U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
LUMINART CORP.
(Name of Small Business Issuer in its charter)
Nevada 87-0413934
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3245 Grande Vista Drive, Newbury Park, California 91320
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (805) 480-9899
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
None
(Title of Class)
PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development.
Luminart Corp., a Nevada corporation ("Company"), was originally
organized in the State of Utah on July 5, 1984 as Past-Tell
Limited (see Exhibit 3.1 to this Form 10-SB). Articles of Merger
were filed on March 27, 1987 through which this company changed
its domicile to the State of Nevada (see Exhibit 2.1 to this Form
10-SB). On November 7, 1996 an Amendment to the Articles of
Incorporation were filed changing the name of the Corporation to
Chaos Group, Inc. (see Exhibit 3.3 to this Form 10-SB). On
January 10, 1997, the Company acquired all of the issued and
outstanding common stock of Clear Vision, Inc., a Nevada
corporation, as a tax free exchange (see Exhibit 2.2 to this Form
10-SB).
On April 6, 1998, the Company purchased all of the assets of
Luminart Inc., a Canadian corporation (these assets consisted of
equipment, inventory, proprietary rights and interests, including
but not limited to patents, copyrights and trademarks, free and
clear of all liens, related to the current sign business of the
Company, as set forth below) pursuant to an Asset Purchase
Agreement for the sum of 1,100,000 free trading shares of common
stock of the Company (see Exhibit 10.1 to this Form 10-SB). On
April 23, 1998, an Amendment to the Articles of Incorporation was
filed changing the name of the corporation to Luminart Corp. (see
Exhibit 3.4 to this Form 10-SB).
During the Company's fiscal year ended September 30, 1999, it
sold its interest in Chaos Group, Inc., a wholly-owned subsidiary
devoted to the entertainment industry, to 638254 Alberta Ltd., a
Nevada corporation, under an Agreement to Purchase in order to
allow the Company to better direct its full attention to the sign
industry (see Exhibit 10.8 to this Form 10-SB). This sale
included assets of approximately $80,000 and the assumption of
liabilities of approximately $200,000. The proceeds to the
Company of this sale were $100,000.
During this fiscal year, the Company also closed down its wholly-
owned subsidiary, Clear Vision, Inc., as that company generated
continuous losses to the corporation and the Board of Directors
felt that such a move was in the best interest of the corporate
shareholders. The one subsidiary of the Company is Luminart
International Corporation, a Nevada corporation, which is wholly
owned by the Company.
The business office of the Company is located at 3245 Grande
Vista Drive, Thousand Oaks, California 91320. The Company's
fiscal year ends on September 30. Currently, the Company has
three full time and four part time employees. It does not
anticipates adding any further employees in the next twelve
months.
Business of the Company.
The Company is primarily a sales and marketing firm dedicated to
the sale of its proprietary Luminite gel, a flexible compound
used in the production of Point of Purchase advertising signs.
When illuminated, Luminite has the eye catching attractiveness of
neon at a fraction of the cost.
(a) The Sign Industry.
The sign industry in North America is represented commercially by
sign manufacturers, consisting of independent entities, corporate
in-house graphics departments, government agencies, and sub-
contractors. Management believes that a great majority of such
entities specialize in the manufacture of neon, vinyl, and screen
printed signs and that approximately one-half of vinyl and screen
printed signs are illuminated. Management also believes that
demand for Luminite products also exist within the point-of-
purchase industry as it relates to advertising and displayed
media.
(b) Description of the Company's Products.
The Company's principal product is Luminite gel and the necessary
dispensing machines for its application to substrata (customers
are not required to use Luminart application machines in order to
dispense the gels). On April 30, 1996, the Company was issued a
Compound and Method Patent (US # 005512122A) for the Luminite gel
and the process by which it is applied onto vinyl. On January 4,
1999, the Company was issued a Compound and Method Patent (Canada
# 2,126,104) for the Luminite gel and the process by which it is
applied onto vinyl. The Company also has been issued patents in
Europe (#93922873.0) and in Australia (#51735/93). The duration
of these patents is 17 years. Based on these patents, the
Luminite gel cannot legally be replicated by anyone else; as a
result, the Company is not aware of any competitors using a
similar gel process.
Luminite is a printing compound and method of producing three-
dimensional signs and lettering and Braille reading materials.
The printing compound includes an ultraviolet radiation curable
resin and a filler mixed with the resin to form a paste. The
resin can be an acrylated urethane oligomer or an epoxidized oil.
The compound is applied to a substrate manually or by a computer
controlled dispensing apparatus. The compound is subjected to
ultraviolet radiation to cure quickly allowing for mass
production. Luminite is also a bonding agent that adheres to
cardboard, paper, vinyl, acrylics, and many types of plastic. It
its unpigmented form, :Luminite is translucent and fairly
thixotropic. Luminite gel is produced in 19 colors (with the
Company working to develop new colors) and packaged in 6.5 ounce
plastic tubes for sale to corporate customers.
Signs that utilize Luminite have an appearance as comparable
to neon but can be produced less expensively than a similar neon
sign. Management believes that additional benefits of Luminite
in comparison with neon include:
reduced operating costs
lower maintenance costs
greater design flexibility
more intricate design potential
ease your shipping and handling
greater durability
Luminite is available in four product groups:
LUMINITE BL (Back Lit) was specifically develop for traditional
indoor backlit applications. With this material, signs can be
created with elevated characters and graphics to produce a unique
glow in radiance and brilliance. Signs created with LUMINITE BL
have the appearance of neon signs, at approximately one-third the
price of comparable neon signs. LUMINITE BL is available in nine
standard colors (red, yellow, orange, green, white, pink, teal,
ice, and blue).
LUMINITE FL (Front Lit) is available in the seventh standard
fluorescent colors (red, yellow, orange, green, white, pink, and
blue) and is used to enhance new and existing printed materials;
e.g., signs, posters, and POP materials, by adding elevated
characters and graphics that illuminate and fluoresce when
exposed to ultraviolet light.
LUMINITE TACTILE was developed solely to create Braille
characters. It is available in neutral see-through material
which can be applied on existing signage in order to conform to
the standards and specifications of the Americans with
Disabilities Act.
LUMINITE CRYSTAL was specifically assigned for traditional
indoor/outdoor backlit applications. The Crystal Series is
available in the same colors as LUMINITE BL.
SYSTEM 4000 is a computer automated Luminite dispensing system
utilizing industry standard Cartesian Robotic Technology coupled
with the liquid/gel dispensing system. The work surface is 4' by
4' with expansion capability to a maximum of the 12'. The system
includes a custom-designed ultraviolet curing chamber, pen
plotting capabilities, and vinyl cutting tools. SYSTEM 4000
carries a one year parts and labor warranty. Specific features
include:
16 button user control panel with LCD display
high precision motor controls
high efficiency gantry drive for maximum accuracy
oversized hardened gateways for ease of operation
industry standard HPGL interface
dispensing bead size from 1/16" to 5/8"
dispensing speed up to 6" per second
vacuum table top
The Signature Series was an entry level Luminite dispensing
system designed and priced to appeal to smaller sign
manufacturers. It could also be used in conjunction with a
SYSTEM 4000 to create special effects. The Signature Series was
sold with a custom work station, an integrated light table,
pneumatic control system, and a separate 2' x 2' curing chamber.
SYSTEM 2000 was a compact version of System 4000 that has many of
the performance capabilities of the larger system (the Company no
longer sells the System 2000 or Signature Series). The System
4000 is priced at $29,900. Currently, there are 108 dispensing
machines installed throughout the world.
LUNINITE DRAW is a proprietary software program that was
developed by the Company to work is a special interface in
conjunction with popular sign making software packages to take
advantage of all SYSTEM 4000 dispensing systems features.
LUMINITE DRAW runs in the Microsoft Windows environment. The
Company includes LUMINITE DRAW with every SYSTEM 4000 at no
additional charge.
The Company is currently developing a new dispensing machine
which can be purchased at a much more affordable price than those
currently in existence. This is being done to attract those
people interested in embarking on a career in the industry, but
are currently in a financial position which would not allow them
to get started. The engineering concept for the new dispensing
machine is complete. The total development costs for this
machine to date is approximately $50,000. The Company is
presently attempting to arrange financing in order to complete
its development, production and introduction. The projected
price for the new dispensing machine (System 2020) is $7,500.
In addition, the Company has plans to acquire another sign
manufacturer or research and development company during the next
12 months. The management is in the final negotiation stages to
acquire an East Coast sign manufacturer (funding for this
transaction, if completed, will be provided through debt and/or
equity financing to be provided by Pennsylvania Merchants Group).
If this transaction is consummated, then the Company will
outsource the machine manufacturing (since this acquisition has
not been completed, there are no specific terms as to any
outsourcing agreement). The Company would then seek bids from
manufacturers once the Company has the budget allocation to pay
for the initial stocking inventory. In order to accomplish this,
the Company may need, depending on the price of the acquisition,
to generate additional funds through debt or equity financing.
The Company is unaware of any negative consequences
associated with its products. To date, the Company has not
experienced any competition from gels in the marketplace.
(c) Manufacturing and Marketing.
(1) Manufacturing.
Manufacturing of the Luminite gels for the Company is done by
PRC-DeSoto Canada, Inc., A PPG Industries Company, 5676 Timberlea
Boulevard, Mississauga, Ontario L4W 4M6, Canada, pursuant to a
Toll Processing Agreement entered into by Luminart International
Corporation on December 1, 1999 (see Exhibit 10.9 to the Form 10-
SB). The success of the Company is not tied in with PRC
remaining as the manufacturing supplier since there are a number
of other companies which can manufacture such gels. The Company
estimates that it would take approximately 30 to 60 days to have
production obtained from another source.
All materials necessary for production are purchased by PRC in
compliance with the formulae provided to them by the Company's
Research and Development Department. All materials are freely
available to the manufacturer and are safe both in stand-alone
and in combined form. The Company has to-date never experienced
any adverse governmental reaction to its products. The
Environmental Protection Agency of the United States government
has, however, produced several studies showing the negative
environmental impact possible, and probable, with the use of the
Company's main competition, neon signage.
(2) Marketing.
All sales of products are accomplished through the Company's
wholly-owned subsidiary, Luminart International, Inc., a Nevada
corporation. The parent company, Luminart Corp., devotes its
efforts to research and development, specifically directed toward
improving its products and developing new products and
application methods. The Research and Development Department of
Luminart Corp. directs its attention to the improvement of
existing products and ensuring governmental compliance for all
countries to which the product is marketed. R & D presently adds
approximately $500.00 per month to the corporate administrative
expense. The effect on the product pricing due to this facility
is minimal.
Luminart International, Inc. sells its products to an existing,
albeit expanding, market base comprised of approximately 210
customers. No single customer comprises more than 2% of total
revenues. This company is presently active in 15 countries
worldwide and distributes directly from the Company headquarters
from orders placed directly and through the Company's web site,
http://www.luminartcorp.com. All shipments from the Company to
international destinations is accompanied with all documentation
required by both importing and exporting countries. For
international shipments, all required documents are completed and
accompany all shipments.
Orders for the Company's gels and dispensing machines are
typically filled and shipped to the customer within 24 hours of
the order being placed. These products make up the vast majority
of the corporate revenues. Actual orders for on-site sign
production are not typically billed until the customer has
approved the layout and artwork. From this point of approval,
these signs are typically completed within 24 hours and billed
and shipped to the customer's location. In the very rare
instances where the Company is also responsible for installation,
such is scheduled and completed within 24 hours of the final
production. The cost of shipping the product to the customer's
location is billed directly to the client as a part of the order.
The customer may select Ground, Overnight, and Second Day
according to their preference.
Previous promotional efforts have opened many domestic and
international markets for Luminite signs and created a tremendous
product awareness in the international sign industry. During the
fiscal year ended December 31, 1999, approximately 25% of the
Company's sales were made to foreign clients. Between 1994 and
1998, the Company participated in excess of 60 trade shows.
Luminart's corporate clients have included Coca-Cola of Spain,
Motorola, Wal-Mart, Hudson Bay, Jose Cuervo Tequila and Captain
Morgan's Parrot Bay Rum. Luminart will continue to use the names,
logos, packaging and all other promotional assets to maintain
brand identity and consistency.
The Company's management perceived a need in the signage and POP
industries for a less expensive alternative to traditional neon
and molded plastic signs. It believes the Luminite family of
products offers sign manufactures a less-expensive, more
versatile system, capable of handling more intricate graphic
patterns than traditional alternatives. Accordingly, the Company
is marketing Luminite as a unique, new sign medium that allows
sign manufactures to create cost competitive, high impact
illuminated signage not currently possible with any other medium.
The Company's strategy is to create overall awareness and demand
for the Luminite family of products by providing a marketing
support to its distributors in capitalizing on the perceived
benefits of Luminite. The Company intends initially to build
sales volume of Luminite through the sale and installation of
computer automated Luminite dispensing systems by the Company and
third party licensees.
The Company's sales and marketing programs include:
Sales representation. Experienced sales and marketing personnel
represent the Company to distributors and assist their sales
representatives in presentations and implementation of systems
larger accounts. Sales personnel also contact major end users,
i.e., sign manufacturers & sign buyers, to create end user demand
for Luminite, which also provides marketing support for the
Company's distributors. The direct sales force currently
consists of three individuals. Distributor sales are considered
by the Company to be direct sales to the customer with the
distributor receiving a sales commission. Distributors do not
purchase products from us for resale. They act only as outside
sales agents.
Trade Shows. The Company actively participates in trade shows,
both in North America and internationally, which provide the
Company with constant exposure to distributors, sign makers, and
end users and enables Company personnel to demonstrate directly
the properties and capabilities of Luminite.
Product samples. Sample signs demonstrate Luminite's
versatility, capabilities, spectrum of available colors, and
design effects. The Company distributes samples widely and
provides custom-made displays to its distributors.
Advertising and brochure words. The Company utilizes a focused
print advertising program in various trade publications generally
product awareness and demand among end users. High-quality sales
literature, including product sheets and corporate brochures, are
widely distributed, many of which have been translated into a
variety of languages.
The Company has chosen to sell its products worldwide primarily
through established sign equipment distributors, rather than
focusing its sales efforts on direct sales to end users. The
Company has entered into 35 distributions worldwide (the Company
is not dependent upon any one or particular group of
distributors). Management believes that certain advantages will
accrue to the Company based upon this arrangement:
faster market penetration
immediate access to an established customer base
large existing sales force
minimization of credit administration
(d) Consultants for the Company.
(1) Labranda, Inc.
On July 10, 1998, the Company entered into a Consulting Agreement
with Labranda, Inc. (see Exhibit 10.2 to this Form 10-SB).
Consistent with this consultant's experience and expertise in
dealing with government heads of state, international finance
management, U.S. financing and international trade, Labranda,
Inc. advised the Company's representatives or affiliated
representatives on such subjects, meting with them from time to
time at the request of the Company. At such meetings, Labranda,
Inc. advised, made recommendations, introduced acquisition
opportunities, joint venture prospects and opportunities for
turnkey systems operations, and direct governmental
introductions. La Branda, Inc. concluded its services under
this agreement by December 31, 1998. Under the terms of this
agreement, the Company issued to Labranda, Inc., as a fee,
500,000 shares of free trading common stock of the Company.
(2) FPI.
On July 15, 1998, the Company entered into a Consulting Agreement
with FPI (see Exhibit 10.3 to this Form 10-SB). Consistent with
this consultant's experience and expertise in dealing with
government heads of state, international finance management, U.S.
financing and international trade, FPI advised the Company's
representatives or affiliated representatives on such subjects,
meting with them from time to time at the request of the Company.
At such meetings, FPI advised, made recommendations, introduced
acquisition opportunities, joint venture prospects and
opportunities for turnkey systems operations, and direct
governmental introductions. FPI concluded its services under
this agreement by December 31, 1998. Under the terms of this
agreement, the Company issued to FPI, as a fee, 650,000 shares of
free trading common stock of the Company.
(3) HBL & Associates.
On September 15, 1998, the Company entered into a Consultation
Agreement with HBL & Associates (see Exhibit 10.4 to this Form
10-SB). HBL & Associates specializes in international finance,
marketing and advertising, and advised the Company on such
matters. HBL & Associates concluded its services under this
agreement by December 31, 1998.
Under the terms of this agreement, the Company issued to HBL &
Associates 200,000 shares of restricted common stock. In
addition, the Company issued to HBL & Associates warrants to
purchase 20,000 shares of restricted common stock. The warrants
may be exercised after the end of the initial six month term of
this agreement at an exercise price which is the lower of $1.00
per share or one half the average bid price of the Company's
stock for a period of thirty days prior to the exercise date. No
further warrants were issued since the agreement was not renewed
after the initial six month term. The Company is to deliver the
stock to this consultant immediately upon receipt of HBL &
Associates' written notice of exercise and payment of the
exercise price. To the extent the Company is eligible for such
registration, HBL & Associates may require the Company to file a
Form S-8 Registration Statement with respect to its warrants and
the common stock.
(4) Don Docken.
On January 1, 1999, the Company entered into a Consultant
Agreement with Don Docken (see Exhibit 10.5 to this Form 10-SB).
Mr. Docken specializes in in-store fixtures, marketing and
advertising. Mr. Docken is currently employed by a national
retail sales company. This contract is not designed to conflict
with any employment or consulting agreements any in which Mr.
Docken is currently engaged. Mr. Docken is still performing
these services to the Company under this agreement.
Under the terms of this agreement, the Company issued to Mr.
Docken 100,000 shares of restricted common stock. In addition,
the Company issued to Mr. Docken warrants to purchase 150,000
shares of restricted common stock. The warrants shall be divided
into three 50,000 share lots and shall be exercisable under the
following terms and conditions: (1) a lot of 50,000 shares may
be exercised after the end of the initial six month term of this
agreement at an exercise price which is the lower of $1.00 per
share or one half the average bid price of the Company's stock
for a period of thirty days prior to the exercise date; (2) a
second lot of 50,000 shares may be exercised after the end of the
first six month extension of this agreement at an exercise price
which is the lower of $1.50 per share or one half of the average
bid price of the stock for a period of thirty days prior to the
exercise date; and (3) the third lot of 50,000 shares may be
exercised after the end of the second six month extension of this
agreement at an exercise price which is the lower of $2.00 per
share or one half of the average bid price of the stock for a
period of thirty days prior to the exercise date. The
corporation shall deliver the stock to consultant immediately
upon receipt of the consultants written notice of exercise and
payment of the exercise price. To the extent the Company is
eligible for such registration, Mr. Docken may require the
Company to file a Form S-8 Registration Statement with respect to
his warrants and the common stock. To date, this agreement has
been extended twice.
(5) Izumi Von Hardenberg.
On February 26, 1999, the Company entered into a Consultant
Agreement with Izumi Von Hardenberg (see Exhibit 10.6 to this
Form 10-SB). Ms. Von Hardenberg specializes in international
finance, marketing and advertising. This contract was designed
not to conflict with any employment or consulting agreements in
which Ms. Von Hardenberg was engaged. Ms. Von Hardenberg
concluded providing services to the Company under this agreement
in December 1999.
Under the terms of this agreement, the Company issued to Ms. Von
Hardenberg 100,000 shares of restricted common stock. In
addition, the Company issued to Ms. Von Hardenberg warrants to
purchase 40,000 shares of restricted common stock. The warrants
are divided into two 20,000 share lots and are exercisable under
the following terms and conditions: (1) a lot of 20,000 shares
may be exercised after the end of the initial six month term of
this agreement at an exercise price which is the lower of $1.00
per share or one half the average bid price of the Company's
stock for a period of thirty days prior to the exercise date; and
(2) a second lot of 20,000 shares may be exercised after the end
of the first six month extension of this agreement at an exercise
price which is the lower of $1.50 per share or one half of the
average bid price of the stock for a period of thirty days prior
to the exercise date. No further warrants were issued since the
agreement was not renewed after the first six month extension.
To the extent the Company is eligible for such registration, Ms.
Von Hardenberg may require the Company to file a Form S-8
Registration Statement with respect to her warrants and the
common stock.
(6) Lawrence Erber.
On February 26, 1999, the Company entered into a Consultant
Agreement with Lawrence Erber (see Exhibit 10.7 to this Form 10-
SB). Mr. Erber specializes in international finance, marketing
and advertising. This contract was designed not to conflict with
any employment or consulting agreements in which Mr. Erber was
engaged. Mr. Erber concluded providing services to the Company
under this agreement in December 1999.
Under the terms of this agreement, the Company issued to Mr.
Erber 100,000 shares of restricted common stock. In addition,
the Company was required to issue to Mr. Erber warrants to
purchase 40,000 shares of restricted common stock. The warrants
shall be divided into two 20,000 share lots and shall be
exercisable under the following terms and conditions: (1) a lot
of 20,000 shares may be exercised after the end of the initial
six month term of this agreement at an exercise price which is
the lower of $1.00 per share or one half the average bid price of
the Company's stock for a period of thirty days prior to the
exercise date; and (2) a second lot of 20,000 shares may be
exercised after the end of the first six month extension of this
agreement at an exercise price which is the lower of $1.50 per
share or one half of the average bid price of the stock for a
period of thirty days prior to the exercise date. No further
warrants were issued since the agreement was not renewed after
the first six month extension. To the extent the Company is
eligible for such registration, Mr. Erber may require the Company
to file a Form S-8 Registration Statement with respect to his
warrants and the common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
The following management's discussion and analysis of
financial condition and results of operations reviews the
financial performance of the Company for the years ended
September 30, 1999 and 1998, and the three months ended March 31,
2000 and 1999, and should be read in conjunction with the
Company's consolidated financial statements and notes thereto for
the respective periods set forth in this Form 10-SB. All of the
numbers set forth in the financial statements of the Company are
denominated in U.S. dollars.
In April 1998, the Company determined to change its fiscal
year end from December 31 to September 30. Therefore, the fiscal
year ended September 30, 1999 has consisted of only nine months.
As a result, when comparing the fiscal years, it should be noted
that all the numbers presented will only reflect nine months of
operations for 1998 when compared with a full 12 months for 1999.
Consolidated Results of Operations
(a) Three Months Ended March 31, 2000 and 1999.
Revenue decreased to $298,516 for the three months ended March
31, 2000 from $370,589 for the three months ended on March 31,
1999, a decrease of $72,073, or 19.45%, primarily due to a
decrease in orders. The Company does not have a sales backlog
as, typically, all gel orders are filled within 24 hours of
receipt; work in progress orders are not typically booked as
sales until finished and shipped.
Gross profit increased to $252,743 for the three months ended
March 31, 2000 from $50,278 for the same period in 1999 and cost
of goods sold decreased as a percentage of sales to 15.3% from
86.5%. The increase in gross profit margin in 2000 as compared
to 1999 is primarily due to increased efficiencies realized and
the Company is no longer suffering from the costs associated with
the subsidiary companies divested in 1999. The Company fully
expects the increase in efficiency to continue.
Selling, general and administrative expenses decreased to $93,063
in 2000 from $143,415 in 1999, as a direct result of increased
efficiencies in operations. The Company fully expects the
increase in efficiency to continue.
Interest expense increased to $11,987 in 2000 from $0 in 1999, as
a result of the accrual of interest on the preferred stock issued
by the Company.
Net profit was $32,938 for the three months ended March 31, 2000,
as compared to a net loss of $93,137 for the three months ended
March 31, 1999.
(b) Years ended September 30, 1999 and 1998.
Revenue increased to $1,637,683 in 1999 from $765,141 in
1998, an increase of $872,542 or 114.04%, primarily due to
increased selling and marketing activities that the Company was
able to conduct in 1999 as a result of the proceeds from the
Company's private placements of its securities.
Gross profit increased to $1,009,194 in 1999 from $684,820
in 1998, and decreased as a percentage of net sales to 61.62% in
1999 from 89.50% in 1998. The decrease in gross profit margin in
1999 as compared to 1998 was due to increased costs of goods
sold.
Selling, general, and administrative expenses increased to
$763,246 in 1999 from $327,947 in 1998, as a result of increased
selling and marketing activities and the Company's efforts to
build a marketing infrastructure (this included penetration of
the Taiwan market), which included increased spending on payroll,
as well as additions to property and equipment. The Company does
not have a sales backlog as, typically, all gel orders are filled
within 24 hours of receipt; work in progress orders are not
typically booked as sales until finished and shipped.
Depreciation and amortization increased to $186,300 in 1999
from $63,600 in 1998 as a result of decreased depreciation and
amortization recorded relating to property and equipment.
Interest expense increased to $59,938 in 1999 from $18,987 in
1998, as a result of an increase the level of interest-bearing
debt incurred to finance operations.
The Company recorded a provision for bad debts of $5,731 in
1999, as compared with $0 in 1998. This was based on
management's estimate of uncollectible accounts receivable.
Net loss was $160,544 for the year ended September 30, 1999,
as compared to a net profit of $259,269 for the year ended
September 30, 1998.
In 1998, the Company purchased all of the assets of
Luminart, Inc., a Canadian corporation. As a result of the
purchase a large quantity of production materials (gels) were
sent to the Company at no cost. The result was an abnormally low
production (Cost of Goods Sold) cost for the fiscal year ended
September 30, 1998. During the fiscal year ended September 30,
1999, all production materials were purchased, resulting in a
Cost of Goods Sold percentage more in line with corporate
forecasts and expectations.
During the Company's fiscal year ended September 30, 1999, it
sold its interest in Chaos Group, Inc., a wholly-owned subsidiary
devoted to the entertainment industry in order to allow the
Company to better direct its full attention to the sign industry
(see Exhibit 10.8 to this Form 10-SB). This sale included assets
of approximately $80,000 and the assumption of liabilities of
approximately $200,000. The proceeds to the Company of this sale
were $100,000.
During this fiscal year, the Company also closed down its wholly-
owned subsidiary, Clear Vision, Inc., as that company generated
continuous losses to the corporation and the Board of Directors
felt that such a move was in the best interest of the corporate
shareholders. The one subsidiary of the Company is Luminart
International Corporation, a Nevada corporation, which is wholly
owned by the Company.
Liquidity and Capital Resources.
(a) Three Months Ended March 31, 2000 and 1999.
During the three months ended March 31, 2000 the Company financed
its working capital requirements from cash reserves, as well as
operations of the Company. The Company currently has no lines of
credit.
Currently, the inventory turnover is 8.06 months, while
receivables turnover is 23.85 days. Inventory turnover is
heavily impacted by dispensing machines on hand, trade show booth
and brochures with a combined value of $420,345. With these
removed, inventory turnover falls to 3.84 months. The Company
does have work in progress each day, but does not account for
work in progress as a sale until the work is completed.
During the three months ended March 31, 2000, the Company's
operations provided cash of $121,238 as compared with cash used
during the three months ended March 31, 1999 of $86,311,
investing activities provided cash of $70,365 versus a use of
$79,546, respectively, and financing activities used cash of
$170,000 for the three months ended March 31, 2000, as compared
with cash provided of $211,807 for the three months ended March
31, 1999.
(b) Years ended September 30, 1999 and 1998.
During the fiscal year ended September 30, 1999, the Company
financed its working capital requirements principally from the
private placement of its common stock. During that fiscal year,
gross proceeds from the sale of common stock was $257,750.
During the fiscal year ended September 30, 1998, the Company
financed its working capital requirements from cash reserves, as
well as operations of the Company. The Company had no lines of
credit.
The inventory turnover is currently 5.87 months, while
receivables turnover was 31 days. Inventory turnover is heavily
impacted by dispensing machines on hand, trade show booth and
brochures with a combined value of $420,345. With these removed,
inventory turnover falls to 2.79. The Company does have work in
progress each day, but does not account for work in progress as a
sale until the work is completed.
During the years ended September 30, 1999 and 1998, the
Company's operations utilized cash of $161,076 and $219,729,
respectively, investing activities utilized cash of $263,194 and
$0, respectively, and financing activities provided cash of
$418,004 and $129,916, respectively.
The Company did not have any capital expenditure commitments
outstanding at September 30, 1999, although the Company
anticipates making capital expenditures in the ordinary course of
business commensurate with an expected increase in the Company's
business operations in subsequent periods.
Capital Expenditures
The Company did not have any capital expenditure commitments
outstanding at March 31, 2000, although the Company anticipates
making capital expenditures in the ordinary course of business
commensurate with an expected increase in the Company's business
operations in subsequent periods.
Risk Factors Connected with Financial Condition and Results of
Operations.
(a) History of Losses; Accumulated Deficit; Working Capital Deficiency.
The Company has incurred losses of $999,045, $397,543,
and $160,544 for the fiscal years 1996, 1997, and 1999,
respectively (there was a profit of $259,269 for 1998). The
likelihood of the success of the Company must be considered in
the light of the problems, expenses, difficulties, complications,
and delays frequently encountered in connection with the
expansion of a business and the competitive environment in which
the Company operates. Unanticipated delays, expenses and other
problems such as setbacks in product development, and market
acceptance are frequently encountered in connection with the
expansion of a business. (See "Significant Working Capital
Requirements" below.) As a result of the fixed nature of many
of the Company's expenses, the Company may be unable to adjust
spending in a timely manner to compensate for any unexpected
delays in the development and marketing of the Company's products
or any capital raising or revenue shortfall. Any such delays or
shortfalls will have an immediate adverse impact on the Company's
business, operations and financial condition. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition."
(b) Significant Working Capital Requirements.
The working capital requirements associated with the
manufacture and sale of the Company's products have been and will
continue to be significant. The Company anticipates, based on
currently proposed assumptions relating to its operations
(including with respect to costs and expenditures and projected
cash flow from operations), that it can generate sufficient cash
flow to continue its operations for an indefinite period at the
current level without requiring additional financing. However,
the Company will need to raise additional capital, through debt
or equity, to implement fully implement its sales and marketing
strategy and grow. In the event that the Company's plans change
or its assumptions change or prove to be inaccurate or if cash
flow from operations proves to be insufficient to fund operations
(due to unanticipated expenses, technical difficulties, problem
or otherwise), the Company would be required to seek additional
financing sooner than currently anticipated or may be required to
significantly curtail or cease its operations.
The Company currently plans one or more acquisitions over
the next twelve months and will need financing of at least
$1,000,000 during the year 2000 in order to pay for these
anticipated acquisitions and to sustain the Company. In
addition, the Company plans to complete its development,
production and introduction for sale of its new System 2020
dispensing machine. Currently, the Company is in negotiations
with a firm to provide between $5 to $7 million to complete this
project. This financing is expected to be completed in the very
near future and will take the form of either long-term debt or
equity.
The website of the Company originally projected that
revenues for the fiscal year ended would be $5,000,000; however,
actual revenues of only approximately $1,600,000 were realized.
This shortfall was due to the fact that expected financing for
the Company that would have facilitated marketing necessary to
achieve the projected growth did not materialize. The Company
has rectified all inaccurate statements on its website.
(c) Company Only Has Limited Assets.
The Company has only limited assets. As a result, there can be
no assurance that the Company will generate significant revenues
in the future; and there can be no assurance that the Company
will operate at a profitable level. If the Company is unable to
obtain customers and generate sufficient revenues so that it can
profitably operate, the Company's business will not succeed.
(d) Company May Experience Substantial Competition.
The Company may experience substantial competition in its
efforts to locate and attract customers for its products. Many
competitors in the sign industry have greater experience,
resources, and managerial capabilities than the Company and may
be in a better position than the Company to obtain access to
attractive clientele. There are a number of larger companies
which will directly compete with the Company. Such competition
could have a material adverse effect on the Company'
profitability or viability. In addition, neon is such an
established sign medium, that the Company often encounters
resistance to introducing its products to established neon
customers.
(e) Influence of External Factors on Prospects for Company.
The sign industry in general is a speculative venture necessarily
involving some substantial risk. There is no certainty that the
expenditures to be made by the Company will result in
commercially profitable business. The marketability of its
products will be affected by numerous factors beyond the control
of the Company. These factors include market fluctuations, and
the general state of the economy (including the rate of
inflation, and local economic conditions), which can affect
companies' spending. Factors which leave less money in the hands
of potential customers of the Company will likely have an adverse
effect on the Company. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors
may result in the Company not receiving an adequate return on
invested capital.
(f) Possible Effect of Regulatory Factors.
Possible future consumer legislation, regulations and
actions could cause additional expense, capital expenditures,
restrictions and delays in the activities undertaken in
connection with the business of the Company, the extent of which
cannot be predicted. The exact affect of such legislation cannot
be predicted until it is proposed.
(g) Uncertainty of Market Penetration by Company.
The sign industry is currently dominated by companies
that sell neon signs, which has broad acceptance with businesses.
As a result, the market demand for new products from new
companies is subject to a high level of uncertainty. Achieving
significant market penetration and recognition for the Company's
products will require significant efforts and expenditures by the
Company to inform potential customers about the Company's
products. Although the Company intends to use a substantial
portion of its working capital for marketing and advertising,
there can be no assurance that the Company will be able to
penetrate existing markets on a broad basis, position its
products to appeal to a broad base of customers, or that any
marketing efforts undertaken by the Company will result in any
increased demand for or greater market acceptance of the
Company's products. See "Business of the Company."
(h) Uncertainty Regarding Patents and Proprietary Rights.
The Company seeks patent protection for its proprietary
products and technologies where appropriate. The Company
currently has two United States patents and three international
patents relating to its Luminite gel technology (the U.S. patents
expire in 2013 and 2016). However, there can be no assurance
that the Company's patent will provide the Company with
significant protection against competitors. Litigation may be
necessary in the future to protect the Company's patent, and
there can be no assurance that the Company will have the
financial or managerial resources necessary to pursue such
litigation or otherwise to protect its patent rights. In
addition to pursuing patent protection in appropriate cases, the
Company also relies on trade secret protection for its unpatented
proprietary technology. However, trade secrets are difficult to
protect. There can be no assurance that other companies will not
independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to the
Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights
to unpatented trade secrets. The Company pursues a policy of
having its employees and consultants execute non-disclosure
agreements upon commencement of employment or consulting
relationships with the Company, which agreements provide that all
confidential information developed or made known to the
individual during the course of employment shall be kept
confidential except in specified circumstances. There can be no
assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets or other proprietary
information.
(i) Success of Company Dependent on Management.
The Company's success is dependent upon the hiring of key
administrative personnel. Only two of the officers or directors,
and one of the other key personnel, has any employment agreement
with the Company. Therefore, there can be no assurance that
these personnel will remain employed by the Company. Should any
of these individuals cease to be affiliated with the Company for
any reason before qualified replacements could be found, there
could be material adverse effects on the Company's business and
prospects. In addition, management has no experience is managing
companies in the same business as the Company.
In addition, all decisions with respect to the management of
the Company will be made exclusively by the officers and
directors of the Company. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the Company. The success of the Company,
to a large extent, will depend on the quality of the directors
and officers of the Company. Accordingly, no person should
invest in the Shares unless he is willing to entrust all aspects
of the management of the Company to the officers and directors.
k. Limitations on Liability, and Indemnification, of Directors and
Officers.
The Company's Articles of Incorporation include
provisions to eliminate, to the fullest extent permitted by the
Nevada Revised Statutes as in effect from time to time, the
personal liability of directors of the Company for monetary
damages arising from a breach of their fiduciary duties as
directors. The Bylaws include provisions to the effect that the
Company may, to the maximum extent permitted from time to time
under applicable law, indemnify any director, officer, or
employee to the extent that such indemnification and advancement
of expense is permitted under such law, as it may from time to
time be in effect. Any limitation on the liability of any
director, or indemnification of directors, officer, or employees,
could result in substantial expenditures being made by the
Company in covering any liability of such persons or in
indemnifying them.
(l) Potential Conflicts of Interest Involving Management.
Currently, the officers and directors of the Company devote 100%
of their time to the business of the Company. However, conflicts
of interest may arise in the area of corporate opportunities
which cannot be resolved through arm's length negotiations. All
of the potential conflicts of interest will be resolved only
through exercise by the directors of such judgment as is
consistent with their fiduciary duties to the Company. It is the
intention of management, so as to minimize any potential
conflicts of interest, to present first to the Board of Directors
to the Company, any proposed investments for its evaluation.
(m) No Assurance of Continued Public Trading Market; Risk of Low
Priced Securities.
Since May 28, 1998, there has been only a limited
public market for the common stock of the Company. The common
stock of the Company is currently quoted on the National
Quotation Bureau's Pink Sheets; the Company intends to reapply
for relisting on the Over the Counter Bulletin Board after
clearing comments on this registration statement. As a result,
an investor may find it difficult to dispose of, or to obtain
accurate quotations as to the market value of the Company's
securities. In addition, the common stock is subject to the low-
priced security or so called "penny stock" rules that impose
additional sales practice requirements on broker-dealers who sell
such securities. The Securities Enforcement and Penny Stock
Reform Act of 1990 ("Reform Act") requires additional disclosure
in connection with any trades involving a stock defined as a
penny stock (generally, according to recent regulations adopted
by the U.S. Securities and Exchange Commission, any equity
security that has a market price of less than $5.00 per share,
subject to certain exceptions), including the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining
the penny stock market and the risks associated therewith. The
regulations governing low-priced or penny stocks sometimes limit
the ability of broker-dealers to sell the Company's common stock
and thus, ultimately, the ability of the investors to sell their
securities in the secondary market.
(n) Effects of Failure to Maintain Market Makers.
If the Company is unable to maintain a National
Association of Securities Dealers, Inc. member broker/dealers as
market makers, the liquidity of the common stock could be
impaired, not only in the number of shares of common stock which
could be bought and sold, but also through possible delays in the
timing of transactions, and lower prices for the common stock
than might otherwise prevail. Furthermore, the lack of market
makers could result in persons being unable to buy or sell shares
of the common stock on any secondary market. There can be no
assurance the Company will be able to maintain such market
makers. Currently, the market makers for the Company are as
follows (in alphabetical order):
J. Alexander Securities, Inc.
Frankel & Co., Inc.
GVR Capital
Hill Thompson
Knight Securities, L.P.
National Capital
North American Institutional Brokers
Paragon Capital Corporation
Sharpe Capital, Inc.
Wien Securities Corp.
Wilson Davis
(o) Cash Dividends Unlikely.
The Company has never declared or paid dividends on its
common stock and currently does not anticipate or intend to pay
cash dividends on its common stock in the future. The payment of
any such cash dividends in the future will be subject to
available retained earnings and will be at the discretion of the
Board of Directors.
(p) Potential Status as a Pseudo California Corporation.
Section 2115 of the California General Corporation Law
subjects certain foreign corporations doing business in
California to various substantive provisions of the California
General Corporation Law in the event that the average of its
property, payroll and sales is more than 50% in California and
more than one-half of its outstanding voting securities are held
of record by persons residing in the State of California.
Currently, less than one-half of the outstanding voting shares of
the Company are owned by residents of California; however, this
percentage may change in the future.
Some of the substantive provisions include laws
relating to annual election of directors, removal of directors
without cause, removal of directors by court proceedings,
indemnification of officers and directors, directors standard of
care and liability of directors for unlawful distributions. The
aforesaid Section does not apply to any corporation which, among
other things, has outstanding securities designated as qualified
for trading as a national market security on NASDAQ if such
corporation has at least eight hundred holders of its equity
securities as of the record date of its most recent annual
meeting of shareholders. It is currently anticipated that the
Company may be subject to Section 2115 of the California General
Corporation Law which, in addition to other areas of the law,
will subject the Company to Section 708 of the California General
Corporation Law which mandates that shareholders have the right
of cumulative voting at the election of directors.
(q) Use of Forward-Looking Statements.
The foregoing Management's Discussion and Analysis contains
"forward looking statements" within the meaning of Rule 175 of
the Securities Act of 1933, as amended, and Rule 3b-6 of the
Securities Act of 1934, as amended, including statements
regarding, among other items, the Registrant's business
strategies, continued growth in the Registrant's markets,
projections, and anticipated trends in the Registrant's business
and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and
similar expressions identify forward-looking statements. These
forward-looking statements are based largely on the Registrant's
expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Registrant's
control. The Registrant cautions that these statements are
further qualified by important factors that could cause actual
results to differ materially from those in the forward looking
statements, including, among others, the following: reduced or
lack of increase in demand for the Registrant's products,
competitive pricing pressures, changes in the market price of
ingredients used in the Registrant's products and the level of
expenses incurred in the Registrant's operations. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking information contained herein will in fact
transpire or prove to be accurate. The Registrant disclaims any
intent or obligation to update "forward looking statements."
(r) Uncertainty Due to Year 2000 Problem.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using the year
2000 date is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced before, on, or after January 1, 2000, and if
not addressed, the impact on operations and financial reporting
may range from minor errors to significant system failure which
could affect the Company's ability to conduct normal business
operations. This creates potential risk for all companies, even
if their own computer systems are Year 2000 compliant. It is not
possible to be certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
The Company currently believes that its systems are Year 2000
compliant in all material respects. Although management is not
aware of any material operational issues or costs associated with
preparing its internal systems for the Year 2000, the Company may
experience serious unanticipated negative consequences (such as
significant downtime for one or more of its suppliers) or
material costs caused by undetected errors or defects in the
technology used in its internal systems. Furthermore, the
purchasing patterns of customers may be affected by Year 2000
issues. The Company does not currently have any information
about the Year 2000 status of its potential material suppliers.
The Company's Year 2000 plans are based on management's best
estimates.
ITEM 3. DESCRIPTION OF PROPERTY.
The following is a schedule of the property and equipment
current owned by the Company (all of this property and equipment
is in good to excellent condition):
Trans
Porta
tion
Equip Dep Prior
ment Acquired Sold Cost Basis Depn Method Life Rate Current
Depn
Truck
&
Trailer 9/11/95 18000.00 18000.00 8295 S/L HY 5 0.2 3600
VW of
Witt 6/1/98 19115.89 19115.89 8295 S/L HY 5 0.2 3823
Truck,
Dooley 10/1/98 15737.16 15737.16 0 S/L HY 5 0.2 3147
Total 52853.05 16590 10571
Furniture
F & F 7/7/95 10303.98 10303.98 4416 S/L HY 7 0.142857 1472
F & F 8/15/99 4065.87 4065.87 0 S/L HY 7 0.142857
Total 14369.85 14369.85 4416 1472
Vinyl
Cutter 3/9/95 769 769 275 S/L HY 7 0.142857 110
Copy
Machine 3/22/95 1200 1200 428 S/L HY 7 0.142857 171
Luminart
System
4000 6/21/95 52087 52087 18603 S/L HY 7 0.142857 7441
Misc.
Equip
Ment 8/15/95 24996 24996 8928 S/L HY 7 0.142857 3571
Equip
Ment 8/1/95 88351 88351 11555 S/L HY 7 0.142857 12622
Table
Screen
Print 2/13/96 23473 23473 5029 S/L HY 7 0.142857 3353
Router 9/18/95 2545 2545 910 S/L HY 7 0.142857 364
Luminart
MS 40-
110-1 12/1/95 17670 17670 6311 S/L HY 7 0.142857 2524
Com-
Pressor 6/13/95 1200 1200 428 S/L HY 7 0.142857 171
Lathe &
Drill
Press 4/11/96 3500 3500 750 S/L HY 7 0.142857 500
Digital
Color
Station
5442 3/15/96 6/30/99 0 0 0 S/L HY 7 0.142857 0
Pro
Tech
Lamin
Ator 2/13/96 23473 23473 5029 S/L HY 7 0.142857 3353
Miscell
Aneous
Equip. 3/14/97 118587 118587 16964 S/L HY 7 0.142857 16941
Printer 10/20/97 2000 2000 48 SL/ HY 7 0.142857 286
Re
cycling
Equip
Ment 2/15/95 189183 189183 0 S/L HY 7 0.142857 0
Music
Equip
Ment 4/1/96 74000 74000 18500 S/L HY 7 0.142857 10571
Video
Equip
Ment 1/27/97 5600 5600 800 S/L HY 7 0.142857 800
Piano 9/20/97 34097 34097 5377 S/L HY 7 0.142857 4871
Total 662731 662731 99935 67650
Computer Equipment
Laser
Master
Printer 12/1/95 28032 28032 14015 S/L HY 5 0.2 5606
4
SCANVEC
Programs 8/18/95 13514 13514 6757 S/L HY 5 0.2 2703
Byte
Computer 3/29/95 3041 3041 1520 S/L HY 5 0.2 608
Mac
Computer 8/9/95 5000 5000 2500 S/L HY 5 0.2 1000
Apple II
Software 7/24/95 2000 2000 1000 S/L HY 5 0.2 400
Computer 7/11/95 1072 1072 535 S/L HY 5 0.2 214
PC
Computer 8/15/95 1668 1668 835 S/L HY 5 0.2 334
Misc.
Computer
Equip. 8/15/95 35865 35865 16263 S/L HY 5 0.2 7173
Computer 2/4/96 1127 1127 338 S/L HY 5 0.2 225
Printer 10/20/97 2000 2000 48 S/L HY 5 0.2 400
Computer 7/1/97 460 460 46 S/L HY 5 0.2 92
Raster
Machine 7/11/95 6/30/99 0 0 0 S/L HY 5 0.2 0
Computer
for
Raster 2/28/96 8500 8500 2550 S/L HY 5 0.2 1700
Misc.
Computer
Equip. 5/13/96 31744 31744 22433 S/L HY 5 0.2 6349
Total 134023 134023 68840 26805
Total
Deprec
Iable 906918 191852 111926
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information regarding the
beneficial ownership of shares of the Company's Common Stock as
of June 1, 2000 (17,006,167 issued and outstanding) by (i) all
stockholders known to the Company to be beneficial owners of more
than 5% of the outstanding Common Stock; and (ii) all officers
and directors of the Company (each person has sole voting power
and sole dispositive power as to all of the shares shown as
beneficially owned by them):
Title of Name and Address of Amount of Percent of
Class Beneficial Owner Beneficial Class(2)
Ownership(1)
Common
Stock Chinex International 2,539,805 13.25%
c/o 1785 West 2300 South
Salt Lake City, Utah 84119 (3)
Common
Stock Armstrong, Perkins, Hudson 2,500,000 13.05%
Trustee
1600 Canadian Pl.
407 2nd St., Calgary
Alberta T2P 2Y3
Common
Stock Wm. Michael Reynolds 2,000,000(5) 10.44%
3245 Grande Vista Drive
Newbury Park, California
91320
Common
Stock Beverly Hills 310, Inc. 1,650,949 8.62%
c/o 1785 West 2300 South
Salt Lake City, Utah 84119 (4)
Common
Stock John L. Patton 1,000,000 5.22%
5 Saddle Hill Road
Far Hills, New Jersey 07931
Common
Stock Labranda, Inc. 942,857 4.92%
426 South 500 East
Salt Lake City, Utah 84119
Common
Stock Ronnie Case 150,000 (6) 0.78%
3245 Grande Vista Drive
Newbury Park, California 91320
Common
Stock George Jones 5,600 0.03%
3245 Grande Vista Drive
Newbury Park, California 91320
Common
Stock Eric Lewis 0 0%
3245 Grande Vista Drive
Newbury Park, California 91320
Common
Stock James V. Crestani 0 0%
3245 Grande Vista Drive
Newbury Park, California 91320
Common
Stock Shares of all directors and 3,806,549 (7) 19.87%
executive officers as a
group (5 persons)
(1) Other than as footnoted, none of these security holders has the
right to acquire any amount of the Shares within sixty days from
options, warrants, rights, conversion privilege, or similar
obligations.
(2) Based on the amount of issued and outstanding shares of the
Company as of June 1, 2000, plus the options to currently
acquires a total 2,150,000 shares held by Mr. Reynolds and Mr.
Case.
(3) The beneficial owner of Chinex International is George Christo.
(4) The beneficial owner of Beverly Hills 310, Inc. is Wm. Michael
Reynolds.
(5) Consists entirely of currently exercisable options granted in
January 2000 to purchase 2,000,000 of shares of common stock at
an exercise price of $0.25 per share; there is no expiration time
on these options.
(6) Consists entirely of currently exercisable options granted in
January 2000 to purchase 150,000 of shares of common stock at an
exercise price of $0.25 per share; there is no expiration time on
these options.
(7) Includes shares owned indirectly by Mr. Reynolds through his
ownership of Beverly Hills 310, Inc.
ITEM 5. DIRECTORS, OFFICERS, PROMOTERS, AND CONTROL PERSONS.
The names, ages, and respective positions of the directors
and officers of the Company are set forth below. These persons
have held their respective positions since May 20, 1999. There
are no other persons which can be classified as a promoter or
controlling person of the Company.
(a) Wm. Michael Reynolds, President/Chief Executive Officer/Chairman.
Mr. Reynolds, age 54, started with the Company in 1996. He
served as President/CEO of a combined group of financial
companies which became a holding company (J.B. Oxford Holding
Co.) with annual revenues rising from $3 million to $45 Million
under his 4 year leadership, which ended in 1996. From 1988 to
1992, Mr. Reynolds served as Chairman of J.P. Michael Co., a
regional broker/dealer located in Burbank, California. During
the period of 1986 to 1988, Mr. Reynolds held the position of
President/CEO of G.I. Industries, a waste management company
between 1986-1988. He has served as President/ Chairman of the
American Lung Association for 10 years.
(b) Ronnie Case, Secretary/Treasurer/Director.
Mr. Case, age 23, started with the Company in 1994. He attended
the California Lutheran University where he graduated with Honors
in Business Management and Accounting. Mr. Case had been employed
by Clear Vision, Inc. from 1994 until this company was closed
down in June 1999, and currently serves as a Director and
Secretary/Treasurer of the Company.
(c) Eric Lewis, M.D., Director.
Dr. Lewis, age 52, started with the Company in 1996. He served
as President of Clear Vision, Inc. from 1995 until its close, and
member of the Board of Directors of Chaos Group, Inc. prior to
its sale in August 1999. Dr. Lewis has maintained a cosmetic
surgery practice in Beverly Hills California for the past 20
years. Dr. Lewis graduated from the University of California at
Los Angeles in 1976.
(d) James V. Crestani, Director.
Mr. Crestani, age 50, started with the Company in 1996. He has
served as CEO of Southland Title Company in San Diego, California
for in excess of fifteen years. In this position, he is active
in all areas of real property finance and title insurance.
(e) George A. Jones, Director.
Mr. Jones, age 50, started with the Company in 1996. He is a
member of the Board of Directors and General Chairman of
Brotherhood of Railroad Signalman. Mr. Jones is also Vice
Chairman, Board of Directors, Rio Grande Employees Hospital
Association. He also serves as Utah State Legislative
Representative, and is a member of the Public Law Board. Mr.
Jones has held these paid positions for in excess of five years.
ITEM 6. EXECUTIVE COMPENSATION.
Summary Compensation Table
Annual compensation Long-term
compensation
Awards Payouts
Other Securi All
Annual ties other
Name and compen Restrict under compen
Principal Year Salary Bonus sation stock lying LTIP sation
Position award options payouts
SARs
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Wm
Michael
Reynolds
President
/CEO 1999 120,000 0 0 0 0 0 0
1998 120,000 0 0 0 0 0 0
1997 120,000 0 0 0 960,000 0 0
0
Ronnie
Case,
Secretary
Treasurer 1999 36,000 0 0 0 0 0 0
1998 36,000 0 0 0 0 0 0
1997 36,000 0 0 0 40,000 0 0
Stock Options.
Upon execution of a Management Agreement on January 15,
1997, Mr. Reynolds was vested with options to purchase up to
960,000 shares of the Company's common stock for a value of $0.25
per share. No further options were granted under this agreement.
Upon execution of a Management Agreement in January 1997,
Mr. Case was vested with options to purchase up to 40,000 shares
of the Company's common stock for a value of $0.25 per share. No
further options were granted under this agreement.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Value of
Securities unexercised
Underlying in-the-money
Unexercised money options/
Shares Options/SARS SARs at FY-end
Acquired on Value at FY-end (#) ($)
Exercise (#) realized exercisable/ exercisable
Name ($) unexercisable unexercisable(1)
(a) (b) (c) (d) (e)
Wm
Michael
Reynolds
President
CEO - - 960,000 $192,000
Exercisable exercisable
Ronnie
Case
Secretary
Treasurer - - 40,000 $ 8,000
Exercisable exercisable
(1) This number was calculated by multiplying the difference
between the exercise price of $0.25 per shares and the fair
market value of the shares of $0.45 per share on December 31,
1999 by the total number of shares underlying the options. All
these options expired unexercised on January 15, 2000.
Management Contracts.
The Company has entered into a Management Contract with Mr.
Reynolds and Mr. Case, each dated January 15, 2000, which expires
on January 15, 2003 (see Exhibit 10.10 and 10.11, respectively,
to this Form 10-SB). These agreements may be terminated at will,
with or without cause, by Mr. Reynolds or by the Board of
Directors of the Company after having given a thirty (30) day
written notice to the other party to the address of record
personally or by mail, postage prepaid, or by facsimile machine
message. The agreements provide for compensation as follows:
(a) Mr. Reynolds.
Mr. Reynolds receives a base salary of $10,000 per month. If the
Company realizes a net profit, after having given effect for tax
liability, for a full twelve months ending coincident with its
fiscal year end, to wit September 30, then for the following
twelve months the Board of Directors may approve that Mr.
Reynolds will be paid an amount in addition to his base salary to
reward his performance. Maximum payroll to Mr. Reynolds under
this agreement will not exceed $250,000 in any one year.
Upon execution of this agreement, Mr. Reynolds was vested with an
option to purchase up to and including 2,000,000 shares of the
Company's common stock for a value of $0.25 per share.
Thereafter, and for each fiscal year during the term of this
agreement wherein a net profit has been realized by the Company,
after giving effect for tax liabilities, Mr. Reynolds will be
granted options to purchase an additional 1,000,000 shares of
said stock at $0.25 per share. Reynolds may exercise his earned
options at any time either by direct payment to the Company or by
applying an offset of equal amount against any accrual on his
behalf then existing on the books of the Company. There is no
expiration time on any of these options.
(b) Mr. Case.
Mr. Case receives a base salary of $4,000 per month. If the
Company realizes a net profit, after having given effect for tax
liability, for a full twelve months ending coincident with its
fiscal year end, to wit September 30, then for the following
twelve months the Board of Directors may approve that Mr. Case
will be paid an amount in addition to his base salary to reward
his performance. Maximum payroll to Mr. Case under this
agreement will not exceed $5,000 in any one month.
Upon execution of this agreement, Mr. Case was vested with an
option to purchase up to and including 150,000 shares of the
Company's common stock for a value of $0.25 per share.
Thereafter, and for each fiscal year during the term of this
agreement wherein a net profit has been realized by the Company,
after giving effect for tax liabilities, Mr. Case will be granted
options to purchase an additional 100,000 shares of said stock at
$0.25 per share. Case may exercise his earned options at any
time either by direct payment to the Company or by applying an
offset of equal amount against any accrual on his behalf then
existing on the books of the Company. There is no expiration
time on any of these options.
Other Compensation.
(a) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
Company in the event of retirement at normal retirement date as
there is no existing plan provided for or contributed to by the
Company.
(b) No other remuneration is proposed to be paid in the future
directly or indirectly by the Company to any officer or director
since there is no existing plan which provides for such payment.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as set forth below, there are no relationships,
transactions, or proposed transactions within the last two years
to which the Company was or is to be a party, in which any of the
named persons set forth in Item 5 above had or is to have a
direct or indirect material interest.
Labranda, Inc. and the Company entered into a Consulting
Agreement, dated July 10, 1998 (see discussion of this agreement
under Business of the Company - Consultants for the Company).
Mr. Reynolds and Mr. Case have each entered into a Management
Contract with the Company, each dated January 15, 2000 (see
discussion of these contracts under Executive Compensation -
Management Contracts).
ITEM 8. DESCRIPTION OF SECURITIES.
General Description.
The Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock, with a par value of $0.001.
The holders of the Shares: (a) have equal ratable rights to
dividends from funds legally available therefore, when, as, and
if declared by the Board of Directors of the Company; (b) are
entitled to share ratably in all of the assets of the Company
available for distribution upon winding up of the affairs of the
Company; and (c) are entitled to one non-cumulative vote per
share on all matters on which shareholders may vote at all
meetings of shareholders. These securities do not have any of the
following rights: (a) special voting rights; (b) preference as to
dividends or interest; (c) preemptive rights to purchase in new
issues of Shares; (d) preference upon liquidation; or (e) any
other special rights or preferences. In addition, the Shares are
not convertible into any other security. There are no
restrictions on dividends under any loan other financing
arrangements or otherwise. See a copy of the Articles of
Incorporation, and amendments thereto, and Bylaws of the Company,
attached as Exhibits to this Form 10-SB. As of November 17,
1999, the Company had 17,006,167 shares of common stock issued
and outstanding. There are no preferred shares authorized in the
Articles of Incorporation.
Non-Cumulative Voting.
The holders of Shares of Common Stock of the Company do not have
cumulative voting rights, which means that the holders of more
than 50% of such outstanding Shares, voting for the election of
directors, can elect all of the directors to be elected, if they
so choose. In such event, the holders of the remaining Shares
will not be able to elect any of the Company's directors.
Dividends.
The Company does not currently intend to pay cash dividends. The
Company's proposed dividend policy is to make distributions of
its revenues to its stockholders when the Company's Board of
Directors deems such distributions appropriate. Because the
Company does not intend to make cash distributions, potential
shareholders would need to sell their shares to realize a return
on their investment. There can be no assurances of the projected
values of the shares, nor can there be any guarantees of the
success of the Company.
A distribution of revenues will be made only when, in the
judgment of the Company's Board of Directors, it is in the best
interest of the Company's stockholders to do so. The Board of
Directors will review, among other things, the investment quality
and marketability of the securities considered for distribution;
the impact of a distribution of the investee's securities on its
customers, joint venture associates, management contracts, other
investors, financial institutions, and the Company's internal
management, plus the tax consequences and the market effects of
an initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
The Company's authorized but unissued capital stock consists
of 82,993,833 Shares of common stock. One effect of the existence
of authorized but unissued capital stock may be to enable the
Board of Directors to render more difficult or to discourage an
attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest, or otherwise, and thereby to protect
the continuity of the Company's management. If, in the due
exercise of its fiduciary obligations, for example, the Board of
Directors were to determine that a takeover proposal was not in
the Company's best interests, such shares could be issued by the
Board of Directors without stockholder approval in one or more
private placements or other transactions that might prevent, or
render more difficult or costly, completion of the takeover
transaction by diluting the voting or other rights of the
proposed acquiror or insurgent stockholder or stockholder group,
by creating a substantial voting block in institutional or other
hands that might undertake to support the position of the
incumbent Board of Directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise.
Transfer Agent.
The Company has engaged the services of Interwest Transfer, 1981
East 4800 South, Salt Lake City, Utah 84117, to act as transfer
agent and registrar for the Company.
PART II.
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information.
From May 28, 1998 to January 19, 2000, the Company's shares were
traded on the Over the Counter Bulletin Board. They are
currently traded on the National Quotation Bureau's Pink Sheets
(symbol LUMP) and the range of closing bid prices shown below is
reported while trading on the Bulletin Board. The quotations
shown reflect inter-dealer prices, without retail mark-up, mark-
down or commission and may not necessarily represent actual
transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ending on September 30, 2000
High Low
Quarter Ended December 31, 1999 0.50 0.17
Quarter Ended March 31, 2000 0.50 0.19
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ending on September 30, 1999
High Low
Quarter Ended December 31, 1998 0.26 0.07
Quarter Ended March 31, 1999 0.26 0.13
Quarter Ended June 30, 1999 0.28 0.16
Quarter Ended September 30, 1999 0.26 0.17
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended September 30, 1998
High Low
Quarter Ended June 30, 1998* 0.31 0.25
Quarter Ended September 30, 1998 1.06 0.17
* The Shares commenced trading on the Bulletin Board on May 28, 1998.
In order to qualify for relisting on the Bulletin Board, the
Company must comply with the new eligibility rules of the
Bulletin Board (that is, all listed companies must be reporting
companies), and accordingly the Company filed its Form 10-SB
Registration Statement with the SEC on January 5, 2000. The
Company is anticipating that this Form 10-SB will clear all
comments in the near future and thereafter be promptly relisted
on the Bulletin Board.
(b) Holders of Common Equity.
As of June 1, 2000, there were 73 shareholders of record of the
Company's common stock.
(c) Dividend Information.
The Company has not declared or paid a cash dividend to
stockholders since it was incorporated. The Board of Directors
presently intends to retain any earnings to finance Company
operations and does not expect to authorize cash dividends in the
foreseeable future. Any payment of cash dividends in the future
will depend upon the Company's earnings, capital requirements and
other factors.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by
or against the Company has been threatened.
On September 8, 1998 the Company was sued by Linda Lampenius aka
Linda Brava in Los Angeles County Superior Court. The lawsuit
claimed breach of contract, breach of implied covenant of good
faith and fair dealing, fraud, breach of fiduciary duty, claim
and delivery, conversion, declaratory relief and accounting.
This action was settled in September 1999 on the following terms:
(a) payment by the Company to Ms. Lampenius of $96,000; and (b)
the Company is to be paid a royalty on the next seven albums to
be released by Ms. Lampenius through EMI Records on a sliding
scale starting at 10% down to 2.5%.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
During the two most recent fiscal years, the principal
independent accountant for the Company has neither resigned (or
declined to stand for reelection) nor been dismissed. The
independent accountant for the Company is Kurt D. Saliger,
C.P.A., 5000 West Oakey Boulevard, Suite A-4, Las Vegas, Nevada
89146.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
From November 6, 1998 to February 25, 1999, the Company
raised a total of $259,004 in gross offering proceeds from two
private offerings. Under the first offering in November 1998, a
total of 3,100,000 were issued for a total consideration of
$31,000 ($0.01 per share). Under the second offering, a total of
1,425,025 shares were sold for a total consideration of $228,004
(average of $0.16 per share). In addition, the Company issued a
total of 300,000 shares for consulting services from January 1,
1999 to February 26, 1999. All these shares were offered and
sold only to sophisticated investors under Rule 504 of Regulation
D. Other than the payment of a finder's fee of 10%, or $3,100,
in connection with the first offering noted above, there were no
commissions or discounts paid in connection with these offerings;
only normal offering expenses were paid.
In March 1997, the Company issued 300,000 shares of
preferred stock in exchange for $300,000 in debt owed by the
Company to 3825 Alberta Ltd. In September 1998, the Company
issued 1,540,000 shares of preferred stock in exchange for
$385,000 in debt owed by the Company to Empress Productions. All
these shares were offered and sold only to sophisticated
investors under Rule 506 of Regulation D. There were no
commissions, discounts or expenses paid in connection with these
offerings.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
No director of the Company will have personal liability to the
Company or any of its stockholders for monetary damages for
breach of fiduciary duty as a director involving any act or
omission of any such director since provisions have been made in
the Articles of Incorporation limiting such liability. The
foregoing provisions shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or, which involve intentional
misconduct or a knowing violation of law, (iii) under applicable
Sections of the Nevada Revised Statutes, (iv) the payment of
dividends in violation of Section 78.300 of the Nevada Revised
Statutes or, (v) for any transaction from which the director
derived an improper personal benefit.
The By-laws provide for indemnification of the directors,
officers, and employees of the Company in most cases for any
liability suffered by them or arising out of their activities as
directors, officers, and employees of the Company if they were
not engaged in willful misfeasance or malfeasance in the
performance of his or her duties; provided that in the event of a
settlement the indemnification will apply only when the Board of
Directors approves such settlement and reimbursement as being for
the best interests of the Corporation. The Bylaws, therefore,
limit the liability of directors to the maximum extent permitted
by Nevada law (Section 78.751).
The officers and directors of the Company are accountable to the
Company as fiduciaries, which means they are required to exercise
good faith and fairness in all dealings affecting the Company.
In the event that a shareholder believes the officers and/or
directors have violated their fiduciary duties to the Company,
the shareholder may, subject to applicable rules of civil
procedure, be able to bring a class action or derivative suit to
enforce the shareholder's rights, including rights under certain
federal and state securities laws and regulations to recover
damages from and require an accounting by management..
Shareholders who have suffered losses in connection with the
purchase or sale of their interest in the Company in connection
with such sale or purchase, including the misapplication by any
such officer or director of the proceeds from the sale of these
securities, may be able to recover such losses from the Company.
PART F/S.
LUMINART CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1999 March 31, 2000
Current Assets:
Cash $ 98,373 $ 47,536
Accounts Receivable (Net of
Allowance for Bad Debts of
$5,732 at 3/31/00) 57,509 78,230
Inventory 941,557 802,099
Other Current Assets 17,887 5,829
Total Current Assets 1,115,326 933,694
Property & Equipment:
Net Property & Equip 489,782 452,112
Organization Costs (Net) 202,247 0
Goodwill (Net) 92,500 0
Capitalized Software Costs 0 205,700
Deferred Taxes 0 82,705
294,749 288,405
Total Assets $ 1,899,855 $1,674,212
Current Liabilities:
Accounts Payable 76,527 63,460
Accrued Payables 14,741 143,919
Taxes Payable 17,343 24,749
Interest Payable 11,987 71,925
120,598 304,054
Notes Payable 99,950 106,000
Shareholders' Equity:
Preferred Stock 685,000 685,000
Common Stock 17,036 17,006
Additional Paid-In 3,057,104 3,054,118
Accumulated Deficit (2,079,833) (2,491,966)
Shareholders' Equity 1,679,307 1,264,157
Total Liabilities &
Shareholders' Equity $1,899,855 $1,674,212
See Accompanying Notes to Unaudited Financial Statement
LUMINART CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 2000
Revenue 370,589 298,516
Cost of Sales 320,311 45,772
Gross Profit 50,278 252,743
Operating Expenses:
Depreciation & Amortization 0 44,390
Selling, General & Admin. 143,414 93,063
Other Operating Costs 0 70,365
Total Operating Costs 143,414 207,817
Interest Expense 0 11,987
Income Before Income Taxes (93,136) 32,938
Income Tax Expense (Benefit) 0 0
Net Income (93,136) 32,938
Basic Income Per Share: $(0.01) $0.01
Diluted Income Per Share $(0.01) $0.01
Average Shares Used
in Per Share Calculations:
Basic 17,006,170 17,006,167
Diluted 18,006,170 19,156,167
See Accompanying Notes to Unaudited Financial Statement
LUMINART CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 2000
Cash Flows From Operating
Activities
Adjustments:
Net Income from Operations $ (93,137) $ 32,938
Depreciation/Amortization 140,360 44,390
Accounts Receivable (23,087) 14,258
Change in Inventories (95,104) (3,148)
Change in Other Assets 2,000 (3,819)
Change in Accounts Payable 1,685 17,377
Increase in Accrued Liab. (9,758) 0
Increase in Other Liabilities (9,268) 7,254
Interest Payable 0 11,987
Total Adjustments 6,826 88,299
Net Cash Provided
(Used) by Operations (86,309) 121,238
Cash Flows From Investing Activities
Increase in Fixed Assets (79,546) 0
Other Assets 0 70,365
Net Cash Used in Investing (79,546) 70,365
Cash Flows From Financing Activities
Notes Payable Non-Current (25,270) (170,000)
Sales of Common Stock 237,077 0
Net Cash Used in Financing 211,807 (170,000)
Net Increase (Decrease) in Cash 45,951 21,603
Beginning Cash Balance 52,421 25,933
Ending Cash Balance 98,373 47,536
See Accompanying Notes to Unaudited Financial Statement
LUMINART CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Luminart Corp. (the "Company") is a technology company which is a
designer, developer, manufacturer, and marketer of proprietary
sign making products for the worldwide marketplace.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reporting amounts
in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Basis of Presentation:
The accompanying unaudited consolidated financial statements are
presented in accordance with the requirements of Form 10-QSB and
Item 310 of Regulation SB. Accordingly, they do not include all
the disclosures normally required by generally accepted
accounting principles. Reference should be made to the Company's
audited financial statements for the year ended September 30,
1999 as contained in a Form 10-SB filed with the U.S. Securities
and Exchange Commission for additional disclosures including a
summary of accounting policies, which have not significantly
changed.
Principles of Consolidation:
The consolidated financial statements of the Company include the
accounts of the Company and all its wholly-owned subsidiaries.
All significant intercompany transactions and balances are
eliminated.
Revenue Recognition:
Revenue is generally recognized when the Company has completed
substantially all manufacturing and/or sign development to
customer specifications, factory testing has been completed and
the product has been shipped. Additionally, for sign systems
where installation requirements are the responsibility of the
Company and payment terms are related to installation completion,
revenue is generally recognized when the system has been shipped
to the customer's final site for installation.
Inventories:
Inventories are valued at the lower of average cost or market.
Inventories consisted of the following at March 31, 2000:
Raw Material $ 581,507
Work in Process 67,163
Finished Goods 143,429
$ 802,099
Property and Equipment:
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives as follows:
Leasehold improvements: 15 years
Manufacturing equipment: 7 years
Computer equipment, office
Furniture and other: 5-7 years
Cost in Excess of Net Assets of Business Acquired, Net:
Cost in excess of net assets of business acquired is amortized on
a straight-line basis over 15 years. This represents the excess
of the cost of acquiring the Ecosphere Environmental Systems
business over the fair value of net assets received as of the
acquisition date by $100,000, net of the accumulated amortization
of $16,667 at September 30, 1999. The Company adopted SFAS 121
and divested its recycling assets of $187,000 in October 1999
along with the remaining $83,333 in goodwill associated
therewith.
Capitalized Software Development Costs:
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of
technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require
considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated
future revenues, estimated economic life and changes in software
and hardware technologies. The capitalized software development
costs would be adjusted to fair market value if significant facts
and circumstances altered the Company's original assumptions and
rationale.
Unamortized capitalized software development costs determined to
be in excess of the net realizable value of the product are
expensed immediately.
Amortization of capitalized software costs is provided by the
straight-line method over the remaining estimated economic life
of the product. An original estimated economic life of 15 years
is assigned to capitalized software development of $239,651, net
of accumulated amortization of $33,951 at March 31, 2000.
Organization Costs:
Organization costs are capitalized when incurred and are
amortized on a straight-line basis over a sixty (60) month
period. Organization costs are $86,017, net of accumulated
amortization of $15,832 at March 31, 2000.
Income Taxes:
The liability method as prescribed by Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" ("SFAS 109"), is used in accounting for income taxes.
At March 31, 2000 income tax expense was zero due to net
operating loss carryforwards available for tax purposes.
Income Per Share:
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share" ("SFAS 128"), which replaces
the presentation of primary and fully diluted earnings per share
with the presentation of basic and diluted earnings per share.
Basic income per share is computed by dividing net income
available to common shareholders by the weighted average common
shares outstanding for the period. Diluted income per share is
computed giving effect to all potentially dilutive common shares.
Potentially dilutive common shares may consist of incremental
shares issuable upon the exercise of stock options adjusted for
the assumed repurchase of the Company's common stock at the
average market price. The impact of SFAS 128 on the calculation
of earnings is as follows:
3 Months Ended
March 31
1999 2000
Basic Income Per Share: ($0.0058) $0.0019
Diluted Income Per Share N/A $0.0017
Average Shares Used In Basic 16,071,788 17,006,167
Average Shares Used In Diluted N/A 19,156,167
Average Market Price of Stock $0.19 $0.37
Ending Market Price of Stock $0.21 $0.40
The following securities were excluded from the calculation of
diluted earnings per share at March 31, 2000 because they are
considered anti-dilutive under SFAS 128: Unexercised options
granted to Company officers in January 2000 of 2,150,000 shares
of the Company's common stock, exercisable at $0.25 per share.
NOTE 2 - PROPERTY AND EQUIPMENT
The Company's property and equipment consisted of the following
at March 31, 2000:
Leasehold improvements $ 81,860
Manufacturing equipment $ 635,885
Computer equipment, office
furniture and other $ 149,769
$ 906,918
Less: Accumulated Depreciation $ (302,011)
$ 496,503
NOTE 3 - ACCRUED LIABILITIES
The Company's accrued liabilities at March 31, 2000 consisted of
accrued payroll to officers and accrued interest as follows:
Payroll and related $ 116,037
Accrued interest 59,938
$ 175,975
NOTE 4 - COMMON AND PREFERRED STOCK
Description and Dividends:
At March 31, 2000 the Company was authorized to issue 100,000,000
shares of common stock, $0.001 par value. The common stock is a
publicly traded Over the Counter Bulletin Board Stock with the
symbol LUMP. As of March 31, 2000, 17,006,167 shares of common
stock were issued and outstanding of which 5,868,863 are
restricted and the remaining 11,137,304 are free trading.
At March 31, 2000 the Company was authorized to issue 10,000,000
shares of preferred stock, $0.001 par value. The preferred stock
issued at March 31, 2000 consists of 1,840,000 preferred shares
outstanding for consideration of $685,000 bearing interest at the
rate of seven percent (7%) per annum.
Since inception, the Company has not declared or paid a cash
dividend.
Stock Options:
Upon execution of a new Management Agreement in January 2000,
Michael Reynolds was vested with options to purchase up to
2,000,000 shares of the Company's common stock for a value of
$0.25 per share. Upon execution of a new Management Agreement in
January 2000, Ronnie Case was vested with options to purchase up
to 40,000 shares of the Company's common stock for a value of
$0.25 per share. These options were issued as of January 15,
2000. These options are currently exercisable, and as of March
31, 2000 none of these options had been exercised.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments:
The Company leases certain facilities which require future rental
payments. These rental arrangements do not impose any financing
restrictions on the Company or contain contingent rental
provisions.
Future minimum rental commitments under operating leases with
noncancelable lease terms in excess of one year were as follows
at March 31, 2000:
2000 $ 71,051
2001 89,635
2002 0
2003 0
2004 0
Thereafter 0
$160,686
Operating lease rental expense was $11,120 for the three month
period ended March 31, 2000.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Luminart Corp.
Thousand Oaks, California
I have audited the accompanying consolidated balance sheet
of Luminart Corp. and subsidiaries (the "Company") as of
September 30, 1999, and the related consolidated statement of
operations, changes in shareholders' equity and cash flows for
the year in the period ended September 30, 1999. These financial
statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I 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. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Luminart Corp. as of September 30, 1999 and the
consolidated results of its operations and its cash flows for the
period October 1, 1998 to September 30, 1999 in conformity with
generally accepted accounting principles.
/s/ Kurt D. Saliger
Kurt D. Saliger, C.P.A. (Nevada State License No. 2335)
Las Vegas, Nevada
December 27, 1999
LUMINART CORP.
CONSOLIDATED BALANCE SHEET
September 30, 1999
ASSETS
Current Assets
Cash $ 7,472
Receivables 140,442
Inventories 801,319
Other Current Assets 15,962
Total Current Assets 965,195
Property And Equipment, Net 603,140
Cost In Excess Of Net Assets Of
Business Acquired, Net 83,833
Capitalized Software Development Costs, Net 205,700
Organization Costs, Net 70,365
Deferred Taxes 82,805
Total Assets $2,010,938
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 29,364
Accrued Liabilities 142,885
Current Portion of long-term debt 0
Total Current Liabilities 172,249
Long-Term Debt 180,000
Shareholders' Equity
Preferred Stock 685,000
Common Stock, $0.001 par value
Authorized 100,000,000 shares, issued
17,006,167 17,006
Additional Paid In Capital 3,054,167
Retained Earnings (Deficit) (2,097,435)
Total Shareholders' Equity 1,658,689
Total Liabilities & Shareholders' Equity $2,010,938
See accompanying notes to consolidated financial statements.
LUMINART CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
October 1, 1998 to September 30, 1999
Revenue $1,637,683
Cost of Revenue:
Cost of Goods Sold 628,489
Gross Profit 1,009,194
Operating Costs and Expenses:
Amortization and Depreciation 186,300
Selling, General and Administrative 763,246
Other Operating Costs 242,959
Total Operating Costs and Expenses 1,192,505
Operating Income (183,311)
Interest Expense $ 59,938
Income Before Taxes $ (243,249)
Income Tax Expense (Benefit) $ (82,705)
Net Income $ (160,544)
Basic Income Per Share $ (0.01)
Diluted Income Per Share $ (0.01)
Average Shares Used In Per Share Computations:
Basic 17,006,167
Diluted 18,056,167
See accompanying notes to consolidated financial statements.
LUMINART CORP.
CONSOLIDATED CHANGES IN SHAREHOLDERS' EQUITY
September 30, 1999
Number Par Additional Retained
Of Value Paid In Earnings
Shares $0.001 Capital (Deficit)
Balance October 1, 1998 11,804,215 $11,804 $2,731,258 ($1,936,891)
November 6, 1998 3,100,000 3,100 27,900
Issued for Cash
December 10, 1998 300,000 300 59,700
Issued for Cash
January 1, 1999 100,000 100 9,900
Issued per Consulting
Agreement
January 15, 1999 111,667 112 17,892
Issued for Cash
February 25, 1999 1,000,000 1,000 149,000
Issued for Cash
February 26, 1999 and 590,285 590 58,438
March 19, 1999 Issued per
Consulting Agreement
Net (Loss) October 1, 1998
To September 30, 1999 (160,544)
Balance September 30,
1999 17,006,167 17,006 3,054,167 (2,097,435)
Preferred Stock
October 1, 1998 1,840,000 685,000
Preferred Stock
September 30, 1999 1,840,000 685,000
Total Shareholders' Equity
September 30, 1999 $1,658,689
See accompanying notes to consolidated financial statements.
LUMINART CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
October 1, 1998 to September 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $(160,544)
Adjustments to reconcile net income
To net cash provided by (used for)
Operating activities:
Amortization and Depreciation 186,300
Changes in Operating Assets and Liabilities
Increase in Accounts Receivable (149,652)
Increase in Inventories (102,952)
Decrease in Accounts Payable (47,727)
Increase in Accrued Liabilities 113,499
Increase in Deferred Taxes (82,705)
Net Cash Used In Operating Activities (243,781)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (180,489)
Net Cash Used in Investing Activities (180,489)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-Term Debt 159,000
Proceeds from Sale of Common Stock 259,004
Net Cash Provided By Financing Activities 418,004
NET INCREASE (DECREASE) IN CASH (6,266)
Cash, October 1, 1998 13,738
Cash, September 30, 1999 7,472
Non-cash Financing Activities - issuance of
common stock for consulting services 87,032
See accompanying notes to consolidated financial statements.
LUMINART CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Luminart Corp. (the "Company") is a technology company which is a
designer, developer, manufacturer, and marketer of proprietary
sign making products for the worldwide marketplace.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reporting amounts
in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Principles of Consolidation:
The consolidated financial statements of the Company include the
accounts of the Company and all its wholly-owned subsidiaries.
All significant intercompany transactions and balances are
eliminated.
Revenue Recognition:
Revenue is recognized when the Company has completed
substantially all manufacturing and/or sign development to
customer specifications, factory testing has been completed and
the product has been shipped. Additionally, for sign systems
where installation requirements are the responsibility of the
Company and payment terms are related to installation completion,
revenue is recognized when the system has been shipped to the
customer's final site for installation. The Company ships the
completed orders to its clients and bills the client for the
shipping costs.
Inventories:
Inventories are valued at the lower of average cost or market.
Inventories consisted of the following at September 30, 1999:
Raw Material $592,594
Finished Goods $208,725
$801,319
Property and Equipment:
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives as follows:
Leasehold improvements: 15 years
Manufacturing equipment: 7 years
Computer equipment, office
furniture and other: 5-7 years
Cost in Excess of Net Assets of Business Acquired, Net:
Cost in excess of net assets of business acquired is amortized on
a straight-line basis over 15 years. This represents the excess
of the cost of acquiring the Ecosphere Environmental Systems
business over the fair value of net assets received as of the
acquisition date by $100,000, net of the accumulated amortization
of $16,667 at September 30, 1999.
Capitalized Software Development Costs:
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of
technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require
considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated
future revenues, estimated economic life and changes in software
and hardware technologies. The capitalized software development
costs would be adjusted to fair market value if significant facts
and circumstances altered the Company's original assumptions and
rationale.
Unamortized capitalized software development costs determined to
be in excess of the net realizable value of the product are
expensed immediately.
Amortization of capitalized software costs is provided by the
straight-line method over the remaining estimated economic life
of the product. An original estimated economic life of 15 years
is assigned to capitalized software development of $239,651, net
of accumulated amortization of $33,951 at September 30, 1999.
All costs are attributable to Luminart International, Inc.
The Company has adopted SOP 97-2 and 98-9.
Organization Costs:
Organization costs are capitalized when incurred and are
amortized on a straight-line basis over a sixty (60) month
period. Organization costs incurred in 1998 are $86,017, net of
accumulated amortization of $15,252 at September 30, 1999.
Income Taxes:
The liability method as prescribed by Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" ("SFAS 109"), is used in accounting for income taxes.
At September 30, 1999 income tax expense was zero due to net
operating loss carryforwards available for tax purposes.
Income Per Share:
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share" ("SFAS 128"), which replaces
the presentation of primary and fully diluted earnings per share
with the presentation of basic and diluted earnings per share.
Basic income per share is computed by dividing net income
available to common shareholders by the weighted average common
shares outstanding for the period. Diluted income per share is
computed giving effect to all potentially dilutive common shares.
Potentially dilutive common shares may consist of incremental
shares issuable upon the exercise of stock options adjusted for
the assumed repurchase of the Company's common stock at the
average market price. The impact of SFAS 128 on the calculation
of earnings is as follows:
Fiscal Year Ended
September 30
1998 1999
Basic Income Per Share: $0.02 $(0.01)
Diluted Income Per Share N/A $(0.01)
Average Shares Used In Basic 11,804,215 17,006,167
Average Shares Used In Diluted N/A 18,056,167
Average Market Price of Stock $0.41 $0.42
Ending Market Price of Stock $0.21 $0.20
The following securities were excluded from the calculation of
diluted earnings per share at September 30, 1999 because they are
considered anti-dilutive under SFAS 128: Unexercised options
granted to Company officers in January 1997 of 1,000,000 shares
of the Company's common stock, exercisable at $0.25 per share.
NOTE 2 - PROPERTY AND EQUIPMENT
The Company's property and equipment consisted of the following
at September 30, 1999:
Leasehold improvements $ 81,860
Manufacturing equipment $ 662,731
Computer equipment, office
furniture and other $ 162,327
$ 906,918
Less: Accumulated
Depreciation $ (303,778)
$ 603,140
The Company has maintained in its possession, although not on its
records, assets associated with its 1994 dissolution of its then
wholly owned subsidiary, Ecosphere Environmental Systems. The
assets had been removed from the corporate balance sheet since
they were completely unassociated with corporate revenue
generating directions. In September, 1999 the Company was
approached by a firm interested in purchasing the assets and
were, therefore, viewed as a corporate revenue source and added
to the corporate ledgers. The sale was scheduled to be
consummated by September 30, however did not finalize until
November 11. The asset value returned to the corporate ledger
was $189,183, based on the amount removed from the Company
ledgers in 1994. The loss attributed to the sale is reported in
the Company's December 31, 1999 unaudited financial statements.
NOTE 3 - ACCRUED LIABILITIES
The Company's accrued liabilities consisted of the following at
September 30, 1999:
Payroll and related $ 82,947
Accrued interest $ 59,938
$142,885
NOTE 4 - COMMON AND PREFERRED STOCK
Description and Dividends:
At September 30, 1999 the Company was authorized to issue
100,000,000 shares of common stock, $0.001 par value. The common
stock is a publicly traded Over the Counter Bulletin Board Stock
with the symbol LUMP. As of September 30, 1999, 17,006,167 shares
of common stock were issued and outstanding of which 5,868,863
are restricted and the remaining 11,137,304 are free trading.
At September 30, 1999 the Company was authorized to issue
10,000,000 shares of preferred stock, $0.001 par value. The
preferred stock issued at September 30, 1999 consists of
1,840,000 preferred shares outstanding for consideration of
$685,000 bearing interest at the rate of seven percent (7%) per
annum.
Since inception, the Company has not declared or paid a cash
dividend.
Stock Options:
Upon execution of a Management Agreement in January 1997, Michael
Reynolds was vested with options to purchase up to 960,000 shares
of the Company's common stock for a value of $0.25 per share.
Upon execution of a Management Agreement in January 1997, Ronnie
Case was vested with options to purchase up to 40,000 shares of
the Company's common stock for a value of $0.25 per share. These
options were issued as of January 15, 1997. As of September 30,
1999, none of these options have been exercised.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments:
The Company leases certain facilities which require future rental
payments. These rental arrangements do not impose any financing
restrictions on the Company or contain contingent rental
provisions.
Future minimum rental commitments under operating leases with
noncancelable lease terms in excess of one year were as follows
at September 30, 1999:
2000 $ 82,171
2001 $ 89,635
2002 $ 0
2003 $ 0
2004 $ 0
Thereafter $ 0
$ 171,806
Operating lease rental expense was $108,924 for the twelve month
period ended September 30, 1999.
Litigation:
The Company is also party to other routine legal proceedings
incidental to its business. The lawsuit brought against the
Company in 1998 by Linda Lampenius was settled in August 1998
through arbitration and all liabilities associated therewith were
assumed by 638254 Alberta Ltd. when they purchased the Company's
wholly owned subsidiary, Chaos Group, Inc.
NOTE 6 - DISPOSITION OF SUBSIDIARIES
The Company entered into an agreement for the sale of Chaos
Group, Inc. on August 31, 1999 to 638254 Alberta Ltd. for
$100,000.
On June 30, 1999 the Company closed Clear Vision, Inc. and
transferred all of the subsidiary's operations to Luminart
International, Inc.
NOTE 7 - RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs as incurred.
For the year ending September 30, 1999 these expenses were zero.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Luminart Corp.
Oxnard, California
I have audited the accompanying consolidated balance sheet
of Luminart Corp. and subsidiaries (the "Company") as of
September 30, 1998, and the related consolidated statement of
operations, changes in shareholders' equity and cash flows for
the period January 1, 1998 to September 30, 1998. These
financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I 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. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Luminart Corp. as of September 30, 1998 and
the consolidated results of its operations and its cash flows for
the period January 1, 1998 to September 30, 1998 in conformity
with generally accepted accounting principles.
/s/ Kurt D. Saliger
Kurt D. Saliger, C.P.A. (Nevada State License No. 2335)
Las Vegas, Nevada
November 26, 1998
LUMINART CORP.
CONSOLIDATED BALANCE SHEET
September 30, 1998
ASSETS
Current Assets:
Cash in Banks $ 13,738
Accounts Receivable 9,210
Inventory 698,367
Other Current Assets 24,071
Total Current Assets 745,386
Other Assets:
Property and Equipment, Net 485,862
Cost in Excess of Net Assets of
Business Acquired, Net 92,500
Capitalized Software Development Costs, Net 221,677
Organization Costs, Net 73,223
Total Assets $1,618,648
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 77,091
Accrued Liabilities 29,386
Current Portion of Long Term Debt 0
Total Current Liabilities 106,477
Long Term Liabilities:
Note Payable (Noncurrent) 21,000
Total Long Term Liabilities 21,000
Shareholders' Equity:
Preferred Stock 685,000
Common Stock 11,804
Additional Paid-In Capital 2,731,258
Accumulated Deficit (1,936,891)
Total Shareholders' Equity 1,491,171
Total Liabilities & Shareholders' Equity $1,618,648
See accompanying Notes to Consolidated Financial Statements
LUMINART CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
January 1, 1998 to September 30, 1998
Revenue $ 765,141
Cost of Goods Sold 80,321
Gross Profit 684,820
Operating Costs & Expenses:
Amortization and Depreciation 63,600
Selling, General & Administrative 327,947
Other Operating Costs 15,017
Total Operating Costs and Expenses 406,564
Operating Income 278,256
Interest Expense 18,987
Income Before Income Taxes 259,269
Income Tax Expense 0
Net Income 259,269
Basic Income Per Share $0.02
Diluted Income Per Share $0.02
Average Shares Used in Per Share Calculations:
Basic 11,804,215
Diluted 11,804,215
See accompanying Notes to Consolidated Financial Statement
LUMINART CORP.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
September 30, 1998
Number Par Additional Retained
Of Value Paid In Earnings
Shares $0.001 Capital (Deficit)
Balance
January 1, 1998 9,354,215 $9,354 $2,378,708 ($2,196,160)
April 28, 1998 Asset
Purchase Agreement 1,100,000 $1,100 218,900
July 10, 1998 Consulting
Agreement 500,000 $ 500 49,500
July 15, 1998 Consulting
Agreement 650,000 $ 650 64,350
September 15, 1998
Consulting Agreement 200,000 $ 200 19,800
Net Income January 1,
1998 to September 30,
1998 259,269
Balance September 30,
1998 11,804,215 $11,804 2,731,258 (1,936,891)
Preferred Stock
January 1, 1998 1,840,000 $685,000
Preferred Stock
September 30, 1998 1,840,000 $685,000
Total Shareholders'
Equity
September 30, 1998 1,491,171
See accompanying Notes to Consolidated Financial Statement
LUMINART CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
January 1, 1998 to September 30, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 259,269
Adjustments to reconcile net income to net
cash provided for (used by) operating
activities:
Amortization and Depreciation 63,600
Changes in operating Assets and Liabilities:
Decrease in Accounts Receivable 119,162
Increase in Inventories (631,017)
Increase in Accounts Payable (6,221)
Decrease in Accrued Liabilities (24,522)
Net Cash (Used For) Operating Activities (219,729)
CASH FLOWS FROM INVESTING ACTIVITIES 0
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Long-Term Debt (225,084)
Proceeds from Sale of Common Stock 355,000
Net Cash Provided By Financing Activities 129,916
Net Increase (Decrease) in Cash (89,813)
Cash, January 1, 1998 103,551
Cash, September 30, 1998 13,738
See accompanying Notes to Consolidated Financial Statements
LUMINART CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Luminart Corp. (the "Company") is a technology company which is
a designer, developer, manufacturer, and marketer of transparent
and translucent sign making products for the worldwide marketplace.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Principles of Consolidation:
The consolidated financial statements of the Company include the
accounts of the Company and all its wholly-owned subsidiaries.
All significant intercompany transactions and balances are
eliminated.
Revenue Recognition:
Revenue is generally recognized when the Company has completed
substantially all manufacturing and/or sign development to
customer specifications, factory testing has been completed and
the product has been shipped. Additionally, for sign systems
where installation requirements are the responsibility of the
Company and payment terms are related to installation completion,
revenue is generally recognized when the system has been shipped
to the customer's final site for installation.
Inventories:
Inventories are valued at the lower of average cost or market.
Inventories consisted of the following at September 30, 1998:
Raw Material $530,163
Work In Progress 0
Finished Goods 168,204
$698,367
Property and Equipment:
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives as follows:
Leasehold Improvements 15 years
Manufacturing Equipment 7 years
Computer Equipment, Office
Furniture and Other 5-7 years
Cost in Excess of Net Assets of Business Acquired, Net:
Cost in excess of net assets of business acquired is amortized on
a straight-line basis over 15 years. This represents the excess
of the cost of acquiring the Echosphere Environmental Systems
business over the fair value of net assets received as of the
acquisition date by $100,000, net of accumulated amortization of
$7,500 at September 30, 1998.
Capitalized Software Development Costs:
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of
technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require
considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated
future revenues, estimated economic life and changes in software
and hardware technologies. The capitalized software development
costs would be adjusted to fair value if significant facts and
circumstances altered the Company's original assumptions and
rationale.
Unamortized capitalized software development costs determined to
be in excess of the net realizable value of the product are
expenses immediately.
Amortization of capitalized software costs is provided by the
straight-line method over the remaining estimated economic life
of the product. An original estimated economic life of 15 years
is assigned to capitalized software development costs of
$239,651, net of accumulated amortization of $17,974 at September
30, 1998.
Organization Costs:
Organization Costs are capitalized when incurred and are
amortized on a straight-line basis over a sixty (60) month
period. Organization costs are $86,017, net of accumulated
amortization of $12,794 at September 30, 1998.
Income Taxes:
The liability method as prescribed by Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" ("SFAS 109"), is used in accounting for income taxes.
At September 30, 1998 income tax expense was zero due to net
operating loss carryforwards available for tax purposes.
Income Per Share:
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share" ("SFAS 128"), which replaces
the presentation of primary and fully diluted earnings per share
with the presentation of basic and diluted earnings per share
(this statement became effective for periods ending after
December 15, 1997). Basic income per share is computed by
dividing net income available to common shareholders by the
weighted average common shares outstanding for the period.
Diluted income per share is computed giving effect to all
potentially dilutive common shares. Potentially dilutive common
shares may consist of incremental shares issuable upon the
exercise of stock options adjusted for the assumed repurchase of
the Company's common stock at the average market price. The
impact of SFAS 128 on the calculation of earnings is as follows:
Fiscal Year Ended
September 30, 1998
Basic Income Per Share: $0.02
Diluted Income Per Share N/A
Average Shares Used In Basic 11,804,215
Average Shares Used In Diluted N/A
Average Market Price of Stock $0.41
Ending Market Price of Stock $0.21
The following securities were excluded from the calculation of
diluted earnings per share at September 30, 1998 because they are
considered anti-dilutive under SFAS 128: Unexercised options
granted to Company officers in January 1997 of 1,000,000 shares
of the Company's common stock, exercisable at $0.25 per share.
NOTE 2 - PROPERTY AND EQUIPMENT
The Company's property and equipment consisted of the following
at September 30, 1998:
Leasehold Improvements $ 81,437
Manufacturing Equipment 506,864
Computer Equipment, Office Furniture and Other 159,944
748,245
Less: Accumulated Depreciation (262,383)
$ 485,862
NOTE 3 - ACCRUED LIABILITIES
The Company's accrued liabilities consisted of the following at
September 30, 1998:
Payroll and Related $10,399
Accrued Interest 18,987
$29,386
NOTE 4 - COMMON AND PREFERRED STOCK
Description and Dividends:
At September 30, 1998 the Company was authorized to issue
50,000,000 shares of common stock, $0.001 par value. The common
stock is a publicly traded Over The Counter Bulletin Board Stock
with the symbol LUMP. As of September 30, 1998, 11,804,215
shares of common stock were issued and outstanding of which
7,223,955 are restricted and the remaining 4,580,260 are free trading.
At September 30, 1998 the Company was authorized to issue
10,000,000 shares of preferred stock, $0.001 par value. The
preferred stock issued at September 30, 1998 consists of
1,840,000 preferred shares outstanding for considerations of
$685,000 bearing interest at the rate of seven percent (7%) per
annum.
Since inception, the Company has not declared or paid a cash dividend.
Stock Options:
Upon execution of a Management Agreement in January 1997, Michael
Reynolds was vested with options to purchase up to 960,000 shares
of the Company's common stock for a value of $0.25 per share.
Upon execution of a Management Agreement in January 1997, Ronnie
Case was vested with options to purchase up to 40,000 shares of
the Company's common stock for a value of $0.25 per share. These
options were issued as of January 15, 1997. As of September 30,
1998, none of these options have been exercised.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments:
The Company leases certain facilities which require future rental
payments. These rental arrangements do not impose any financing
restrictions on the Company or contain contingent rental provisions.
Future minimum rental commitments under operating leases with
noncancelable lease terms in excess of one year were as a follows
at September 30, 1998:
1999 $ 98,844
2000 42,684
2001 24,899
2002 0
2003 0
Thereafter 0
$166,427
Operating lease rental expense was $103,241 for the nine month
period ended September 30, 1998.
Litigation:
On September 8, 1998 the Company was sued by Linda Lampenius.
also known as Linda Brava ("Plaintiff") in Los Angeles Superior
Court for the County of Los Angeles. The lawsuit claims breach
of contract, breach of implied covenant of good faith and fair
dealing, fraud, breach of fiduciary duty, claim and delivery,
conversion, declaratory relief and accounting. Plaintiff is
claiming damages collectively in excess of $750,000. The
Company is in the process of preparing a counterclaim against the
Plaintiff with causes of action sounding in contract and tort.
The Company intends to defend and prosecute the lawsuit
vigorously. Given the fact that the case is in its infancy, the
prediction of the outcome is unavailable as discovery has not yet
commenced.
The Company is also party to other routine legal proceedings
incidental to its business.
PART III.
ITEMS 1 and 2. INDEX TO EXHIBITS; DESCRIPTION OF EXHIBITS.
The Exhibits required by Item 601 of Regulation S-B, and an index
thereto, are attached.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Company caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
LUMINART CORP.
Date: June 15, 2000 By: /s/ Wm. Michael Reynolds
Wm. Michael Reynolds, President
Special Power of Attorney
The undersigned constitute and appoint Wm. Michael Reynolds their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any
and all capacities, to sign any and all amendments, including
post-effective amendments, to this Form 10-SB Registration
Statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the U.S. Securities
and Exchange Commission, granting such attorney-in-fact the full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
attorney-in-fact may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this registration statement has been signed by the
following persons in the capacities and on the dates indicated:
Signature Title Date
/s/Wm. Michael Reynolds President/Chief Executive June 15, 2000
Wm. Michael Reynolds Officer/Chairman of the Board
/s/ Ronnie Case Secretary/Treasurer June 15, 2000
Ronnie Case (principal financial and
accounting officer)/Director
/s/ Eric Lewis Director June 15, 2000
Eric Lewis
/s/ James Crestani Director June 15, 2000
James Crestani
/s/ George A. Jones Director June 15, 2000
George A. Jones
EXHIBIT INDEX
Number Exhibit Description
2.1 Plan and Agreement of Merger (see below).
2.2 Agreement and Plan of Reorganization (see below).
3.1 Articles of Incorporation (see below).
3.2 Articles of Amendment to the Articles of Incorporation (see
below).
3.3 Certificate of Amendment to Articles of Incorporation (see
below).
3.4 Certificate of Amendment of Amendment to Articles of
Incorporation (see below).
3.5 Certificate of Amendment to Articles of Incorporation
(see below).
3.6 Bylaws (see below).
10.1 Asset Purchase Agreement between the Company and Frankopan &
Co., dated April 6, 1998 (see below).
10.2 Consulting Agreement between the Company and Labranda, Inc.,
dated July 10, 1998 (see below).
10.3 Consulting Agreement between the Company and FPI, dated July
15, 1998 (see below).
10.4 Consultation Agreement between the Company and HBL &
Associates, dated September 15, 1998 (see below).
10.5 Consultation Agreement between the Company and Don Docken,
dated January 1, 1999 (incorporated by reference to Exhibit 10.2
of the Form 10-QSB filed on May 15, 2000).
10.6 Consultation Agreement between the Company and Izumi Von
Hardenberg, dated February 26, 1999 (see below).
10.7 Consultation Agreement between the Company and Lawrence
Erber, dated February 26, 1999 (see below).
10.8 Agreement to Purchase between the Company and 638254 Alberta
Ltd., dated August 31, 1999 (see below).
10.9 Toll Processing Agreement between Luminart International,
Inc. and PRC-DeSoto Canada, Inc., dated December 1, 1999
(incorporated by reference to Exhibit 10.1 of the Form 10-QSB
filed on May 15, 2000).
10.10 Management Contract between the Company and Wm. Michael
Reynolds, dated January 15, 2000 (incorporated by reference to
Exhibit 10.3 of the Form 10-QSB filed on May 15, 2000).
10.11 Management Contract between the Company and Ronnie
Case, dated January 15, 2000 (incorporated by reference to
Exhibit 10.4 of the Form 10-QSB filed on May 15, 2000)
21 Subsidiaries of the Company (see below).
24 Special Power of Attorney (see signature page).
27 Financial Data Schedules (see below).
99 Patent Abstract (see below).
