<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1998
REGISTRATION NO. 333-58025
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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LUMINEX LIGHTING, INC.
(Name of small business issuer in its charter)
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<S> <C> <C>
CALIFORNIA 3648 95-4467158
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
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13710 Ramona Avenue 13710 Ramona Avenue
Chino, CA 91710 Chino, CA 91710
Phone: (909) 591-5653 Phone: (909) 591-5653
Facsimile: (909) 591-0643 Facsimile: (909) 591-0643
(Address and telephone number of (Address of principal place of business)
principal executive office)
Wasif Siddiqui
13710 Ramona Avenue
Chino, CA 91710
Phone: (909) 591-5653
(Name, address and telephone number of agent for service)
----------------------------
COPIES TO:
Lawrence W. Horwitz, Esq. Lawrence Nusbaum, Esq.
Horwitz & Beam Gusrae, Kaplan & Bruno
Two Venture Plaza, Suite 350 120 Wall Street
Irvine, CA 92618 New York, NY 10005
Phone: (714) 453-0300 Phone: (212) 269-1400
Facsimile: (714) 453-9416 Facsimile: (212) 809-5449
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Approximate Date of Proposed Sale to the Public.
As soon as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933 (the "Act"), please check the
following box and list the Act registration number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Act, check the following box and list the Act registration statement number
of the earlier effective registration statement for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box.|_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
CALCULATION OF REGISTRATION FEE
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NUMBER OF PROPOSED
SHARES OR MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF WARRANTS TO PRICE PER SHARE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED OR WARRANT(1) PRICE (1)(2) FEE
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<S> <C> <C> <C> <C>
Shares of Common Stock, no par value
("Common Stock") 500,000 $5.50 $2,750,000 $811.25
Warrants to Purchase Shares of Common Stock 500,000 $0.10 $ 50,000 $ 14.75
Common Stock(3) 500,000 $6.00 $3,000,000 $885.00
Underwriter Warrants(4) 1 -- $ 10 --
Common Stock, Issuable Upon Exercise of
Underwriter Warrants(5) 50,000 $6.60 $ 330,000 $ 97.35
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<TABLE>
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NUMBER OF PROPOSED
SHARES OR MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF WARRANTS TO PRICE PER SHARE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED OR WARRANT(1) PRICE (1)(2) FEE
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<S> <C> <C> <C> <C>
Warrants Issuable Upon Exercise of Underwriter
Warrants(6) 50,000 $0.12 $ 6,000 $ 1.77
Common Stock Issuable Upon Exercise of Warrants
underlying Underwriter Warrants(7) 50,000 $6.60 $ 330,000 $ 97.35
Common Stock, no par value, issued in connection
with bridge financing(8) 506,500 $6.60 $2,785,750 $ 821.80
Common Stock, underlying warrants issued in
connection with bridge financing(9) 500,000 $0.80 $ 400,000 $ 118.00
Common Stock, no par value, underlying options
issued pursuant to Employee Stock Option Plan(10) 500,000 $0.01 $ 5,000 $ 1.48
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Total 2,756,500 $9,656,760 $2,848.75
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(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457.
(2) The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Securities and Exchange Commission (the "Commission"), acting pursuant
to said Section 8(a), may determine.
(3) Represents Common Stock reserved for issuance upon exercise of Warrants.
(4) Warrants issuable to Platinum Equities, Inc., the Underwriter
("Underwriter Warrants") to purchase up to 50,000 Shares of Common Stock
and up to 50,000 Warrants.
(5) Represents Common Stock issuable upon exercise of the Underwriter
Warrants. Pursuant to Rule 416 promulgated under the Securities Act of
1933, this Registration Statement also covers any additional common
shares which may become issuable by reason of the antidilution
provisions of the Underwriter Warrants.
(6) Represents Warrants issuable upon exercise of Underwriter Warrants.
Pursuant to Rule 416 promulgated under the Securities Act of 1933, this
Registration Statement also covers any additional Common Shares which
may become issuable by reason of the antidilution provisions of the
Underwriter Warrants.
(7) Represents Common Stock issuable upon exercise of Warrants included in
Underwriter Warrants.
(8) Represents Common Stock issued in connection with bridge financing to
the Company.
(9) Represents Common Stock issuable upon exercise of Warrants (the "Bridge
Warrants") issued in connection with bridge financing to the Company.
Pursuant to Rule 416 of the Act, this Registration Statement also covers
any additional common shares which may become issuable by reason of the
antidilution provisions of the Bridge Warrants. Registration fee
calculated to Rule 457(g)(1).
(10) Registration fee calculated pursuant to Rule 457(h)(1).
<PAGE> 3
LUMINEX LIGHTING, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulations S-B
Showing Location in the Prospectus
of Information Required by Items of Form SB-2
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<CAPTION>
Form SB-2 Item Number and Caption Prospectus
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<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus........................... Facing Page of Registration Statement:
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus.. Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Summary Information; Risk Factors........................ Prospectus Summary; Risk Factors
4. Use of Proceeds.......................................... Prospectus Summary; Business of the Company; Use of Proceeds
5. Determination of Offering Price.......................... Risk Factors; Underwriting
6. Dilution................................................. Dilution
7. Selling Security Holders................................. Selling Shareholders
8. Plan of Distribution..................................... Underwriting
9. Legal Proceedings........................................ Not Applicable
10. Directors, Executive Officers, Promoters and
Control Persons.......................................... Management and Principal Shareholders
11. Security Ownership of Certain Beneficial Owners
and Management........................................... Management and Principal Shareholders
12. Description of Securities to be Registered............... Description of Securities
13. Interests of Named Experts and Counsel................... Not Applicable
14. Disclosure of Commission Position on
Indemnification for Act Liabilities...................... Indemnification of Directors and Officers
15. Organization Within Last Five Years...................... Business of the Company
16. Description of Business.................................. Business of the Company
17. Management's Discussion and Analysis of Plan of
Operation................................................ Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.................................. Business of the Company (Properties)
19. Certain Relationships and Related Transactions........... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters...................................... Risk Factors; Underwriting
21. Executive Compensation................................... Total Executive Compensation
22. Consolidated Financial Statements........................ Consolidated Financial Statements
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure................... Not Applicable
</TABLE>
<PAGE> 4
PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1998
LUMINEX LIGHTING, INC.
UP TO 500,000 SHARES OF COMMON STOCK AND
500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
MINIMUM OFFERING: 250,000 SHARES AND 250,000 WARRANTS
Luminex Lighting, Inc., a California corporation ("the Company"), hereby
offers for sale: (i) a minimum (the "Minimum Offering") of 250,000 Shares of
Common Stock, no par value (the "Common Stock" or the "Shares") and 250,000
Redeemable Common Stock Purchase Warrants (the "Warrants"); and (ii) a maximum
(the "Maximum Offering") of 500,000 Shares of Common Stock and 500,000 Warrants.
The Common Stock and the Warrants offered hereby (sometimes referred to as the
"Securities") will be separately tradeable immediately upon issuance and MAY BE
PURCHASED SEPARATELY. The Common Stock and Warrants are being offered through
Platinum Equities, Inc. (the "Underwriter") at the public offering prices set
forth below. Each Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $6.00, subject to adjustment, during the five year
period commencing on the date of this Prospectus (the "Effective Date"). The
Warrants are redeemable, in whole or in part, by the Company at a price of $0.10
per Warrant, commencing one year after the Effective Date (or earlier with the
consent of the Underwriter), upon notice of not less than 30 days, provided that
the closing bid price (as defined) of the Common Stock for a period of 20
consecutive trading days ending on the third day prior to the day on which
notice of redemption is given shall have been at least $7.50 per share, subject
to adjustment. See "Description of Securities" and "Underwriting."
Additionally, 506,500 Shares of Common Stock (the "Private Placement
Stock") and 500,000 Shares of Common Stock underlying warrants (the "Private
Placement Warrants") (collectively, the "Private Placement Securities") of the
Company are being registered herein and will be sold from time to time by the
shareholders described herein (the "Selling Shareholders") in transactions in
the national over-the-counter market or otherwise at prices prevailing at the
time of sale. The Selling Shareholders have agreed not to sell, assign, pledge,
hypothecate, or otherwise dispose of any of the Private Placement Stock, as well
as the Shares of Common Stock underlying the Private Placement Warrants, for a
period of 12 months from the final closing of the Offering ("Closing Date")
without the prior written consent of the Underwriter. The Company will not
receive any of the proceeds from the sale of any Private Placement Securities by
the Selling Shareholders. All expenses incurred in registering the Private
Placement Securities are being borne by the Company, but all selling and other
expenses incurred by the Selling Shareholders will be borne by the Selling
Shareholders. See "Selling Shareholders."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS
OR HER ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION."
ALL PAYMENTS FOR THE SECURITIES OFFERED HEREBY SHALL BE MADE BY CHECK PAYABLE TO
"AMERICAN STOCK TRANSFER & TRUST COMPANY AS ESCROW AGENT FOR LUMINEX LIGHTING,
INC."
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PLATINUM EQUITIES, INC.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 2, 1998
<PAGE> 5
THE UNDERWRITER WILL NOT BE MAKING A MARKET IN THE SECURITIES OFFERED HEREBY.
THE ABSENCE OF SUCH ACTIVITY BY THE UNDERWRITER MAY HAVE A MATERIAL ADVERSE
AFFECT ON THE LIQUIDITY OF THE SECURITIES OFFERED HEREBY, WHICH COULD MAKE IT
MORE DIFFICULT FOR THE INVESTORS HEREIN TO SELL AND/OR PURCHASE SUCH SECURITIES.
SEE "RISK FACTORS" AND "UNDERWRITING."
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<CAPTION>
Underwriting Proceeds to Issuer or
Price to Public Commissions(1) Other Persons (2)(3)
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<S> <C> <C> <C>
Per Share $5.50 $0.55 $4.95
Per Warrant $0.10 $0.01 $0.09
Minimum Offering(3) (250,000
Shares and 250,000 Warrants) $1,400,000 $140,000 $1,260,000
Maximum Offering (500,000
Shares and 500,000 Warrants) $2,800,000 $280,000 $2,520,000
</TABLE>
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(1) Does not include additional compensation to the Underwriter in the form
of: (i) a non-accountable expense allowance equal to 3% of the gross
proceeds of the offering; (ii) warrants to purchase up to 50,000 shares
of Common Stock of the Company and up to 50,000 Warrants at exercise
prices equal to 120% of the respective public offering prices of the
Common Stock and Warrants, to the extent of 10% of the number of
Securities actually sold herein (the "Underwriter's Warrants"). The
Company has agreed to indemnify the Underwriter against, or contribute
to losses arising from, certain liabilities, including liabilities under
the Act. See "Underwriting."
(2) Before deduction of estimated expenses of $194,000 payable by the
Company, in the event the Maximum Offering is sold, including the
Underwriter's 3% non-accountable expense allowance. See "Underwriting."
(3) There is no assurance that all or any of the Securities offered
hereunder will be sold. If the Company fails to receive subscriptions
for the Minimum Offering within 120 days from the Effective Date (or 150
days if extended by the Company), the Offering will be terminated and
any subscription payments received will be promptly refunded within five
days to subscribers, without any deduction therefrom or any interest
thereon. If subscriptions for at least the Minimum Offering are received
within such period, funds will not be returned to investors and the
Company may continue the Offering until such period expires or
subscriptions for the Maximum Offering have been received, whichever
comes first. The investment funds shall be held in an escrow account
with American Stock Transfer & Trust Company as Escrow Agent for up to
150 days. During this time, investors cannot demand the return of their
investments. If the Company does not meet the required minimum number of
Securities to be sold (250,000 Shares and 250,000 Warrants), the
investors will be refunded their investment in full without interest.
Affiliates may purchase Securities in the Offering and no limits have
been imposed in this regard, but no one has made any commitment to
purchase any portion of the Offering in order to reach the minimum.
The Private Placement Securities offered by the Selling Shareholders
have been acquired by the Selling Shareholders from the Company in private
transactions and are "restricted securities" under the Act, prior to their sale
hereunder. This Prospectus has been prepared for the purpose of registering the
Private Placement Securities under the Act to allow for future resales by the
Selling Shareholders to the public without restriction. To the knowledge of the
Company, the Selling Shareholders have made no arrangement with any brokerage
firm for the sale of the Private Placement Securities. The Selling Shareholders
may be deemed to be "underwriters" within the meaning of the Act. Any
commissions received by a broker or dealer in connection with resales of the
Private Placement Securities may be deemed to be underwriting commissions or
discounts under the Act. See "Plan of Distribution."
Prior to this Offering, there has been no public market for the
Company's securities. The public offering prices of the Common Stock and the
Warrants, and the exercise price and other terms of the Warrants, have been
determined
<PAGE> 6
by negotiation between the Company and the Underwriter, and are not necessarily
related to the Company's asset value, net worth, results of operations, or other
established criteria of value. Although it is anticipated that the Common Stock
and Warrants will be traded in the over-the-counter market on the OTC Bulletin
Board maintained by the National Association of Securities Dealers, Inc. (the
"OTC Bulletin Board") under the symbols "LUMX" and "LUMXW," respectively, there
can be no assurance that such a market will develop after the completion of this
Offering.
The Securities are being sold by the Company and offered by the
Underwriter on a "best efforts, minimum/maximum" basis, subject to prior sale,
when, as and if accepted by the Underwriter, and subject to certain conditions.
The Underwriter reserves the right to withdraw, cancel or modify such offer and
to reject orders in whole or in part. It is expected that the certificates
representing the Securities will be ready for delivery at the offices of
Platinum Equities, Inc., 80 Pine Street, 32nd Floor, New York, NY, 10005, within
ten business days after the date of each closing (the "Closing Date") of the
Offering.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements of the Company, after the end of each
fiscal year, and make available such other periodic reports as the Company may
deem appropriate or as may be required by law.
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements (including the notes thereto) appearing elsewhere in this
Prospectus and as part of the Registration Statement and Exhibits attached
thereto. Unless otherwise specifically referenced, all references to dollar
amounts refer to United States dollars. Each prospective investor is urged to
read this Prospectus in its entirety.
The Company would like to caution readers regarding certain
forward-looking statements in the Prospectus and the Registration Statement of
which this Prospectus is a part. Statements that are based on management's
projections, estimates, and assumptions are forward-looking statements. The
words "believe," "expect," "anticipate," and similar expressions generally
identify forward-looking statements. While the Company believes in the veracity
of all statements made herein, forward-looking statements are necessarily based
upon a number of estimates and assumptions that, while considered reasonable by
the Company, are inherently subject to significant business, economic, and
competitive uncertainties and contingencies. Many of these uncertainties and
contingencies can affect the Company's actual results and could cause its actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. Some of the factors that could
cause actual results or future events to differ materially include the Company's
inability to find suitable acquisition candidates on terms commercially
reasonable to the Company, interruption or cancellation of existing sources of
supply, the pricing of and demand for distributed products and the presence of
competitors with greater financial resources. Please see "Risk Factors" for a
description of some, but not all, of these uncertainties and contingencies.
THE COMPANY
Luminex Lighting, Inc. (the "Company") distributes quality, energy
saving, fluorescent lighting fixtures. The Company designs, tools, tests,
assembles, and packages readily available lighting component parts into a
finished product, ready for distribution and sale. The Company has expanded its
customer base across the United States and is seeking to expand into emerging
global markets.
The Company believes it is currently one of the largest distributors
of cost efficient energy saving fluorescent lighting fixtures. The Company has
been in operation for over four years and has experienced substantial growth
within the lighting industry. The Company has built a strong customer base,
including General Electric Lighting ("GE") and Lamps Plus.
The Company's niche in the light fixture market is maintained through
cost efficiency and quality in its products. The Company has accumulated
strength in the purchasing of raw materials. Due to the increased volume of
material that the Company purchases, it is able to obtain an advantage when
negotiating with its suppliers. Its competitive edge is based upon low cost
purchasing along with low overhead expenses, resulting in quality products at a
lower price. The Company believes it is competitive in all aspects of its
operations. These factors, combined with experienced management and employees,
provide the Company with added value within the industry.
The Company is seeking to capture a significant market share in the
lighting industry. Opportunities are evident not only in the United States, but
around the world as well. The Company's intent is to target such territories as
Canada, Mexico, South America, and Puerto Rico. The Company plans on retaining a
National Sales Manager and sales representatives familiar with these markets.
As of the date hereof, the Company had 3,306,500 Shares of Common
Stock issued and outstanding and warrants to purchase 500,000 Shares of Common
Stock at an exercise price of $0.80 per share issued and outstanding. The
Company will have 3,556,500 Shares of Common Stock outstanding if the Minimum
Offering is sold and 3,806,500 Shares of Common Stock outstanding if the Maximum
Offering is sold, without giving effect to the exercise of any warrants.
Assuming exercise of all warrants, including the Warrants, the Company will have
4,306,500 Shares of Common Stock outstanding immediately after the Offering if
the Minimum Offering is sold and 4,806,500 Shares of
1
<PAGE> 8
Common Stock if the Maximum Offering is sold. The Company also has 500,000
Shares of Common Stock reserved for issuance under its stock option plan, of
which no options have been issued.
During the year ended December 31, 1997, the Company had revenues of
$5,852,969 from the sale of its products. The Company's net income from
operations for the year ended December 31, 1997 was $123,097. Continued
development of the Company's products and successful implementation of the
Company's marketing plan are necessary for the Company to generate substantial
operating revenues.
The Company was incorporated under the laws of the State of California
on January 21, 1994. The address of the Company's principal executive offices
is: 13710 Ramona Avenue, Chino, California, 91710. The Company's telephone
number is (909) 591-5653. The Company also has a branch office located at 258
Main Street, Suite 111, Milford, Massachusetts, 01757.
2
<PAGE> 9
THE OFFERING
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<S> <C>
Securities Offered by
the Company.................. A minimum of 250,000 Shares of Common Stock and 250,000 Warrants and a
maximum of 500,000 Shares of Common Stock and 500,000 Warrants.
Warrants may be purchased separately from the Common Stock. Each Warrant
entitles the holder thereof to purchase one share of the Company's Common
Stock at an exercise price of $6.00, subject to adjustment, during the five year
period commencing on the Effective Date. The Warrants may be redeemed by
the Company, commencing one year after the Effective Date (or earlier with the
consent of the Underwriter), upon notice of not less than 30 days, provided that
the closing bid price of the Common Stock for a period of 20 consecutive trading
days ending on the third day prior to the day on which notice of redemption is
given shall have been at least $7.50 per share, subject to adjustment. See
"Description of Securities."
Offering Price
Common Stock.............. $5.50 per Share.
Warrants.................. $0.10 per Warrant.
Securities Offered by
Selling Shareholders......... 506,500 Shares of Common Stock and 500,000 Shares of Common Stock
underlying warrants.
Common Stock Outstanding..... 3,306,500 shares as of the date hereof; 3,556,500 shares if the Minimum
Offering is sold; 3,806,500 shares if the Maximum Offering is sold.
Warrants and Options
Outstanding.................. The Company has 500,000 warrants outstanding as of the date hereof, and will
have an additional 250,000 Warrants outstanding if the Minimum Offering is
sold and an additional 500,000 Warrants outstanding if the Maximum Offering
is sold. See "Description of Securities." The Company has 500,000 shares of
Common Stock reserved for issuance under its stock option plan, of which no
options have been issued to date. See "Management--Employment and Related
Agreements."
Proposed OTC/BB Symbol(1)
Common Stock.............. LUMX.
Warrants.................. LUMXW.
Use of Proceeds.............. The Company intends to apply the net proceeds of this Offering primarily for
research and development, sales and marketing, facility expansion, acquisition
of employees, and working capital. See "Use of Proceeds."
Risk Factors................. The securities offered hereby are speculative, involve a high degree of risk and
immediate substantial dilution, and should not be purchased by anyone who
cannot afford the loss of his or her entire investment. See "Risk Factors" and
"Dilution."
</TABLE>
3
<PAGE> 10
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(1) Pursuant to the agreement between the Underwriter and the National
Association of Securities Dealers, Inc. ("NASD"), the Underwriter is
prohibited from making a market in securities listed on the OTC Bulletin
Board. As a result, the Underwriter will not make a market in the
Securities offered hereby. The Underwriter's inability to make such a
market may have a material adverse effect on the liquidity of the
Securities offered hereby, which could make it more difficult for investors
in this Offering to purchase or sell such Securities. See "Underwriting."
4
<PAGE> 11
SELECTED FINANCIAL DATA
The following table presents selected historical financial data for the
Company derived from the Company's Financial Statements. The historical
financial data are qualified in their entirety by reference to, and should be
read in conjunction with, the Financial Statements and notes thereto of the
Company, which are incorporated by reference into this Prospectus. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements of
the Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31
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1998 1997 1997 1996
-------------------------- -----------------------------
(unaudited) (unaudited) (audited) (audited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 3,337,412 $ 2,943,158 $ 5,852,969 $ 3,056,532
Net income (loss) (184,209) 124,919 123,097 (113,196)
Net income (loss) per share (.06) .04 0.04 (0.04)
Weighted average number of shares 3,306,500 3,326,500 3,326,500 2,800,000
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
---------------------------- ----------------------------
Actual As Adjusted(1) Actual As Adjusted(1)
---------------------------- ----------------------------
(unaudited) (audited)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $1,561,732 $3,887,732 $1,719,795 $4,045,795
Total property and equipment, net 302,043 302,043 274,747 274,747
Other assets 115,192 115,192 91,179 91,179
Total assets 1,978,967 4,304,967 2,085,721 4,411,721
Total current liabilities 1,822,768 1,822,768 1,700,156 1,700,156
Accumulated deficit (371,223) (371,223) (187,014) (187,014)
Stockholder's equity 72,699 2,398,699 266,908 2,592,908
</TABLE>
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(1) Adjusted to give effect to the application of the estimated net proceeds
from the Maximum Offering. See "Use of Proceeds" and "Capitalization"
5
<PAGE> 12
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVES A
HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION THEREFORE, IS SPECULATIVE
IN NATURE, AND SHOULD ONLY BE MADE BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE FOLLOWING FACTORS AND THE "DILUTION" SECTION, IN ADDITION TO THE OTHER
INFORMATION CONCERNING THE COMPANY AND ITS BUSINESS CONTAINED IN THIS
PROSPECTUS, BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
LIMITED OPERATING HISTORY. The Company began operations in January 1994,
and first shipped its product in October 1994. While the Company is generating
revenues, net income was not generated on an annual basis until 1997. (See
"History of Operating Losses.") The Company's success is dependent upon the
successful development and marketing of its products, as to which there is no
assurance. Unanticipated problems, expenses, and delays are frequently
encountered in establishing a new business and marketing and developing
products. These include, but are not limited to, competition, the need to
develop customer support capabilities and market expertise, setbacks in product
development, market acceptance, sales, and marketing. The failure of the Company
to meet any of these conditions would have a materially adverse effect upon the
Company and may force the Company to reduce or curtail operations. No assurance
can be given that the Company can or will ever operate profitably. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Company--Marketing" and "--Competition."
RELIANCE ON ONE CUSTOMER FOR APPROXIMATELY 95% OF REVENUES.
Approximately 95% of the Company's current revenues are derived from sales of
its products to GE. The Company is currently attempting to expand its customer
base within the United States and Canada. However, any negative change in the
Company's relationship with GE could have a material adverse impact on the
Company's business, financial condition, and results of operations. Moreover, no
assurance can be given that the Company will be able to expand its customer base
or to maintain its relationship with GE.
HISTORY OF OPERATING LOSSES. While the Company had net income of
$123,097 for the year ended December 31, 1997, for the year ended December 31,
1996, the Company incurred a net loss of $113,196. In addition, the Company had
an accumulated deficit of $187,014 at December 31, 1997 and an accumulated
deficit of $310,111 at December 31, 1996. The Company must continue to increase
its current rate of sales in order to continue to be profitable and to achieve
retained earnings. There can be no assurance that the Company will maintain
profitability or that its revenue growth can be sustained in the future. See
Financial Statements.
HISTORY OF NEGATIVE WORKING CAPITAL AND CASH FLOWS. The Company had
negative working capital of $261,036 for the six months ended June 30, 1998;
positive working capital of $19,639 for the year ended December 31, 1997; and
negative working capital of $288,821 for the year ended December 31, 1996. The
Company must achieve consistent profitability through increased sales and
improved gross margins in order to improve its working capital position. There
can be no assurance that the Company will achieve consistent profits or that
revenue or gross margin improvement can be sustained in the future. The
Company's cash flow has been uneven during its history. For the six months ended
June 30, 1998, the Company had negative cash flow of $164,099. While the Company
experienced a positive cash flow of $148,241 for the year ended December 31,
1997, the Company had negative cash flow of $24,652 for the year ended December
31, 1996. The Company must improve cash flow from operations in order to
stabilize its overall cash flows on an annual basis. There can be no assurance
that the Company can achieve these objectives. See Financial Statements.
FUTURE CAPITAL NEEDS COULD RESULT IN DILUTION TO INVESTORS; ADDITIONAL
FINANCING COULD BE UNAVAILABLE OR HAVE UNFAVORABLE TERMS. Since inception, the
Company has primarily funded its capital requirements through equity infusions,
bank loans, and officer loans. The Company's future capital requirements will
depend on many factors, including cash flow from operations, progress in its
research and development, competing market developments, and the Company's
ability to market its products successfully. Although the Company currently has
no specific plans or arrangements for financing other than this Offering and no
commitments for future financing, to the extent that the funds generated by this
Offering are insufficient to fund the Company's activities, it may be necessary
to raise additional funds
6
<PAGE> 13
through equity or debt financings. Any equity financings could result in
dilution to the Company's then-existing shareholders. Sources of debt financing
may result in higher interest expense. Any financing, if available, may be on
terms unfavorable to the Company. If adequate funds are not obtained, the
Company may be required to reduce or curtail operations. The Company anticipates
that its existing capital resources, together with the net proceeds of this
Offering, even if only the Minimum Offering is sold, will be adequate to satisfy
its operating expenses and capital requirements for at least 12 months after the
Offering. However, such estimates may prove to be inaccurate. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business of the Company" and Financial Statements.
FINANCIAL INSTITUTION'S PRIORITY SECURED INTEREST IN THE ASSETS OF THE
COMPANY. In February 1998, the Company entered into a new line of credit with
First Community Financial Corporation for $1 million. The line is secured by the
Company's accounts receivable and inventory and personal guaranties of certain
of the officers. The line bears interest at a rate of 3% above prime. The line
of credit expires in February 1999. In the event of the Company's liquidation or
dissolution, or in the event the line of credit is called for payment, the
Company's accounts receivable and inventory will be used first to repay the
Company's obligation under the aforementioned line of credit. This may have a
serious adverse affect on all or a portion of a person's investment in the
Company. There is no assurance that Company will be able to pay the line of
credit through normal business operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financing" and
Financial Statements.
ECONOMIC CONDITIONS AND CONSUMER SPENDING. The Company's results may be
adversely affected by unfavorable local, regional or national economic
conditions affecting disposable consumer income. There can be no assurance that
consumer spending will not decline in response to economic conditions, thereby
adversely affecting the Company's growth, net sales, and profitability.
UNPREDICTABLE PRODUCT ACCEPTANCE; LACK OF DISTRIBUTION AGREEMENTS. There
can be no assurance that the Company's marketing and/or sales strategies will be
effective and that consumers will buy the Company's products. The failure of the
Company to broaden its markets would have a material adverse effect upon the
Company's operations and prospects. Market acceptance of the Company's products
will depend in part upon the ability of the Company to demonstrate the
advantages of its products over competing products. In addition, the Company's
sales strategy for its products contemplates sales to markets yet to be
established. Also, the Company currently has no distribution agreements for any
of its products. See "Business of the Company--Marketing" and "--Competition."
COMPETITION. The Company will be competing with other established
businesses that market similar products. Many of these companies have greater
capital, marketing and other resources than the Company. There can be no
assurance that these or other entities will not develop new or enhanced products
that have greater market acceptance than any that may be marketed by the
Company. There can be no assurance that the Company will successfully
differentiate itself from its competitors or that the market will consider the
Company's products to be superior to or more appealing than those of its
competitors. Market entry by any significant competitor may have an adverse
effect on the Company's sales and profitability. See "Business of the
Company--Competition."
DIFFICULTY OF PLANNED EXPANSION; MANAGEMENT OF GROWTH. The Company has
expanded its operations rapidly, and it plans to continue to further expand its
level of operations in all areas following the Offering. The Company's operating
results will be adversely affected if net sales do not increase sufficiently to
compensate for the increase in operating expenses caused by this expansion. In
addition, the Company's planned expansion of operations may cause significant
strain on the Company's management, technical, financial, and other resources.
To manage its growth effectively, the Company must continue to improve and
expand its existing resources and management information systems and must
attract, train, and motivate qualified managers and employees. There can be no
assurance, however, that the Company will successfully be able to achieve these
goals. If the Company is unable to manage growth effectively, its operating
results will be adversely affected.
7
<PAGE> 14
DEPENDENCE UPON KEY PERSONNEL. The Company's success depends, to a
significant extent, upon a number of key employees. The loss of services of one
or more of these employees could have a material adverse effect on the business
of the Company. The Company believes that its future success will also depend in
part upon its ability to attract, retain, and motivate qualified personnel, and
consequently has entered into employment agreements with certain key officers.
Competition for such personnel is intense. There can be no assurance that the
Company will be successful in attracting and retaining such personnel. The
Company does not have "key person" life insurance on any of its key employees.
See "Management."
NO OUTSIDE DIRECTORS OR COMMITTEES. The Company's Board of Directors
presently consists of three (3) directors: Wasif Siddiqui, President, Chief
Executive Officer, and Chief Financial Officer; Tasneem Siddiqui, his wife,
Executive Vice President and Secretary; and Asra Rasheed, their daughter, Vice
President of Corporate Planning. Therefore, the Company's Board of Directors has
no outside directors and insiders can presently control the policies, actions,
and decisions of the Company. While the Company plans on adding one independent
director upon completion of this Offering, the inside directors will still
constitute a majority of the directors. Further, the Company currently has no
committees established to advise the Board of Directors. See
"Management--Directors and Executive Officers."
RELATED PARTY TRANSACTIONS AND POTENTIAL CONFLICTS. During the past two
years, the Company has taken loans drawn on personal lines of credit of Asra
Rasheed, Vice President of Corporate Planning and a Director and Shareholder of
the Company. The interest rate at December 31, 1997 was 12.57%. The balance of
the lines of credit at December 31, 1997 was $6,272. The funds drawn were
contributed to the Company for working capital. Subsequent to December 31, 1997,
the loans were paid in full and the Company has no plan to take any further
loans from this line of credit. Ms. Rasheed received no personal benefit from
these transactions. The Company's management believes that the terms of these
transactions were no less favorable to the Company than would have been obtained
from an unaffiliated third party in similar transactions. Any future
transactions with affiliates will be on terms no less favorable than could be
obtained from unaffiliated third parties, and will be approved by a majority of
the disinterested directors.
See "Certain Transactions."
LACK OF DIVIDENDS. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings, if
any, to fund the development and growth of its business. See "Dividend Policy."
DILUTION. Purchasers of Shares of Common Stock in the Offering will
experience immediate dilution of $5.17 per share (94%) if the Minimum Offering
is sold and dilution of $4.87 per Share (88.5%) if the Maximum Offering is sold
(based on the initial public offering price of $5.50 per share) in the net
tangible book value of the shares from the initial public offering price.
Existing shareholders of the Company paid approximately $0.13 per Share for
their shares of Common Stock, while investors in this Offering shall pay $5.50
per Share (see "Comparative Data"). Therefore, investors in this Offering incur
a greater risk of loss than the Company's current shareholders. The shares sold
by the Company in the Offering represent 7% of the total Shares of Common Stock
outstanding following the Offering if the Minimum Offering is sold or 13% of the
total Shares of Common Stock outstanding following the Offering if the Maximum
Offering is sold, and represent a cash contribution of 75.6% of the aggregate
book value or cash contributions to the Company if the minimum amount is sold or
a cash contribution of 86.1% of the aggregate book value or cash contributions
to the Company if the maximum amount is sold without giving effect to the
exercise of any warrants or options. See "Dilution."
BEST EFFORTS OFFERING: ESCROW OF INVESTORS' FUNDS FOR UP TO 150 DAYS.
This Offering is being made on a "best efforts, 250,000 Share, 250,000 Warrant
minimum" basis. Unless and until 250,000 Shares of Common Stock ($1,925,000) and
250,000 Warrants ($35,000) are sold, the Offering will not close. No assurance
can be given that the Underwriter will be able to sell the Minimum Offering.
Consequently, investors may tie up their funds for up to 150 days, if the
Offering Period is extended. Although the proceeds will be held in an escrow
account with American Stock Transfer & Trust Company as Escrow Agent and will
not be subject to loss during the Offering Period, there will be no interest
paid on the escrowed funds, regardless of whether or not the Offering is
consummated. If the Company fails to receive subscriptions for the Minimum
Offering within 120 days from the Effective Date (or 150 days if extended by the
Company), the Offering will be terminated and any subscription payments received
will be promptly refunded within five business days to subscribers, without any
deduction therefrom or any interest thereon. If subscriptions for
8
<PAGE> 15
at least the Minimum Offering are received within such period, funds will not be
returned to investors and the Company may continue the Offering until such
period expires or subscriptions for the Maximum Offering have been received,
whichever comes first.
CONTROL BY EXISTING SHAREHOLDERS. Upon completion of this Offering, the
Company's existing shareholders will beneficially own approximately 90% of the
outstanding Common Stock if the minimum amount is sold or approximately 87% of
the outstanding Common Stock if the maximum amount is sold. Of these shares, the
Company's officers and directors, together with shareholders who beneficially
own more than five percent of the outstanding stock of the Company, will
beneficially own approximately 81% of the outstanding Common Stock if the
minimum amount is sold or approximately 78% of the outstanding Common Stock if
the maximum amount is sold hereunder. Investors purchasing shares pursuant to
this Offering will beneficially own approximately 10% of the outstanding Common
Stock if the minimum amount is sold or approximately 13% of the outstanding
Common Stock if the maximum amount is sold. As a result, all or certain
combinations of the Company's existing shareholders, acting in concert, will
have the ability to control the Board of Directors and policies of the Company.
See "Principal Shareholders" and "Certain Transactions."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE; ARBITRARY
DETERMINATION OF OFFERING PRICE. No public securities market existed prior to
this Offering for the Company's Securities. Although the Company has applied to
have the Securities included on the OTC Bulletin Board, there can be no
assurance that an active public trading market for such securities will be
developed or sustained. Accordingly, purchasers of the Securities may experience
substantial difficulty selling such securities. The offering price of the
Securities has been determined by negotiations between the Company and the
Underwriter on an arbitrary basis and are not necessarily related to the
Company's asset value, net worth, or other established criteria of value.
Additionally, potential investors should be aware that the securities of the
Company have been recently sold in a private offering (the "Private Placement")
at a substantial discount to the public offering price herein. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company and the Underwriter
considered the following factors in pricing the securities issued in the Private
Placement at $0.50 per share of Common Stock and $0.10 per warrant versus the
initial public offering price: at the time of the Private Placement the Company
was not profitable, certain key personnel of the Company were not yet in place,
the Company was in the process of structuring its public offering plan, the
Company had not yet secured an underwriter for a public offering, and there
could be no assurance of a public market for the securities. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Assuming the Maximum Offering is sold
(and without giving effect to the exercise of outstanding warrants to purchase
500,000 shares of Common Stock, the Warrants offered hereby, or the Underwriters
Warrants), 2,800,000 of the total of 3,806,500 shares of Common Stock
outstanding after this Offering will be "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933 (the "Act"). All directors,
officers, and holders of any securities of the Company prior to the Offering
have agreed not to sell any Shares of Common Stock, including Shares of Common
Stock issuable upon exercise of options, warrants, or any convertible securities
of the Company, for a period of 12 months after the Final Closing Date without
the prior written consent of the Underwriter. At the end of that period, these
shares will be eligible for sale, subject in the case of restricted securities
to the holding period, volume limitations, and other conditions imposed by Rule
144. Ordinarily, under Rule 144, a person holding restricted securities for a
period of at least one year may, every three months, sell in ordinary brokerage
transactions or in transactions directly with a market maker an amount equal to
the greater of one percent of the Company's then-outstanding Common Stock or the
average weekly trading volume during the four calendar weeks prior to such sale.
Non-affiliates who hold shares for at least two years can sell their shares
without any quantity limitations. Future sales of such shares could have an
adverse effect on the market price of the Common Stock. See "Description of
Securities" and "Underwriting."
RISKS RELATING TO LOW-PRICE STOCKS; SECURITIES SOLD IN THIS OFFERING
COULD BE CONSTRUED AS "PENNY STOCKS." It is anticipated that the Common Stock
will initially be traded in the over-the-counter market on the OTC Bulletin
Board. As a consequence, an investor could find it difficult to dispose of, or
to obtain accurate quotations as to the price of, the Common Stock. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure relating to the market for penny stocks. The SEC regulations
generally define a penny stock to
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<PAGE> 16
be any equity security that has a market price or exercise price of less than
$5.00 per share, subject to certain exceptions. Such exceptions include any
equity security listed on Nasdaq and any equity security issued by an issuer
that has (i) net tangible assets of at least $2,000,000, if such issuer has been
in continuous operation for three years, (ii) net tangible assets of at least
$5,000,000 if such issuer has been in continuous operation for less than three
years, or (iii) average annual revenue of at least $6,000,000 during such
issuer's last three years of operations. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith. Furthermore, in connection with any transaction in a penny
stock, brokers must also provide investors with current bid and offer quotations
therefor, the compensation of the broker and its salesperson in connection
therewith and monthly accounts statements showing the market value of each penny
stock in the investor's account.
In addition, if the Common Stock is not quoted on Nasdaq, and the
Company does not have $2,000,000 in net tangible assets, trading in the Common
Stock would be covered by Rule 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") for non-Nasdaq and non-exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market price is at least $5.00 per share.
As of the date of this Prospectus, the Company believes that, by reason
of the $5.50 offering price of the Common Stock, that such security will be
outside the definitional scope of a penny stock. In the event the Company's
Common Stock were subsequently to become characterized as a penny stock, the
market liquidity for such securities could be adversely affected. In such an
event, the regulations on penny stocks could limit the ability of broker/dealers
to sell the Common Stock, and thus the ability of purchasers of the Common Stock
to sell such securities in the secondary market would be adversely affected.
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Warrants offered hereby are
not exercisable unless, at the time of exercise: (i) there is a current
prospectus relating to the Common Stock issuable upon the exercise of the
Warrants under an effective registration statement filed with the Commission;
and (ii) such Common Stock is then qualified for sale or exempt therefrom under
applicable state securities laws in the jurisdictions in which the various
holders of Warrants reside. There can be no assurance, however, that the Company
will be successful in maintaining a current registration statement. After a
registration statement becomes effective, it may require updating by the filing
of a post-effective amendment. A post-effective amendment is required: (i) any
time after nine months subsequent to the effective date when any information
contained in the prospectus is over sixteen months old; (ii) when facts or
events have occurred which represent a fundamental change in the information
contained in the registration statement; or (iii) when any material change
occurs in the information relating to the plan of distribution of the securities
registered by such registration statement. The Company anticipates that this
Registration Statement will remain effective for at least nine months following
the date of this Prospectus, assuming a post-effective amendment is not filed by
the Company. The Warrants will be separately tradeable and separately
transferable from the Common Stock offered hereby immediately commencing on the
date of this Prospectus. The Company intends to qualify the Warrants and the
Shares of Common Stock issuable upon exercise of the Warrants in a limited
number of states, although certain exemptions under state securities ("blue
sky") laws may permit the Warrants to be transferred to purchasers in states
other than those in which the Warrants were initially qualified. The Company
will be prevented, however, from issuing Shares of Common Stock upon exercise of
the Warrants in those states where exemptions are unavailable and the Company
has failed to qualify the Common Stock issuable upon exercise of the Warrants.
The Company may decide not to seek, or may not be able to obtain qualification
of the issuance of such Common Stock in all of the states in which the holders
of the Warrants reside. In such a case, the Warrants of those holders will
expire and have a no value if such Warrants cannot be exercised or sold. See
"Description of Securities."
LIMITED EXPERIENCE OF UNDERWRITER; UNDERWRITER WILL NOT MAKE A MARKET IN
THE COMPANY'S SECURITIES; HISTORY OF CERTAIN PRINCIPALS EMPLOYED BY UNDERWRITER.
Platinum Equities, Inc. (the "Underwriter") has little
10
<PAGE> 17
experience in underwriting public offerings. This Offering is the second public
offering being underwritten by the Underwriter. There can be no assurance that
the Underwriter's lack of experience will not adversely affect the Offering.
Pursuant to the terms of the Underwriter's Agreement with the NASD, the
Underwriter, Platinum Equities, Inc., does not have "market maker" status with
the NASD. As a result thereof, the Underwriter will not make a market in the
Securities offered hereby. The Underwriter's inability to make such a market may
have a material adverse effect on the liquidity of the Securities offered
hereby, which could make it more difficult for investors in this Offering to
purchase or sell such securities. See "Underwriting." Two of the seven
supervising principals currently employed by the Underwriter were previously
employed by other broker-dealers, as supervisors, which broker-dealers closed
down or underwent investigations by securities regulators.
BROAD DISCRETION IN USE OF PROCEEDS. The net proceeds to the Company
from the sale of the Securities offered hereby, assuming the Maximum Offering is
sold, are estimated to be approximately $2,326,000. The Company estimates that
$440,000 (18%) of such net proceeds will be allocated to working capital. The
Company has broad discretion in the use of funds allocated to working capital.
In addition, the Company's management and Board of Directors have a broad
discretion in the allocation and reallocation of the other specified uses for
the proceeds. See "Use of Proceeds."
THE COMPANY'S CASH ACCOUNTS MAY EXCEED FEDERALLY INSURED LIMITS. The
Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits.
YEAR 2000. The Company has begun to address possible remedial efforts in
connection with its computer software that could be affected by the year 2000
problem. The year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any programs
that have time-sensitive software may recognize a date using "00" as the year
1900, rather than the year 2000. This could result in a major system failure or
miscalculations. The Company has been informed by the suppliers of substantially
all of the Company's software that all of those suppliers' software that is used
by the Company is Year 2000 compliant. The Company has no internally generated
software. After reasonable investigation, the Company has not yet identified any
Year 2000 problems but will continue to monitor the issue. However, there can be
no assurances that Year 2000 problems will not occur with respect to the
company's computer systems. The Year 2000 problem may impact other entities with
which the Company transacts business, and the Company cannot predict the effect
of the year 2000 problem on such entities.
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<PAGE> 18
DILUTION
Dilution is the difference between the public offering price of $5.50
per share for the Common Stock offered herein, and the net tangible book value
per share of the Common Stock immediately after its purchase. The Company's net
tangible book value per share is calculated by subtracting the Company's total
liabilities from its total assets less any intangible assets, and then dividing
by the number of shares then outstanding.
The net tangible book value of the Company prior to this Offering, based
on June 30, 1998 financial statements, was $72,699 or approximately $0.02 per
common share. Prior to selling any shares in this Offering, the Company has
3,306,500 Shares of Common Stock outstanding.
If the Maximum Offering is sold, the Company will have 3,806,500 shares
outstanding upon completion of the Offering. The post offering pro forma net
tangible book value of the Company, which gives effect to receipt of the net
proceeds from the Offering and issuance of additional Shares of Common Stock in
the Offering, but does not take into consideration the Warrants sold in the
Offering nor any other changes in the net tangible book value of the Company
after June 30, 1998, will be $2,398,699 or $0.63 per share, approximately. This
would result in dilution to investors in this Offering of $4.87 per share or
88.5% from the public offering price of $5.50 per Share. Net tangible book value
per share would increase to the benefit of present shareholders from $0.02 prior
to the Offering to $0.63 after the Offering, or an increase of $0.61 per share
attributable to the purchase of the Shares by investors in this Offering.
If only the Minimum Offering is sold, the Company will have 3,556,500
shares outstanding upon completion of the Offering. The post offering pro forma
net tangible book value of the Company will be $1,180,699 or $0.33 per share,
approximately. This would result in dilution to investors in this Offering of
$5.17 per share or 94% from the public offering price of $5.50 per Share. Net
tangible book value per share would increase to the benefit of present
shareholders from $0.02 prior to the Offering to $0.33 after the Offering, or an
increase of $0.31 per share attributable to the purchase of the Shares by
investors in this Offering.
The following table sets forth the estimated net tangible book value per
share after the Offering and the dilution to persons purchasing Shares based on
the foregoing minimum and maximum offering assumptions
<TABLE>
<CAPTION>
MINIMUM(1) MAXIMUM(2)
---------- ----------
<S> <C> <C>
Initial public offering price (per share) $ 5.50 $ 5.50
Net tangible book value per share before the Offering $ 0.02 $ 0.02
Increase per share attributable to payments by new investors $ 0.31 $ 0.61
Pro forma net tangible book value per share after the Offering $ 0.33 $ 0.63
Dilution per share to new investors $ 5.17(94%) $ 4.87(88.5%)
</TABLE>
The following charts illustrate the pro forma proportionate ownership in
the Company upon completion of the Offering under alternative minimum and
maximum offering assumptions, of present shareholders and of investors in this
Offering, compared to the relative amounts paid and contributed to capital of
the Company by present shareholders and by investors in this Offering, assuming
no changes in net tangible book value other than those resulting from the
Offering.
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<PAGE> 19
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------------- PRICE PER
MINIMUM OFFERING AMOUNT PERCENT AMOUNT PERCENT SHARE
- ---------------- --------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders 3,306,500 93% $ 443,922(3) 24.4% $0.13
New investors 250,000 7% $1,375,000(4) 75.6% $5.50
Total 3,556,500 100% $1,818,922 100.0%
</TABLE>
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------------- PRICE PER
MAXIMUM OFFERING AMOUNT PERCENT AMOUNT PERCENT SHARE
- ---------------- --------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders 3,306,500 87% $ 443,922(3) 13.9% $0.13
New investors 500,000 13% $2,750,000(5) 86.1% $5.50
Total 3,806,500 100% $ 3,193,922 100.0%
</TABLE>
- ----------
(1) Assumes $1,108,000 net proceeds from Minimum Offering.
(2) Assumes $2,326,000 net proceeds from Maximum Offering
(3) Based on capital contributions from inception to June 30, 1998.
(4) Assumes $1,400,000 gross proceeds from Minimum Offering.
(5) Assumes $2,800,000 gross proceeds from Maximum Offering.
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<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and commissions, the
Underwriter's non-accountable expense allowance, and expenses of this Offering
(approximately $110,000) are estimated to be approximately $1,108,000 if the
minimum amount is raised hereunder and $2,326,000 if the maximum amount is
raised, excluding any proceeds from the sale or exercise of the Warrants.
USE OF PROCEEDS
<TABLE>
<CAPTION>
MINIMUM PERCENT MAXIMUM PERCENT
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Research and development(1) $ 354,560 32% $ 721,000 31%
Sales and marketing $ 277,000 25% $ 625,000 27%
Facility expansion $ 177,280 16% $ 340,000 15%
Acquisition of employees, including a
national sales manager $ 99,720 9% $ 200,000 9%
Working capital $ 199,440 18% $ 440,000 18%
---------- --- ---------- ---
TOTALS $1,108,000 100% $2,326,000 100%
========== === ========== ===
</TABLE>
The Company currently plans to use that portion of the net proceeds set
aside for working capital to retire existing trade accounts payable and to
retire existing high interest equipment loans and leases. The allocation of net
proceeds set forth above represents the Company's current estimates based upon
its current plans and upon certain assumptions regarding the progress of
development of its products, technological advances and changing competitive
conditions, the ongoing evaluation and determination of the commercial potential
of the Company's products and the Company's ability to enter into agreements. If
any of these factors change, the Company may reallocate some of the net proceeds
within or between the above-described categories. The Company believes that the
funds generated by this Offering, whether the minimum or maximum offering is
sold, together with current resources, will be sufficient to fund working
capital and capital requirements for at least 12 months from the date of this
Prospectus.
Pending their utilization, the net proceeds may be invested temporarily
in certificates of deposit, insured savings accounts, short term commercial
paper, money market funds, or government securities. The Company does not intend
to register under the Investment Company Act of 1940, and therefore, will be
limited as to the types of investments which may be temporarily made with the
proceeds.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and
does not anticipate paying any cash dividends in the future. The Company
currently intends to retain future earnings, if any, to fund the development and
growth of its business.
- --------
(1) Management of the Company plans to use the proceeds allocated for
research and development to develop the products discussed in "Business
of the Company--Products" in the latter half of that section which
discusses the various product series currently in the development stage.
These development stage products include the Decorative Utility Light;
the Plastic Series; the Compact Fluorescent Series, the Euro Series; and
the Circle Light. Management plans to use these proceeds for the design,
tooling needs, product testing, packaging, and sample preparation for
the new products.
14
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1998 and as adjusted to give effect to the sale by the Company of the
Minimum Offering and the application of the net proceeds of $1,108,000 therefrom
and as adjusted to give effect to the sale by the Company of the Maximum
Offering and the application of the net proceeds of $2,326,000 therefrom.
<TABLE>
<CAPTION>
Minimum as Maximum as
June 30, 1998 Adjusted Adjusted
------------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
DEBT:
Current Liabilities $1,822,768 $1,822,768 $1,822,768
Notes Payable 74,661 74,661 74,661
Capital Leases 8,839 8,839 8,839
---------- ---------- ----------
Total debt: $1,906,268 $1,906,268 $1,906,268
========== ========== ==========
STOCKHOLDERS' EQUITY:
Common Stock, no par value
25,000,000 shares authorized
3,306,500 shares issued and outstanding
3,556,500 as adjusted minimum
3,806,500 as adjusted maximum $ 417,172 $1,525,172 $2,743,172
Additional paid-in capital 26,750 51,750 76,750
Accumulated deficit (371,223) (371,223) (371,223)
--------- ---------- ----------
Total stockholders' equity: $ 72,699 $1,215,699 $2,448,699
========= ========== ==========
</TABLE>
15
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read in conjunction with, the Financial Statements, related Notes to
Financial Statements and Report of Independent Public Accountants, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein. The following tables summarize certain
selected financial data of the Company for the six months ended June 30, 1998
(unaudited), the six months ended June 30, 1997 (unaudited), and for the year
ended December 31, 1996 (audited) and the year ended December 31, 1997
(audited). The data has been derived from Financial Statements included
elsewhere in this Prospectus that were audited by Stonefield Josephson, Inc.,
Certified Public Accountants. No dividends have been paid for any of the periods
presented.
<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31
----------------------------------- ---------------------------------
1998 1997 1997 1996
----------- ----------- --------- ----------
(unaudited) (unaudited) (audited) (audited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $3,337,412 $2,943,158 $5,852,969 $3,056,532
Net income (loss) (184,209) 124,919 123,097 (113,196)
Net income (loss) per share .04 0.04 (0.04)
Weighted average number of shares 3,306,500 3,326,500 3,326,500 2,800,000
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------------- -----------------------------------
Actual As Adjusted(1) Actual As Adjusted(1)
----------- -------------- ---------- --------------
(unaudited) (audited)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $1,561,732 $3,887,732 $1,719,795 $4,045,795
Total property and equipment, net 302,043 302,043 274,747 274,747
Other assets 115,192 115,192 91,179 91,179
Total assets 1,978,967 4,304,967 2,085,721 4,411,721
Total current liabilities 1,822,768 1,822,768 1,700,156 1,700,156
Accumulated deficit (371,223) (371,223) (187,014) (187,014)
Stockholder's equity 72,699 2,398,699 266,908 2,592,908
</TABLE>
- -----------------
(1) Adjusted to give effect to the application of the estimated net proceeds
from the Maximum Offering. See "Use of Proceeds" and "Capitalization"
16
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated on January 21, 1994 for the purpose of
manufacturing and selling fluorescent lighting fixtures for both commercial and
residential uses.
The Company has experienced significant growth since its inception in
1994. The Company's growth rate has far exceeded its expectations. However,
management believes that this growth will continue at a slower rate in 1998.
Certain key factors that are necessary in maintaining and exceeding the current
growth rates are as follows:
o Further expanding the Company's customer base
o Successful integration into the emerging global markets
o Obtaining greater market share of the commercial lighting industry
o Obtaining financing at more favorable terms
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information for the Company:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 DECEMBER 31, 1997 DECEMBER 31, 1996
------------- ------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C> <C>
Total revenue $ 3,337,412 $ 2,943,158 $ 5,852,969 $ 3,056,532
Cost of revenue 2,874,274 2,440,076 4,601,497 2,584,668
Gross profit 463,138 503,082 1,251,472 471,864
General, administrative, and
selling expenses 588,482 312,313 991,164 488,491
Interest expense 58,065 65,050 136,411 95,769
Income (loss) before taxes (183,409) 125,719 123,897 (112,396)
Taxes on income 800 800 800 800
Net income (loss) (184,209) 124,919 123,097 (113,196)
Net income (loss) per share (.06) .04 0.04 (0.04)
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
Revenues. The Company generated revenues of $3,337,412 for the six
months ended June 30, 1998 as compared to revenues of $2,943,158 for the six
months ended June 30, 1997. The 13.4% increase in revenues for the six months
ended June 30, 1998 is a result of increased shipments to GE and increased sales
through the Company's commercial division, Energy Plus.
Gross Profit. Gross profit for the six months ended June 30, 1998 was
$463,138 (13.9% of sales) compared to $503,082 (17.1% of sales) for the six
months ended June 30, 1997. The decrease in gross profit percentage was a result
of higher direct labor costs due to increases in the minimum wage.
17
<PAGE> 24
General, administrative and selling expenses. General, administrative
and selling expenses for the six months ended June 30, 1998 were $588,482 (17.6%
of revenues) as compared to $312,313 (10.6% of revenues) for the six months
ended June 30, 1997. The total dollar increase of $276,169 is primarily a result
of additional facility rental expense of $29,811; settlement costs of $105,000
associated with a litigation matter; and $106,900 of additional legal fees
defending the litigation matter (see "Business of the Company--Litigation").
Interest expense. Interest expense for the six months ended June 30,
1998 was $58,065 compared to $65,050 for the six months ended June 30, 1997. The
reduction in interest expense was a result of the Company's ability to reduce
its borrowing costs through a new line of credit entered into in February 1998.
The Company has also reduced outstanding borrowings on its line of credit as a
result of improved collection efforts on its Accounts Receivable.
Net income (loss). Net loss for the six months ended June 30, 1998 was
($184,209) compared to net income of $124,919 for the six months ended June 30,
1997. The decrease in profitability is a direct result of increases in direct
labor costs due to minimum wage increases and legal and settlement costs
associated with the litigation matter (see "Business of the
Company--Litigation").
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
(AUDITED)
Revenues. The Company generated revenues of $5,852,969 for the year
ended December 31, 1997 as compared to revenues of $3,056,532 for the year ended
December 31, 1996. The 91% increase in revenues for the year ended December 31,
1997 was primarily the result of shipments and increased orders to GE. The
Company began shipping product to GE in 1996.
Gross Profit. Gross profit for the year ended December 31, 1997 was
$1,251,472 (21.4% of sales) compared to $471,864 for the year ended December 31,
1996 (15.4% of sales). The 6% increase in gross profit percentage was primarily
a result of increased purchasing and production efficiencies created by the
significant increase in material needs and sales volume.
General, administrative, and selling expenses. General, administrative,
and selling expenses for the year ended December 31, 1997 were $991,164 compared
to $488,491 for the year ended December 31, 1996. The increase is primarily the
result of: increased administrative compensation expense due to additional
hirings and discretionary officer bonus programs initiated in 1997 ($386,000);
accounting and legal costs ($106,000); and increased selling expenses, due to
increased sales volume ($18,527). Administrative compensation expenses will
continue to occur in the future as the Company plans on hiring a National Sales
Manager as well as additional sales representatives. Expenses incurred in the
discretionary officer bonus program will continue as long as the Company is
profitable as the discretionary officer bonus program is based on a percentage
of gross sales allowed in the discretion of the Board of Directors. See
"Employment and Related Agreements--Employment Agreements." Increased accounting
costs are due to the preparation of audited financial information in conjunction
with this Offering; such accounting costs will continue in the future as the
Company will need to have audited financial statements prepared in accordance
with the reporting requirements of the Securities Exchange Act of 1934.
Increased legal costs were a one-time only expense incurred with the defense and
settlement of a litigation matter. See "Business of the Company--Litigation."
Selling expenses will increase or decrease in the future correspondingly with
sales of the Company's products.
Interest expense. Interest expense for the year ended December 31, 1997
was $136,411 compared to $95,769 for the year ended December 31, 1996. The
increase of $40,642 is primarily the result of increased average monthly
borrowings on the Company's line of credit during 1997. The increased borrowings
were required to fund increased inventory expenditures needed to meet the growth
in sales volume.
Net income (loss). Net income for the year ended December 31, 1997 was
$123,097 compared to a net loss of $113,196 for the year ended December 31,
1996. The increase in profitability is directly attributable to greater
purchasing and production efficiencies and increased sales volume achieved
through shipments made to GE for the year ended December 31, 1997.
18
<PAGE> 25
The Internal Revenue Code of 1986 includes provisions which may limit
the net operating loss carry forwards available for use in any given year if
certain events occur, specifically a stock ownership change of 50% or more
within a three year period. Therefore, upon completion of this Offering,
utilization of the Company's net operating loss carry forwards to offset future
income may be limited. The Company's net operating loss carry forward as of
December 31, 1997 was approximately $145,000.
BACKLOG
The Company's backlog consists of unfulfilled purchase orders, mainly
with GE. These purchase orders are subject to change and can be revised at any
time by GE. For the month of December 1997, the Company's backlog was $7,522,000
as compared to $2,022,000 for the month of December 1996. As of June 19, 1998,
the Company's backlog was $5,994,254.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily funded its capital
requirements through equity infusions, bank loans, and officer loans.
Initial start-up funding of $50,000 was raised through the sale of
10,000 shares of the Company's Common Stock to its founders in 1994. An
additional $113,922 was raised during 1995 through the sale of 2,790,000 shares
at a price of $0.04 per share.
On April 4, 1997, the Company commenced a private placement (the
"Private Placement") of 506,500 shares of Common Stock at a purchase price of
$0.50 per share (the "Private Placement Stock") and 500,000 warrants, each
warrant to purchase one share of the Company's Common Stock at an exercise price
of $0.80 for a term of five years at a purchase price of $0.10 per warrant (the
"Private Placement Warrants"). The Private Placement Stock and the Common Stock
underlying the Private Placement Warrants are being registered herein. The
Private Placement generated net proceeds of approximately $290,000.
At June 30, 1998, the Company had outstanding current liabilities of
$1,822,768. The Company anticipates satisfying its current liabilities in the
ordinary course of business from revenues and accounts receivable.
Capital expenditures during the period from inception through June 30,
1998, were $387,277. Over the next 12 months, the Company plans to upgrade its
management information system, telecommunications system and office equipment to
accommodate anticipated growth plans. In addition, computers and test equipment
for product development will be acquired for use in research and development.
At June 30, 1998, the Company had $568,234 outstanding in accounts
receivables from customers who have been billed.
The Company believes that proceeds from this Offering, even if only the
Minimum Offering is sold, together with revenues from the Company's operations,
and the Company's other resources, will be sufficient to cover working capital
requirements for at least 12 months after this Offering. See "Use of Proceeds."
The Company may nevertheless require additional financing to support continued
expansion of its business, marketing, and development of its existing and future
products, and the potential acquisition of other products or technologies. The
Company has made no arrangements or commitments for such financing and there can
be no assurance that the Company will be able to obtain such financing on
satisfactory terms, if at all. If adequate financing is not available or
available on satisfactory terms, the Company may be required to delay, scale
back or eliminate certain of its marketing programs, research and development
activities or expansion plans. To the extent the Company raises additional
capital by issuing equity securities, ownership dilution to the investors in
this Offering will result.
19
<PAGE> 26
FINANCING
The Company's primary source of borrowing was a $1,000,000 maximum line
of credit with a financial institution, Fremont Business Credit. The line was
secured by the Company's accounts receivable and inventory and personal
guarantees of certain of the shareholders. $279,955 was outstanding on the line
of credit as of December 31, 1997. The line bore interest at a rate of 4% above
prime. The line of credit expired in February 1998 and was paid in full.
Subsequent to December 31, 1997, the Company entered into a new line of
credit with First Community Financial Corporation, Arizona for $1,000,000. The
line is secured by the Company's accounts receivable and inventory and personal
guaranties of certain of the officers. The loan will bear interest at a rate of
3% above prime. The line of credit expires in February 1999. The Company has the
option to terminate the line after six months, with no prepayment penalty,
subject to certain conditions. The Company will continue to rely on cash flow
from operations and borrowings on its replacement line of credit to fund its
capital requirements.
The Company also finances its business activities using unsecured lines
of credit, short-term bank loans, and equipment lease financing. Terms under
these various facilities vary depending upon the type of facility used.
Management will continue to finance a portion of the capital requirements using
these type of facilities to the extent that they are available at terms that are
deemed favorable to the Company.
The Company does not believe that inflation has had a significant impact
on its operations since inception of the Company.
SEASONALITY
The Company's business is subject to seasonable fluctuations, with a
slight decrease in sales and revenues occurring during the month of December due
to the holidays. Because of the seasonality of the Company's business, results
for any quarter are not necessarily indicative of the results that may be
achieved for the full year.
20
<PAGE> 27
BUSINESS OF THE COMPANY
GENERAL
Luminex Lighting, Inc. (the "Company") distributes quality, energy
saving, fluorescent lighting fixtures. The Company designs, tools, tests,
assembles, and packages readily available lighting component parts into a
finished product, ready for distribution and sale. The Company has expanded its
customer base across the United States and is seeking to expand into the direct
retail and emerging global markets.
The Company believes it is currently one of the largest distributors of
cost efficient energy saving fluorescent lighting fixtures. The Company has been
in operation for over four years and has experienced substantial growth within
the lighting industry. The Company has built a strong customer base, including
GE and Lamps Plus.
The Company's niche in the light fixture market is maintained through
cost efficiency and quality in its products. The Company has accumulated
strength in the purchasing of raw materials. Due to the increased volume of
material that the Company purchases, it is able to obtain an advantage when
negotiating with its suppliers. Its competitive edge is based upon low cost
purchasing along with low overhead expenses, resulting in quality products at a
lower price. The Company is competitive in all aspects of its operations. These
factors, combined with experienced management and employees, provide the Company
with added value within the industry.
The Company is seeking to capture a significant market share in the
lighting industry. Opportunities are evident not only in the United States, but
around the world as well. The Company intends to target such territories as
Canada, Mexico, South America, and Puerto Rico. Presently, the Company does not
make any sales into markets outside the United States. With a potion of the
proceeds of this Offering, the Company plans on retaining a National Sales
Manager and sales representatives familiar with both domestic and foreign
markets. (See "Use of Proceeds.") In February 1999, the Company plans to attend
the Hardware/Housewares and Building Material Show of the Caribbean (the
"Hardware Show"). This will mark the beginning of the Company's expansion into
foreign markets. The Hardware Show will be held in Puerto Rico and generally
attracts over 12,000 buyers from South America, the Caribbean, Central America,
and parts of Europe.
As of the date hereof, the Company had 3,306,500 Shares of Common Stock
issued and outstanding and warrants to purchase 500,000 Shares of Common Stock
at an exercise price of $0.80 per share issued and outstanding. The Company will
have 3,556,500 Shares of Common Stock outstanding if the Minimum Offering is
sold and 3,806,500 Shares of Common Stock outstanding if the Maximum Offering is
sold, without giving effect to the exercise of any warrants. Assuming exercise
of all warrants, including the Warrants, the Company will have 4,306,500 Shares
of Common Stock outstanding immediately after the Offering if the Minimum
Offering is sold and 4,806,500 Shares of Common Stock if the Maximum Offering is
sold. The Company also has 500,000 Shares of Common Stock reserved for issuance
under its stock option plan, of which no options have been issued.
During the year ended December 31, 1997, the Company had revenues of
$5,852,969 from the sale of its products. The Company's net income from
operations for the year ended December 31, 1997 was $123,097. Continued
development of the Company's products and successful implementation of the
Company's marketing plan are necessary for the Company to generate substantial
operating revenues.
The Company was incorporated under the laws of the State of California
on January 21, 1994. The address of the Company's principal executive offices
is: 13710 Ramona Avenue, Chino, California, 91710. The Company's telephone
number is (909) 591-5653. The Company also has a branch office located at 258
Main Street, Suite 111, Milford, Massachusetts, 01757.
21
<PAGE> 28
OVERVIEW OF THE COMPANY'S MARKETS
Based on industry reports and evaluations done by Business Trend
Analysis, the residential lighting fixtures market is expected to outperform all
other types of lighting markets in 1998. (Energy Information Administration,
Office of Energy Markets and End Use; Lighting Research Center, Rensselaer
Polytechnic Institute, 1997.)
Households in the U.S. contain a total of 523 million lights that are on
one or more hours a day -- 282 million of these are on four or more hours a day.
(Energy Information Administration, 1993.)
Based on the 1995 Commercial Buildings Energy Consumption Survey
(CBECS), approximately 77% of all commercial buildings are lit by fluorescent
lights.
Therefore, both the U.S. residential and commercial lighting markets are
large and wide-spread.
The Company produces its products primarily as an OEM (original
equipment manufacturer) for GE, its major customer. The OEM market alone has
great potential for further expansion of the Company's products. The OEM market
gives the Company the ability to acquire pre-existing national distribution
channels. The Company is currently in discussions with various customers in
order to expand and generate further revenue through the OEM markets.
During 1998, management of the Company plans to enter into the direct
retail market by introducing many new products under the Luminex Lighting
private label. The Company expects to introduce its product line to markets such
as home improvement retail stores; retail outlets such as Kmart, Target, and
Wal-Mart; drug stores; and office supply stores. Again, the potential to expand
into this market is great and if the Company successfully enters the direct
retail market, it will provide the following benefits: establishing its own
private label, creating brand recognition, and enabling the Company to acquire
extensive national distribution channels.
The Company also plans on expanding its Energy Plus division which
currently consists of products being sold mainly to the commercial and
industrial markets. These products are used for the construction of new homes,
buildings, medical centers, and shopping plazas. They are also sold to smaller
home improvement and retail lighting outlets.
The overall lighting market is wide in scope. The Company has developed
various products which represent the scope of products offered by both the
commercial and residential lighting industries.
BUSINESS STRATEGY
Currently, the Company is highly concentrated within the OEM
distribution channel. Its primary customer at this time is GE. GE plays a
significant role in the generation of revenue for Luminex Lighting.
Luminex would like to further diversify its business through entering
into the direct retail market and by further expanding its commercial and
wholesale distribution division, Energy Plus (see "Sales, Marketing and
Distribution"). The Company is currently in the process of structuring and
preparing itself for entry into the direct retail market. Direct sale to the
retail market provides higher margins, increased profitability, and establishes
Company recognition within the lighting industry. The Company has developed many
new products to support the market and has created a new image for the Luminex
label.
In August 1998 Luminex plans to launch its direct retail program.
Efforts being made to introduce this program successfully are:
o the appointment of a National Sales Manager in order to develop
business;
o retainment of additional sales representatives across the United State
and Canada;
o further development of creative lighting fixtures appealing to the
consumer;
o establishing brand recognition and Company image;
22
<PAGE> 29
o new packaging;
o new and creative catalogs appealing to buyers;
o increased marketing of product through advertising and specials;
o additional investment in product research and development; and
o introduction of fluorescent product lines to home centers, hardware
chains, drug stores, supermarket chains, and several independent
hardware stores.
Luminex will attend the National Hardware Show in August 1998. The
Hardware Show is the largest show within the lighting industry and attracts many
buyers.
Further, the Company believes that market opportunities exist not only
domestically but internationally. Currently, the Company is marketing its
products extensively within the United States region. However, due to
insufficient amounts of working capital, the Company has not been able to expand
and reach its fullest potential in the international market.
The Company is seeking to capture a significant market share in the
lighting industry. Opportunities are evident not only in the United States, but
around the world as well. The Company intends to target such territories as
Canada, Mexico, South America, and Puerto Rico. The Company plans on retaining a
National Sales Manager and sales representatives familiar with these markets.
PRODUCTS
The Company has integrated a variety of lighting products into its
inventory. Its product lines are highly diversified and guaranteed the highest
quality within the lighting industry. The Company provides a five year warranty
on all of its products. Luminex produces products that are energy efficient. For
example, an 18 watt compact fluorescent light produces the same number of lumens
as a 75 watt incandescent. These energy savings are passed on to the consumer.
According to research conducted by the United States Chamber of Commerce in
1993, U.S. households used a total of 90.8 billion kWh for electricity for
lighting. If households replaced all incandescent bulbs used four or more hours
per day with compact fluorescent lights, they could save 31.7 kWh annually, or
35% of all electricity used for residential lighting. Management of the Company
believes that replacements have generally not been made mainly because the
consumer has not been educated on savings presented by compact fluorescent light
fixtures. Also, the introduction of electronics and compact fluorescent lights
has not been marketed to its fullest potential.
In addition to the energy efficient products that Luminex produces, the
Company has gone a step further by implementing electronic ballasts into many of
their products. CBECS data suggests greater energy savings will occur by
replacing existing fluorescent lights with more energy - efficient equipment
such as electronic ballasts, which increase fluorescent efficiency by up to 25%.
Following is a brief overview of the various products the Company
currently offers and an introduction of the new and innovative products the
Company will be adding to its product lines.
1. CEILING MOUNT FIXTURES are used for commercial and residential
purposes where efficient higher light output fixtures can be used in new or
existing construction to replace inefficient incandescent fixtures. These
fixtures include the cloud series and decorative wraparound series.
2. DECORATIVE VANITY SERIES fixtures are efficient and attractive in
design and provide uniform low glare diffusers. This series is excellent for
residential and commercial use such as restrooms or hotels, motels, and health
care facilities. These fixtures also save energy.
3. COMPACT CEILING MOUNTS include contemporary fluorescent cloud
fixtures and contoured cloud fixtures. These mounts are popular because of their
soft lines and shallow appearance. These products are used both in residential
and commercial applications. These fixtures feature the latest in long life
compact fluorescent and circleline lamps. These fixtures are ideal for small
rooms, entrance areas, accent areas, or hallways.
23
<PAGE> 30
4. UNDERCABINET SERIES. Supplying this product to its constantly growing
customer base, including GE as the largest purchaser and distributor, the
Company is also being asked by other competitors to produce the product for them
as other companies are unable to compete with the quality and price the Company
offers. The Company's Undercabinet Series has a very low profile, excellent in
energy saving, multipurpose use and has now become the most popular item among
all the Company's products.
5. PLASTIC BLACKLIGHT SERIES. At the current time, the Company is
producing the plastic Blacklight Series for GE only. However, there is no
exclusive contract between the Company and GE. GE then sells this product to
many retailers including Spencer Gifts, Target, and other novelty stores, so
this popular fixture is constantly in demand. On some days the Company produces
more than 10,000 Blacklight fixtures. Recent estimates from GE suggest that
Blacklight orders within the next twelve months will be approximately 750,000
units.
All of the Company's products are 100% tested electrically prior to
shipment, are monitored for finish (i.e., the aesthetic appearance free from
scratches, dents, etc.) as well as mechanical fit, and are Underwriters
Laboratories ("UL"), Canadian Standards Association ("CSA"), and Canadian
Underwriters Laboratories ("CUL") approved. The Company believes that these
factors, combined with the Company's expert management, strategically place the
Company in a position to capture a significant portion of the commercial and
residential lighting industry.
During the current fiscal year, the Company plans to introduce a minimum
of four new fixture series to its present family of products. These products, in
addition to the current products being sold, will be marketed to the D14 retail
market under the Luminex Lighting label. The various product series currently in
the development stage are the following:
1. DECORATIVE UTILITY LIGHT is an inexpensive, portable utility light
which can be used for homes, offices, commercial, and residential purposes.
2. PLASTIC SERIES, with similar construction to the Blacklight, will
enable consumers to purchase multipurpose lighting fixtures at an economical
price.
3. COMPACT FLUORESCENT SERIES leads the market in compact energy
efficient products utilizing the latest "state of the art" lamp technology. This
series will be offered in a variety of products including ceiling and wall
lights.
4. EURO SERIES. The Euro Single Strip, Euro Twin Light, Euro 15" Strip
Light, and Euro Nightlite are included in this series. This inexpensive and
affordable product line is characterized by its rounded dimensions and is
designed to fit almost anywhere. These lights can be used to brighten up areas
such as the kitchen, laundry area, garage, office, and almost anywhere around
the home or office. As one of the newer lighting developments by Luminex, the
Euro Series has created a great deal of interest in Luminex and its product
lines. This series will be marketed extensively through the do it yourself
("DIY")/retail market under the Luminex label. The "do it yourself" market
encompasses companies which sell products to the consumer for the consumer to
install, such as Home Depot, Home Base, and Orchard Supply Hardware. The
expected launch date for this program is August 1998.
5. CIRCLE LIGHT. Luminex will be introducing a new line of energy
efficient, screw-in fluorescent Circle Light adapters. This product easily
replaces the 75 watt and 150 watt incandescent lamps with only 22 watts and 30
watts respectively. The 22 watt system consists of a compact and dependable
Circle Light lamp and magnetic adapter. The 30 watt system utilizes high color
rendering lamps with sophisticated and state of the art electronic ballast for
quick starting and long life efficient operation.
24
<PAGE> 31
CUSTOMERS
The largest customers of the Company for the last two years are as
follows:
General Electric Company
Lamps Plus, Inc.
United Electric Supply Company, Inc.
The Orman Grubb Company
California Commercial Lighting Supply, Inc.
All Sale Electric, Inc.
Ryall Electric Supply Company
COMPETITION
The Company faces competition from numerous companies, certain of which
are more established, benefit from greater market recognition, and have greater
financial, production and marketing resources than the Company. The Company's
products compete on the basis of certain factors, including first to market
product capabilities, product performance, price, support of industry standard,
ease of use, customer support as well as user productivity.
The lighting industry is large and composed of many companies. Much of
the competition that the Company faces is centralized within California.
Companies such as American Power Products, Lights of America, Lampi Corporation,
and Lamar Lighting manufacture similar lighting fixtures to those sold by the
Company. The Undercabinet line in particular is in direct competition with
various other manufacturers of similar lines. Such competition may diminish the
Company's market share or its ability to gain entry into the market, and may
consequently have a material adverse effect on the Company.
COMPETITIVE ADVANTAGES
Management of the Company believes that the Company has the following
advantages over its competition:
o The Company is able to purchase material at below market cost thereby
enabling the final price of the finished product to be competitive
within the industry.
o All products assembled by the Company are tested and inspected by the
Company's team of Quality Control Specialists thereby resulting in a
100% product satisfaction guarantee to its customers. Customers receive
a replacement or full refund on any defective product.
o The Company's diverse product lines offer ease of use in both the
commercial and residential settings.
o The Company is consistently applying the newest technology to its
various products. In the lighting industry, technology changes rapidly.
The Company has a team of specialists who are able to apply these new
innovations to its lighting products giving the Company a competitive
edge against the general market.
SALES, MARKETING, AND DISTRIBUTION
GENERAL
The Company is currently marketing its products throughout the United
States and Canada. Currently, the Company's revenues are largely based on OEM
customers such as GE. Management feels that there are significant opportunities
within the OEM market and intends to capitalize and expand its revenue base from
this market.
Aside from OEM manufacturing, the Company is currently selling its wide
range of fluorescent lighting fixtures through various distributors and
independent sales representatives. This accounts for approximately 5% of
revenues for the Company. The remaining approximately 95% of sales is derived
from GE.
Distribution takes place through the Company's Chino, California
assembly and distribution center.
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<PAGE> 32
ENERGY PLUS - A DIVISION OF LUMINEX LIGHTING, INC.
Energy Plus, a division of Luminex Lighting, Inc., has been specifically
set up to target the commercial and electrical distribution markets. This market
includes lighting needs for home and industrial construction, electrical
distributors, and electrical wholesalers. Currently, Energy Plus provides the
market with several fixtures, including over 93 various options. Products being
sold through Energy Plus include all undercabinet series (plastic and metal),
flushmounts, sidemounts, various cloud designs, wraparounds, decorative vanity,
decorative cloud, all open strip fixtures, industrial use fixtures, enclosed
fixtures, and gasket fixtures.
Energy Plus recently acquired a new Sales Manager at the end of 1997 and
formed a strong team of sales representatives and customer service
representatives to support its division. The restructuring of the division has
dramatically increased annual sales and has proven that Energy Plus can be
competitive within the electrical and commercial markets. During the first half
of 1998, Energy Plus reached a level of $278,469 in gross sales. The Company
believes that there will be continued growth within this division based on
increased orders by new and existing customers.
In order to establish new clients, Energy Plus is continuously searching
for sales representatives across the United States and Canada. Currently, Energy
Plus retains over 20 sales representatives who mainly cover the Western and
Midwestern states. In order to facilitate the forecasted growth for Energy Plus,
it will be necessary to expand its customer base through the acquisition of
additional sales representatives. The division plans on aggressively expanding
its representative base during 1998. Also, it will be necessary to maintain on
hand inventory of the products being offered and to ensure rapid turn around
time. Energy Plus will continue to stay focused on customer service and quality
control enabling the division to further expand competitively.
Energy Plus is a significant part of Luminex's business. Due to the
direct sale of product to the customer, Energy Plus is able to maintain higher
margins than those of Luminex Lighting, Inc. The higher margins attained within
this division significantly contribute to the overall profitability of the
business. Therefore, Luminex will continue to support the Energy Plus division
and continue to acquire the business available in the commercial and electrical
wholesale market.
Energy Plus has recently launched a new PRODUCT PROMOTION PROGRAM. This
program is a tool which will enable the Company to strategically acquire new
business through special promotions of products every two months. This form of
advertising and marketing will promote additional sales with electrical
distributors and will provide the distributors with an incentive to purchase the
product that is being promoted that particular month. This program will be
aggressively marketed through our in house sales force along with our
independent representatives across the United States.
LUMINEX-MEXICO
Luminex identified an opportunity to reduce costs by manufacturing
components in Mexico where direct labor costs are significantly lower than those
in the United States. Therefore, in 1998, the Company, in conjunction with
Enertech-Mexico, began manufacturing certain component parts for its lighting
fixtures in order to increase margins. The Company is manufacturing several
different types of ballasts for use in its fixtures. It is also manufacturing
starter assemblies at the Mexico facility. There is no affiliation between
Enertech-Mexico and the Company other than the manufacturing arrangement.
The Company may also move the assembly of certain lighting fixtures to
Mexico later in the year. This move will enable Luminex to realize significant
cost savings by assembling certain of its lighting fixtures in Mexico.
26
<PAGE> 33
WEB SITE
The Company has established an interactive website which will enable
potential and existing clients to access the website and receive information,
price quotes, and an opportunity to place orders. This will also allow
interaction with international prospects. Again, this website provides
additional tools for marketing its products domestically and internationally.
The Company's website address is www.luminexlighting.com.
EMPLOYEES
As of the date of this Prospectus, the Company employed 80 full-time
employees and no part-time employees. The Company hires independent contractors
on an "as needed" basis only. The Company has no collective bargaining
agreements with its employees. The Company believes that its employee
relationships are satisfactory. The Company plans on hiring additional part-time
sales staff in the immediate future. Long term, the Company will hire additional
employees as needed based on its growth rate. In particular, if at least the
Minimum Offering is sold, the Company plans on hiring a national sales manager
to market the Company's own brand label products in the U.S. and Canadian retail
markets. See "Use of Proceeds."
PROPERTIES
The Company leases a 25,000 square foot warehouse, including office
space, in Chino, California which is the Company's headquarters. The Chino
facility is comprised of the following areas: office space - 2,900 square feet;
assembly/manufacturing space - 5,200 square feet; and inventory stocking area -
16,900 square feet. The lease term expires in October 2000. The lease contains
two options to extend the lease term for a period of three years each. The
monthly lease payment is $11,250.
The Company also leases approximately 500 square feet of office space in
Milford, Massachusetts. The monthly lease payment is $275 and the lease expires
November 30, 1998.
LITIGATION
On March 11, 1997, the Company was served with a Complaint in the matter
of David P. Holmes, Plaintiff ("Plaintiff") vs. Luminex Lighting, Inc., a
California corporation; Wasif Siddiqui, an individual; Tasneem Siddiqui, an
individual; and Does 1 through 20, inclusive, Defendants ("Defendants"),
Superior Court of the State of California for the County of Orange, Case No.
776430. Plaintiff is a former employee of the Company who was terminated.
Plaintiff alleged he had an implied employment contract with Defendants such
that he would be employed by Defendants so long as his performance was
satisfactory, and that Defendants would not discharge him without good and just
cause. Plaintiff alleged the following causes of action in his complaint: breach
of contract for continued employment; breach of implied contract of continued
employment; and breach of implied covenant of good faith and fair dealing. On
June 18, 1997, Defendants filed a Cross-Complaint against Plaintiff for
misappropriation of trade secrets; interference with a significant business
relationships; conversion of trade secrets; and unfair competition. On May 27,
1998, Defendants entered into a settlement agreement with Plaintiff whereby
Defendants would pay to Plaintiff the total sum of $105,000 according to the
following payment schedule: $25,000 initial lump sum payment and $10,000 per
month for eight months. All settlement payments will be made by the Company on
behalf of all Defendants.
Management of the Company believes that there are no other litigation
matters pending or threatened against the Company.
27
<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and officers of the Company as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Wasif Siddiqui 52 President, Chief Executive Officer, Chief Financial Officer,
Director
Tasneem Siddiqui 44 Executive Vice President, Secretary, Director
Asra Rasheed 25 Vice President of Corporate Planning, Director
</TABLE>
The number of directors may be fixed from time to time by the Board of
Directors. The Board of Directors presently consists of three directors, all of
whom are inside directors. The Company will add one independent director at the
completion of this Offering. This individual has yet to be determined. Each of
the Company's directors hold office until their respective successors are
elected at the next annual meeting of shareholders. Vacancies in the Board of
Directors are filled by a majority vote of the remaining directors or by a
shareholder vote called expressly for such purpose. The Company currently has no
committees established to advise the Board of Directors. See "Risk Factors--No
Outside Directors or Committees."
WASIF SIDDIQUI, PRESIDENT, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, AND
DIRECTOR, has over 15 years of experience within the lighting industry. He is
one of the original founders of the Company and spent 1993 forming the Company
which was incorporated in January 1994. From 1987 through 1993, he was President
and Chief Executive Officer of American Power Products, a lighting Company with
sales volume that exceeded 35 million dollars.(2) Prior to his term as President
of both companies, Mr. Siddiqui specialized in various management positions with
three different Fortune 500 companies. His experience in management, along with
his expertise in the lighting industry, has brought the Company a strong and
committed leader focused on the growth and success of the Company. Mr. Siddiqui
earned his Masters Degree in Business Administration from Northrop University,
Los Angeles, California.
TASNEEM SIDDIQUI, EXECUTIVE VICE PRESIDENT, SECRETARY, AND DIRECTOR, brings to
the Company insight and experience in financial and manufacturing management.
She is an original founder of the Company and spent 1993 forming the Company
with Mr. Siddiqui. Ms. Siddiqui was Manager of Finance with American Power
Products from 1991 through 1992(2). Ms. Siddiqui was the owner and operator of
National Products, a multi-million dollar artificial plant manufacturing
Company, from 1986 through 1991. Through this venture, she gained experience in
overseeing production and manufacturing. Ms. Siddiqui is responsible for the
daily management and supervision of various departments such as Accounts Payable
and Production, of the Company. She has a B.S. Degree in Economics. Tasneem
Siddiqui, Executive Vice President, Secretary, and a Director of the Company is
the wife of Wasif Siddiqui, President, Chief Executive Officer, Chief Financial
Officer, and a Director of the Company.
ASRA S. RASHEED, VICE PRESIDENT OF CORPORATE PLANNING, AND DIRECTOR, brings to
the Company expertise in business and financial analysis. She joined the Company
in October 1996. She was previously employed at Wells Fargo Bank
- --------
(2) American Power Products is still in business operating in Chino,
California. Mr. and Mrs. Siddiqui are no longer officers, directors, or
employees of American Power Products. They have no connection whatsoever
to American Power Products.
28
<PAGE> 35
from August 1991 through September 1996 as a Personal Banking Officer and
Customer Service Representative where she gained experience in the sales and
financial industry. Ms. Rasheed is responsible for long term forecasting and
financial structuring for the Company as well as overseeing day-to-day sales and
accounts receivable activity that funnel through the Company. Ms. Rasheed has a
B.S. Degree in Finance (with emphasis on Corporate Finance and Investments).
Asra Rasheed, Vice President of Corporate Planning and a Director of the
Company, is the daughter of Tasneem Siddiqui, Executive Vice President,
Secretary, and a Director of the Company, and Wasif Siddiqui, President, Chief
Executive Officer, Chief Financial Officer, and a Director of the Company.
EXECUTIVE COMPENSATION
The following officers of the Company receive the following annual cash
salaries and other compensation:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Awards(3)
---------------------------
Securities
Annual Restricted Underlying
Name and Principal Position Year Salary(1) Bonus(2) Stock Awards Options
- --------------------------- ---- --------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Wasif Siddiqui, President, Chief 1998 $96,000 $-0- -0- -0-
Executive Officer, Chief Financial 1997 $96,000 $175,589 -0- -0-
Officer 1996 $62,000 $-0- -0- -0-
Tasneem Siddiqui, Executive Vice 1998 $72,000 $-0- -0- -0-
President and Secretary 1997 $72,000 $-0- -0- -0-
1996 $36,000 $-0- -0- -0-
Asra Rasheed, Vice President of 1998 $39,000 $-0- -0- -0-
Corporate Planning 1997 $36,000 $-0- -0- -0-
1996 $ 9,000 $-0- -0- -0-
</TABLE>
- --------------------------
(1) The table does not include any amounts for personal benefits extended to
officers of the Company, such as the cost of automobiles, life insurance and
supplemental medical insurance, because the specific dollar amounts of such
personal benefits cannot be ascertained. Management believes that the value
of non-cash benefits and compensation distributed to executive officers of
the Company individually or as a group during fiscal year 1998 will not
exceed the lesser of $50,000 or ten percent of such officers' individual
cash compensation or, with respect to the group, $50,000 times the number of
persons in the group or ten percent of the group's aggregate cash
compensation.
(2) Mr. Wasif Siddiqui and Ms. Tasneem Siddiqui have bonus compensation
agreements. For fiscal 1998, Mr. Siddiqui shall receive bonus compensation
equal to 3% of gross annual sales; such amount is presently not
ascertainable. For fiscal 1998, Ms. Siddiqui shall receive bonus
compensation up to 1% of gross annual sales in the discretion of the board
of directors; such amount is presently not ascertainable.
(3) No officers received or will receive any long term incentive plan (LTIP)
payouts or other payouts during fiscal 1998.
(4) No officers received or will receive any restricted stock awards or options
during fiscal 1998.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The laws of the State of California and the Company's Bylaws provide for
indemnification of the Company's directors for liabilities and expenses that
they may incur in such capacities. In general, directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company, and
with respect to any criminal action or proceeding, actions that the indemnitee
had no reasonable cause to believe were unlawful.
29
<PAGE> 36
The Company has been advised that in the opinion of the Commission,
indemnification for liabilities arising under the Act is against public policy
as expressed in the Act and is, therefore, unenforceable.
EMPLOYMENT AND RELATED AGREEMENTS
INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
On May 5, 1997, the Company enacted an Incentive and Nonstatutory Stock
Option Plan (the "Plan") for its employees and consultants under which a maximum
of 500,000 options may be granted to purchase Common Stock of the Company. Two
types of options may be granted under the Plan: (1) Incentive Stock Options
(also known as Qualified Stock Options) which only may be issued to employees of
the Company and whereby the exercise price of the option is not less than the
fair market value of the Common Stock on the date it was reserved for issuance
under the Plan; and (2) Nonstatutory Stock Options which may be issued to either
employees or consultants of the Company and whereby the exercise price of the
option is less than the fair market value of the Common Stock on the date it was
reserved for issuance under the Plan. Grants of options may be made to employees
and consultants without regard to any performance measures. Any options issued
pursuant to the Plan vest over an 18 month period from the date of the grant per
the following schedule: 33% of the options vest on the date which is six months
from the date of the grant; 33% of the options vest on the date which is 12
months from the date of the grant; and 34% of the options vest on the date which
is 18 months from the date of the grant. Any options issued pursuant to the Plan
are nontransferable and subject to forfeiture. As of the date of this
Prospectus, the Company had not issued any options under the Plan.
EMPLOYMENT AGREEMENTS
Effective as of January 1, 1997, the Company entered into an "Annual
Salary and Bonus Compensation Plan" with Wasif Siddiqui (the "Wasif Siddiqui
Employment Agreement"). The term of the Wasif Siddiqui Employment Agreement is
five years and is renewable subject to Board approval at the expiration of the
initial term. This Employment Agreement provides for annual salary compensation
of $96,000 per year with a 5% increase every year for a period of five years.
The Wasif Siddiqui Employment Agreement provides for bonus compensation of 3% of
gross annual sales of the Company each fiscal year, provided that the bonus does
not create a net loss before taxes for the Company.
Effective January 1, 1997, the Company entered into a Bonus Plan with
Charles Boulos, an employee (the "Boulous Bonus Plan"). This Bonus Plan provides
for a bonus each fiscal year in a range between 0.5% and 1% of gross annual
sales of the Company. The actual percentage for the bonus to be determined by
the Board of Directors of the Company at the annual meeting, but no less than
0.5% nor more than 1% of gross annual sales. The Boulous Bonus Plan contains no
other provisions and is subject to amendment or termination at will. Mr. Boulous
does not have an employment agreeement with the Company and his employment is
terminable at will.
Effective as of June 1, 1997, the Company entered into an "Annual Salary
and Bonus Compensation Plan" with Tasneem Siddiqui (the "Tasneem Siddiqui
Employment Agreement"). The term of the Tasneem Siddiqui Employment Agreement is
five years and is renewable subject to Board approval at the expiration of the
initial term. This Employment Agreement provides for annual salary compensation
of $72,000 per year with a 5% increase every year for five years thereafter. The
Tasneem Siddiqui Employment Agreement provides for bonus compensation of up to
1% of gross annual sales of the Company each fiscal year, provided that the
bonus does not create a net loss before taxes for the Company.
CERTAIN TRANSACTIONS
During the past two years, the Company had taken loans drawn on personal
lines of credit of Asra Rasheed, Vice President of Corporate Planning and a
Director and Shareholder of the Company. The interest rate at December 31, 1997
was 12.51%. The balance of the lines of credit at December 31, 1997 was $6,272.
The funds drawn were
30
<PAGE> 37
contributed to the Company for working capital. Subsequent to December 31, 1997,
the loans were paid in full and the Company has no plan to take any further
loans from this line of credit.
The Company's management believes that the terms of these transactions
are no less favorable to the Company than would have been obtained from an
unaffiliated third party in similar transactions. All future transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated third parties, and will be approved by a majority of the
disinterested directors.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of the date hereof and as adjusted
to reflect the sale of the Shares offered hereby by (i) each shareholder known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each director of the Company, (iii) each officer
of the Company, and (iv) all directors and officers as a group. Unless otherwise
indicated, the address for each shareholder is 13710 Ramona Avenue, Chino, CA
91710.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(1)
------------------------------------
AFTER AFTER
NUMBER BEFORE MINIMUM MAXIMUM
NAME OF SHARES OFFERING OFFERING OFFERING
---- --------- -------- -------- --------
<S> <C> <C> <C> <C>
Wasif A. Siddiqui and Tasneem Siddiqui, 2,600,000 78.6% 73.1% 68.3%
held jointly
Whittington Investments, Ltd., 237,000 7.2% 6.5% 6.2%
a corporation(2)
Suite M2 Charlotte House
P.O. Box N4825
Nassau, Bahamas
Clearweather Investment, Ltd.(3) 210,000 6.4% 5.6% 5.5%
65 Main Street, P.O. Box 3463
Road Town/Tortola
British Virgin Islands
Asra Rasheed 200,000 6.0% 5.6% 5.3%
Knightrider Investments Limited, 175,000 5.3% 4.7% 4.6%
a corporation(4)
c/o John King
Worldwide Trust Services Limited
Charlotte House, Charlotte St.
Nassau, Bahamas
All officers and directors as a group 2,800,000 84.7% 78.7% 73.6%
(3 persons)
</TABLE>
- ----------
* Less than one percent
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of Common Stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Beneficial ownership is
determined in accordance with the rules of the Commission and generally
includes voting or investment power with respect to securities. Shares of
Common Stock subject to options or warrants currently exercisable, or
exercisable within 60 days, are deemed outstanding for purposes of computing
the percentage of the person holding such options or warrants, but are not
deemed outstanding for purposes of computing the percentage of any other
person.
(2) Includes 115,000 Private Placement Warrants
(3) Includes 200,000 Private Placement Warrants
(4) Includes 150,000 Private Placement Warrants
31
<PAGE> 38
SELLING SHAREHOLDERS
The following table sets forth the number of Shares of Common Stock
which may be offered for sale from time to time by the Selling Shareholders. The
shares offered for sale constitute all of the Shares of Common Stock known to
the Company to be beneficially owned by the Selling Shareholders. To the best of
management's knowledge, none of the Selling Shareholders has or have any
material relationship with the Company, except as otherwise set forth below.
<TABLE>
<CAPTION>
SHARES OF
NAME OF COMMON STOCK
SELLING SHAREHOLDER OFFERED(1)
- ------------------- ------------
<S> <C>
Whittington Investments, Ltd. 122,000
Whittington Investments, Ltd. 115,000(2)
Horwitz & Beam, Inc., a California corporation(3) 5,000
Horwitz & Beam, Inc., a California corporation(3) 25,000(2)
Clarence W. Coffey, an individual 20,000
Rockspitz Stiftung 9,500
Rockspitz Stiftung 5,000(2)
Richard Houlihan, an individual 20,000
Stephen Leslie Schneider, an individual 30,000
Joseph T. Doino and Carm M. Doino, JTWROS 25,000
Graham Thorogood, an individual 5,000(2)
Gregory A. Majka, an individual 10,000
Z.T. Global, Inc., a corporation 20,000
Clearweather Investments 10,000
Clearweather Investments 200,000(2)
Montague Securities International Ltd., a corporation 10,000
Irfan Mustafa, an individual 50,000
Equitrade Securities Corp. 10,000
Winthrop Venture Fund, Ltd. 80,000
C.R. Hanson, an individual 20,000
Knightrider Investments Limited, a corporation 25,000
Knightrider Investments Limited, a corporation 150,000(2)
Michael Preston, an individual 20,000
Steven Lampert, an individual 20,000
---------
Total 1,006,500
=========
</TABLE>
- ---------------
(1) All of these Shares are currently restricted under Rule 144 of the 1933 Act.
(2) Represents Shares underlying Private Placement Warrants.
(3) Legal counsel to the Company. Horwitz & Beam, Inc. acquired the securities
in the Private Placement as an investor on April 24, 1997 pursuant to a
subscription agreement and the payment of $5,000.
PLAN OF DISTRIBUTION
The Shares will be offered and sold by the Selling Shareholders for
their own accounts. The Company will not receive any of the proceeds from the
sale of the Shares by the Selling Shareholders pursuant to this Prospectus. The
Company will pay all of the expenses of the registration of the Shares, but
shall not pay any commissions, discounts, and fees of underwriters, dealers, or
agents.
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<PAGE> 39
The Selling Shareholders may offer and sell the Shares from time to time
in transactions in the over-the-counter market or in negotiated transactions, at
market prices prevailing at the time of sale or at negotiated prices. The
Selling Shareholders have agreed not to sell, assign, pledge, hypothecate, or
otherwise dispose of any of the Private Placement Stock, as well as the Shares
of Common Stock underlying the Private Placement Warrants, for a period of 12
months from the final closing of the Offering without the prior written consent
of the Underwriter. The Selling Shareholders have advised the Company that they
have not entered into any agreements, understandings, or arrangements with any
underwriters or broker-dealers regarding the distribution of their Shares, nor
is there an underwriter or coordinating broker acting in connection with the
proposed sale of Shares by the Selling Shareholders. Sales may be made directly
or to or through broker-dealers who may received compensation in the for of
discounts, concessions, or commissions from the Selling Shareholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they may sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
The Selling Shareholders and any broker-dealers acting in connection
with the sale of the Shares hereunder may be deemed to be "underwriters' within
the meaning of Section 2(11) of the Act, and any commissions received by them
and any profit realized by them on the resale of Shares as principals may be
deemed underwriting compensation under the Act.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the Shares offered by this Prospectus may not
simultaneously engage in market making activities with respect to the Common
Stock of the Company during the applicable "cooling off" periods prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Shareholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases and
sales of Common Stock by the Selling Shareholders.
Selling Shareholders may also use Rule 144 under the Act to sell the
Shares if they meet the criteria and conform to the requirements of such Rule.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of ten million
Shares of Common Stock, no par value. The Company's Transfer Agent is Oxford
Transfer & Registrar, 317 S.W. Alder, Suite 1120, Portland, Oregon, 97204.
The following summary of the material terms of the Company's securities
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the Company's Articles of Incorporation and Bylaws, which
are included as exhibits to the Registration Statement of which this Prospectus
is a part, and the provisions of applicable law.
COMMON STOCK
As of the date of this Prospectus, there are 3,306,500 Shares of Common
Stock outstanding, and after completion of this Offering, 3,556,500 Shares of
Common Stock will be issued and outstanding if the minimum amount hereunder is
sold and 3,806,500 Shares of Common Stock if the maximum amount hereunder is
sold (without giving effect to the exercise of any warrants). Holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the shareholders. At all elections of directors of the
Company, each holder of stock possessing voting power is entitled to as many
votes as equal to the number of his or her shares of stock multiplied by the
number of directors to be elected, and he or she may cast all of such votes for
a single director or may distribute them among the number to be voted for or any
two or more of them, as he or she may see fit (cumulative voting). Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of
33
<PAGE> 40
any then outstanding Preferred Stock. Holders of Common Stock have no right to
convert their Common Stock into any other securities. The Common Stock has no
preemptive or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding Shares of Common
Stock are, and the Common Stock to be outstanding upon completion of this
Offering will be, duly authorized, validly issued, fully paid and nonassessable.
WARRANTS
As of the date of this Prospectus, there are 500,000 warrants
outstanding (the "Private Placement Warrants"). These warrants were issued by
the Company to private individuals in connection with the Company's Private
Placement Bridge Financing commenced on April 4, 1997. The Private Placement
Warrants are each exercisable for one share of Common Stock of the Company at
$0.80 per share. The term of the Private Placement Warrants is five years from
the date of issuance.
The Company is also offering hereunder, a minimum of 250,000 warrants
and a maximum of 500,000 warrants (the "Warrants"). The Warrants are each
exercisable for one share of Common Stock of the Company at $6.00 per share,
subject to adjustment. The term of the Warrants is five years from the Effective
Date.
The exercise price of the Warrants and the number of Shares of Common
Stock or other securities and property issuable upon exercise of the Warrants
are subject to adjustment in certain circumstances, including stock splits,
stock dividends, subdivisions, combinations, reclassification or issuances of
stock at a price lower than the current market price. Additionally, an
adjustment will be made upon the sale of all or substantially all of the assets
of the Company in order to enable the holders of the Warrants to purchase the
kind and number of shares of stock or other securities or property (including
cash) receivable in such event by a holder of the number of Shares of Common
Stock that might otherwise have been purchased upon exercise of the Warrants.
The Warrants do not confer upon the holder any voting or any other
rights of a shareholder of the Company. Upon notice to the holders of the
Warrants, the Company has the right to reduce the exercise or extend the
expiration date of the Warrants.
Warrants may be exercised upon surrender of the Warrant certificate
evidencing those Warrants on or prior to the expiration date (or earlier
redemption date) of the Warrants to American Stock Transfer & Trust Company as
warrant agent (the "Warrant Agent"), with the form of "Election to Purchase" on
the reverse side of the Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (in United States funds, by
cash or certified bank check payable to the order of the Warrant Agent) for the
number of Warrants being exercised.
No fractional shares will be issued upon exercise of the Warrants.
However, if a holder of a Warrant exercises all Warrants then owned of record by
him, the Company will pay to that holder in lieu of the issuance of any
fractional share which would otherwise be issuable, an amount in cash based on
the market value of the Common Stock on the last trading day prior to the
exercise date.
No Warrant will be exercisable unless at the time of exercise the
Company has filed with the Commission a current prospectus covering the issuance
of Shares of Common Stock issuable upon exercise of the Warrants and the
issuance of shares has been registered or qualified or is deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of Shares
of Common Stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so.
34
<PAGE> 41
The Warrants are redeemable, in whole or in part, by the Company at a
price of $0.10 per Warrant, commencing 12 months from the Effective Date (except
the Warrants may be redeemed earlier with the Underwriter's
express written consent), and prior to their expiration, provided that: (i)
prior written notice of not less than 30 days is given to the holders of the
Warrants ("Warrantholders"); and (ii) the closing bid price of the Company's
Common Stock for the 20 consecutive trading days ending on the third day prior
to the date on which the notice of redemption is given, shall have exceeded
$7.50 per share. The Warrantholders shall have exercise rights until the close
of business, the day preceding the date fixed for redemption.
If the Minimum Offering is sold, the Company will have a total of
750,000 warrants outstanding. If the Maximum Offering is sold, the Company will
have a total of 1,000,000 warrants outstanding. Additionally, the Company has
agreed to issue to the Underwriter, upon the closing of this offering,
Underwriter's Warrants exercisable to purchase up to 500,000 Shares of Common
Stock and/or 50,000 Warrants at an exercise price of $6.60 per Share and $0.12
per Warrant.
The Company has agreed with certain state securities regulators that it
will not grant options and warrants in excess of 10% of the shares outstanding
at the conclusion of the Offering and that the exercise price will not be less
than 85% of the initial public offering price on the date of grant, except for
options issued to employees which meet the requirements of Section 424(b) of the
Internal Revenue Code (as amended) pursuant to the Company's Incentive and
Statutory Stock Option Plan. See "Employment and Related Agreements-- Incentive
and Nonstatutory Stock Option Plan" for a complete description of the Company's
Stock Option Plan.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
3,556,500 shares of Common Stock if the minimum amount is sold hereunder and
3,806,500 shares if the Maximum Offering is sold (without giving effect to the
exercise of any warrants). All shares acquired in this Offering, other than
shares that may be acquired by "affiliates" of the Company as defined by Rule
144 under the Act, will be freely transferable without restriction or further
registration under the Act.
All of the 3,306,500 shares outstanding prior to this offering were
shares issued by the Company and sold by the Company in private transactions in
reliance on an exemption from registration. Accordingly, such shares are
"restricted shares" within the meaning of Rule 144 and cannot be resold without
registration, except in reliance on Rule 144 or another applicable exemption
from registration.
All directors, officers, and holders of any securities of the Company
prior to the Offering have agreed not to sell any Shares of Common Stock,
including Shares of Common Stock issuable upon exercise of options, warrants, or
any convertible securities of the Company, for a period of 12 months after the
final Closing Date without the prior written consent of the Underwriter.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of the
Company, who beneficially owns "restricted shares" for a period of at least one
year is entitled to sell within any three-month period, shares equal in number
to the greater of (i) 1% of the then outstanding Shares of Common Stock, or (ii)
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of the required notice of sale with the Commission.
The seller also must comply with the notice and manner of sale requirements of
Rule 144, and there must be current public information available about the
Company. In addition, any person (or persons whose shares are aggregated) who is
not, at the time of the sale, nor during the preceding three months, an
affiliate of the Company, and who has beneficially owned restricted shares for
at least two years, can sell such shares under Rule 144 without regard to
notice, manner of sale, public information or the volume limitations described
above.
The Private Placement Stock and the shares underlying the Private
Placement Warrants are being registered herein. Therefore, 506,500 shares of
Common Stock and 500,000 shares of Common Stock issuable upon exercise of
warrants will be freely tradeable upon the effective date hereof.
35
<PAGE> 42
UNDERWRITING
Platinum Equities, Inc. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to act as the
exclusive agent for the Company to sell the Securities on a "best efforts
250,000 Shares of Common Stock and 250,000 Warrants minimum ('Minimum
Offering'), 500,000 Shares of Common Stock and 500,000 Warrants maximum
('Maximum Offering')" basis. The Underwriter has made no commitment to purchase
any or all of the Shares of Common Stock or Warrants. It has agreed only to use
its best efforts to find purchasers for the Shares of Common Stock and Warrants
within a period of 120 days from the date of this Prospectus, subject to an
extension for an additional period of 30 days on mutual consent of the Company
and the Underwriter.
All proceeds from subscriptions will be deposited promptly in a
non-interest bearing account with American Stock Transfer & Trust Company as
escrow agent (the "Escrow Agent"), pursuant to an escrow agreement between the
Company, the Underwriter, and the Escrow Agent. Funds will be transmitted to the
Escrow Agent for deposit in the escrow account no later than noon of the
business day following receipt. All checks must be made payable to "American
Stock Transfer & Trust Company, Escrow Agent -- Luminex Lighting, Inc." In the
event the Minimum Offering is not sold within the 120 day initial offering
period and the 30 day extension period described above, funds will be refunded
promptly to subscribers in full without deduction therefrom or interest thereon.
During the 120 day offering period and any extension, no subscriber will be
entitled to a refund of any subscription, and no funds will be released from
escrow until the Minimum Offering is sold, or the termination of the Offering.
There are none, nor will there be, any arrangements between the Company and the
Underwriter whereby Shares of Common Stock or Warrants will be reserved to
persons associated or affiliated with management of the Company or its
affiliated persons, although such persons may purchase Shares of Common Stock or
Warrants in order to insure that the Minimum Offering is sold.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the public offering price set forth on the cover
page of this Prospectus and that it may allow to certain dealers who are members
of the National Association of Securities Dealers, Inc. ("NASD") concessions not
in excess of $0.25 per Share of Common Stock and $0.005 per Warrant.
The Underwriter is to receive cash commission of 10% of the gross
offering. In addition, the Company has agreed to pay to the Underwriter a
non-accountable expense allowance of 3% of the gross proceeds of this Offering.
The Company has also agreed to pay all expenses in connection with qualifying
the Common Stock and Warrants offered hereby for sale under the laws of such
states as the Underwriter may designate, including expenses of counsel retained
for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter for $10, upon the
closing of this Offering, Underwriter's Warrants exercisable to purchase up to
50,000 Shares of Common Stock and/or 50,000 Warrants at an exercise price of
$6.60 per Share of Common Stock and $0.12 per Warrant. The Underwriter's
Warrants may not be sold, transferred, assigned, or hypothecated for one year
from the date of this Prospectus, except to the officers or partners of the
Underwriter and members of the selling group, and are exercisable during the
four-year period commencing one year from the Effective Date (the "Warrant
Exercise Term"). During the Warrant Exercise Term, the holders of the
Underwriter's Warrants are given, at nominal cost, the opportunity to profit
from a rise in the market price of the Common Stock. To the extent that the
Underwriter's Warrants are exercised, dilution to the interests of the Company's
shareholders will occur. Further, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected since the holders
of the Underwriter's Warrants can be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the Underwriter's
Warrants. Any profit realized by the Underwriter on the sale of the
Underwriter's Warrants may be deemed additional underwriting compensation.
Subject to certain limitations and exclusions, the Company has agreed, at the
request of the holders of a majority of
36
<PAGE> 43
the Underwriter's Warrants to register the Underwriter's Warrants, the
underlying Shares of Common Stock and the underlying Warrants under the Act on
two occasions (one at the Company's expense and one at the holder's expense)
during the Warrant Exercise Term and to include such Underwriter's Warrants, the
underlying Shares of Common Stock and the underlying Warrants in anyappropriate
registration statement which is filed by the Company during the five years
following the date of this Prospectus.
Additionally, the Underwriter has been engaged as the Company's warrant
solicitation agent, and pursuant thereto may participate in the solicitation of
the exercise of the Warrants. Upon the exercise of the Warrants, commencing one
year from the Effective Date, the Company will pay the Underwriter a commission
of 7% of the aggregate exercise price of the Warrants exercised. In accordance
with the NASD Notice to Members 92-98, no fee shall be paid: (i) upon the
exercise of warrants where the market price of the underlying Common Stock is
lower than the exercise price; (ii) upon the exercise of any Warrants not
solicited by the Underwriter; (iii) for the exercise of Warrants held in any
discretionary account; or (iv) upon the exercise of Warrants where disclosure of
compensation arrangements has not been made and documents have not been provided
to customers both as part of the original offering and at the time of exercise.
Further, the exercise of any Warrant shall be presumed unsolicited unless the
holder of such Warrant states in writing that the transaction was solicited by
the Underwriter. Notwithstanding the foregoing, no fees will be paid to the
Underwriter or any other NASD members upon exercise of the Warrants within the
first twelve months from the Effective Date.
The Company has agreed that it will not issue, sell, or agree to issue
or sell any other securities (except the shares of Common Stock underlying the
Warrants being offered and sold by the Selling Shareholders, the Underwriter's
Warrants, or the Company's Stock Option Plan) for a period of 18 months from the
Final Closing Date without the prior written consent of the Underwriter.
All of the directors, officers, and holders of any securities of the
Company prior to the offering have agreed not to sell any shares of Common
Stock, including Shares of Common Stock issuable upon exercise of options,
Warrants, or any convertible securities of the Company, for a period of 12
months from the Final Closing Date without the prior written consent of the
Underwriter.
During the three-year period from the Final Closing Date, the
Underwriter shall have a right of first refusal to act as underwriter or agent
of any and all public or private offerings of securities of the Company by the
Company or any secondary offering of the Company's securities by one of its
officers, directors, or principal shareholders.
Although the Underwriting Agreement will provide that, for a period of
three years from the Initial Closing Date, the Underwriter may designate for
election one person to the Company's Board of Directors, the Underwriter has
advised the Company that it has not selected such individual and has no
immediate plans to do so. If the Underwriter elects not to assert such right,
then it may designate one person to attend all Board of Directors meetings as an
observer. In the event that such an individual is designated, such individual
shall receive reimbursement of expenses for attending the meetings of the Board
of Directors.
The Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Act. To the extent this
section may purport to provide exculpation from possible liabilities arising
under the Federal securities laws, it is the opinion of the Commission that such
indemnification is against public policy and is therefore unenforceable.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and the Underwriter's Warrants. Reference is made to the copies of the
Underwriting Agreement and the Underwriter's Warrants which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
The Underwriter has little experience in underwriting public offerings.
This Offering is the second public offering being underwritten by the
Underwriter. Prospective purchasers of the Securities offered hereby should
consider the Underwriter's lack of experience in being a manager of an
underwritten public offering.
The Underwriter has informed the Company that it does not expect sales
to be made to discretionary accounts to exceed 1% of the Securities offered
hereby.
37
<PAGE> 44
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Accordingly, the Offering and exercise price of such
Securities being offered hereby was determined, in large part, by negotiations
between the Company and the Underwriters on an arbitrary basis and bear no
direct relationship to the assets, earnings, or other recognized criterion of
value. Factors considered in determining such prices, in addition to prevailing
market conditions, include the history and business prospects of the Company, as
well as such other factors as were deemed relevant, including an evaluation of
management and the general economic climate. The prices should in no event,
however, be regarded as an indication of any future market price of the Common
Stock or the Warrants.
Pursuant to the terms of the Underwriter's Restriction Letter with the
NASD, the Underwriter, Platinum Equities, Inc., is prohibited from acting as a
"market maker" in securities. As a result thereof, the Underwriter will be
prohibited from making a market in the Securities offered hereby. The
Underwriter's inability to make such a market may materially affect the
liquidity of the Securities offered hereby, which could make it more difficult
for investors in this Offering to purchase or sell their Securities. The
Underwriter, however, may execute buy and sell orders for its customers in the
Common Stock offered hereby on an agency basis. See "Risk Factors -- Underwriter
Will Not Make a Market in the Company's Securities."
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Horwitz & Beam, Irvine, California. Certain legal matters in
connection with this Offering will be passed upon for the Underwriters by
Gusrae, Kaplan & Bruno. Horwitz & Beam, Inc., a California corporation, is the
owner of 5,000 shares of Private Placement Stock and 25,000 Private Placement
Warrants which are being registered for resale herein along with the securities
held by all of the Selling Shareholders (see "Selling Shareholders"). Horwitz &
Beam, Inc. acquired such securities in the Private Placement as an investor on
April 28, 1997 pursuant to a subscription agreement and the payment of $5,000.
EXPERTS
The Financial Statements of the Company included herein and elsewhere in
the registration statement, have been included herein and in the registration
statement in reliance on the report of Stonefield Josephson, Inc., Certified
Public Accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not presently subject to the reporting requirements of
the Securities Exchange Act of 1934. The Company has filed with the Commission a
Registration Statement on Form SB-2 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act") with respect to the Securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain information contained in the Registration Statement on file with the
Commission pursuant to the Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including the exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies
of such material may be obtained by mail at prescribed rates from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
38
<PAGE> 45
LUMINEX LIGHTING, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheets 2
Statements of Income (Operations) 3
Statements of Stockholders' Equity (Deficiency) 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-15
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
Board of Directors
Luminex Lighting, Inc.
Chino, California
We have audited the accompanying balance sheets of Luminex Lighting, Inc. as of
December 31, 1997 and 1996, and the related statements of income (operations),
stockholders' equity (deficiency) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Luminex Lighting, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
March 10, 1998
1
<PAGE> 47
LUMINEX LIGHTING, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
Year ended
December 31,
Six months ended --------------------------
June 30, 1998 1997 1996
---------------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 32,828 $ 89,264 $ 665
Cash - restricted 21,800 17,000 --
Accounts receivable, net of allowance for bad
debts of $11,900 and $10,000, respectively 568,234 389,137 958,584
Prepaid expenses 10,852 6,606 --
Inventory 928,018 1,217,788 445,893
Due from stockholder -- -- 16,950
----------- ----------- -----------
Total current assets 1,561,732 1,719,795 1,422,092
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 302,043 274,747 174,039
----------- ----------- -----------
OTHER ASSETS:
Deferred offering costs 69,854 57,158 --
Deposits 31,624 17,768 10,118
Other 13,714 16,253 6,116
----------- ----------- -----------
Total other assets 115,192 91,179 16,234
----------- ----------- -----------
$ 1,978,967 $ 2,085,721 $ 1,612,365
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Lines of credit $ 519,801 $ 301,199 $ 790,219
Accounts payable and accrued expenses 1,228,532 1,321,719 880,524
Loans payable, stockholder -- 6,272 11,517
Current maturities of long-term debt 57,030 55,767 21,192
Current portion of obligations under capital leases 17,405 15,199 7,461
----------- ----------- -----------
Total current liabilities 1,822,768 1,700,156 1,710,913
----------- ----------- -----------
NOTES PAYABLE 74,661 102,761 29,077
----------- ----------- -----------
CAPITAL LEASES 8,839 15,896 18,564
----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value; 10,000,000
shares authorized, 3,326,500 and 2,800,000
shares issued and outstanding at December 31,
1997 and 1996, respectively 417,172 427,172 163,922
Additional paid-in capital 26,750 26,750 --
Accumulated deficit (371,223) (187,014) (310,111)
----------- ----------- -----------
Total stockholders' equity (deficiency) 72,699 266,908 (146,189)
----------- ----------- -----------
$ 1,978,967 $ 2,085,721 $ 1,612,365
=========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
2
<PAGE> 48
LUMINEX LIGHTING, INC.
STATEMENTS OF INCOME (OPERATIONS)
<TABLE>
<CAPTION>
Six months ended Six months ended Year ended Year ended
June 30, 1998 June 30, 1997 December 31, 1997 December 31, 1996
--------------------- -------------------- -------------------- ---------------------
Amount Percent Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- ------- ----------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES $ 3,337,412 100.0% $ 2,943,158 100.0% $ 5,852,969 100.0% $ 3,056,532 100.0%
COST OF SALES 2,874,274 86.1 2,440,076 82.9 4,601,497 78.6 2,584,668 84.6
----------- ----- ----------- ----- ----------- ----- ----------- -----
GROSS PROFIT 463,138 13.9 503,082 17.1 1,251,472 21.4 471,864 15.4
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 588,482 17.6 312,313 10.6 991,164 16.9 488,491 16.0
INTEREST EXPENSE 58,065 1.7 65,050 2.2 136,411 2.3 95,769 3.1
----------- ----- ----------- ----- ----------- ----- ----------- -----
NET INCOME (LOSS) BEFORE INCOME TAXES (183,409) (5.5) 125,719 4.3 123,897 2.2 (112,396) (3.7)
PROVISION FOR INCOME TAXES 800 800 800 800
----------- ----- ----------- ----- ----------- ----- ----------- -----
NET INCOME (LOSS) $ (184,209) (5.5)% $ 124,919 4.3% $ 123,097 2.2% $ (113,196) (3.7)%
=========== ===== =========== ===== =========== ===== =========== =====
NET INCOME (LOSS) PER SHARE:
Basic $ (.06) $ .04 $ .04 $ (.04)
=========== =========== =========== ===========
Diluted $ (.05) $ .03 $ .03 $ (.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 3,306,500 3,326,500 3,326,500 3,326,500
=========== =========== =========== ===========
Diluted 3,806,500 3,826,500 3,826,500 3,826,500
=========== =========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
3
<PAGE> 49
LUMINEX LIGHTING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common stock Additional stockholders'
-------------------------- paid-in equity
Shares Amount capital Deficiency (deficiency)
--------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 2,800,000 $ 163,922 $ $ (196,915) $ (32,993)
Net loss (113,196) (113,196)
--------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 2,800,000 163,922 (310,111) (146,189)
Issuance of common stock through
private offering 526,500 263,250 26,750 290,000
Net income 123,097 123,097
--------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 3,326,500 427,172 26,750 (187,014) 266,908
Redemption of common stock issued
through private offering (20,000) (10,000) (10,000)
Net loss for the six months
ended June 30, 1998 (unaudited) (184,209) (184,209)
--------- ---------- ---------- ---------- ----------
Balance at June 30, 1998 3,306,500 $ 417,172 $ 26,750 $ (371,223) $ 72,699
========= ========== ========== ========== ==========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
4
<PAGE> 50
LUMINEX LIGHTING, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
-------------------------- --------------------------
1998 1997 1997 1996
----------- ------------ ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income (loss) $(184,209) $ 124,919 $ 123,097 $(113,196)
--------- --------- --------- ---------
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY (USED
FOR) OPERATING ACTIVITIES:
Depreciation and amortization 19,164 5,000 46,269 16,894
Allowance for bad debt -- -- 1,900 --
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (179,098) 118,572 570,045 (889,097)
Prepaid expenses (4,246) (19,078) (6,606) --
Inventory 289,770 (211,876) (771,894) (338,556)
Deposits (13,856) -- (7,651) (3,918)
Other assets 2,539 (10,892) (10,425) 759
INCREASE (DECREASE) IN LIABILITIES -
accounts payable and accrued expenses (205,650) (74,806) 483,797 702,049
--------- --------- --------- ---------
Total adjustments (91,377) (193,080) 305,435 (511,869)
--------- --------- --------- ---------
Net cash provided by (used for)
operating activities (275,586) (68,161) 428,532 (625,065)
--------- --------- --------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
purchase of property, plant and equipment (46,460) (40,241) (136,697) (106,359)
--------- --------- --------- ---------
CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds (payments) on line of credit 218,602 (3,685) (489,020) 716,101
Principal (payments) proceeds on loan
payable, stockholder (6,272) (3,813) (5,245) 11,517
Proceeds from note payable -- -- 166,082 --
Principal payments on notes payable (26,837) (4,756) (57,822) 2,749
Principal payments on lease obligations (4,850) (3,549) 5,069 (6,645)
(Redemption) issuance of common stock
in private offering (10,000) 290,000 290,000 --
Deferred offering costs (12,696) (40,000) (57,158) --
Loan fees -- -- (12,450) --
Decrease (increase) in due from stockholder -- (4,185) 16,950 (16,950)
--------- --------- --------- ---------
Net cash provided by (used for)
financing activities 157,947 230,012 (143,594) 706,772
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH (164,099) 121,610 148,241 (24,652)
CASH, beginning of year 106,264 (41,977) (41,977) (17,325)
--------- --------- --------- ---------
CASH, end of year $ (57,835) $ 79,633 $ 106,264 $ (41,977)
========= ========= ========= =========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
5
<PAGE> 51
LUMINEX LIGHTING, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six months ended June 30, Years ended December 31,
------------------------- ------------------------
1998 1997 1997 1996
----------- ----------- ------------ ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 58,065 $ 65,050 $ 136,411 $ 73,752
=========== ========== ============ ==========
Income taxes paid $ 800 $ 800 $ 800 $ 800
=========== ========== ============ ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Capital lease obligation incurred for use
of equipment -- -- $ 14,115 $ 32,670
Automobile acquired in exchange for a note
payable -- -- 11,978 --
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
6
<PAGE> 52
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(1) GENERAL:
Luminex Lighting, Inc. ("the Company") was incorporated under the laws of
the State of California on January 21, 1994.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY:
The Company assembles a diversified product line of energy saving
fluorescent fixtures.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE:
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments (none of which were held
for trading purposes), approximate carrying values of such amounts.
CASH:
Equivalents
For purposes of the statement of cash flows, cash equivalents include all
highly liquid debt instruments with original maturities of three months or
less which are not securing any corporate obligations.
Concentration
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
such losses in such accounts.
NET INCOME (LOSS) PER SHARE:
The Company has adopted Statement of Financial Accounting Standard No.
128, Earnings per Share ("SFAS No. 128"), which is effective for annual
and interim financial statements issued for periods ending after December
15, 1997. SFAS No. 128 was issued to simplify the standards for
calculating earnings per share ("EPS") previously in APB No. 15, Earnings
Per Share. SFAS No. 128 replaces the presentation of primary EPS with a
presentation of basic EPS. The new rules also require dual presentation of
basic and diluted EPS on the face of the statement of operations.
See accompanying independent auditors' report.
7
<PAGE> 53
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NET INCOME (LOSS) PER SHARE, CONTINUED:
For the six months ended June 30, 1998, and the years ended December 31,
1997 and 1996, the per share data is based on the weighted average number
of common and common equivalent shares outstanding, and are calculated in
accordance with Staff Accounting Bulletin of the Securities and Exchange
Commission (SAB) No. 98 whereby common stock, options or warrants to
purchase common stock or other potentially dilutive instruments issued for
nominal consideration must be reflected in basic and diluted per share
calculations for all periods in a manner similar to a stock split, even if
anti-dilutive. Accordingly, in computing basic earnings per share, nominal
issuance of common stock are reflected in a manner similar to a stock
split or dividend. In computing diluted earnings per share, nominal
issuance of common stock and potential common stock are reflected in a
manner similar to a stock split or dividend.
STOCK OPTION PLANS:
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
interpretations in accounting for the employee stock options, rather than
adopt the alternative fair value accounting provided under The Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation".
INCOME TAXES:
Deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of
assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
On January 1, 1996, the Company adopted the provision of Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amounts of the assets exceed the fair values of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this statement did
not have a material impact on the Company's financial position, results of
operations or liquidity.
See accompanying independent auditors' report.
8
<PAGE> 54
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INVENTORY:
Inventory, consisting principally of raw materials, is valued at the lower
of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and are depreciated over their
estimated useful lives, generally five to seven years, by the
straight-line method for financial reporting purposes and by accelerated
methods for income tax purposes. For assets included as capital leases,
amortization is based upon the lease term and is included with
depreciation expense.
REVENUE RECOGNITION:
Sales of fluorescent fixtures are recorded when a shipment is made.
CONCENTRATION:
For the years ended December 31, 1997 and 1996, the Company's largest
customer accounted for approximately 90% of total revenue for each year.
Included in accounts receivable from this customer is approximately
$284,000 and $860,000, for the years ended December 31, 1997 and 1996,
respectively.
Included in accounts payable and accrued expenses is approximately
$475,000 due to two suppliers and $297,000 due to one supplier at December
31, 1997 and 1996, respectively. Total purchases amounted to approximately
$2,150,000 and $840,000 for the years ended December 31, 1997 and 1996,
respectively.
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
The accompanying unaudited condensed financial statements for the interim
periods ended June 30, 1998 and 1997 have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Regulation SB. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
(3) CASH - RESTRICTED:
At December 31, 1997, $17,000 of cash was pledged as collateral for
letters of credit related to inventory purchases and is classified as
restricted cash on the balance sheet. There are no outstanding letters of
credit at year-end.
See accompanying independent auditors' report.
9
<PAGE> 55
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(4) PROPERTY AND EQUIPMENT:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Machinery and equipment $ 255,362 $ 173,456
Furniture and office equipment 53,176 30,808
Leasehold improvements 20,445 -
Automobile 11,978 -
------------- -------------
340,961 204,264
Less accumulated depreciation 66,214 30,225
------------- -------------
$ 274,747 $ 174,039
============= =============
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997 and 1996 amounted to $46,269 and $16,894, respectively.
(5) DEFERRED OFFERING COSTS:
The Company is in the registration process of a proposed public offering.
Deferred stock offering costs of $57,158 will be charged against the
proceeds of the proposed public offering when, and if, it becomes
effective.
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Accounts payable, trade and non-trade $ 1,161,148 $ 819,381
Accrued bonus, officer-stockholder (Note 11) 123,511 --
Accrued bonus, other (Note 11) 17,000 18,501
Accrued salaries 14,037 --
Accrued interest 6,023 --
Bank overdraft -- 42,642
------------- -------------
$ 1,321,719 $ 880,524
============= =============
</TABLE>
See accompanying independent auditors' report.
10
<PAGE> 56
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(7) LINES OF CREDIT:
The Company has a $25,000 revolving line of credit with a bank. Interest
is due monthly on the outstanding balance at a rate of 3% above the bank's
reference rate. Currently, the line of credit incurs interest at the
annual rate of 11.5%. $21,244 and $23,588 was drawn on the line at
December 31, 1997 and 1996, respectively.
The Company has a $1,000,000 maximum line of credit with a financial
institution. Interest is due monthly on the outstanding balance at a rate
of 4% above the reference rate. Currently, the line of credit incurs
interest at the annual rate of 12.5%. The term of the line expired on
February 7, 1998 (see Note 17). The line is primarily secured by the
Company's accounts receivable and inventory. The financial institution
will make advances on the line of 80% of eligible accounts receivable and
25% of inventory. The borrowing is personally guaranteed by the majority
stockholders. $279,955 and $766,631 was drawn on the line at December 31,
1997 and 1996, respectively. The line was paid in full by the Company upon
termination.
(8) LONG-TERM DEBT:
A summary is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Note payable, bank, secured by inventory and accounts receivable,
monthly payments of $1,298 including interest at the bank's prime
rate plus 2%. The borrowing is personally guaranteed by the
majority stockholders. $ -- $ 36,703
Note payable, bank, secured by inventory and accounts receivable,
monthly payments of $4,946 including interest at bank's prime rate
plus 2.5%, due October 15, 2000. The borrowing is personally
guaranteed by the majority stockholders. 142,613 --
Note payable, secured by equipment, monthly payments of $850
including interest at 24.0%, due on July 1, 1998. 5,168 13,566
Note payable, secured by automobile, monthly payments of $524
including interest at 11.8%, due on November 30, 1999. 10,747 --
------------- -------------
158,528 50,269
Less current maturities 55,767 21,192
------------- -------------
$ 102,761 $ 29,077
============= =============
</TABLE>
See accompanying independent auditors' report.
11
<PAGE> 57
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(8) LONG-TERM DEBT, CONTINUED:
Aggregate principal payment requirements are as follows as of December 31,
1997:
Year ending December 31,
1998 $ 55,767
1999 56,229
2000 46,532
-------------
$ 158,528
=============
(9) LOANS PAYABLE, STOCKHOLDER:
The Company is making payments for loans drawn on personal lines of credit
of a stockholder. The interest rate at December 31, 1997 was 12.57%. The
balance of the lines of credit at December 31, 1997 and 1996 was $6,272
and $11,517, respectively. The funds drawn were contributed to the Company
for working capital.
(10) CAPITAL LEASES:
Obligations under capital leases represents the present value of future
net minimum lease payments under agreements with a cost of $46,786 and
$32,671 and accumulated depreciation of $7,326 and $1,639 as of December
31, 1997 and 1996, respectively. Depreciation expense for these assets is
included in the amounts indicated in Note 4.
The following is a schedule by years of future minimum lease payments
required under capital leases together with the present value of the net
minimum lease payments as of December 31, 1997:
Year ending December 31,
1998 $ 15,199
1999 13,768
2000 9,607
2001 1,018
-------------
Total minimum lease payments 39,592
Less amounts representing interest 8,497
-------------
Present value of net minimum lease payments 31,095
Less current portion 15,199
-------------
$ 15,896
=============
See accompanying independent auditors' report.
12
<PAGE> 58
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(11) BONUS COMPENSATION PLANS:
The Company's Board of Directors approved an Executive Salary and Bonus
Compensation Plan (the "Plan") with an officer-stockholder of the Company,
effective January 1, 1997. The Plan specifies that the officer-stockholder
receive an annual salary of $96,000 per annum, with an annual increase of
5.0%. The Plan also specifies that a bonus equal to 3.0% of annual gross
sales be paid within ninety (90) days of year end. Accordingly,
approximately $123,000 has been accrued, which represents the unpaid
portion at December 31, 1997 (Note 6).
The Company's Board of Directors approved a Bonus Compensation Plan with
an employee of the Company effective January 1, 1997. The employee shall
receive bonus compensation in a range between 0.5% and 1.0% of gross
annual sales. The bonus compensation shall be paid within ninety (90) days
of year end. Accordingly, $17,000 has been accrued, which represents the
unpaid portion at December 31, 1997 (Note 6).
(12) INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN:
On May 5, 1997, the Company enacted an Incentive and Nonstatutory Stock
Option Plan (the "Plan") for its employees and consultants under which a
maximum of 500,000 options may be granted to purchase common stock of the
Company. Two types of options may be granted under the Plan: (1) Incentive
Stock Options (also know as Qualified Stock Options) which may only be
issued to employees of the Company and whereby the exercise price of the
option is not less than the fair market value of the common stock on the
date it was reserved for issuance under the Plan; and (2) Nonstatutory
Stock Options which may be issued to either employees or consultants of
the Company and whereby the exercise price of the option is less than the
fair market value of the common stock on the date it was reserved for
issuance under the plan. Grants of options may be made to employees and
consultants without regard to any performance measures. All options issued
pursuant to the Plan vest over an 18 month period from the date of the
grant per the following schedule: 33% of the options vest on the date
which is six months from the date of the grant; 33% of the options vest on
the date which is 12 months from the date of the grant; and 34% of the
options vest on the date which is 18 months from the date of the grant.
All options issued pursuant to the Plan are nontransferable and subject to
forfeiture. As of December 31, 1997, the Company had not issued any
options pursuant to the Plan.
(13) PRIVATE PLACEMENT:
On April 4, 1997, the Company commenced a private placement (the "Private
Placement") of 526,500 shares of the Company's common stock at a purchase
price of $0.50 per share (the "Private Placement Stock") and 500,000
warrants, each warrant to purchase one share of the Company's common stock
at an exercise price of $0.80 for a term of five years at a purchase price
of $0.10 per warrant (the "Private Placement Warrants"). The Private
Placement was exempt from the registration provisions of the Act by virtue
of Section 4(2) of the Act, as transactions by an issuer not involving any
public offering. The securities issued pursuant to the Private Placement
were restricted securities as defined in Rule 144. The offering generated
gross proceeds of $313,250.
See accompanying independent auditors' report.
13
<PAGE> 59
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(14) INCOME TAXES:
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net operating loss (carryforward) $ 65,376 $ 118,308
Valuation allowance (65,376) (118,308)
------------- -------------
Net deferred tax asset $ -- $ --
============= =============
</TABLE>
The Company has a federal net operating loss carryforward of $148,012 and
$271,109 for the years ended December 31, 1997 and 1996, respectively,
which will expire in 2011.
The Company also has a state net operating loss carryforward of $167,246
and $290,343, for the years ended December 31, 1997 and 1996,
respectively, which will expire in 2002.
The provision (benefit) for income taxes consist of the following:
December 31, 1997 December 31, 1996
----------------- -----------------
Current $800 $800
Deferred $ -- $ --
(15) COMMITMENTS:
The following is a schedule by years of future minimum rental payments
required under operating leases that have noncancellable lease terms in
excess of one year as of December 31, 1997:
Year ending December 31,
1998 $ 148,299
1999 148,299
2000 119,799
2001 1,109
-------------
$ 417,506
=============
Rent expense amounted to $101,012 and $59,711 for the years ended December
31, 1997 and 1996, respectively.
(16) CONTINGENCIES:
The Company is a defendant in a civil action. The Company intends to
vigorously defend this action which it considers groundless. The ultimate
resolution of this matter is not ascertainable at this time. In the
opinion of management, this matter will not have a material effect upon
the financial position of the Company.
See accompanying independent auditors' report.
14
<PAGE> 60
LUMINEX LIGHTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
(17) SUBSEQUENT EVENT:
In February 1998, the Company obtained two promissory demand notes for
principal up to $850,000 and $150,000 with First Community Financial
Corporation ("FCFC"). The notes are collateralized by the Company's
inventory and accounts receivable and incur interest at an annual rate of
Bank One's prime rate plus 3%. The unpaid outstanding balances are due in
full in February 1999 and January 2000, respectively.
See accompanying independent auditors' report.
15
<PAGE> 61
==================================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE ORDINARY SHARES TO WHICH IT RELATES OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary 1
Risk Factors 6
Dilution 11
Use of Proceeds 13
Dividend Policy 13
Capitalization 14
Selected Financial Data 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
Business of the Company 20
Management 27
Employment and Related Agreements 28
Certain Transactions 29
Principal Shareholders 30
Selling Shareholders 31
Plan of Distribution 31
Description of Securities 32
Shares Eligible for Future Sale 34
Underwriting 34
Legal Matters 37
Experts 37
Additional Information 37
Index to Financial Statements F-1
-------------------------
UNTIL SEPTEMBER 27, 1998 (25 DAYS AFTER THE DATE
OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE
DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================
UP TO 500,000 SHARES OF COMMON
STOCK AND 500,000 WARRANTS TO
PURCHASE ONE SHARE OF COMMON
STOCK FOR $6.00
MINIMUM OFFERING: 250,000 SHARES
OF COMMON STOCK AND
250,000 WARRANTS
$5.50 PER SHARE
$0.10 PER WARRANT
LUMINEX LIGHTING, INC.
--------------
PROSPECTUS
--------------
PLATINUM EQUITIES, INC.
-------------
SEPTEMBER 2, 1998
=========================================================
<PAGE> 62
LUMINEX LIGHTING, INC.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The California Corporation Law and the Company's Certificate of
Incorporation and Bylaws authorize indemnification of a director, officer,
employee or agent of the Company against expenses incurred by him or her in
connection with any action, suit, or proceeding to which such person is named a
party by reason of having acted or served in such capacity, except for
liabilities arising from such person's own misconduct or negligence in
performance of duty. In addition, even a director, officer, employee or agent of
the Company who was found liable for misconduct or negligence in the performance
of duty may obtain such indemnification if, in view of all the circumstances in
the case, a court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee $ 2,849
NASD Fee $ 1,466
Accounting Fees and Expenses $ 10,000
Legal Fees and Expenses $ 50,000
Printing Expenses $ 10,000
Blue Sky Fees and Expenses $ 35,000
Underwriters' Non-accountable Expense Allowance $ 84,000
Miscellaneous $ 685
--------
Total $194,000
========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On December 31, 1995, the Company issued 2,600,000 shares of its Common
Stock, jointly to Wasif A. Siddiqui and Tasneem Siddiqui, in consideration of
past services rendered for the Company. This transaction was exempt from the
registration provisions of the Act by virtue of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering. The securities
issued pursuant to this transaction were restricted securities as defined in
Rule 144.
Also on December 31, 1995, the Company issued 200,000 shares of its
Common Stock to Asra Rasheed to entice Ms. Rasheed to begin working with the
Company. This transaction was exempt from the registration provisions of the Act
by virtue of Section 4(2) of the Act, as transactions by an issuer not involving
any public offering. The securities issued pursuant to this transaction were
restricted securities as defined in Rule 144.
On April 4, 1997, the Company commenced a private placement (the
"Private Placement") of 506,500 shares of the Company's common stock at a
purchase price of $0.50 (the "Private Placement Stock") and 500,000 warrants,
each warrant to purchase one share of the Company's common stock at an exercise
price of $0.80 for a term of five years at a purchase price of $0.10 (the
"Private Placement Warrants"). The Private Placement was exempt from the
registration provisions of the Act by virtue of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering. The securities
issued pursuant to the Private Placement were restricted securities as defined
in Rule 144.
II-1
<PAGE> 63
The Private Placement Stock and the Common Stock underlying the Private
Placement Warrants are being registered herein. The offering generated net
proceeds of approximately $290,000. All investors in the Private Placement were
accredited investors as that term is defined in Rule 501 of Regulation D adopted
under the Securities Act of 1933.
ITEM 27. EXHIBITS
Exhibit
1.1 Form of Underwriting Agreement*
1.2 Form of Underwriter's Warrant*
1.3 Selected Dealers Agreement (form)*
3.1 Articles of Incorporation of Luminex Lighting, Inc., a California
corporation, dated January 21, 1994*
3.2 Amended Articles of Incorporation of Luminex Lighting, Inc., a
California corporation, dated September 5, 1997*
3.3 Bylaws of Luminex Lighting, Inc., dated January 22, 1994*
3.4 Certificate of Amendment of Bylaws of Luminex Lighting, Inc., dated
October 15, 1995*
4.1 Lock-Up Agreement (form)*
4.2 Specimen of Common Stock Certificate of Luminex Lighting, Inc.*
4.3 Form of Warrant Agreement and Warrant Certificate*
4.4 Subscription Agreement*
5 Opinion of Horwitz & Beam*
10.1 Lease Agreement, Chino, California, dated June 26, 1997*
10.2 Luminex Lighting, Inc. Benefit Plan, Annual Salary, and Bonus
Compensation Plan for Wasif Siddiqui, dated June 30, 1996*
10.3 Luminex Lighting, Inc. Bonus Compensation Plan for Charles Boulos,
dated December 15, 1996*
10.4 Luminex Lighting, Inc. 1997 Incentive and Nonstatutory Stock Option
Plan, dated May 5, 1997*
10.5 Luminex Lighting, Inc. Annual Salary and Bonus Compensation Plan for
Tasneem Siddiqui, dated August 19, 1997*
10.6 Lease Agreement, Milford, Massachusetts, dated November 19, 1996*
23.1 Consent of Stonefield Josephson, Inc., Certified Public Accountants
23.2 Consent of Horwitz & Beam (included in their opinion set forth in
Exhibit 5 hereto)*
24 Power of Attorney (see signature page)
- --------------
* Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(2) File, during any period in which it offers or sells securities, a post
effective amendment to this registration statement to:
II-2
<PAGE> 64
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
For determining liability under the Securities, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Supplement the prospectus if an amount between 5% and 10% of the
Private Placement Securities are released from the 12 month lock-up agreement
with the Underwriter and file an amendment to the registration statement if in
excess of 10% of the Private Placement Securities are released from the 12 month
lock-up with the Underwriter.
II-3
<PAGE> 65
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Chino,
State of California on August 31, 1998.
LUMINEX LIGHTING, INC.
By: /s/ WASIF SIDDIQUI
----------------------------------------
Wasif Siddiqui, President,
Chief Executive Officer, Chief
Financial Officer, Director
POWER OF ATTORNEY
Each person whose signature appears appoints Wasif Siddiqui and Tasneem
Siddiqui, in the alternative, as his agents and attorneys-in-fact, with full
power of substitution to execute for him and in his name, in any and all
capacities, all amendments (including post-effective amendments) to this
Registration Statement to which this power of attorney is attached. In
accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Wasif Siddiqui President, Chief Executive Officer, August 31, 1998
- -------------------------------- Chief Financial Officer, Principal
Wasif Siddiqui Accounting Officer, Director
/s/ Tasneem Siddiqui Executive Vice President, August 31, 1998
- -------------------------------- Secretary, Director
Tasneem Siddiqui
/s/ Asra Rasheed Vice President of Corporate Planning, August 31, 1998
- --------------------------------- Director
Asra Rasheed
</TABLE>
II-4
<PAGE> 66
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Underwriting Agreement*
1.2 Form of Underwriter's Warrant*
1.3 Selected Dealers Agreement (form)*
3.1 Articles of Incorporation of Luminex Lighting, Inc., a
California corporation, dated January 21, 1994*
3.2 Amended Articles of Incorporation of Luminex Lighting, Inc., a
California corporation, dated September 5, 1997*
3.3 Bylaws of Luminex Lighting, Inc., dated January 22, 1994*
3.4 Certificate of Amendment of Bylaws of Luminex Lighting, Inc.,
dated October 15, 1995*
4.1 Lock-Up Agreement (form)*
4.2 Specimen of Common Stock Certificate of Luminex Lighting, Inc.*
4.3 Form of Warrant Agreement and Warrant Certificate*
4.4 Subscription Agreement*
5 Opinion of Horwitz & Beam*
10.1 Lease Agreement, Chino, California, dated June 26, 1997*
10.2 Luminex Lighting, Inc. Benefit Plan, Annual Salary, and Bonus
Compensation Plan for Wasif Siddiqui, dated June 30, 1996*
10.3 Luminex Lighting, Inc. Bonus Compensation Plan for Charles
Boulos, dated December 15, 1996*
10.4 Luminex Lighting, Inc. 1997 Incentive and Nonstatutory Stock
Option Plan, dated May 5, 1997*
10.5 Luminex Lighting, Inc. Annual Salary and Bonus Compensation Plan
for Tasneem Siddiqui, dated August 19, 1997*
10.6 Lease Agreement, Milford, Massachusetts, dated November 19, 1996*
23.1 Consent of Stonefield Josephson, Inc., Certified Public
Accountants
23.2 Consent of Horwitz & Beam (included in their opinion set forth in
Exhibit 5 hereto)*
24 Power of Attorney (see signature page)
- --------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
The undersigned independent certified public accounting firm hereby
consents to the inclusion of its report on the financial statements of Luminex
Lighting, Inc. for the year ending December 31, 1996 and year ending December
31, 1997, and to the reference to it as experts in accounting and auditing
relating to said financial statements, in the Registration Statement for Luminex
Lighting, Inc.
/s/ STONEFIELD JOSEPHSON, INC.
- ----------------------------------------
Stonefield Josephson, Inc.
Certified Public Accountants
Santa Monica, California
Dated: August 31, 1998
