock is recorded at cost, which was
determined based on the market price and the outstanding receivable balance on
the date that the shares were redeemed. The treasury stock was subsequently
retired.
Preferred Stock
At December 17, 1998, the Company created and authorized 1,000,000 shares, par
value $.001 per share of Series A Convertible Preferred Stock. The preferred
stockholders are entitled to the number of votes equal to the number of whole
shares of common stock into which the shares are convertible. The shares are
convertible into 5 shares of common stock, or 5,000,000 shares of common stock,
and without the payment of
-13-
<PAGE> 50
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCKHOLDERS' EQUITY, CONTINUED
Preferred stock, continued
additional consideration. The holders of Preferred Stock have a liquidation
preference equal to $.10 per share of Preferred Stock, plus accrued and unpaid
dividends, if any, and interest thereon. The Preferred Stock does not have a
dividend preference. The Company has issued the 1,000,000 shares of the
preferred stock to the President of the Company. This transaction resulted in
$50,000 of compensation expense to the President, which is included in the
statement of operations at December 31, 1998. In addition, this transaction
resulted in the President obtaining voting control of the Company.
Stock Split
On December 14, 1998, the Company's Board of Directors authorized a 1-for-60
reverse stock split effective December 31, 1998 for stockholders on record on
December 31, 1998. This resulted in the retirement of 140,227,657 shares of
common stock. Stockholders' equity for December 31, 1997 has been restated to
reflect the stock split. This resulted in a $140,227 reduction in common stock,
with a corresponding increase in additional paid-in capital.
NOTE 13 - 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 14 - 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:
<TABLE>
<S> <C>
Balance at January 1, 1997 $ 111,403
Advances to stockholder 133,908
Settlement in advances in exchange for
Liteglow Industries, Inc. common stock (187,500)
---------
Balance at December 31, 1997 57,811
---------
Advances to stockholder, net 544
---------
Balance at December 31, 1998 $ 58,355
=========
</TABLE>
-14-
<PAGE> 51
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Cash paid during the year for:
Interest $ 33,003 $ 30,809
========= ========
Income taxes $ -- $ --
========= ========
Non-cash investing and financing transactions
Acquisition of equipment $ 74,003 $ --
Vehicle loans (35,902) --
Capital leases payable (35,953) --
--------- --------
Cash down payment for vehicle $ 2,148 $ --
========= ========
Issuance of common shares for the purchase of
subsidiary $ 100,000 $150,000
========= ========
Issuance of preferred stock for compensation $ 50,000 $ --
========= ========
</TABLE>
NOTE 16 - GOODWILL
Goodwill of $223,050, net of $13,953 of amortization, represents the amount by
which the purchase price of businesses acquired exceeds the fair market value
of their net assets under the purchase method of accounting. Goodwill is being
amortized on a straight-line basis over 20 years. The Company periodically
evaluates the realizability of goodwill and other intangible assets to
determine whether any impairment has occurred in the value of such assets.
Impairments are recognized when the present value of the future cash flow is
less than the Company's value.
Amortization expense for the years ended December 31, 1998 and 1997 was $11,152
and $2,800 respectively.
NOTE 17 - INCOME TAXES
The provision (benefit) for income taxes includes these components:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Current $ -- $ --
Deferred -- 9,424
------- ------
Total $ -- $9,424
======= ======
</TABLE>
-15-
<PAGE> 52
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - INCOME TAXES, CONTINUED
A reconciliation of income tax expense at the statutory rate of the Company's
actual income tax expense is shown below:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Computed at the statutory rate (39.5%) $(757,215) $(238,821)
Increase (decrease) resulting from:
Non-deductible expenses 166,986 12,007
State income taxes and other, net
of federal tax benefit (164,876) (11,040)
Change in deferred tax asset
valuation allowance 755,105 247,278
--------- ---------
Provision for income taxes $ -- $ 9,424
========= =========
</TABLE>
The tax effects of temporary differences related to deferred taxes shown on the
balance sheets were:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
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 $ -- $ --
=========== =========
</TABLE>
The Company has the following net operating loss carryforwards:
<TABLE>
<CAPTION>
YEAR
EXPIRING
--------
<S> <C>
2011 $ 7,195
2012 604,610
2013 1,500,345
-----------
Total $ 2,112,150
===========
</TABLE>
-16-
<PAGE> 53
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
As shown in the accompanying consolidated financial statements, the Corporation
incurred a net loss of $1,917,540 during the year ended December 31, 1998, and
$614,034 for the year ended December 31, 1997. The ability of the Corporation
to continue as a going concern is dependent on returning to profitable
operations and obtaining additional capital and financing. The financial
statements do not include any adjustments that might be necessary if the
Corporation is unable to continue as a going concern.
Management plans to increase sales by the addition of new products and sales
customers. Management also plans to reduce costs by the disposal of a
subsidiary. The Company also plans on raising additional capital through
private placement offerings of common stock, which during the period from
January 1, 1999 through May 31, 1999 have raised approximately $200,000.
Management believes these actions will provide the necessary capital and cash
requirements to ensure the Company's ability to continue as a going concern.
No estimate has been made should management's plan be unsuccessful.
NOTE 19 - DISCONTINUED OPERATIONS
At September 25, 1998, the Company acquired B & B Associates in California for
$250,000. See Note 5. The seller maintained the management of the acquired
subsidiary. Disputes arose over the reporting of operations by the subsidiary
to the Company. Consequently, the Company has defaulted on its note payments to
the former owner resulting in litigation between the parties. The subsidiary
has incurred a loss at December 31, 1998 of approximately $43,000. The Company
has decided to dispose of its investment in the subsidiary after the outcome of
the litigation.
The Company has estimated $382,889 as costs of disposal and loss from
operations during the disposal period estimated to be September 30, 1999.
NOTE 20 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
Weighted
(Loss) Avg. Shares Per-Share
Numerator) (Denominator) Amount
------------- ------------- ---------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997
Loss from continuing operations $ (614,034) -- $ --
----------- ----------- --------
Basic and diluted EPS loss available to common
stockholders before retroactive stock split (614,034) 30,054,724 (0.02)
Retroactive effect of 1 for 60 reverse
stock split in 1998 -- (29,553,812) --
----------- ----------- --------
Loss available to common stockholders
after retroactive effect of stock split $ (614,034) 500,912 $ (1.23)
FOR THE YEAR ENDED DECEMBER 31, 1998
Loss from continuing operations $(1,491,540) -- $ --
----------- ----------- --------
Basic and diluted EPS income available
to common stockholders $(1,491,540) 1,743,572 $ (0.86)
=========== =========== ========
</TABLE>
-17-
<PAGE> 54
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - EARNINGS PER SHARE, CONTINUED
There are 1,000,000 shares of Series A convertible preferred stock outstanding
at December 31, 1998 (See Note 11). The shares are convertible into 5,000,000
shares of common stock, but were not included in the computation of diluted EPS
because their inclusion would be anti-dilutive to the loss per share amount.
-18-
<PAGE> 55
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999, AND DECEMBER 31, 1998
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
December 31
September 30 1998
1999 (Audited)
---- ---------
<S> <C> <C>
Current assets:
Cash $ 91,798 $ 68,296
Accounts receivable 560,323 245,964
Inventory 648,884 457,634
Prepaid Expenses 135,378 64,611
---------- --------
Total current assets 1,436,383 836,505
---------- --------
Property and equipment:
Property and equipment, at cost 350,096 277,398
Less accumulated depreciation (86,054) (49,153)
---------- --------
Property and equipment, net 264,042 228,245
---------- --------
Other Assets:
Goodwill, net 200,997 209,097
Advances to stockholder 15,863 58,355
Deposits 23,013 14,904
---------- --------
Total other assets 239,873 282,356
---------- --------
Total assets $1,940,298 $ 1,347,106
========== ===========
</TABLE>
Note: The balance sheet at December 31, 1998, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to consolidated financial statements
F-1
<PAGE> 56
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999, AND DECEMBER 31, 1998
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998 (Note)
---- -----------
<S> <C> <C>
Current liabilities
Line-of-credit $ 400,000 $ 380,000
Accounts payable 169,345 134,663
Accrued liabilities 52,124 142,684
Accrued loss on disposal of subsidiary 20,532 105,088
Current maturities of note payable 23,000 19,215
Current maturities of capital leases 20,000 12,974
----------- -----------
Total current liabilities 685,001 794,624
----------- -----------
Long-term liabilities (exclusive of current maturities):
Note payable 144,540 140,716
Capital leases payable 33,828 26,216
----------- -----------
Total long-term liabilities 178,368 166,932
----------- -----------
Total liabilities 863,369 961,556
----------- -----------
Commitments and contingencies -- --
Equity subject to potential redemption -- 738,500
----------- -----------
Stockholders' equity (deficit):
Preferred stock, $.001 par value, authorized
1,000,000 shares;
issued and outstanding - 1,000,000 1,000 1,000
Common stock, $.001 par value; authorized,
10,000,000 shares
Issued and outstanding Sept. 30, 1999 - 3,931,087
and December 31, 1998 - 2,381,087 shares 3,931 2,377
Additional paid-in capital 3,420,213 2,408,268
Accumulated deficit (2,348,215) (2,764,595)
----------- -----------
Total stockholders' equity (deficit) 1,076,929 (352,950)
Total liabilities and stockholders' equity (deficit) $ 1,940,298 $ 1,347,106
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1998, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to consolidated financial statements
F-2
<PAGE> 57
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
AND YEAR ENDED DECEMBER 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
September 30 September 30 December 31
1999 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 3,547,435 $ 2,158,412 $ 2,890,513
Cost of sales 1,566,219 1,099,822 1,849,993
----------- ----------- -----------
Gross profit 1,981,216 1,058,590 1,040,520
Selling, general & administrative expenses 1,524,873 1,593,993 2,398,490
----------- ----------- -----------
Income (loss) from operations 456,343 (535,403) (1,357,970)
Other income (expenses):
Interest expense (39,964) (30,715) (43,384)
Loss on disposal of assets -- -- (90,186)
----------- ----------- -----------
Total other (expenses) (39,964) (30,715) (133,570)
----------- ----------- -----------
Income (loss) from continuing
Operations before income taxes 416,379 (566,118) (1,491,540)
----------- ----------- -----------
Provision for income taxes -- -- --
----------- ----------- -----------
Discontinued operations
Loss from operations -- -- (43,111)
----------- ----------- -----------
Estimated loss on disposal of B&B
Assoc. Provision for 1999 losses
Including provision of $105,088 for
Operating losses during phase out period -- -- (382,889)
----------- ----------- -----------
Net income (loss) $ 416,379 $ (566,118) $(1,917,540)
=========== =========== ===========
Basic
Income (loss) from continuing operations $ 0.10 $ (0.38) $ (0.86)
Income (loss) from discontinued operations $ -- $ -- $ (0.24)
----------- ----------- -----------
Net basic income (loss) per share $ 0.10 $ (0.38) $ (1.10)
=========== =========== ===========
Diluted:
Income (loss) from continuing operations $ 0.05 $ (0.38) $ (0.86)
Income (loss) from discontinued operations $ -- $ -- $ (0.24)
----------- ----------- -----------
Net diluted income (loss) per share $ 0.05 $ (0.38) $ (1.10)
=========== =========== ===========
</TABLE>
(continued on next page)
F-3
<PAGE> 58
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
AND YEAR ENDED DECEMBER 31, 1998
UNAUDITED
(CONTINUED)
<TABLE>
<CAPTION>
September 30 September 30 December 31
1999 1998 1998
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares Outstanding:
Basic 3,645,556 1,508,352 1,743,572
Diluted 8,645,556 1,508,352 1,743,572
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 59
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
AND YEAR ENDED DECEMBER 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
September 30 September 30 December 31
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 416,379 $ (566,118) $(1,917,540)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 45,000 8,112 45,036
Loss on disposal of assets -- -- 90,186
Compensation paid in preferred stock -- -- 50,000
Allowance for doubtful accounts -- -- (8,342)
Allowance for inventory obsolescence -- -- 41,500
Estimated loss on disposal of subsidiary -- -- 382,889
Loss from operations of discontinued subsidiary -- -- 43,111
Changes in operating assets and liabilities (Increase) decrease in:
Accounts receivable (314,359) (81,731) (74,762)
Inventory (191,250) (252.516) (92,179)
Prepaid expenses (70,767) (129,022) (22,011)
Deposits and other assets (8109) 4,482 5,796
(Decrease) Increase in:
Accounts payable 34,682 (167,713) (161,634)
Accrued liabilities (175,116) 24,477 126,761
----------- ----------- -----------
Net cash used by operating activities (263,540) (1,160,019) (1,491,189)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of subsidiary -- -- (50,000)
Purchases of property and equipment (72,698) (108,805) (64,821)
----------- ----------- -----------
Net cash used by investing activities (72,698) (108,805) (114,821)
----------- ----------- -----------
Cash flows from financing activities:
Repayment from (loan to) shareholder, net 42,492 (76,107) (70,480)
Borrowings on line-of-credit 20,000 -- 195,000
Repayments on line-of-credit -- (30,472) (85,000)
Repayment of note payable -- -- (14,228)
Net increase in notes payable 7,610 27,964 --
Net increase (repayment) of capital leases 14,638 (3,180) (9,934)
Issuance of common stock 275,000 1,538,459 1,738,500
Recision of common stock previously issued -- (128,700) 127,800
----------- ----------- -----------
Net cash provided by financing activities 359,740 1,327,964 1,626,058
----------- ----------- -----------
</TABLE>
(continued on next page)
F-5
<PAGE> 60
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
AND YEAR ENDED DECEMBER 31, 1998
UNAUDITED
(CONTINUED)
<TABLE>
<CAPTION>
September 30 September 30 December 31
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net increase in cash 23,502 59,140 20,048
Cash at beginning of period 68,296 48,248 48,248
----------- ----------- -----------
Cash at end of period $ 91,798 $ 107,388 $ 68,296
=========== =========== ===========
Supplementary Disclosure of Cash Flow Information:
Interest Paid $ 39,964 $ 30,715 $ 33,003
=========== =========== ===========
Income taxes paid $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-6
<PAGE> 61
LITEGLOW INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
UNAUDITED
Note 1: BASIC 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 for 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 contain all adjustments (which are of a normal recurring
nature) necessary for a 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.
Note 2: NET INCOME PER SHARE
Per share data was computed by dividing net income by the weighted
average number of shares outstanding during the period. The difference between
basic and diluted earnings per share is the result of 1,000,000 preferred
shares converting into 5,000,000 common shares.
Note 3: STOCKHOLDERS' EQUITY
Common Stock Issued for Cash
The Company issued 1,550,000 shares of common stock through a
Regulation D offering during the first quarter of 1999. The total amount
obtained from the issuance of these common shares was $275,000.
F-7
<PAGE> 62
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Description
- ----------- ------------
2.1 Plan and Agreement of Merger*
3.1 Articles of Incorporation, as amended*
3.2 By-Laws*
4.1 Form of common stock certificate*
4.2 Form of preferred stock certificate*
10.1 Merger Agreement and Plan of Reorganization dated
October 10, 1997, by and among KJK Marketing, Inc.,
Liteglow Industries, Inc., Liteglow Acquisition
Corp., and Keith and Judith Kowatch (without
exhibits)*
10.2 Asset Purchase Agreement dated September 15, 1998, by and
between Ronald Basoff individually and d/b/a B&B
Associates, and Liteglow Industries of California, Inc.
(without exhibits)*
10.3 Business Consulting Agreement dated November 11, 1999, between
Xcel Associates, Inc., and Liteglow Industries, Inc.*
23.1 Consent of Independent Certified Public Accountant
* Filed Previously.
ITEM 2. DESCRIPTION OF EXHIBITS
None.
37
<PAGE> 63
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: March 22, 2000 By: /s/ Spencer Krumholz
----------------------------------------
Spencer Krumholz, President and Director
38
