U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
LIGHTTOUCH VEIN & LASER, INC.
(Name of Small Business Issuer in its charter)
NEVADA 87-0575118
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
10663 MONTGOMERY ROAD, CINCINNATI, OHIO 45242
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (513) 891-8346
Securities to be registered under Section 12(b) of the Act: NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of class)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
LightTouch Vein & Laser, Inc. (formerly Strachan, Inc.) (the "Company")
was organized under the laws of the State of Nevada on May 1, 1981. Effective
October 1, 1999, it acquired LightTouch Vein & Laser, Inc. ("LightTouch-Ohio"),
a company incorporated on March 12, 1997 under the laws of the State of Ohio.
Effective October 22, 1999, Strachan, Inc. changed its name to LightTouch Vein &
Laser, Inc. On March 31, 2000, the Company, through LightTouch Vein & Laser of
South Carolina, Inc. ("LightTouch-South Carolina"), a South Carolina corporation
formed for the purpose of effecting the acquisition, acquired the assets the
Charleston Dermatology and Cosmetic Surgery Center. The Company's offices are
located at 10663 Montgomery Road, Cincinnati, Ohio 45242, and its telephone
number is (513) 891-8346. Its registered office and records are located at One
East First Street, Reno, Nevada.
The Company, through LightTouch-Ohio and LightTouch-South Carolina, its
wholly-owned subsidiaries, provides aesthetic laser and cosmetic services in the
Cincinnati, Ohio, and Charleston, South Carolina, areas at the following
centers:
o 10663 Montgomery Road, Cincinnati, Ohio
o 7210 Turfway Road, Florence, Kentucky
o 29 Gamecock Avenue, Charleston, South Carolina
Ohio and South Carolina laws mandate that a professional association
may render professional services only through officers, employees, and agents
who are themselves duly licensed, certified, or otherwise legally authorized to
render the professional service. Accordingly, LightTouch-Ohio and
LightTouch-South Carolina, neither of which is a professional association, have
engaged Vein & Laser Center, Inc. and Dr. Harley F. Freiberger, M.D.,
respectively, as the actual providers of all medical services. Vein & Laser
Center, Inc. is a professional association and has three physicians as
employees. LightTouch-Ohio and LightTouch-South Carolina provide the medical
equipment, supplies, assistants, and facilities and marketing, accounting,
administrative, billing, and collection services to operate the laser centers.
All of the personnel at the centers are LightTouch-Ohio employees except for the
physicians themselves.
Vein & Laser Center, Inc. is an Ohio corporation. Colin C. Herd, M.D.,
a principal shareholder of the Company, is its president and sole shareholder.
Under the terms of a Medical Director and Administrative Services Agreement
entered into as of July 30, 1997, Vein & Laser has sole responsibility for all
medical and professional matters relating to the operations of the medical
practice and LightTouch-Ohio's laser center. Vein & Laser carries its own
professional liability insurance coverage. LightTouch-Ohio is responsible for
billing and collecting payments from patients, scheduling patient appointments,
assisting with record keeping functions, and providing medical support staff.
LightTouch-Ohio carries the property damage insurance protecting the center's
premises and personal property located therein, as well as general liability
insurance. Patients of the center are billed an amount which includes charges by
Vein & Laser Center, as well as charges by LightTouch-Ohio. LightTouch-Ohio is
obligated to pay Vein & Laser the amounts it collects on behalf of Vein & Laser.
A minimum weekly amount is paid by LightTouch-Ohio to Vein & Laser and the
parties reconcile the accounts after each calendar quarter. The guaranteed
weekly minimum covers compensation for the physicians and physician's assistants
(including Dr. Herd), malpractice insurance, continuing medical education and
expenses. The initial term of the Agreement is ten years, with automatic
renewals for five-year periods. Vein & Laser Center, Inc. currently has three
physicians as employees, including Dr. Herd. The Agreement contains provisions
to protect the proprietary information belonging to LightTouch-Ohio, as well as
covenants by Vein & Laser Center not to compete during the term of the Agreement
and for a period of three years following the termination of the Agreement.
The South Carolina Medical Director and Administrative Services
Agreement with Dr. Freiberger, entered into as of March 29, 2000, is for an
initial term of ten years with automatic renewals for five-year periods. Dr.
Freiberger is responsible for all medical and professional matters relating to
the operations of the LightTouch-South Carolina's laser center and providing
medical services for its patients. He is permitted to continue to operate and
maintain a separate medical practice at LightTouch-South Carolina's center where
he provides services under arrangements with insurers, health maintenance
organizations, and other third-party payors. LightTouch-South
2
<PAGE>
Carolina is responsible for patient relations (other than medical evaluation,
diagnosis and treatment), billing and collecting payments from patients,
assisting with record keeping functions, and providing medical support staff.
LightTouch-South Carolina carries the property damage insurance protecting the
center's premises and personal property located therein, as well as general
liability insurance. Beginning April 1, 2000, Dr. Freiberger is to be paid all
of the first $40,000 of cash flow received by LightTouch-South Carolina for the
first 24 months, or for a longer period if the note to Dr. Freiberger has not
been paid in full. See Item 2. Management's Discussion and Analysis or Plan of
Operation - Liquidity and Capital Resources for a description of the note. All
cash flow received LightTouch-South Carolina above $40,000 per month up to
$55,000 per month during the 24-month period is to be retained by
LightTouch-South Carolina. Monthly cash flow above $55,000 during this period is
to be shared equally between Dr. Freiberger and LightTouch-South Carolina. After
the initial 24-month period (or longer if the note has not been paid in full),
Dr. Freiberger is to be paid a guaranteed minimum annual salary of $175,000 plus
50% of the cash flow of LightTouch-South Carolina. The Agreement contains
provisions to protect the proprietary information belonging to LightTouch-South
Carolina, as well as covenants by Dr. Freiberger not to compete during the term
of the Agreement.
The Company entered into a National Medical Director Agreement with Dr.
Freiberger as of March 29, 2000. The initial term of the agreement ends April 1,
2001 and thereafter, the agreement automatically renews for additional five-year
terms. Dr. Freiberger is to assume responsibility for the quality control and
professionalism of the Company's centers on a national basis, with the authority
to appoint local medical directors for each individual center. The Company is to
be responsible for patient record keeping functions and assisting the Dr.
Freiberger and medical directors of the centers with the implementation of
quality assurance programs. The Company issued to Dr. Freiberger 124,224 shares
of its Common Stock, valued at $500,000, as a bonus for entering into the
agreement, and 447,205 shares of its Common Stock, valued at $1,800,000, for his
performance during the initial term of the agreement. All of the shares are
subject to forfeiture if Dr. Freiberger fails to perform substantially the
duties of national medical director as set forth in the agreement.
SERVICES OFFERED
LightTouch-Ohio and LightTouch-South Carolina offer the following types
of aesthetic laser and cosmetic services:
1. Cosmetic laser procedures (approximately 54% of sales) include
facial resurfacing (removal of freckles, age spots, moles,
warts, and birthmarks), laser treatment for scar improvement
and stretch marks, laser hair removal, and laser tooth
whitening.
2. Vein treatments (approximately 28% of sales) refers to laser
vein elimination to treat conditions such as spider veins.
3. Hair replacement (approximately 10% of sales)
4. Body contouring (approximately 8% of sales) includes
liposuction, body wraps, and therapeutic massage treatments.
All of the services are rendered at the centers listed above.
LightTouch-Ohio also operates a mobile laser service under the name
Tri-State Mobile Laser Services, through which it offers mobile laser equipment
services to physicians, hospitals and clinics within a 600-mile radius of
Cincinnati.
MARKETING AND ADVERTISING
The target market for aesthetic laser and cosmetic services is
generally comprised of men and women between the ages of 35 and 55 who have
discretionary income.
3
<PAGE>
The Company employs both in-house and outside marketing efforts, which
include yellow page advertising, internal point of sale materials, and selected
broadcast vehicles. In addition, an infomercial is currently being developed.
COMPETITION
Management of the Company believes that cosmetic laser services will
attract more competitors since this field is gaining in popularity and
acceptance by consumers. Also, management believes that the cost of cosmetic
lasers will decrease, enabling others to enter the market. There can be no
assurance that the Company will be able to compete with others who will enter
the market.
Currently, LightTouch-Ohio and LightTouch-South Carolina compete with a
few other centers in the greater Cincinnati and Charleston areas, respectively,
which offer their full range of services. There are numerous other businesses
that offer one or more of the services. Some businesses focus exclusively on one
type of service, such as hair replacement centers, and other businesses offer a
service as a complement to others. For example, many day spas offer body wraps
and massage treatments in addition to beauty salon services.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES
The body wraps used by LightTouch-Ohio are used under a license
agreement with VMM Enterprises, Inc., an unrelated third party. Under the terms
of the License and Distribution Agreement dated August 26, 1998, LightTouch-Ohio
was required to pay an initial fee of $9,950 in exchange for an exclusive
license to use the body wrap products in the greater Cincinnati area.
GOVERNMENT APPROVALS AND REGULATION
The practice of medicine is highly regulated, primarily by state
regulatory authorities. The growing popularity of cosmetic laser procedures has
attracted concern from regulatory authorities. While the American Board of
Plastic Surgery requires a five-year surgical residency, anyone with a medical
degree can perform cosmetic services. "Cosmetic services" refers to both
surgical and non-surgical techniques, procedures or methods designed to correct
or improve the physical appearance and attractiveness of patients. Further, many
procedures are performed in offices rather than in hospitals. Should an
emergency arise during the procedures, offices may not be equipped to handle the
emergency. Lastly, authorities are concerned about the growing trend in multiple
procedures, such as combining a face-lift with liposuction, which may keep
patients on a surgical table too long, putting them at risk for complications.
Certain states have initiated stricter regulations for in-office surgeries.
Management of the Company is not aware of any stricter regulations being
considered in the States of Ohio or South Carolina. However, there can be no
assurance that stricter regulations will not be enacted in the future, impairing
the Company's business.
EMPLOYEES
As of April 30, 2000, the Company, through LightTouch-Ohio and
LightTouch-South Carolina had 36 employees, 32 of which were full-time. These
employees perform the following types of functions: administration (3
employees), sales/patient education (7 employees), clerical (10 employees),
aesthetician (1 employee), laser technology (4 employees), medical support staff
(9 employees), and massage therapy/endermologie (2 employees).
LightTouch-Ohio and LightTouch-South Carolina have employment
agreements with their employees that contain provisions relating to the
nondisclosure of company trade secrets and confidential information and
non-competition after termination. During the two-year period following
termination of employment, employees agree not to hire other employees of
LightTouch-Ohio or LightTouch-South Carolina, solicit any business of
LightTouch-Ohio or LightTouch-South Carolina, or engage in any business that
competes with LightTouch-Ohio or LightTouch-South Carolina anywhere within 200
miles of any LightTouch location. LightTouch-Ohio has initiated legal
proceedings against former employees to enforce the provisions of employment
contracts. See Part II - Item 2. Legal Proceedings. The agreements with Vein &
Laser Center, Inc. and Dr. Freiberger contain similar
non-compete/non-solicitation provisions.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company was formerly a shell company known as Strachan, Inc. Prior
to the transaction with LightTouch-Ohio, Strachan had 33 shareholders, 750,002
outstanding shares of Common Stock, and nominal assets and liabilities. Strachan
had been approved for listing on the OTC Bulletin Board. Management of
LightTouch-Ohio desired the business combination with Strachan because it was
believed that Strachan's public trading market for its shares would facilitate
the future growth of LightTouch.
Strachan issued 6,750,000 shares of its Common Stock to the
shareholders of LightTouch-Ohio in exchange for 100% of their shares in
LightTouch-Ohio. As a result, LightTouch-Ohio became a wholly-owned subsidiary
of Strachan. Immediately after the transaction, the former shareholders of
LightTouch-Ohio owned 90% of the issued and outstanding shares of Strachan.
The acquisition of LightTouch-Ohio effective October 1, 1999 has been
accounted for as a reverse acquisition with LightTouch-Ohio being the deemed
acquiror for accounting purposes. The transaction has been accounted for as the
issuance of shares by LightTouch-Ohio for the net assets of Strachan.
Accordingly, the financial statements included with this registration statement
reflect the financial position, results of operations, and cash flows of
LightTouch-Ohio from August 1, 1997, consolidated with those of Strachan from
October 1, 1999.
As of March 31, 2000, the Company completed its acquisition of a
cosmetic laser center in Charleston, South Carolina. This acquisition was made
through the issuance of a non-interest bearing note in the amount of $700,000.
Accounts receivable of $69,125, property and equipment of $401,529, intangible
assets of $227,221, and other assets of $3,526 were acquired and accounts
payable of $92,102 and capital leases of $13,543 were assumed. The statement of
operations for the three months ended March 31, 2000 was not affected and do not
reflect the operations of the acquired center because the acquisition was
accounted for as a purchase at the end of the quarter.
The Company's fiscal year end is December 31. The following is a
summary of certain selected financial information based on the unaudited
financial statements as of and for the three months ended March 31, 2000 and the
audited financial statements as of and for the years ended December 31, 1999 and
1998, and as of and for the period from August 1, 1997 to December 31, 1997.
Reference should be made to the financial statements attached to this
registration statement to put the following summary in context.
<TABLE>
BALANCE SHEET DATA:
<CAPTION>
MARCH 31,
2000
(Unaudited) 1999 1998 1997
<S> <C> <C> <C> <C>
Working capital (deficiency) $ (171,474) $ (123,183) $ (185,196) $ (223,327)
Long-term debt 673,499 0 86,297 0
Total assets 1,017,032 164,704 129,170 63,995
Shareholders' (deficiency) (289) (18,891) (219,169) (182,381)
</TABLE>
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
August 1,
Three Months Ended Year Ended 1997 to
March 31, December 31, December 31,
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net sales $ 638,408 $ 591,784 $ 2,389,960 $ 1,830,128 $ 609,880
(Loss) from operations (16,850) (83,410) (277,761) (81,797) (267,381)
Net (loss) 15,395 (126,260) (351,277) (207,788) (272,381)
</TABLE>
RESULTS OF OPERATIONS
FISCAL YEARS. LightTouch-Ohio has experienced increased sales since it
began operations in August 1997. Net sales have increased from $609,880 in
fiscal 1997 to $1,830,128 in 1998 and $2,389,960 in 1999. Management believes
that the increase in sales from 1997 to 1998 of approximately 200% was due to
the fact that 1998 was a full twelve months of operation and also to an increase
in sales staff (one in 1997 as compared to two in 1998). The 8.3% increase in
revenues from cosmetic laser services from $1,830,128 in 1998 to $1,982,113 in
1999 was due to more experienced sales personnel and expanding the kinds of
services offered to patients. During 1999, LightTouch-Ohio introduced
therapeutic massage (for body contouring), tooth whitening laser treatments, and
power facial peel treatments.
While LightTouch-Ohio has not specifically tracked the number of
procedures performed, based on dividing the average procedure cost into
revenues, management estimates that in 1998, 849 procedures were performed, as
compared to 919 in 1999. The following table sets forth management's estimate of
the number of procedures performed, using the categories of procedures
(explained above in Part I - Item 1. Description of Business Services Offered):
<TABLE>
<CAPTION>
NUMBER OF PROCEDURES PERFORMED
TYPE OF PROCEDURE 1999 1998 1997
<S> <C> <C> <C>
Cosmetic laser procedures 431 398 132
Vein treatments 338 312 104
Hair replacement 99 92 30
Body sculpting 51 47 16
TOTAL 919 849 282
</TABLE>
Approximately 10% of revenues from cosmetic laser services was due to
repeat patients. Management believes that patients get comfortable with the
concept of cosmetic procedures and have more procedures performed as time
progresses. Also, management believes that there is an increasing societal
acceptance of cosmetic procedures. In addition, LightTouch-Ohio added laser
sales and service as another revenue stream in fiscal 1999. Such revenues were
17% of total net sales.
While sales revenues are increasing, losses from operations and net
losses are fluctuating with each year. The loss from operations decreased from
$267,381 in 1997 to $81,797 in 1998, but increased to $277,761 in 1999. The net
loss decreased from $272,281 in 1997 to $207,788 in 1998, but increased to
$351,277 in 1999. In 1997, cost of sales and general and administrative expenses
were 80% and 64% of revenues, respectively. In 1998, cost of sales and general
and administrative expenses were 56% and 48% of revenues, respectively.
Management believes that the improvement in 1998 was due to the negotiation of a
significant reduction of a royalty payment on a hair removal laser, as well as
the ability of the Company to spread certain fixed costs over a larger sales
revenue base. In 1999, cost of sales and general and administrative expenses
were 69% and 43% of revenues, respectively. As a percentage of revenues, cost of
sales increased in 1999 due to the addition of its mobile laser service, as well
as the acquisition of other laser equipment. The mobile laser sales and service
segment is presently breaking even. In 1999, general and administrative expenses
decreased as a percentage of revenues, but increased by 15% over 1998 amounts
due to the costs of the reverse acquisition transaction, and the costs of
becoming a public company.
INTERIM PERIODS. LightTouch-Ohio experienced a respectable same store
sales increase of 7.88% in the first quarter of 2000. Sales increased at the
Company's flagship location in Cincinnati, Ohio from $591,784 in the first three
months of 1999 to $638,408 in 2000. Management believes that the increase in
sales from 1999 to 2000 reflects a growing demand for the Company's products and
services offered to patients. The Company expects revenues to continue to
increase on a same store basis due to greater awareness of the Company's
products and services in the public market. Management believes that the market
awareness of products and services offered by the Company is less than five
percent of the target market.
As a result of increasing revenues and improved cost management,
LightTouch-Ohio improved its gross profit for the quarter ended March 31, 2000.
Gross profit increased from $143,429 for the three months ended March 31, 1999
to $313,577 for the quarter ending March 31, 2000, a 118% increase. In addition
to a significant
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<PAGE>
improvement in gross profit, LightTouch-Ohio experienced a significant
improvement in net income as a result of improved operational performance.
Management is pleased to report its first quarterly profit of $15,395 for the
quarter ended March 31, 2000. This is a significant improvement over the first
quarter of 1999, which reported a loss of $126,260. Management does not believe
it will continue to report quarterly profits as it begins to focus on its
acquisition strategy over the next several years, but does believe it will begin
to see the benefits of its growth in the number of centers it owns through
improved operating efficiencies.
REMAINDER OF FISCAL YEAR. Management is anticipating that sales
revenues will continue to grow with the acquisition of more centers. Further,
while the Company engages in acquisitions of existing practices, it is
anticipated that general and administrative expenses will not decrease due to
the addition of corporate infrastructure to support this growth. Also, cost of
sales is anticipated to be higher immediately after acquisitions due to
increased sales and marketing efforts to the public. There can be no assurance
that the Company will be profitable. The Company only recently began operations
in August 1997 and it is engaging in a business industry that is also relatively
new.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had a working capital deficiency of
$123,183, as compared to a working capital deficiency of $185,196 at December
31, 1998. At March 31, 2000, the Company had a working capital deficiency of
$171,474. The deficiency increased at March 31, 2000 partially as a result of
the South Carolina acquisition. While accounts receivable of $69,125 was
acquired, accounts payable of $92,102 was assumed. The deficiency at March 31,
2000 is being addressed through the sources of liquidity described below: sales
of equity, loans, lease financing, and internally generated cash flow.
SALES OF EQUITY. Since August 1997, LightTouch-Ohio has been financed
primarily through the sale of stock and loans from its officers. Proceeds from
the sale of stock were $172,000 and $200,000 during the years ended December 31,
1998 and 1999, respectively. No sales of equity occurred during the three months
ended March 31, 2000. The Company is currently offering shares of its Common
Stock in a private placement. As of May 25, 2000, 51,000 shares had been sold
for gross proceeds of $153,000. The proceeds are to be used for general
corporate purposes, marketing, and advertising.
LOANS. Proceeds from the issuance of debt were $364,129 and $100,000
during the years ended December 31, 1998 and 1999, respectively. No borrowing
for working capital occurred during the three months ended March 31, 2000. The
Company is currently in negotiations to secure a line of credit with several
large banks. The Company currently has verbal indications of interest from
several local banks and management believes that it will be successful in
securing a line of credit of $500,000 to $1,000,000 sometime during the current
fiscal year.
The acquisition of the South Carolina center was made through the
issuance of a non-interest bearing note in the amount of $700,000. Repayment of
the note is based on the achievement of that center meeting certain cash flow
objectives. If the center maintains a cash flow of not less than $400,000 for
the twelve months ended December 31, 2000, $200,000 shall be paid on the note by
March 29, 2001, and $500,000 shall be paid by March 29, 2002. If such cash flow
is not maintained, the note automatically renews for successive twelve-month
periods until the required cash flow is attained.
LEASE FINANCING. The Company has been able to finance most of its
capital equipment needs through lease financing from affiliated parties.
Although there are no written obligations or guarantees, management believes
that this source of financing will continue to be available to the Company on an
as-needed basis. As the Company grows, management hopes that it will be able to
attract institutional lenders to meet the needs of future capital equipment.
Management believes that equipment manufacturers are interest in financing
future equipment purchases as a marketing tool to sell future equipment and
competing technology equipment.
INTERNALLY GENERATED CASH FLOW. During the past twelve months, the
Company has focused its efforts on restructuring its debt and other obligations.
At December 31, 1998 and 1999, amounts owed to related parties were $249,140 and
$-0-, respectively. The improvement was due large part to the conversion of
$300,000 in debt to equity by Gregory F. Martini, the sole officer and director
and a principal shareholder of the Company. See Part I - Item 7. Certain
Relationships and Related Transactions. Management estimates that this
conversion of debt into
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<PAGE>
equity saved the Company approximately $21,000 per month of principal and
interest payments. LightTouch-Ohio also renegotiated the payment terms of
various lease agreements with Intram Investment Corporation, a company owned and
controlled by Mr. Martini, resulting in estimated savings of $9,500 per month.
In addition, Dr. Herd agreed in late 1999 to reduce his compensation from
$250,000 to $100,000 per year. This reduction is estimated to result in savings
of approximately $12,500 per month. Total monthly cash flow is estimated to
increase by approximately $43,000 per month due to these restructuring
transactions.
In addition to the improvement in cash flow due to debt restructuring,
LightTouch-Ohio sold shares for gross proceeds of $200,000 during the 1999
fiscal year.
Management is not aware of any known trends, events, or uncertainties
that could have a material impact on the Company's short-term or long-term
liquidity. Management expects to address any future liquidity needs through the
issuance of debt and/or equity securities, bank loans, loans from shareholders,
and lease financing of equipment. There can be no assurance that any such
financing will be available when needed and on terms favorable to the Company.
At this time, the Company does not have any material commitments for capital
expenditures.
PLAN OF OPERATION
The Company proposes to grow by acquiring established facilities that
have an existing physician with experience in laser and vein treatments, a
cosmetic orientation towards the practice, break-even or profitable operations,
and a strong interest in having an ownership interest in the Company. Management
believes that it can build strong brand name recognition for centers and create
operating efficiencies through economies of scale.
ITEM 3. DESCRIPTION OF PROPERTY.
Neither the Company nor its subsidiaries own any real property.
LightTouch-Ohio leases approximately 6,000 square feet of medical office space
in Cincinnati, Ohio, from Intram Investment Corporation, a stockholder of the
Company. The lease expires July 31, 2007, and requires monthly lease payments of
$10,000, adjusted each August 1. The base rent is currently $10,000 per month.
See Part I - Item 7. Certain Relationships and Related Transactions.
LightTouch-South Carolina assumed the lease for approximately 5,440
square fee of medical office space at 29 Gamecock Avenue, Charleston, South
Carolina, which is made with an unaffiliated third party. The lease expires
November 30, 2005, and requires monthly lease payments of $6,695, increasing 3%
on October 1, 2000 and October 1, 2001, and 3.5% annually thereafter.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of May 31, 2000:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF OWNER NUMBER OF SHARES OWNED PERCENT OF CLASS (1)<F1>
<S> <C> <C>
Gregory F. Martini 2,965,057 (2)<F2>(3)<F3> 36.50%
Colin C. Herd, M.D. 2,628,129 (3)<F3>(4)<F4> 32.36%
Harley F. Freiberger, M.D. 571,429 (5)<F5> 7.04%
8
<PAGE>
<CAPTION>
NAME AND ADDRESS OF OWNER NUMBER OF SHARES OWNED PERCENT OF CLASS (1)<F1>
Wayne Perrone 134,775 1.7%
Officers and Directors as a group 3,671,261 (2)<F2>(5)<F5> 45.20%
--------------------------------------------------------------------------------------------------------------
<FN>
(1)<F1> This table is based on 8,122,431 shares of Common Stock outstanding on May 31, 2000.
(2)<F2> Includes 134,775 shares owned of record by Intram Investment
Corporation, a company owned and controlled by Mr. Martini, and
2,830,282 shares owned of record by Plymouth Partners, LP, a Delaware
limited partnership. Mr. Martini is the president of the corporate
general partner of Plymouth Partners, LP.
(3)<F3> Mr. Martini and Dr. Herd may be deemed to be the "parents" of the
Company within the meaning of the rules and regulations under federal
securities laws.
(4)<F4> Includes 202,164 shares owned of record by various trusts for Dr. Herd's children for which his wife
serves as trustee.
(5)<F5> Up to 447,205 of these shares are subject to forfeiture under the terms
of the National Medical Director Agreement. See Item 1. Description of
Business.
</FN>
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Gregory F. Martini 38 President, Secretary, Treasurer, and Director
Harley F. Freiberger, M.D. 48 National Medical Director
Wayne Perrone 46 Vice President/Chief Operating Officer
</TABLE>
The term of office of each director of the Company ends at the next
annual meeting of the Company's stockholders or when the director's successor is
elected and qualified. No date for the next annual meeting of stockholders is
specified in the Company's Bylaws, and no meeting date has been fixed by the
Board of Directors. The term of office of each officer of the Company ends at
the next annual meeting of the Company's Board of Directors, which is expected
to take place immediately after the next annual meeting of stockholders, or when
such officer's successor is elected and qualified.
GREGORY F. MARTINI has been the sole officer and director of the
Company since January 20, 1999. He has been the Treasurer, and a director of
LightTouch-Ohio since its inception in March 1997, and was the President from
March 1997 to December 1999. In December 1999, he took on the positions of Chief
Executive Officer and Chief Financial Officer for LightTouch-Ohio. He has also
been the president and a director of Intram Investment Corporation, a private
corporation located in Union, Kentucky, which renders investment advice to
individuals and firms. From May 1996 to June 1998, Mr. Martini was the managing
director and head of high yield capital markets for Union Bank of Switzerland,
New York, New York. He was employed by Citicorp Securities, Inc., New York, New
York, in a similar capacity from June 1993 to April 1995. While at Citicorp he
was responsible for 30 professionals in sales, research, and trading, and
managed over $250 million of inventory in high yield securities. From October
1989 to September 1991, he was a managing director at BT Securities, New York,
New York, where he had responsibility for managing that firm's high yield debt
securities. Mr. Martini was vice president, high yield securities for Salomon
Brothers, New York, New York, from April 1986 to October 1989. From June 1983 to
April 1986, he was a portfolio manager of fixed income securities for Union
Central Life Insurance Co., Cincinnati, Ohio. Mr. Martini received a bachelor's
degree in finance and accounting from Xavier University in Cincinnati, Ohio, in
1984, and received his designation as a chartered financial analyst (CFA) in
1987.
9
<PAGE>
Mr. Martini may be deemed to be the "promoter" of the Company within
the meaning of the Rules and Regulations under federal securities laws.
DR. HARLEY F. FREIBERGER has been the National Medical Director of the
Company since March 29, 2000. In addition, he has served as Medical Director and
President of LightTouch-South Carolina since March 29, 2000. Dr. Freiberger was
engaged in his private practice, Charleston Dermatology & Cosmetic Surgery
Center, from 1983 until its acquisition by LightTouch-South Carolina in March
2000. He has been a pioneer in the use of lasers for cosmetic procedures and
developed the technique known as "Dual Laser Blepharophasty," hailed as a
breakthrough in Dermatologic Surgery by the American Society of Dermatologic
Surgery in 1998. Dr. Freiberger received his Bachelor of Science degree in 1974
and his medical degree in 1978 from Duke University School of Medicine, where he
also served a research fellowship at the Dermatologic Research Laboratories. Dr.
Freiberger performed his graduate training internship in internal medicine at
the Medical University of South Carolina, as well as his residency in internal
medicine and dermatology, from 1979 to 1982. Dr. Freiberger is board certified
by the American Board of Dermatology, American Society for Mohs Micrographic
Surgery and Cutaneous Oncology, American Board of Cosmetic Surgery, and board
eligible by the American Board of Internal Medicine. He was elected and served
as President of the American Society for Mohs Surgery from 1996 to 1997. Dr.
Freiberger is active as a regular speaker, presenter, and educator at clinical
and scientific meetings and workshops nationally.
WAYNE PERRONE has been the Chief Operating Officer of the Company since
April 2000. Mr. Perrone has been with Restaurant Management, Inc., a private
company based in Cincinnati, Ohio, which owns and operates 65 Arby's locations
in Ohio, Kentucky, Indiana, Tennessee, and Georgia. He has served in various
capacities since 1983: Vice President Marketing (1983-1984), Chief Executive
Officer (1985-1994), President and Chief Executive Officer (1995-1998), and
Chairman (1998 to the present). From 1993 to 1999, he was director of Mid South
Restaurants, Inc., a private company based in Atlanta, Georgia, which owns and
operates 15 Arby's locations in Georgia and Alabama. Since 1996, Mr. Perrone has
also been a limited partner in the Pittsburgh Pirates Baseball Club.
KEY EMPLOYEES
DR. COLIN C. HERD has been the Secretary and a director of
LightTouch-Ohio since July 1997, and the President since December 1999. In
addition, he serves as the Medical Director of LightTouch-Ohio. Dr. Herd founded
The Vein and Laser Center of Cincinnati in July 1996. He was the first in the
Cincinnati area to perform laser facial rejuvenation procedures. Dr. Herd
received his Bachelor of Science degree in 1979 and his medical degree in 1983
from the University of Toronto. Originally starting practice in primary care,
including an extensive amount of obstetrics, he later focused on sclerotherapy,
a non-surgical treatment for problem veins, and laser treatment for veins. In
1994, he became a member and fellow of the American Society for Lasers in
Medicine and Surgery, which is dedicated to education in laser applications.
From 1990 to 1993, Dr. Herd worked as an assistant and preceptor in a center
that exclusively performed hair transplants. He began performing hair
transplants on his own in 1993.
ITEM 6. EXECUTIVE COMPENSATION.
Mr. Martini is serving without any compensation.
The Company does not pay compensation to its director, nor does the
Company compensate its director for attendance at meetings. The Company does
reimburse the director for reasonable expenses incurred during the course of his
performance.
LightTouch-Ohio has entered into a Medical Director and Administrative
Services Agreement with Vein & Laser Center, Inc., an Ohio corporation owned
solely by Dr. Colin C. Herd. Pursuant to the terms of the Agreement, Vein &
Laser Center, Inc. is to be paid a guaranteed weekly minimum of $9,500, which
covers compensation for the physicians and physicians assistants (including Dr.
Herd), malpractice insurance, continuing medical education and expenses. Dr.
Herd's minimum compensation was $5,000 per week (or $250,000 per year). Dr. Herd
agreed verbally in late 1999 to reduce his compensation from $250,000 to
$100,000 per year and to reduce the weekly
10
<PAGE>
minimum payments to Vein & Laser Center to $5,000. For the years ended 1998 and
1999, Dr. Herd was paid $70,000 and $59,564, respectively, by LightTouch-Ohio
for non-medical services rendered to LightTouch-Ohio.
LightTouch-South Carolina entered into a Medical Director and
Administrative Services Agreement with Dr. Harley F. Freiberger as of March 29,
2000. Pursuant to the terms of that Agreement, beginning April 1, 2000, Dr.
Freiberger is to be paid all of the first $40,000 of cash flow received by
LightTouch-South Carolina for the first 24 months, or for a longer period if the
note to Dr. Freiberger has not been paid in full. See Item 2. Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources
for a description of the note. All cash flow received LightTouch-South Carolina
above $40,000 per month up to $55,000 per month during the 24-month period is to
be retained by LightTouch-South Carolina. Monthly cash flow above $55,000 during
this period is to be shared equally between Dr. Freiberger and LightTouch-South
Carolina. After the initial 24-month period (or longer if the note has not been
paid in full), Dr. Freiberger is to be paid a guaranteed minimum annual salary
of $175,000 plus 50% of the cash flow of LightTouch-South Carolina.
The Company has entered into a National Medical Director Agreement with
Dr. Freiberger as of March 29, 2000. Pursuant to the terms of that agreement,
the Company issued to Dr. Freiberger 124,224 shares of its Common Stock, valued
at $500,000, as a bonus for entering into the agreement, and 447,205 shares of
its Common Stock, valued at $1,800,000, for his performance during the initial
term of the agreement. All of the shares are subject o forfeiture if Dr.
Freiberger fails to perform substantially the duties of national medical
director as set forth in the agreement.
Pursuant to the agreement with Wayne Perrone, he is to be paid an
annual salary of $20,000 for the twelve months ended June 30,2001 and a bonus
ranging from $20,000 to $80,000 if the Company's stock should trade for a
five-day period at prices exceeding $6.00 or more. For the twelve months ended
June 30, 2002, his annual salary increases to $100,000 (or $125,000 if the
Company's stock closes on any five-day trading period at a minimum bid of
$10.00) and his bonus ranges from $40,000 to $80,000 if the Company's stock
should trade for a five-day period at $10.00 or more. For the twelve months
ended June 30, 2003, his annual salary will be $105,000 (or $150,000 if the
Company's stock closes on any five-day trading period at a minimum bid of $13.00
and $180,000 if the stock closes at a minimum bid of $16.00) and his bonus
ranges from $40,000 to $250,000 if the Company's stock should trade for a
five-day period at $13.00 or more. The Company has also committed to pay Mr.
Perrone salary for 13 weeks if the Company is sold and salary for 26 weeks if
his employment is terminated for any reason other than the sale of the Company
or his failure to perform his duties to the Company. He is to receive an option
to purchase up to 134,000 shares of the Company's common stock at subject to the
approval of his financial advisors and counsel for the Company.
STOCK OPTION PLAN
On October 4, 1999, the shareholders adopted the 1999 Stock Option
Plan, which provides for the granting of both incentive stock options and
non-qualified options to eligible employees, officers, and directors. Initially,
750,000 shares of common stock were reserved for issuance pursuant to the
exercise of stock options under this plan. The plan is administered by the board
of directors.
Each option granted under the plan will be evidenced by a written
option agreement between the Company and the optionee. Incentive stock options
may be granted only to employees as defined by the Internal Revenue Code. The
option price of any incentive stock option may not be less than 100% of the fair
market value per share on the date of grant of the option; provided, however,
that any incentive stock option granted under the plan to a person owning more
than 10% of the total combined voting power of the common stock will have an
option price of not less than 110% of the fair market value per share on the
date of grant of the incentive stock option. The exercise period of options
granted under the plan may not exceed ten years from the date of grant thereof.
Incentive stock options granted to a person owning more than 10% of the total
combined voting power of the common stock cannot be exercisable for no more than
five years. No portion of any option will be exercisable prior to the first
anniversary of the grant date.
An option may not be exercised unless the optionee then is an employee,
officer, or director of the company or its subsidiaries, and unless the optionee
has remained continuously as an employee, officer, or director of the company
since the date of grant of the option. If the optionee ceases to be an employee,
officer, or director of
11
<PAGE>
the company or any subsidiary other than by reason of death, disability,
retirement, or for cause, all options granted to such optionee, fully vested to
such optionee but not yet exercised, will terminate 90 days after the date the
optionee ceases to be an employee, officer, or director. All options, which are
not vested to an optionee, under the conditions stated in this paragraph for
which employment ceases, will immediately terminate on the date the optionee
ceases employment or association.
As of December 31, 1999, 145,000 incentive stock options and 25,000
non-qualified options had been granted. Of the incentive stock options, at
December 31, 1999, 40,000 are vested, 21,000 will vest in December 2000, 42,000
will vest in December 2001, 21,000 will vest in December 2002, and 21,000 will
vest in December 2003. All of the non-qualified options are vested as of
December 31, 1999. All of the options are exercisable at $0.74 per share and
expire in December 2006. None of the options was granted to an officer or
director of the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Vein & Laser Center, Inc. is an Ohio corporation. Colin C. Herd, M.D.,
a principal shareholder of the Company, is its president and sole shareholder.
Under the terms of a Medical Director and Administrative Services Agreement
entered into as of July 30, 1997, Vein & Laser has sole responsibility for all
medical and professional matters relating to the operations of the medical
practice and LightTouch-Ohio's laser center. LightTouch-Ohio is responsible for
billing and collecting payments from patients, scheduling patient appointments,
assisting with record keeping functions, and providing medical support staff.
LightTouch-Ohio is obligated to pay Vein & Laser the amounts it collects on
behalf of Vein & Laser. A minimum weekly amount is paid by LightTouch-Ohio to
Vein & Laser, including compensation of $5,000 per week for Dr. Herd, and the
parties reconcile the accounts after each calendar quarter. For the years ended
December 31, 1998 and 1999, LightTouch-Ohio paid Vein & Laser Center $399,668
and $333,800, respectively.
From July 30, 1997 through November 12, 1998, Gregory F. Martini and
Dr. Colin C. Herd each purchased 1,260 shares of LightTouch-Ohio common stock
for $126,000. Each exchanged his 1,260 LightTouch-Ohio shares for 2,830,283
shares of the Company's Common Stock in the Share Exchange.
On July 30, 1997, LightTouch-Ohio entered into a Lease Agreement with
Intram Investment Corporation for its office space, a company which is owned and
controlled by Gregory F. Martini, an officer, director, and principal
stockholder of LightTouch-Ohio and the Company. The lease expires July 30, 2007.
On January 16, 1998, the agreement was modified to require weekly payments of
$2,307.69 beginning February 6, 1998. Rent paid under the lease for the period
August 1, 1997 to December 31, 1997 was $55,000. Rent paid for the years ended
December 31, 1998 and 1999 were $132,000 and $122,307, respectively.
On August 22, 1997, LightTouch-Ohio entered into a Lease Agreement with
Intram Investment Corporation for laser equipment. The lease was for a term of
36 months commencing September 1, 1997, and required base rent of $269,802.72,
payable in equal monthly installments of $7,494.52. LightTouch-Ohio is
responsible for the costs of maintenance and insurance. On January 18, 1998, the
Agreement was modified to require weekly payments of $1,729.50 beginning
February 6, 1998. Effective July 15, 1999, the Agreement was further modified to
require weekly payments of $1,018.33.
On September 26, 1997, LightTouch-Ohio borrowed $25,000 from Gregory F.
Martini. The promissory note, which was executed by the LightTouch-Ohio and Dr.
Colin C. Herd, required 11 payments of $2,500. The note was paid in full on May
26, 1998.
On January 20, 1998, LightTouch-Ohio borrowed $250,000 from Intram
Investment Corporation with interest at 13% per annum. Payments were to be made
in weekly installments of $5,018.53 beginning February 6, 1998. Dr. Colin C.
Herd personally guaranteed payment of $125,000 of the amount and pledged 1,260
shares of LightTouch-Ohio common stock as collateral. On December 18, 1998, the
due date of the note was extended to May 12, 2000. On December 31, 1998, Intram
transferred the note to Gregory R. Martini. On July 7, 1999, 120 shares of
LightTouch-Ohio common stock were issued to Gregory F. Martini as payment of the
outstanding
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<PAGE>
principal balance and accrued interest in the amount of $200,000. These shares
were later exchanged for 269,550 shares of the Company's Common Stock in the
Share Exchange.
On July 31, 1998, LightTouch-Ohio entered into a Lease Agreement with
Intram Investment Corporation for liposuction equipment and computer software.
The lease was for a term of 24 months commencing August 1, 1998, and required
base rent of $17,552.88, payable in equal monthly installments of $884.57.
LightTouch-Ohio is responsible for the costs of maintenance and insurance.
Effective July 15, 1999, the Agreement was modified to require monthly payments
of $1.00.
On August 24, 1998, Intram Investment Corporation loaned
LightTouch-Ohio $15,000 with interest at 10% per annum. Payments were to be made
in weekly installments of $3,000 beginning September 4, 1998. This loan has been
paid. On September 10, 1998, Gregory F. Martini loaned LightTouch-Ohio $15,000
on the same terms. This loan has also been paid.
On September 1, 1998, Intram Investment Corporation loaned
LightTouch-Ohio $17,013.93. The promissory note required weekly payments of
$5,018.53 beginning August 7, 1999. This loan has been paid.
On September 4, 1998, Intram Investment Corporation loaned
LightTouch-Ohio $30,000. The promissory note required weekly payments of
$5,018.53 beginning September 24, 1999. This loan has been paid.
On October 23, 1998, LightTouch-Ohio entered into a Lease Agreement
with Intram Investment Corporation for laser equipment and computer software.
The lease was for a term of 30 months commencing October 30, 1998, and required
base rent of $111,633.90, payable in equal weekly installments of $917.30.
LightTouch-Ohio is responsible for the costs of maintenance, taxes, and
insurance.
On November 12, 1998, Intram Investment Corporation loaned
LightTouch-Ohio $25,000. The promissory note required 11 bi-weekly payments of
$2,500 beginning November 28, 1998. Dr. Colin C. Herd was a co-maker of this
note. This loan has been paid.
On January 8, 1999, Intram Investment Corporation loaned
LightTouch-Ohio $50,000 with interest at 3% per month. Dr. Colin C. Herd, an
officer and director of LightTouch-Ohio, personally guaranteed payment of
$25,000 of the amount. On January 28, 1999, Intram loaned another $50,000 with
interest at 3% per month. Dr. Herd also personally guaranteed payment of $25,000
of this amount. On July 7, 1999, 60 shares of LightTouch-Ohio common stock were
issued to Intram as payment of the loans in the amount of $100,000. These shares
were later exchanged for 134,775 shares of the Company's Common Stock in the
Share Exchange.
On February 19, 1999, LightTouch-Ohio entered into a Lease Agreement
with Intram Investment Corporation for two vehicles. The lease was for a term of
12 months commencing March 1, 1999, and required base rent of $24,911.28 payable
in 12 equal monthly installments of $2,075.94. LightTouch-Ohio is responsible
for the costs of maintenance and insurance on the vehicles.
On March 31, 1999, LightTouch-Ohio entered into a Lease Agreement with
Gregory R. Martini for the lease of computer equipment on a month-to-month
basis. The lease requires payment of $100 per month.
On April 1, 1999, LightTouch-Ohio entered into a Lease Agreement with
Intram Investment Corporation for laser equipment and a vehicle. The lease was
for a term of 24 months beginning April 16, 1999, and required base rent of
$77,040.08, payable in equal weekly installments of $740.77. LightTouch-Ohio is
responsible for the costs of maintenance, insurance, and licensing.
On May 1, 1999, LightTouch-Ohio purchased equipment consisting of a
power chair, surgical lamps, miscellaneous office supplies, aesthetician set-up,
an autoclave, a smoke evacuator and stools from Intram Investment Corporation
for $15,725. Intram had purchased the equipment from another laser center on
March 9, 1999.
Lease expenses paid to Intram Investment Corporation and Gregory F.
Martini were $349,000 and $111,000 in 1999 and 1998, respectively.
13
<PAGE>
In April 2000, the Company sold 51,000 shares of Common Stock at $3.00
per share for total proceeds of $153,000 to 3 accredited investors in a private
placement. Each of the purchasers also received an option to purchase up to
10,000 shares of Common Stock from Plymouth Partners, LP, an entity controlled
by Gregory F.
Martini, at $1.00 per share.
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, each with $0.001 par value per share, and 25,000,000
shares of Preferred Stock, each with $0.001 par value per share. As of May 31,
2000, 8,122,431shares of Common Stock are issued and outstanding. No shares of
Preferred Stock are issued or outstanding.
COMMON STOCK
Each share of Common Stock has one vote with respect to all matters
voted upon by the shareholders. The shares of Common Stock do not have
cumulative voting rights.
Holders of Common Stock are entitled to receive dividends, when and if
declared by the Board of Directors, out of funds of the Company legally
available therefor. The Company has never declared a dividend on its Common
Stock and has no present intention of declaring any dividends in the future.
Holders of Common Stock do not have any preemptive rights or other
rights to subscribe for additional shares, or any conversion rights. Upon a
liquidation, dissolution, or winding up of the affairs of the Company, holders
of the Common Stock will be entitled to share ratably in the assets available
for distribution to such stockholders after the payment of all liabilities.
The outstanding shares of the Common Stock of the Company are fully
paid and non-assessable.
The registrar and transfer agent for the Company's Common Stock is
Interwest Stock Transfer, Inc., 1981 East 4800 South, Suite 100, Salt Lake City,
Utah 89117.
PREFERRED STOCK
The Articles of Incorporation permit the Board of Directors, without
further shareholder authorization, to issue Preferred Stock in one or more
series and to fix the price and the terms and provisions of each series,
including dividend rights and preferences, conversion rights, voting rights,
redemption rights, and rights on liquidation, including preferences over the
Common Stock, all of which could adversely affect the rights of the holders of
the Common Stock. The Board of Directors has not issued nor established a series
of Preferred Stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock is not traded on a registered securities
exchange, or on NASDAQ. The Company's Common Stock was quoted on the OTC
Bulletin Board from December 3, 1999 to April 5, 2000, and has been trading in
the "Pink Sheets" since April 6, 2000. The Common Stock has been trading under
the symbol "LTVL" since December 1999. The following table sets forth the range
of high and low bid quotations for each fiscal quarter since the stock began
trading. These quotations reflect inter-dealer prices without retail mark-up,
mark-down, or commissions and may not necessarily represent actual transactions.
14
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED HIGH BID LOW BID
<S> <C> <C>
December 31, 1999 $3.00 $1.06
March 31, 2000 $4.63 $3.25
</TABLE>
On May 22, 2000, the closing price for the Common Stock was $3.50.
As of December 31, 1999 there were 47 record holders of the Company's
Common Stock. Since the Company's inception, no cash dividends have been
declared on the Company's Common Stock.
ITEM 2. LEGAL PROCEEDINGS.
From August 31, 1999 to October 18, 1999, LightTouch-Ohio filed four
suits in the Court of Common Pleas for Hamilton County, Ohio. Each of the suits
is against former employees of LightTouch-Ohio and alleges breach of the
non-compete clause of the former employee's employment contract with
LightTouch-Ohio. Most of the suits also allege intentional interference with the
employment contract against the current employers of the former employees. To
recover money damages from the defendants, LightTouch-Ohio will have to prove
that the employment contract provision was breached and a dollar amount in loss
of business that it suffered as a result. LightTouch-Ohio will not be able to
recover its attorney fees even if it is successful in these suits.
1. Filed August 31, 1999 against Michelle Hoffman nka Michelle
Barnes, Tina Cluxton, and Radiant Laser and Hair Removal, Inc.
LightTouch-Ohio seeks injunctive relief and a judgment of
$250,000 against each of Michelle Hoffman and Tina Cluxton for
breach of the non-compete clause; judgment in the amount of
$1,000,000 against Michelle Hoffman and Tina Cluxton for
conversion of a patient list and procedures manual; judgment
in the amount of $250,000 for actual damages and $1,000,000
for punitive damages against Radiant Laser and Hair Removal
for intentional interference with LightTouch-Ohio's employment
contract; judgment against Michelle Hoffman for $4,275 in
actual damages and $500,000 in punitive damages for failing to
provide the means by which LightTouch-Ohio could properly
charge patients for treatment; and judgment against Tina
Cluxton for $37,550 in actual damages and $1,000,000 in
punitive damages for failing to provide the means by which
LightTouch-Ohio could properly charge patients for treatment.
As of May 31, 2000, no trial date had been set. The
proceedings are still in the discovery stage. A pre-trial
conference is scheduled for June 13, 2000.
2. Filed August 31, 1999 against Karen M. Miller and Joseph C.
Russell, M.D. dba Anderson Cosmetic Hair & Vein Center.
LightTouch-Ohio seeks injunctive relief and a judgment of
$250,000 against Karen Miller for breach of the non-compete
clause; judgment of $250,000 against Karen Miller for
disclosure of LightTouch-Ohio's confidential information;
judgment in the amount of $1,000,000 against Karen Miller for
conversion of a patient list; and judgment in the amount of
$250,000 for actual damages and $1,000,000 for punitive
damages against Dr. Russell for intentional interference with
LightTouch-Ohio's employment contract. At the pre-trial
conference held May 31, 2000, trial was scheduled for January
2001. The proceedings are still in the discovery stage.
3. Filed August 31, 1999 against Cathy A. Miller and Michael
Leadbetter, M.D. dba The Plastic Surgery Group, Inc.
LightTouch-Ohio had sought injunctive relief and a judgment of
$250,000 against Cathy Miller for breach of the non-compete
clause; judgment of $250,000 against Cathy Miller for
disclosure of LightTouch-Ohio's confidential information;
judgment in the amount of $1,000,000 against Cathy Miller for
conversion of a patient list; and judgment in the amount of
$250,000 for actual damages and $1,000,000 for punitive
damages against Dr. Leadbetter for intentional interference
with LightTouch-Ohio's employment contract. As of January 31,
2000, this had been dismissed by LightTouch-Ohio.
15
4. Filed October 18, 1999 against Lisa Bowcock. LightTouch-Ohio
seeks injunctive relief, a judgment of $250,000 for breach of
the non-compete clause, and a judgment of $250,000 for
disclosure of LightTouch-Ohio's confidential information. A
trial date of August 28, 2000 has been scheduled for this
case.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
In December 1999, the Company engaged Clark, Schaefer, Hackett & Co. to
audit its financial statements for the fiscal year ended December 31, 1999. The
decision to engage Clark, Schaefer, Hackett & Co. was approved by the Company's
board of directors. Clark, Schaefer, Hackett & Co. was not consulted by the
Company prior to its engagement.
Wiener, Goodman & Company, P.C. audited the Company's financial
statements for the fiscal years ended December 31, 1998 and 1997. The report of
Wiener, Goodman & Company, P.C. on the financial statements did not contain an
adverse opinion or a disclaimer of an opinion. That report was not qualified or
modified as to uncertainty, audit scope, or accounting principles. There were no
disagreements with Wiener, Goodman & Company, P.C. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure during the term of its engagement by the Company. No reportable events
occurred during the term of the engagement.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has sold shares of Common
Stock which were not registered under the Securities Act of 1933, as amended, as
follows:
Effective October 1, 1999, the Company issued 6,750,000 shares in
exchange for all of the issued and outstanding shares of LightTouch-Ohio to 8
persons as set forth in the table below, in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act of 1933 for a
transaction not involving a public offering. No underwriters were used and no
commissions were paid. All of the persons listed below were the shareholders of
LightTouch-Ohio at the time of the share exchange transaction:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES RELATIONSHIP TO COMPANY
<S> <C> <C>
Gregory F. Martini 3,099,834 Officer and director
Colin C. Herd, M.D. 2,830,282 Officer and director of LightTouch
Margaret Lanard, M.D. 296,506 Employee of Vein & Laser Center, Inc.
Tri-State Laser Corporation 119,052 Sold business to LightTouch-Ohio in January 1999
Intram Investment Corporation 134,775 A company owned and controlled by Gregory F. Martini
Gary Lessis 67,388 Former patient of LightTouch-Ohio who invested in
Wayne Perrone 134,775 Former patient of LightTouch-Ohio who invested in
Parnelli Groh 67,388 Former patient of LightTouch-Ohio who invested in
TOTAL 6,750,000
</TABLE>
In December 1999, the Company granted options to purchase 170,000
shares of Common Stock to 17 employees under the 1999 Stock Option Plan. All of
the options are exercisable at $0.74 per share and expire in December 2006. None
of the options was granted to an officer or director of the Company.
16
<PAGE>
In April 2000, the Company issued 571,429 shares of Common Stock to Dr.
Harley F. Freiberger as compensation under the terms of the National Medical
Director Agreement dated March 29, 2000. The shares are subject to forfeiture
and vest over the year ended April 1, 2001. Compensation expense of $2,300,000
will be recorded over the term of the agreement. The Company relied upon the
exemption from registration contained in Section 4(2) of the Securities Act of
1933.
In April 2000, the Company sold 51,000 shares of Common Stock at $3.00
per share for total proceeds of $153,000 to 3 accredited investors pursuant to
the exemption from registration contained in Rule 506 of Regulation D under the
Securities Act of 1933. No underwriters were used and no commissions were paid.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.7502 of the General Corporation Law of Nevada and Article XI
of the Company's Articles of Incorporation permit the Company to indemnify its
officers and directors and certain other persons against expenses in defense of
a suit to which they are parties by reason of such office, so long as the
persons conducted themselves in good faith and the persons reasonably believed
that their conduct was in the Company's best interests or not opposed to the
Company's best interests, and with respect to any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. Indemnification
is not permitted in connection with a proceeding by or in the right of the
corporation in which the officer or director was adjudged liable to the
corporation or in connection with any other proceeding charging that the officer
or director derived an improper personal benefit, whether or not involving
action in an official capacity.
PART F/S
See pages beginning with F-1.
PART III
The following exhibits are included with this registration statement:
<TABLE>
<CAPTION>
REGULATION
S-B NUMBER DOCUMENT
<S> <C>
2.1 Agreement and Plan of Share Exchange (1) <F1>
2.2 Asset Purchase Agreement dated March 29, 2000 (2) <F2>
3.1 Amended and Restated Articles of Incorporation (1) <F1>
3.2 Bylaws (1) <F1>
10.1 Lease Agreement with Intram Investment Corporation dated July 30, 1997 (1) <F1>
10.2 Lease Agreement with Intram Investment Corporation dated August 22, 1997 (1) <F1>
10.3 Promissory Note to Intram Investment Corporation dated January 20, 1998 (1) <F1>
10.4 Lease Agreement with Intram Investment Corporation dated July 31, 1998 (1) <F1>
10.5 Promissory Note to Intram Investment Corporation dated August 24, 1998 (1) <F1>
10.6 Promissory Note to Intram Investment Corporation dated September 1, 1998 (1) <F1>
10.7 Promissory Note to Intram Investment Corporation dated September 4, 1998 (1) <F1>
17
<PAGE>
<CAPTION>
REGULATION
S-B NUMBER DOCUMENT
<S> <C>
10.8 Lease Agreement with Intram Investment Corporation dated October 23, 1998 (1) <F1>
10.9 Promissory Note to Intram Investment Corporation dated November 12, 1998 (1) <F1>
10.10 Promissory Note to Intram Investment Corporation dated January 28, 1999 (1) <F1>
10.11 Purchase Agreement between Tri-State Laser Corporation and Light Touch Vein & Laser, Inc. dated
January 15, 1999 (1) <F1>
10.12 Lease Agreement with Intram Investment Corporation dated February 19, 1999 (1) <F1>
10.13 Lease Agreement with Gregory F. Martini dated March 31, 1999 (1) <F1>
10.14 Lease Agreement with Intram Investment Corporation dated April 1, 1999 (1) <F1>
10.15 Medical Director and Administrative Service Agreement (1) <F1>
10.16 1999 Stock Option Plan (1) <F1>
10.17 License and Distribution Agreement with VMM Enterprises, Inc. (1) <F1>
10.18 Promissory Note dated March 29, 2000 (2) <F2>
10.19 National Medical Director Agreement with Harley F. Freiberger, M.D. dated March 29, 2000 (2) <F2>
10.20 South Carolina Medical Director and Administrative Services Agreement dated March 29, 2000 (2) <F2>
10.21 Employment agreement with Wayne Perrone
16 Letter from Wiener, Goodman & Company, P.C.
21 Subsidiaries of the Registrant
27 Financial Data Schedule (3) <F3>
--------------------------
<FN>
(1) <F1> Previously filed
(2) <F2> Incorporated by reference to the exhibits filed with the current report on Form 8-K dated March 31,
2000, File No. 0-29301.
(3) <F3> Incorporated by reference to the exhibits filed with the quarterly
report on Form 10-QSB for the fiscal quarter ended March 31, 2000, File
No. 0-29301.
</FN>
</TABLE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
LIGHTTOUCH VEIN & LASER, INC.
Date: June 8, 2000 By: /S/ GREGORY F. MARTINI
---------------------------------
Gregory F. Martini, President
18
<PAGE>
LIGHTTOUCH VEIN & LASER, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
Assets 2000 1999
------ ----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 66,630 $ 2,391
Accounts receivable - trade 29,845 58,021
Accounts receivable - other 69,125 -
Prepaid expenses 6,748 -
---------- ----------
Total current assets 172,348 60,412
---------- ----------
Property and equipment - net 592,049 84,292
---------- ----------
Other assets:
Intangible assets - net 245,971 20,000
Deposits and other 6,664 -
---------- ----------
252,635 20,000
---------- ----------
$1,017,032 $164,704
========== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-1
<PAGE>
Liabilities and Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 195,577 $ 124,497
Other current liabilities 115,357 59,098
Capital lease obligation - current portion 32,888 -
----------- ----------
Total current liabilities 343,822 183,595
----------- ----------
Long-term liabilities:
Long-term debt 590,747 -
Capital lease obligation - less current portion 82,752 -
----------- ----------
673,499 -
----------- ----------
Shareholders' equity (deficit):
Common stock, $.001 par value,
100,000,000 share authorized;
7,500,000 shares issued and outstanding 7,500 7,500
Preferred stock, $.001 par value,
25,000,000 shares authorized;
no shares issued or outstanding - -
Additional paid-in capital 904,500 904,500
Note receivable exchanged for
common stock (96,238) (99,445)
Accumulated deficit (816,051) (831,446)
----------- ----------
(289) (18,891)
----------- ----------
$1,017,032 $ 164,704
=========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-2
<PAGE>
LIGHTTOUCH VEIN & LASER, INC. AND SUBSIDIARY
Consolidated Statements of Operations and Retained Deficit
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net sales:
Cosmetic laser services $ 550,766 495,830
Laser sales and service 87,642 95,954
---------- ----------
638,408 591,784
Cost of sales 324,831 448,355
General and administrative 330,427 226,839
---------- ----------
Loss from operations (16,850) (83,410)
Other income (expense) - net 34,122 (6,784)
Interest expense (1,877) (36,066)
---------- ----------
Income before provision for income tax 15,395 (126,260)
Provision for income tax - -
---------- ----------
Net income (loss) 15,395 (126,260)
Retained deficit - beginning of period (831,446) (480,169)
---------- ----------
Retained deficit - end of period $(816,051) (606,429)
========== ==========
Earnings per common share:
Basic $ 0.00 (0.02)
========== ==========
Diluted $ 0.00 (0.02)
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-3
<PAGE>
LIGHTTOUCH VEIN & LASER, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 15,395 (126,260)
Depreciation 10,783 -
Amortization 1,250 -
Effect of change in operating assets
and liabilities:
Accounts receivable 28,176 8,461
Prepaid expenses and other assets (9,895) (3,695)
Accounts payable and accrued expenses 35,237 24,225
---------- ----------
Net cash provided (used) by
operating activities 80,946 (89,879)
---------- ----------
Cash flows from investing activities:
Capital expenditures (15,117) (11,480)
Collections on notes receivable 3,207 -
---------- ----------
Net case used by
investing activities (11,910) (11,480)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of debt - 100,000
Repayments of debt - (155,015)
Proceeds from issuance of common stock - 125,000
Repayments on capital lease (4,797) -
---------- ----------
Net cash provided (used) by
financing activities: (4,797) 69,985
---------- ----------
Net change in cash 64,239 (31,374)
Cash -- beginning of period 2,391 55,988
---------- ----------
Cash -- end of period $ 66,630 24,614
========== ==========
Supplemental disclosure of non-cash activities:
Cash paid during the period for:
Interest $ 1,877 36,066
========== ==========
Equipment acquired through capital lease $ 101,894 -
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-4
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the full
year. The December 31, 1999 Balance Sheet data was derived from audited
Financial Statements, but does not include all disclosures required by generally
accepted accounting principles.
The March 31, 2000 balance sheet reflects the acquisition of The Charleston
Dermatology and Cosmetic Surgery Center, which was entered into March 29, 2000.
The Statement of Operations for the three months ended March 31, 2000 does not
reflect the operations of The Charleston Dermatology and Cosmetic Surgery Center
because the acquisition was accounted for as a purchase at the end of the
quarter.
ACQUISITION
On March 29, 2000 the Company entered into an Asset Purchase Agreement with
Harley F. Freiberger, M.D. D/B/A The Charleston Dermatology and Cosmetic Surgery
Center. The assets were acquired by LightTouch Vein & Laser of South Carolina,
Inc., a wholly owned subsidiary of the Company.
The acquisition was made through the issuance of a non-interest bearing $700,000
note in exchange for acquisition and assumption of the following assets and
liabilities.
<TABLE>
<S> <C>
Accounts receivable $ 69,125
Property and equipment 401,529
Intangible assets 227,221
Other assets 3,526
Accounts payable (92,102)
Capital leases (18,543)
</TABLE>
Payments terms on the note are based on the achievement of cash flow objectives.
F-5
<PAGE>
Dr. Freiberger will also receive 571,429 shares of the Company's stock for the
performance of services as the company's National Medical Director over an
initial term ending April 1, 2001. The stock award will vest over the year ended
April 1, 2001 and the value of the award will be recorded as compensation
expense on the Company's financial statements over the term of the agreement.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which establishes standards for derivative instruments,
including derivative instruments imbedded in other contracts and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Management does not believe that the
adoption of this standard will impact the Company because, at this time, the
Company does not hold any of the instruments covered by the standard.
SFAS No. 130, "Reporting Comprehensive Income" requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. For interim period reporting,
an organization is required to report a total for comprehensive income.
The Company does not have any items characterized as "other comprehensive
income" for the periods presented.
F-6
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
WITH INDEPENDENT AUDITORS' REPORT
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
LightTouch Vein & Laser, Inc.:
We have audited the accompanying balance sheet of LightTouch Vein & Laser, Inc.
as of December 31, 1999 and the related statements of operations, shareholders'
equity (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement based on our
audit. The 1998 and 1997 financial statements of LightTouch Vein & Laser, Inc.
were audited by other auditors whose report dated August 27, 1999 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LightTouch Vein & Laser, Inc.
as of December 31, 1999 and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/CLARK, SCHAEFER, HACKETT & CO.
Cincinnati, Ohio
January 31, 2000
F-8
<PAGE>
Wiener, Goodman
& Company, P.C.
Certified Public Accountants
& Consultants
Two Industrial Way West
Eatontown, NJ 07724
(732) 544-8111
(732) 544-8788 fax
E-mail: [email protected]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Lighttouch Vein & Laser, Inc.
We have audited the accompanying balance sheets of Lighttouch Vein & Laser, Inc.
(the "Company") as of December 31, 1998 and 1997 and the related statements of
operations, deficiency, and cash flows for the period from inception (August 1,
1997) to December 31, 1997 and the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lighttouch Vein & Laser, Inc as
of December 31, 1998 and 1997 and the results of its operations and its cash
flows for the period from inception (August 1, 1997) to December 31, 1997 and
the year ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/WIENER GOODMAN & COMPANY, P.C.
WIENER, GOODMAN & COMPANY, P.C.
Certified Public Accountants
Eatontown, New Jersey
August 27, 1999
F-9
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Balance Sheets
December 31, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current assets:
Cash $ 2,391 55,460
Accounts receivable - trade 58,021 20,386
---------- ----------
60,412 75,846
Property and equipment:
Leasehold improvements 4,350 -
Office furniture and equipment 104,009 50,190
---------- ----------
108,359 50,190
Less accumulated depreciation 24,067 11,383
---------- ----------
84,292 38,807
---------- ----------
Other assets:
Goodwill, less accumulated amortization of $5,000 20,000 -
Other - 14,517
---------- ----------
20,000 14,517
---------- ----------
$ 164,704 129,170
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
Liabilities and Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ - 162,843
Accounts payable - trade 124,497 27,705
Accrued expenses 29,098 70,494
Deferred revenue - gift certificates 30,000 -
---------- ----------
183,595 261,042
---------- ----------
Long-term debt, less current portion - 86,297
---------- ----------
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $.001 par value; 100,000,000 shares
authorized, 7,500,000 shares issued and outstanding
in 1999 and 5,885,190 equivalent shares issued and
outstanding in 1998. 7,500 5,886
Preferred stock; $.001 par value; 25,000,000 authorized,
no shares issued or outstanding - -
Additional paid-in capital 904,500 256,114
Note receivable exchanged for common stock (99,445) -
Retained deficit (831,446) (480,169)
---------- ----------
(18,891) (218,169)
---------- ----------
$ 164,704 $ 129,170
========== ==========
</TABLE>
F-11
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Statements of Operations
Years Ended December 31, 1999 and 1998
and Period From Inception (August 1, 1997) to December 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net sales:
Cosmetic laser services $1,982,113 1,830,128 609,880
Laser sales and service 407,847 - -
----------- ----------- -----------
2,389,960 1,830,128 609,880
Cost of sales 1,644,122 1,026,007 485,264
General and administrative 1,023,599 885,918 391,997
----------- ----------- -----------
Loss from operations (277,761) (81,797) (267,381)
Other income (expenses):
Interest income 7,970 - -
Interest expense (81,596) (128,893) (5,000)
Other 110 2,902 -
----------- ----------- -----------
(73,516) (125,991) (5,000)
----------- ----------- -----------
Loss before provision for income tax (351,277) (207,788) (272,381)
----------- ----------- -----------
Provision for income tax - - -
----------- ----------- -----------
Net loss $ (351,277) (207,788) (272,381)
=========== =========== ===========
Basic net loss per common share $ (0.05) (0.06) (0.13)
=========== =========== ===========
Diluted net loss per common share $ (0.05) (0.06) (0.13)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Statements of Shareholders Equity (Deficit)
Years Ended December 31, 1999 and 1998
and Period From Inception (August 1, 1997) to December 31, 1997
<TABLE>
<CAPTION>
Common Additional Note
Shares Common Preferred paid-in receivable Retained
Outstanding Stock Stock capital shareholder Deficit Total
----------- ----- ----- ------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1997 - $ - $ - $ - $ - $ - $ -
Issuance of common stock 2,021,631 2,022 - 87,978 - - 90,000
Net loss - - - - - (272,381) (272,381)
--------- -------- --------- --------- ---------- ---------- ----------
Balance, December 31, 1997 2,021,631 2,022 - 87,978 - (272,381) (182,381)
Issuance of common stock 3,863,559 3,864 - 168,136 - - 172,000
Net loss - - - - - (207,788) (207,788)
--------- -------- --------- --------- ---------- ---------- ----------
Balance, December 31, 1998 5,885,190 5,886 - 256,114 - (480,169) (218,169)
Treasury purchases (224,626) (225) - 225 - - -
Issuance of common stock:
Retire note payable
and forgiveness of
financing fees 404,327 404 - 299,596 - - 300,000
Exchange for goodwill 119,052 119 - 24,881 - - 25,000
Issuance of common stock for
cash 269,551 270 - 199,730 - - 200,000
Issuance of common stock in
exchange for a note
receivable 296,506 297 - 124,703 (125,000) - -
Repayments of note receivable - - - - 25,555 - 25,555
Shares acquired of Strachan 750,000 749 - (749) - - -
Net loss - - - - - (351,277) (351,277)
--------- -------- --------- --------- ---------- ---------- ----------
Balance, December 31, 1999 7,500,000 7,500 - 904,500 (99,445) (831,446) (18,891)
========= ======== ========= ========= ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Statements of Cash Flows
Years Ended December 31, 1999 and 1998
and Period From Inception (August 1, 1997) to December 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
---------- --------- ---------
Net loss $(351,277) (207,788) (272,381)
Depreciation 12,684 8,014 3,369
Amortization 5,000 - -
Financing fees 26,283 - -
Effect of change in operating assets and liabilities:
Accounts receivable (37,635) 1,275 (21,661)
Prepaid expenses and other assets 14,517 (11,650) (2,867)
Accounts payable and accrued expenses 85,396 (48,177) 146,376
---------- --------- ---------
Net cash used by operating activities (245,032) (258,326) (147,164)
---------- --------- ---------
Cash flows from investing activities:
Capital expenditures (58,169) (7,742) (42,448)
Collections on notes receivable 25,555 - -
---------- --------- ---------
Net cash used by investing activities (32,614) (7,742) (42,448)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt 100,000 364,129 100,000
Repayments of debt (75,423) (214,989) -
Proceeds from issuance of stock 200,000 172,000 90,000
---------- --------- ---------
Net cash provided by financing activities 224,577 321,140 190,000
Net increase (decrease) in cash (53,069) 55,072 388
Cash - beginning of period 55,460 388 -
---------- --------- ---------
Cash - end of period $ 2,391 55,460 388
========== ========= =========
Supplemental disclosure of non-cash activities:
Cash paid during the period for:
Interest $ 107,879 127,893 6,000
========== ========= =========
Issuance of common shares to retire notes payable $ 273,717 - -
========== ========= =========
Issuance of common shares to acquire goodwill $ 25,000 - -
========== ========= =========
Issuance of common shares in exchange for note receivable $ 125,000 - -
========== ========= =========
Issuance of common shares in forgiveness of financing fees $ 26,283 - -
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
LIGHTTOUCH VEIN & LASER, INC.
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following principles and practices of the Company are set forth to
facilitate the understanding of data presented in the financial
statements.
DESCRIPTION OF BUSINESS
The Company's principal business is the performance of aesthetic
cosmetic laser services in the Greater Cincinnati area and the
service and leasing of laser equipment, primarily to medical
practices.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
No allowance for doubtful accounts has been provided because
uncollectible amounts are considered to be immaterial.
PROPERTY AND DEPRECIATION
Property and equipment is recorded at cost. Depreciation is
provided in amounts sufficient to allocate the cost of depreciable
assets to operations over their estimated service lives
principally using the straight-line method. Accelerated methods
are used for tax purposes. Leasehold improvements are being
amortized over five years. Office furniture and equipment are
being depreciated over 5-7 years.
GOODWILL
Goodwill is stated at cost, less accumulated amortization computed
by the straight-line basis over five years.
REVENUES
Revenues for cosmetic surgery procedures are recognized on a
pre-procedure basis in the period when the procedure is performed,
subject to an assessment for realizability. Payment for these
procedures is required from customers prior to the service being
performed.
F-15
<PAGE>
Deferred revenue consists of payments received for cosmetic
surgery procedures before the service is performed. Deferred
revenue is recognized as revenue when the cosmetic surgery
procedure is completed.
Revenue from the leasing of laser equipment is recognized as
earned from operating leases, subject to an assessment of
realizability.
INCOME TAXES
Deferred federal income taxes are provided for temporary
differences in tax and financial accounting, principally for
property and equipment and net operating loss carryforwards.
EARNINGS PER SHARE
Earnings per share calculations have been made in compliance with
Statement on Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). Basic earnings per share equals net earnings
divided by the weighted average number of shares outstanding.
Diluted earnings per share equals net earnings divided by the
weighted average number of common shares outstanding after giving
effect to other dilutive securities. Weighted average equivalent
shares outstanding for 1998 and 1997 were 3,429,201 and 2,021,629
respectively. There were no dilutive securities in 1998 and 1997.
Weighted average shares outstanding for basic and diluted earnings
per share for 1999 were 6,468,832, and 6,478,007, respectively.
Diluted earnings per share includes the effect of stock options
based on the treasury stock method.
STOCK BASED COMPENSATION PLAN
The Company adopted the "disclosure only" provisions of Statement
of Financial Accounting Standards No. 123, ("SFAS 123")
"Accounting for Stock Based Compensation" and measures
compensation expense for stock-based compensation using the
intrinsic-value-based method under the provisions of the standard.
USE OF ESTIMATES
The presentation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-16
<PAGE>
2. CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of trade accounts receivable. The
Company routinely assesses the financial strength of its customers and,
as a consequence, believes that its trade accounts receivable credit
risk exposure is limited. In the opinion of management, no allowance
for doubtful accounts is necessary at December 31, 1999. Most customers
are from Southwestern Ohio. Collateral is not required on accounts
receivable.
One customer represented 43% of trade accounts receivable at December
31, 1999.
3. NOTE RECEIVABLE
Note receivable consists of the following at December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Note receivable from stockholder, in monthly
installments of $1,725, including interest
at 8%, secured by LightTouch stock $ 99,445
Less portion due within one year 13,221
--------
$ 86,224
========
</TABLE>
The note receivable is classified in the balance sheet as a component
of shareholders' equity.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Note payable to shareholder, in weekly installments
of $5,019, including interest at 1.137% periodic rate;
unpaid principal was exchanged for common stock
during 1999. $ - 249,140
Less portion due within one year - 162,843
------------- -------
$ - 86,297
============= =======
</TABLE>
F-17
<PAGE>
5. INCOME TAXES:
Net deferred tax is comprised of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 261,000 141,000
Valuation allowance on deferred tax assets (256,000) 138,000
------------ --------
5,000 3,000
------------ --------
Deferred tax liabilities:
Depreciation (5,000) (3,000)
------------ --------
Net deferred tax $ - -
============ ========
</TABLE>
At December 31, 1999, the Company has tax net operating loss
carryforwards of approximately $765,000 available to offset future
taxable income. These carryforwards expire primarily in 2013 and 2014.
6. CORPORATE REORGANIZATION AND RECAPITALIZATION
In October 1999, the Company underwent a business combination with
Strachan, Inc. (Starchan). Starchan was a publicly held, shell
corporation prior to the merger, with nominal assets and liabilities.
The combination was undertaken to allow the Company a structure to
facilitate future growth.
Pursuant to a closing under an agreement and Plan of Share Exchange
dated October 1, 1999, Starchan issued 6,750,000 common shares in
exchange for 100% of the issued and outstanding stock of the Company.
After the transaction, the former shareholders of LightTouch owned 90%
of the Company. Prior to the above transaction, Starchan completed a
forward stock split of its outstanding common shares of one share its
outstanding stock for 1.63 shares, resulting in 750,000 shares
outstanding.
After the exchange, the Company became a wholly owned subsidiary of
Starchan. The transaction has been accounted for as a reverse
acquisition with LightTouch being deemed the acquirer for accounting
purposes. LightTouch has accounted for the transaction as the issuance
of shares for the net assets of Strachan. Immediately after the
effective date, Strachan elected to do business as LightTouch Vein &
Laser, Inc.
The statements of shareholders' equity and the equity accounts in the
Company's balance sheet have been restated to reflect the changes
resulting from the reorganization. The change does not impact the
results of operations or total shareholders' equity of the Company for
any periods presented in these financial statements.
F-18
<PAGE>
7. STOCK BASED COMPENSATION PLAN
In December 1999, the Company adopted the 1999 Stock Option Plan (the
"Plan"). The Plan authorizes the issuance of up to 750,000 shares of
Common Stock pursuant to the grant or exercise of stock options,
including Incentive Stock Options, to executive officers, key employees
and directors, subject to board approval and certain other
restrictions. Stock options may not be granted at less than the fair
market value of the underlying stock on the date of grant. Thirty-eight
percent of the options vest on the date of the grant. The remaining
options vest 20% on the first anniversary of the grant, 40% on the
second anniversary, and 20% on each of the next two anniversaries of
the grant date. The term of the option shall not exceed 10 years from
the date on which the option is granted.
As of December 31, 1999, 145,000 incentive stock options and 25,000
non-qualified stock options had been granted. Of the incentive stock
options, at December 31, 1999, 40,000 are vested, 21,000 will vest in
December 2000, 42,000 will vest in December 2001, 21,000 will vest in
December 2002, and 21,000 will vest in December 2003. All of the
non-qualified options are vested as of December 31, 1999. All of the
options are exercisable at $0.74 per share and expire in December 2006.
None of the qualified options were granted to an officer or director of
the Company.
The Company has adopted the "disclosure only" provisions of SFAS No.
123, therefore no compensation expense has been recognized for stock
option grants. Had compensation expense been determined based upon the
fair value (determined using the "minimum value" pricing model) at the
grant date, consistent with provisions of SFAS No. 123, the Company's
loss would have been the pro forma amounts as follows:
1999
----
Pro forma loss $(361,954)
Pro forma loss per share of common stock $(.06)
The fair value of each option grant was estimated on the date of the
grant using the "minimum value" pricing model with the following
assumptions used for grants in 1999: no expected dividend yield and
expected option life of seven years; and risk-free interest rates of
6.0%.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases certain equipment and office facilities under
noncancelable operating leases. Future minimum lease payments as
of December 31, 1999 are as follows:
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<TABLE>
<S> <C>
2000 $ 471,721
2001 334,598
2002 248,730
2003 166,578
2004 120,000
Thereafter 310,000
$ 1,651,627
</TABLE>
In the regular course of business, the Company enters into
agreements whereby it leases equipment under month-to-month leases
or of similar short duration.
Approximately 51% of the commitment as of December 31, 1999 is due
to Intram Investment Corporation; an entity related to a Company
officer and shareholder.
Some lease agreements are secured by the personal guarantee of an
officer of the Company.
Lease expense charged against operations was approximately
$685,000 in 1999 and $219,000 in 1998, including approximately
$349,000 and $111,000 paid to Intram Investment Corporation in
1999 and 1998, respectively. Rent expense for the period ending
December 31, 1997 was $89,000.
EMPLOYMENT AGREEMENTS
The Company has various employment agreements that provide for
base compensation. The total commitment under these employment
agreements which are payable over the next five years is $367,275.
LEGAL PROCEEDINGS
From time to time, the company becomes involved in various claims
and lawsuits that are incidental to its business. In the opinion
of the Company's management, there are no material legal
proceedings pending against the Company at December 31, 1999.
9. RELATED PARTY TRANSACTIONS:
The Company has a Medical Director and Administrative Services
Agreement with Vein & Laser Center, Inc.; an entity controlled by a
shareholder of the Company. Vein & Laser Center, Inc. employs the
Doctors and technicians who perform the cosmetic laser services for the
company. Initially, the agreement required weekly minimum payments of
$9,500 through July 30, 2007. In 1999, the weekly guarantee was reduced
to $5,000. For 1999, approximately $343,000 was charged against
operations under terms of this agreement. In 1998, approximately
$100,000 was incurred and charged to operations.
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Interest paid to related parties under terms of various notes payable
was approximately $103,000 in 1999, $127,000 in 1998 and $5,000 in
1997.
At December 31, 1999, note receivable includes $99,445 due from a
minority shareholder in the Company. Interest income includes $7,937
received under terms of this note. In 1999, the Company issued 132
shares of common stock in exchange for the original principal amount of
$125,000.
At December 31, 1999, accounts payable includes approximately $25,000
due an officer and shareholder of the Company. Cost of goods sold in
1999 includes $22,500 for equipment acquired from this related party,
and subsequently sold.
The Company leases office space and certain equipment from a related
party as noted in footnote 8.
During the periods presented, the President of the Company performed
services without compensation.
In July 1999, the Company issued 180 shares of common stock to an
officer and existing shareholder in exchange for the forgiveness of
notes payable of $273,717 and fees of $26,283. The number of shares of
stock issued was based on the market value of stock sold to outside
investors at the same time.
In January 1999, the Company issued 53 shares of common stock in
exchange the acquisition of certain assets and assumptions of
liabilities of Tri-State Laser Corporation. Goodwill, representing the
excess of the fair value of the stock over net assets acquired, of
$25,000 was recorded.
10. ACQUISITION
In January 2000, the Company drafted an asset purchase agreement to
acquire substantially all assets and liabilities of a dermatology and
cosmetic surgery center in South Carolina in exchange for a
non-interest bearing promissory note of $700,000. The acquisition price
is subject to certain assets and liabilities not acquired to be
determined at closing. Concurrently, the Company would enter into an
employment contract with the seller to become a National Medical
Director. As compensation for the position, the individual will receive
an award of 571,429 shares of Company stock and a guaranteed annual
compensation. The acquisition would be accounted for as a purchase. The
employment contract will be expensed over the employment term, which is
one year.
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