UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
---------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
---------------- ----------------
Commission file number 0-4846-3
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LumaLite Holdings, Inc.
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(Exact name of small business issuer as
specified in its charter)
Nevada 82-0288840
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2810 Via Orange Way, Ste B, Spring Valley, CA 91978
(Address of principal executive offices)
(619) 660-5410
--------------------------------------------
Issuer's telephone number
(Former name, former address and former fiscal year, if changed since last
report.)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ----- No -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: Approximately 28,510,287 shares
as of October 29, 2002
Transitional Small Business Disclosure Format (check one). Yes ; No X
--- ---
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Condensed Consolidated Balance Sheets at September 30, 2002 and
December 31, 2001.
Unaudited Condensed Consolidated Statements of Operations for the Three
Months and Nine Months ended September 30, 2002 and 2001.
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 2002 and 2001.
Notes to Interim Unaudited Consolidated Financial Statements at September
30, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 3. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
PART I
Item 1. Financial Statements
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders
LumaLite Holdings, Inc. and Subsidiary
We have reviewed the accompanying condensed consolidated balance sheets of
LumaLite Holdings, Inc. and subsidiary as of September 30, 2002 and December 31,
2001 and the related condensed consolidated statements of operations for the
three and nine month and cash flows for the nine month periods ended September
30, 2002 and 2001. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
Respectfully submitted
/s/ Robison, Hill & Co.
---------------------------------------
Certified Public Accountants
Salt Lake City, Utah
October 24, 2002
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
------------------ ------------------
Assets:
Current assets:
Cash $ $ 52,492
Accounts receivable, net of allowance for doubtful accounts 334,592 388,569
Inventories 286,482 316,706
Other current assets 27,257 -
------------------ ------------------
Total current assets 648,331 757,767
------------------ ------------------
Equipment:
Manufacturing equipment 219,167 -
Demo equipment 24,750 24,750
Computer equipment 14,942 6,681
Furniture & fixtures 6,334 4,709
Test equipment 5,958 5,958
------------------ ------------------
271,151 42,098
Less accumulated depreciation (47,586) (10,646)
------------------ ------------------
Equipment, net of accumulated depreciation 223,565 31,452
------------------ ------------------
Other non-current assets:
Intangible assets 337,774 -
Deposits 3,662 3,662
------------------ ------------------
Total other non-current assets 341,436 3,662
------------------ ------------------
Total assets $ 1,213,332 $ 792,881
================== ==================
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Unaudited)
September 30, December 31,
2002 2001
------------------ ------------------
Liabilities and Stockholders' Deficit:
Current liabilities:
Accounts payable, trade $ 539,820 $ 172,879
Checks written in excess of cash in bank 13,137 -
Accrued expenses 157,740 283,153
Due to related party 110,000 -
Accrued wages 195,224 186,482
------------------ ------------------
Total current liabilities 1,015,921 642,514
------------------ ------------------
Stockholders' Equity:
Preferred Stock, par value $.001 per share
Authorized 10,000,000 shares,
None issued at September 30, 2002 and
December 31, 2001 - -
Common Stock, par value $.001 per share
Authorized 100,000,000 shares,
Issued 28,510,287 Shares at September 30, 2002
and 27,507,529 Shares at December 31, 2001 28,510 27,507
Additional paid-in capital 414,640 401,182
Retained Earnings (245,739) (278,322)
------------------ ------------------
Total Stockholders' Equity 197,411 150,367
------------------ ------------------
Total Liabilities and
Stockholders' Equity $ 1,213,332 $ 792,881
================== ==================
See accompanying notes and accountants' report.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------------- --------------------------------------
2002 2001 2002 2001
------------------ ---------------- ------------------ ------------------
Revenues $ 502,477 $ 1,664,542 1,663,529 $ 2,911,312
Cost of revenues 400,610 620,763 867,264 1,286,065
------------------ ---------------- ------------------ ------------------
Gross Profit 101,867 1,043,779 796,265 1,625,247
------------------ ---------------- ------------------ ------------------
Expenses
Sales and marketing 91,802 193,219 369,032 359,793
Research and development - 10,082 83,548 34,074
General and administrative 33,009 448,236 280,621 585,791
------------------ ---------------- ------------------ ------------------
Total costs and expenses 124,811 651,537 733,201 979,658
------------------ ---------------- ------------------ ------------------
Other Income (Expense)
Interest income 1 388 462 1,058
Interest expense (4,573) (12,618) (5,243) (12,618)
------------------ ---------------- ------------------ ------------------
Net Other Income (Expense) (4,572) (12,230) (4,781) (11,560)
------------------ ---------------- ------------------ ------------------
Income taxes
Federal (8,000) 129,000 21,000 215,000
State (2,100) 30,000 4,700 50,000
------------------ ---------------- ------------------ ------------------
Total income taxes (10,100) 159,000 25,700 265,000
------------------ ---------------- ------------------ ------------------
Net Income (Loss) $ (17,416)$ 221,012 $ 32,583 $ 369,029
================== ================ ================== ==================
Weighted Average
Shares Outstanding 28,510,287 27,507,529 28,510,287 27,507,529
================== ================ ================== ==================
Loss per Common Share $ $ - 0.01 $ $- 0.01
================== ================ ================== ==================
See accompanying notes and accountants' report.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
-------------------------------------
2002 2001
----------------- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 32,583 $ 369,029
Adjustments necessary to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 36,940 7,364
Decrease (increase) in accounts receivable 53,977 (349,674)
Decrease (increase) in inventories 30,224 (160,742)
Decrease (increase) in other current assets (27,257) (11,771)
Increase (decrease) in checking overdraft 13,137 (17,229)
Increase (decrease) in accounts payable 366,939 159,410
Increase (decrease) in accrued expenses (125,413) 30,656
Increase (decrease) in accrued wages 8,742 24,522
----------------- ------------------
Net Cash Used in operations 389,872 51,565
----------------- ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of intangible assets (337,774) -
Acquisition of equipment (229,053) (10,143)
----------------- ------------------
Net cash provided by (used) investing activities (566,827) (10,143)
----------------- ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Repayments) borrowings on short term notes - (20,044)
Proceeds from shareholder notes payable 110,000 -
Repayment of notes payable to shareholder - (174,000)
Common stock issued for cash 500,000 258,013
Merger expenses (485,537) -
----------------- ------------------
Net Cash Provided by Financing Activities 124,463 63,969
----------------- ------------------
Net (Decrease) Increase in
(52,492) 105,391
Cash and Cash Equivalents
at Beginning of Period 52,492 -
----------------- ------------------
Cash and Cash Equivalents
at End of Period $ $ 105,391
================= ==================
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 478 $ -
Franchise and income taxes $ 120,000 $ 800
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
In April 2002, the reverse merger with LumaLite was completed (see Note 6).
Upon completion of the merger, all of the issued and outstanding shares of
common stock of LumaLite were cancelled and converted into a right to receive
17,800,000 post-reverse split shares (approximately 62.46% of the currently
outstanding common stock).
Effective with the merger, the holders of debt in the original amount of
$725,000 converted the principal amount of the debt, plus accrued interest, into
10,118,744 post-reverse split shares of common stock (approximately 35.5% of the
outstanding common stock).
In connection with the merger, Lincoln Properties Ltd., one of the
principal stockholders prior to the merger, contributed 296,732 post-reverse
split shares of common stock back to the Company.
See accompanying notes and accountants' report.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for LumaLite Holdings, Inc. ( the
"Company" or "LHI") is presented to assist in understanding the Company's
financial statements. The accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
Interim Reporting
The unaudited financial statements as of September 30, 2002 and for the
three and nine month periods ended September 30, 2002 and 2001 reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and results of
operations for such the three and nine month periods. Operating results for
interim periods are not necessarily indicative of the results which can be
expected for full years.
Organization and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary LumaLite, Inc. "(LLI)" During the
year ended December 31, 2001, the Company had no operations under its prior
name, Consil Corporation. On April 10, 2002, the Company changed its name to
LumaLite Holdings, Inc. and through a series of transactions, reincorporated in
Nevada from Idaho. On April 16, 2002, the Company closed on a transaction with
LLI whereby LLI merged into Consil Merger Corporation, a wholly owned subsidiary
of the Company, in a "reverse merger" such that LLI was the surviving
corporation and wholly owned by the Company.
Nature of Business
LHI and its subsidiary are in the business of developing, manufacturing and
selling advanced medical devices for the dental industry that use the Company's
proprietary technology. LHI and its subsidiary operate from its sole location in
Spring Valley, California..
Principles of Consolidation
The consolidated financial statements for the three and nine months ended
September 30, 2002 and 2001 include the accounts of the parent entity and its
wholly owned subsidiary LLI.
All significant intercompany balances and transactions have been
eliminated.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
---------------------------------------------------------------
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required 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.
Depreciation
Fixed assets are stated at cost. Depreciation is calculated using the 200
percent declining balance method over the estimated useful lives of the assets
as follows:
Asset Rate
------------------------------------------------ -----------------
Manufacturing equipment 5 years
Demo equipment 3 years
Computer equipment 5 years
Furniture & fixtures 7 years
Test equipment 7 years
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
Inventories
Inventories are stated at lower of cost or market, with cost determined on
the first-in, first-out method.
Inventories consist of:
September 30, December 31,
2002 2001
----------------- -----------------
Finished Goods $ 42,564 $ 112,543
Raw Materials 243,918 204,163
----------------- -----------------
Total Inventory $ 286,482 $ 316,706
================= =================
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
---------------------------------------------------------------
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred
income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
At September 30, 2002 there were no deferred taxes resulting from temporary
differences in the recognition of income and expenses for income tax reporting
and financial statement reporting purposes.
Reclassifications
Certain reclassifications have been made in the September 30, 2001
financial statements to conform with the September 30, 2002 presentation.
Revenue recognition
Revenue is recognized from sales of product at the time of shipment to
customers.
Advertising Expense
Advertising costs are expensed when the services are provided.
Concentrations of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash balances
with one financial institution, in the form of demand deposits.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
---------------------------------------------------------------
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Loss per Share
The reconciliations of the numerators and denominators of the basic loss
per share computations are as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------ ------------------- ------------------
For the Three Months Ended September 30, 2002
-----------------------------------------------------------
Basic Loss per Share
Loss to common shareholders $ (17,416) 28,510,287 $ -
================== =================== ==================
For the Three Months Ended September 30, 2001
-----------------------------------------------------------
Basic Income per Share
Income to common shareholders $ 221,012 27,507,529 $ 0.01
================== =================== ==================
=================== ==================
For the Nine Months Ended September 30, 2002
--------------------===================--==================
Basic Income per Share
Income to common shareholders $ 32,583 28,510,287 $ -
================== =================== ==================
For the Nine Months Ended September 30, 2001
-----------------------------------------------------------
Basic Income per Share
Income to common shareholders $ 369,029 27,507,529 $ 0.01
================== =================== ==================
Options to purchase 98,298 shares of common stock were outstanding during
September 30, 2002 and December 31, 2001 but were not included in the
computation of diluted Earnings Per Share because the options' exercise price
was greater than the average market price of the common shares.
NOTE 2 - RELATED PARTY TRANSACTIONS
Notes payable to related parties are as follows:
September 30, December 31,
2002 2001
----------------- ------------------
Promissory note, repayable to
Officers of the Company, due
on demand including
interest at 15%, unsecured $ 110,000 $ -
================= ==================
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
---------------------------------------------------------------
(Continued)
NOTE 3 - STOCK OPTIONS
The options have a five or ten-year life. The following summarizes stock
option activity during the nine months ended September 30, 2002 and year ended
December 31, 2001:
September 30, 2002 December 31, 2001
----------------------------------- --------------------------------------
Exercise Exercise
Shares Price/Share Shares Price/Share
--------------- ------------------- ------------------ ------------------
Options outstanding,
Beginning of period: 98,298 $0.0292-$0.117 2,581,496 $0.0292
Options granted 367,647 $0.272 81,202 $0.117
Options exercised - - (2,564,400) $0.0292
Options canceled - - - -
--------------- ------------------
Options outstanding,
End of period: 465,945 $0.0292-$0.272 98,298 $0.0292-$0.117
=============== ==================
Of the aggregate options, 98,298 of the options have a vesting schedule
that permits exercise of twenty-five percent of such amount (24,575 options on
the date one year from the date of grant and an additional twenty-five percent
of such amount on each of the second, third and fourth anniversary dates from
the dates of grant (24,575; 24575 and 24573 options, respectively).
NOTE 4 - ECONOMIC DEPENDENCE
The Company does not utilize any specialized raw materials and as such any
and all materials are readily available. The Company is not aware of any problem
that exist at present time or that is projected to occur within the near future
that will materially affect the source and availability of raw materials, which
would be required by the Company. The Company acquires approximately 5% of the
products it produces and markets from a single supplier. Although there are
other suppliers, a change in suppliers would cause a delay in the production
process, which could ultimately affect operating results.
NOTE 5 - COMMITMENTS
The Company has entered into a lease agreement for its office and warehouse
facilities. The rental charges are approximately $5,197 per month. The lease
expires November 30, 2005.
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
---------------------------------------------------------------
(Continued)
NOTE 5 - COMMITMENTS (continued)
The minimum future lease payments under these leases for the next five
years are:
Twelve Months Real Property Equipment
Ended December
31:
------------------------- -------------------------------------
2002 $ 49,028 $ -
2003 63,176 -
2004 65,727 -
2005 56,974 -
2006 - -
----------------- -----------------
Total minimum future lease payments $ 234,905 $ -
=====================================
The leases generally provide that insurance, maintenance and tax expenses
are obligations of the Company. It is expected that in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties.
NOTE 6 - DEFAULT ON SALE OF COMMON STOCK
On January 2, 2002, prior to the Merger and pursuant to written agreements
for the purchase and sale of stock, LLI sold an aggregate of 502,758 shares of
common stock of LLI to five investors for an aggregate purchase price of $1.5
million. The shares of LLI were issued and in accordance with the stock purchase
agreement, the buyers were to pay six equal monthly installments beginning on
May 1, 2002. The buyers are in default under the terms of the stock purchase
agreements and the Company, after review of the matter, is attempting a
settlement with the buyers. Although as of the date of this report, the
settlement has not been completed, it is the Company's intent to complete such a
settlement. Accordingly, the Company has not recorded the receivable from the
buyers of the $1.5 million and the corresponding increase to additional paid in
capital. However, since the shares of common stock of the Company are issued and
outstanding and the Company has not received any consideration for such
issuance, the Company has recorded the issuance of 502,758 shares of common
stock of the Company and has reduced additional paid in capital in the aggregate
amount of $178, representing the aggregate of the par value of such shares that
has not been collected.
NOTE 7 - REVERSE MERGER
In December 2001, the Company entered into an agreement with LLI. Pursuant
to which a newly formed wholly owned Company subsidiary merged with and into LLI
(the "Merger"). In connection with the Merger, in early January 2002, the
Company completed a private placement of 12,500,000 shares of common stock with
three accredited investors for an aggregate purchase price
LUMALITE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
---------------------------------------------------------------
(Continued)
NOTE 7 - REVERSE MERGER (Continued)
of $500,000. Following the reverse split, as described below, the three
accredited investors held 500,000 shares of common stock of the Company. The
stock was sold in reliance on the exemption from registration provided under ss.
4(2) of the Securities Act of 1933, as amended. The Proceeds from the private
placement were placed in escrow and were used primarily to pay costs and
expenses associated with the Merger.
As contemplated by the Merger, in March 2002, the stockholders of the
Company approved a 25 for 1 reverse split of its outstanding shares of common
stock, amended and restated the Company's articles and bylaws and moved the
state of incorporation from Idaho to Nevada. The Company also changed its name
to LumaLite Holdings, Inc. and, through a series of transactions, amended and
restated its articles of incorporation and its bylaws. On April 16, 2002 the
Company completed the Merger.
In the Merger, all of LLI's issued and outstanding shares of common stock
were cancelled and converted into a right to receive 17,800,000 post reverse
split common shares of the Company (approximately 62.46% of the outstanding
common stock of the Company following the reverse split of the common shares of
the Company).
In connection with the Merger, one of the Company's principal stockholders
prior to the Merger, contributed 296,732 post reverse split shares of common
stock of the Company, back to the Company and holders of debt in the original
amount of $725,000 converted the principal amount of the debt, plus accrued
interest, into 10,118,744 post reverse split shares of common stock of the
Company (approximately 35.5% of the outstanding common stock of the Company).
Item 2. Management's Discussion and Analysis or Plan of Operation
CAUTIONARY STATEMENTS:
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company plans that such forward-looking statements be
subject to the safe harbors created by such statutes. The forward-looking
statements included herein are based on current expectations that involve a
number of risks and uncertainties. Accordingly, to the extent that this report
contains forward-looking statements regarding the financial condition, operating
results, business prospects or any other aspect of the Company, the Company's
actual financial condition, operating results and business performance may
differ materially from that projected or estimated by the Company in
forward-looking statements. The differences may be caused by a variety of
factors, including but not limited to adverse economic conditions, intense
competition, including intensification of price
competition and entry of new competitors and products, adverse federal, state
and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, termination of contracts, loss of supplies,
technological obsolescence of the Company's products, technical problems with
the Company's products, price increases for supplies, inability to raise prices,
failure to obtain new customers, litigation and administrative proceedings
involving the Company, the possible acquisition of new businesses that result in
operating losses or that do not perform as anticipated, resulting in
unanticipated losses, the possible fluctuation and volatility of the Company's
operating results, financial condition and stock price, inability of the Company
to continue as a going concern, losses incurred in litigating and settling
cases, adverse publicity and news coverage, inability to carry out marketing and
sales plans, loss or retirement of key executives, changes in interest rates,
inflationary factors and other specific risks that may be alluded to in this
report or in other reports issued by the Company. In addition, the business and
operations of the Company are subject to substantial risks that increase the
uncertainty inherent in the forward-looking statements. The inclusion of
forward-looking statements in this report should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
HISTORY OF THE COMPANY
In December 2001, the Company entered into an agreement with LumaLite, Inc.
("LLI") pursuant to which a newly formed wholly owned Company subsidiary merged
with and into LLI (the "Merger"). As contemplated by the Merger, in March 2002,
the stockholders of the Company approved a 25 for 1 reverse split of its
outstanding shares of common stock, amended and restated the Company's articles
and bylaws and moved the state of incorporation from Idaho to Nevada. The
Company also changed its name to LumaLite Holdings, Inc. and through a series of
transactions, amended and restated its articles of incorporation and its bylaws.
On April 16, 2002 the Company completed the Merger as all of the outstanding
shares of LLI were converted to rights to receive shares in the Company.
o As a result of the Merger, the Company is no longer conducting its historic
business operations, which were to hold mineral property in Shoshone
County, Idaho. Those activities were unsuccessful and, beginning in the
fourth quarter of 1997 and continuing through late 2001, the Company
engaged in no active business operations, had no employees and maintained
only minimal accounting, management and officer functions. Upon completion
of the Merger, the combined business operations are active in a
significantly different industry.
BUSINESS OVERVIEW
We believe that, as a result of the Merger and the transactions completed
in connection with it, prospective investors and shareholders should not rely on
year-to-year comparisons of the operating results of the Company's predecessor
Consil Corporation to our present and future operating results. We also believe
that prospective investors and shareholders will have a better understanding of
our financial performance if they better understand our current operations.
Accordingly, we have included in this report a summary of our operations,
products, markets and material relationships. For more information regarding
these matters, please see our annual report on Form 10-KSB for the year ended
December 31, 2001.
Business
The Company, through its wholly owned subsidiary LLI, develops and markets
products to the dental community. Its current products include tooth-whitening
products and services that it markets through wholesale distributors whose
customers are primarily dental practitioners. The Company's current principal
product is its LumaArchTM Xenon-halogen Bleaching System, which provides
customers with tooth-whitening results that we believe are superior to those
provided by the Company's competitors. We believe its lower cost and the reduced
time that the customer is required to spend in the dental chair during the
whitening process make the product economically attractive to the dentist.
The LumaArch system uses a proprietary Xenon-halogen light and a
proprietary liquid light guide to produce uniform tooth-whitening results
without any heat. The system is used in conjunction with single-use LumaWhite
tooth-whitening material, which is especially formulated to react to the energy
wavelength produced by the LumaArch. The LumaArch system provides up to eight
shades of whitening improvement in a procedure that takes approximately 40
minutes of chair time, and at a cost to the patient that the Company believes is
lower than that charged by comparable companies. As of September 2002, the
Company had an installed base of approximately 2,100 LumaArch systems nationwide
(at an average manufacturers suggested retail price to the dental professionals
of $6,000) .
The Company currently markets its LumaArch system through a series of
wholesale distributor relationships with leading dental supply companies,
including Henry Schein and Patterson Dental. These dental supply companies
provide the Company with the equivalent of a 2,500 person sales representative
force and ready access to the more than 120,000 domestic dentists in the United
States. For more information regarding the Company's wholesale distributor
relationships, see "Strategic Relationships and Contracts" below.
The Company is focusing on its core business by introducing new advanced
products to the dental market. These products will be designed to supplement and
reinforce the customer's initial LumaArch tooth-whitening procedure, since there
is a natural degradation in post-procedure tooth whiteness from natural wear and
the customer's use of staining agents such as coffee, nicotine and red wine.
Management introduced "StayBrightTM", a "take home" product to satisfy the needs
of the take home teeth whitening market which currently represents 78% of the
total tooth whitening market. This unique product is the only "non-tray"
procedure available to the professional dentist at the present time.
"GentleBright TM", a revolutionary whitening material will be offered to
the dental community in the first quarter of 2003. This material is
revolutionary in that it departs from the standard hydrogen-peroxide or
carbamide peroxide bleaching material that has been the standard of the industry
for many years. This new material eliminates both the tooth and gum sensitivity
which
many patients have experienced using the existing procedures; further,
GentleBrightTM reduces the in-chair time for the patient by 25% and minimizes
the dentist's time required to perform the procedure. It is being packaged in a
kit which provides the dentist with all the ancillary material as well as the
bleaching material for added convenience.
Both of these products should contribute significant revenues to the
Company in the forthcoming years.
Another new product introduced in the 3rd quarter of this year was the
manufacturing and international distribution of an intra-oral camera, a new
product developed by Veratronics, Inc. The intra-oral camera called Vera-Cam,
when used in conjunction with either a common cathode ray tube monitor or a
digital display through a personal computer, is designed to be used by dentists
to provide a close-up view of the patient's mouth and teeth so that both the
patient and the dentist can observe the images transmitted by the camera. With
the Vera-Cam or other similar intra-oral cameras, the dentist can use the
Vera-Cam to demonstrate the need for dental procedures to the patient in real
time while the patient is in the dentist chair improving the opportunity for the
dentist to increase the number of procedures performed in any one patient visit
and the opportunity to perform additional procedures in future patient
appointments. The Vera-Cam's electronics allow the Company to produce a superior
performing product at a cost that the Company believes is lower than the cost of
previous generation electronics.
Industry Overview
Tooth-whitening has been practiced in rudimentary form since the late
1800s. With the discovery of carbamide peroxide, an active bleaching agent, and
its accidental application to aesthetic dentistry in the 1960s, the modern
tooth-whitening industry began to develop. Initially, tooth-whitening procedures
were generally cost prohibitive and time consuming. During the 1990s, the
industry experienced significant growth and, by 2001, was a $1.3 billion
industry domestically. The industry is expected to have domestic sales exceeding
$5 billion within the next seven years. Industry experts believe that the
industry has grown due to a number of factors, including a fundamental shift in
the focus of the dental profession (i.e., as baby boomers age there is less of a
need for traditional dental services such as treating cavities and tooth decay),
a more image conscious American public that desires white, good-looking teeth
and the growing perception that the industry represents a potentially lucrative
niche industry. According to the American Dental Association, in each of the
last four years, approximately 25% of dentists surveyed reported that tooth
whitening is the fastest growing aspect of their practices.
Despite the substantial changes in the industry over the past decade,
current tooth-whitening products still suffer from the same general problems
that have plagued the industry historically -- they are generally expensive,
inconvenient and not very effective. The most commonly used methods for
whitening stained or discolored teeth have traditionally been at-home products,
such as whitening toothpaste or dentist-prescribed bleaching trays that offer
only marginal shade improvements (1 to 3 shades of improvement for toothpastes
and 2 to 4 shares of improvement for trays) at a moderate cost, but with a
significant investment in time. The most effective whitening solutions have
typically relied on dental professionals using light or laser activated
bleaching systems. These systems have
historically been fairly expensive and, because the procedures are done at
dental offices, cause some potential customers to avoid the procedures because
of a fear of dental offices and the assumption that the in-office bleaching
process will be painful, difficult and generally uncomfortable.
Products and Technology
The Company believes the LumaArch bleaching system and its soon to be
announced LumaCool System is technologically superior to the tooth-whitening
systems employed by the competitors. The LumaArch system was developed by the
Company's co-founder, Dr. Dale Rorabaugh, and is currently the core of the
Company's product and service offerings. The LumaArch system uses a proprietary
Xenon-halogen illumination source that produces a high lumen energy output in a
specified bandwidth within the visible spectrum. The Xenon-halogen light is
filtered through a patented "liquid light" guide that provides a uniform
wavelength with virtually no heat. The Company believes the liquid light guide
is more effective in the whitening process than the more commonly used, but less
efficient, fiber optic guides, and the Company believes that the liquid light
guides manufactured by the Company are among the most advanced guides currently
on the market, providing operating efficiencies in the range of 85%. By
comparison, most commonly used fiber optic light guides provide efficiencies of
approximately 45%. The Company believes the only competitive liquid light
product on the market is 20% less efficient than the LumaArch liquid light
guides. The LumaArch liquid light guides produce virtually no heat, providing a
safer and more comfortable experience for the patients.
The Company's liquid light guides have been specifically designed to
interact with the Company's LumaWhite tooth-whitening material, which is the
medium that actually whitens the tooth enamel. The material is a proprietary
formulation that increases the rate of oxidation on the chromagens that cause
tooth staining. The LumaArch system is also unique in that it is specifically
designed for tooth-whitening and can simultaneously whiten both tooth arches at
the same time The Company has received one patent on its LumaArch system and has
filed three additional patents in the United States. The Company plans to
continue filing patents, with the advice of its counsel. The Company also uses a
number of trademarks for its products and services.
Strategic Relationships and Contracts
The Company has entered into a number of agreements relating to the
manufacturing and distribution of the services and products both domestically
and internationally.
Domestic Distribution Relationships. The Company distributes its products
domestically through relationships with a number of nationwide dental
distributors, including Henry Schein, Inc., Patterson Dental Supply, Inc.,
Burkhart Dental and Kings Two Dental Supply. The Company sells its products to
those companies through standard purchase order arrangements,. The Company's
relationships with its domestic distributors are non-exclusive and subject to
termination by either party at any time.
International Distributorships. The agreements specify the territory and the
products covered by the distributorship agreements. As of the date of this
report, the Company had entered into agreements
for the territories of Australia, Singapore, Indonesia, Taiwan, the European
Union (UK, France, Germany, Spain, Italy), Rusia, Canada, Korea, Chile, Brazil
and Mexico.
The distribution arrangements grant the distributors the exclusive right to
distribute the products specified within the described territory and requires
the distributor to maintain adequate facilities and sales personnel to sell the
Company's products. The distribution agreements generally provide for minimum
annual sales quotas by each distributor. If a distributor fails to meet the
sales quota during a particular year and fails to remedy any shortfall within 90
days after notice from the Company, the Company has the right to terminate the
distribution agreement.
The distribution agreements are generally for an initial term of three
years and then provide the distributor with a right to renew the contract for
additional periods. The agreement can be terminated by either party if the
distributor fails to make timely payment for the products it purchases or if a
party declares bankruptcy or institutes insolvency proceedings. In addition,
either party may terminate the agreement for the other party's failure to
perform any non-monetary obligation set forth in the agreement after 90 days
notice specifying the party's failure to perform. The Company may terminate the
agreement if the distributor ceases to make the Company's products available to
customers for more than 30 consecutive days or the distributor states in writing
that it plans to cease marketing the Company's products.
Manufacturing and Distribution Relationships. In February 2002, the Company
executed a letter of intent with Veratronics, Inc. and its sole owner Ron
Williams with respect to the manufacturing and distribution of the Vera-Cam and
to employ Mr. Williams as Vice President of Engineering for three years.
Pursuant to the manufacturing and distribution terms, the Company has the
exclusive rights in the United States to manufacture the Vera-Cam and the
exclusive rights to manufacture and distribute the Vera-Cam internationally. In
the United States, the Company manufactures the Vera- Cam for sale to a third
party distributor who holds the exclusive rights to such distribution thru July
2003, such rights were granted by Veratronics prior to its agreements with
LumaLite. The key component to the Vera-Cam is a charged couple device ("CCD")
that provides high-resolution images and is manufactured by Panasonic pursuant
to an oral agreement between Veratronics and Panasonic. Vertaronics has the
exclusive worldwide right to use the CCD in dental applications. The Company
purchases all CCDs for the Vera-Cam from Veratronics.
Sales and Marketing
Currently, the Company distributes its products using a wholesale
distribution network that sells to professional dental customers through
established relationships. The Company's wholesale distributors are primarily
major dental distributors.
The Company's distributor relationships effectively provide it with access
to the equivalent of 2,500 sales representatives who sell to the over 120,000
domestic dentists. The Company believes that this distribution system provides
it with rapid national market penetration without the heavy up- front costs that
a national sales platform would normally require. The Company complements its
national distributor relationships with a commission-only sales force of
approximately 20 independent sales representatives who train and update dental
end users on the Company's products
and their use.
The Company believes that wholesale distribution provides a number of
distinct benefits to it over the more traditional direct marketing approaches
and independent distribution chains used by its competitors. Typically,
traditional marketing and distribution chains are costly, complex and slow to
gain momentum. For example, the Company believes its principal competitors
employ marketing approaches that require them to spend a significant portion of
their revenues (at least in the early stages of corporate growth) on marketing
and advertising. The Company believes, however, that by using distributor
networks and relationships, the Company's overall marketing and advertising
costs will stabilize in the range of between 10% and 12% of revenues.
The Company believes that by the end of 2002 the Company's distribution
network will lead to an installed base of approximately 2,000 LumaArch systems
on a worldwide basis, and that those installed systems will allow the Company to
derive long-term recurring revenues from the sale of its high-margin, single-use
tooth-whitening material as customers and dental practitioners use the LumaArch
systems. The Company also plans to take advantage of these existing sales
channels to cross-market its proposed line of complementary tooth-whitening
products to its expanding customer base.
Competition.
The Company's tooth-whitening systems will compete with all tooth-whitening
products and services, including those offered through dental offices, retail
stores and take-home products. The Company's competition in the retail arena is
BriteSmile, Inc., which offers its products through a number of storefront
centers, as well as through associated dentists offices. Air Technologies, which
uses Patterson Dental as a distribution channel, and Discus Dental, Inc., which
markets its product through a direct sales force, are the Company's major
competitors in the professional dental market.
Companies that offer dentist-prescribed home bleaching products include
Opalescence, which is offered by Ultra Dent, Inc., Night White, which is offered
by Discus Dental, Inc., Platinum, which is offered by Colgate, Crest Strips
(Procter & Gamble) and NuProGold, which is offered by Dentsply International,
Inc., Rembrandt, which is offered by DenMat, Inc. and Simply White by Colgate
Palmolive.
The company believes its products and services compete favorably with the
products and services offered by in-office and storefront products and service
providers, since the LumaArch system provides comparable or superior
tooth-whitening services (on average, eight shades of whitening difference) for
a price point that is significantly lower than the cost of its competitors'
products and services. For example, laser-based bleaching systems typically
retail for between $10,000 and $50,000, and cost patients between $750 and
$2,000, while less effective power bleaching systems cost dentist between $1,000
and $5,000, with a cost to the patient of $500 to $1,250. The Company's primary
competitor in the marketplace, which offers a comparable whitening system that
produces results similar to those produced by LumaArch, with a minimum chair
time, is available to dental practitioners reportedly through 10 year exclusive
contracts and at a cost per procedure to the dental practitioners of $250,
resulting in a customer cost of approximately $500 to
$600. With respect to in-home professional or over-the-counter products, The
Company believes the competitive advantages of its products and services include
significantly reduced processing time and better results.
RESULTS OF OPERATIONS
The Company has experienced material and significant changes in its
structure and operations during the nine months ended September 30, 2002 (see
"History of the Company"). As a result of these changes, the comparative
financial statements as reported herein contain the accounts of the Company for
the nine months and three months ended September 30, 2002 as if the Merger were
completed as of the beginning of the nine months ended September 30, 2002 and
therefore, consolidated into the Company for such period. In addition, for the
nine months and three months ended September 30, 2001, the financial statements
for the Company are presented based on the LLI figures so that a relevant
comparison can be made between the operations of the company during these
periods.
For the Nine Months Ended September 30, 2002 As Compared to the Nine Months
Ended September 30, 2001
As a result of the Merger, the Company includes the results of operations
of LLI for the nine months ended September 30, 2001 for comparison to the
results of operations of the Company for the nine months ended September 30,
2002. For the nine months ended September 30, 2002, the Company reported a net
income of $33,000, as compared to net income of $369,000 for the nine months
ended September 30, 2001. This decrease in net income is primarily due to the
increased research, marketing and insurance costs related to a public company as
well as manufacturing and product launch this year. In the nine months ended
September 30, 2001 a one time non-recurring reduction in expenses as a result of
a favorable settlement of a dispute, increased profits for that year.
For the Nine Months
Ended September 30
---------------------------------------
2002 2001
------------------ -----------------
Revenues 100% 100%
Cost of revenues 52% 44%
------------------ -----------------
48% 56%
Selling, general and administrative expenses 44% 34%
Other income (expense) 0% 0%
------------------ -----------------
Income before tax 4% 22%
Income taxes 2% 9%
------------------ -----------------
Net income 2% 13%
================== =================
Revenues
Revenues of the Company were $1,664,000 for the nine months ended September
30, 2002 as compared to $2,911,000 for the nine months ended September 30, 2001,
a decrease of 43%. This decrease is primarily a result of the market response in
the United States to a competitive tooth- whitening system introduced early in
2002. The competitive product was more favorably priced and attracted some
buyers in the U.S. market that otherwise would have purchased the Company's
product. The Company is developing a lower priced alternative for the U.S.
market that is expected to be launched in the fourth quarter.
Cost of Sales
Cost of sales decreased from $1,286,000 for the nine months ended September
30, 2001 to $867,000 for the nine months ended September 30, 2001, a decrease of
33%. As a percentage of sales, cost of sales for the nine months ended September
30, 2002 were 52% as compared to cost of sales as a percentage of sales of 44%
for the nine months ended September 30, 2001. This increase in the cost of sales
as a percentage of sales is due primarily to the mix of the products sold and
the write off of obsolete inventory items.
Gross Profit
The gross profit for the nine months ended September 30, 2002 was $796,000,
or 48% of sales, as compared to $1,625,000, or 56% of sales. This decrease of 8%
in gross profit was primarily the result of the write off of obsolete inventory
due to the improvements made to the current products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $9,000 from $360,000
for the nine months ended September 30, 2001to $369,000 for the nine months
ended September 30, 2002. This increase was primarily due to the realization of
a one-time reduction of costs in the nine months ended September 30, 2001 and an
increase in the marketing expenses in the nine months ended September 30, 2002
associated with the product launch and expansion of product distribution. In the
nine months ended September 30, 2001, the one-time reduction in expenses was
approximately $111,000 and associated with the favorable settlement of a
dispute. In the nine months ended June 30, 2002, the increase in marketing
expenses were primarily due to an increase of approximately $121,000 in
advertising and commissions along with an increase in insurance costs as a
result of the company becoming a public company.
Net Income
Net income decreased $336,000 from $369,000 for the nine months ended
September 30, 2001 to $33,000 for the nine months ended September 30, 2002. This
decrease is primarily due to the increase in selling, general and administrative
expenses incurred in the nine months ended September 30, 2002 but not incurred
in the nine months ended September 30, 2001, which includes
approximately $183,000 in additional advertising, commissions and insurance
costs associated with the product launch and manufacturing. In addition, the
Company benefitted from a one-time reduction in expenses in the nine months
ended September 30, 2001 of approximately $111,000 resulting from the favorable
settlement of a dispute.
For the Three Months Ended September 30, 2002 As Compared to the Three Months
Ended September 30, 2001
For the three months ended September 30, 2002, the Company reported a net
loss of $17,000, a decrease in net income of $238,000, as compared to net income
of $221,000 for the three months ended September 30, 2001. This decrease in
profitability is primarily due to the decrease in gross margin and the increase
in costs associated with the product launch and increased manufacturing
expenses.
For the Three Months
Ended September 30
---------------------------------------
2002 2001
------------------ -----------------
Revenues 100% 100%
Cost of revenues 80% 37%
------------------ -----------------
20% 63%
Selling, general and administrative expenses 25% 39%
Other income (expense) 0% 0%
------------------ -----------------
Income before tax -5% 24%
Income taxes -2% 10%
------------------ -----------------
Net income -3% 14%
================== =================
Revenues
Revenues of the Company were $502,000 for the three months ended September
30, 2002 as compared to $1,665,000 for the three months ended September 30,
2001, an decrease of 70%. This decrease is primarily a result of the decrease in
sales of the Company's products in the U.S. markets.
Cost of Sales
Cost of sales decreased from $220,000 for the three months ended September
30, 2001 to $401,000 for the three months ended September 30, 2002. As a
percentage of sales, cost of sales for the three months ended September 30, 2002
were 80% as compared to cost of sales as a percentage of sales of 37% for the
three months ended September 30, 2001. This increase in the cost of sales as a
percentage of sales is due primarily to the write off of obsolete inventory as a
result of the launch of new products.
Gross Profit
As a result of the decrease in sales and increase in cost of sales, gross
profit for the three months ended September 30, 2002 decreased $942,000, over
the gross profit for the three months ended September 30, 2001. The gross profit
for the three months ended September 30, 2002 was $102,000, or 20% of sales, as
compared to $1,044,000, or 63% of sales for the three months ended September 30,
2001.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $527,000 from
$652,000 for the three months ended September 30, 2001 to $125,000 for the three
months ended September 30, 2002. This decrease was primarily due to the
realization of a one-time reduction in costs in the three months ended September
30, 2001 associated with the approximately $111,000 favorable settlement of a
dispute.
Income from Continuing Operations
Net income of $221,000 for the three months ended September 30, 2001
compares to a loss of $17,000 for the three months ended September 30, 2002.
This decrease is primarily due to (a) the decrease in sales of $1,162,000 and
the increase in cost of sales as a result of the write off of obsolete inventory
resulting in an decrease in gross profit of $942,000 as realized in the three
months ended September 30, 2002, over (b) the decrease in selling, general and
administrative expenses of $527,000 as realized in the three months ended
September 30, 2002, net of the income tax affect.
CAPITAL RESOURCES AND LIQUIDITY
Cash decreased $52,000 for the nine months ended September 30, 2002 to $-0-
at September 30, 2002, as compared with $52,492 at December 31, 2001.
At September 30, 2002, the Company had a deficiency between the current
assets and current liabilities of $368,000 as compared to the excess of current
assets over current liabilities of $115,000 at December 31, 2001. This change of
$483,000 was primarily as a result of (a) the Company incurring a short term
note payable to related parties of $110,000 in the nine months ended September
30, 2002 and (b) the decrease in accounts receivable of $54,000 at September 30,
2002 as compared to December 31, 2001. Of the current components, with respect
to the balance sheet of September 30, 2002 as compared to December 31, 2001,
there was a decrease in inventory of $30,000, an increase in prepaid expenses
and other current assets of $27,000 and an increase in accounts payable and
accrued expenses of $242,000.
Net cash used in investing activities for the nine months ended September
30, 2002 was $567,000 consisting primarily of the cash acquisition of intangible
assets of $338,000 and the cash acquisition of equipment of $229,000.
Net cash provided by financing activities was $124,000 for the nine months
ended September
30, 2002, consisting primarily of $110,000 from the proceeds of the loan from
related parties and the net differential of $14,000 resulting from the reverse
merger.
On June 28, 2002, the Company established a $100,000 line of credit with
the California Bank & Trust , secured by the assets of the Company. The note
bears interest at an annual rate of 6.75%.
As of the date of this report, the Company has not received payment
pursuant to a stock purchase agreement dated January 2, 2002 and the buyers are
in monetary default. This stock purchase agreement was executed prior to the
Merger pursuant to which LLI sold an aggregate of 502,758 shares of common stock
of LLI to five investors for an aggregate purchase price of $1.5 million. The
shares of LLI were issued and in accordance with the stock purchase agreement,
the buyers were to pay six equal monthly installment beginning on May 1, 2002.
The buyers are now in monetary default under the terms of the stock purchase
agreements and the Company, after review of the matter, has negotiated with the
buyers to rescind the stock purchase and sale transaction. Although as of the
date of this report, the rescission has not been completed, it is the Company's
intent to complete such a rescission with the original holders of the shares and
complete a similar transaction by transferring the defaulted shares to the
Excelsior Investment Group for an amount to be negotiated between both
companies. Accordingly, the Company has not recorded the receivable from the
buyers of $1.5 million and the corresponding increase to additional paid in
capital. However, since the shares of common stock of the Company are issued and
outstanding and the Company has not received nor does the Company expect to
receive any consideration for such issuance, the Company has recorded the
issuance of 502,758 shares of common stock by the Company and has reduced
additional paid in capital in the aggregate amount of $178, representing the
aggregate of the par value of such shares that has not or will not be collected.
The Company will need additional working capital to finance the short-term
liquidity needs of the Company's operations. However, there can be no assurances
that the Company will be able to secure adequate working capital financing or
any other financing suitable for the purposes of the Company at prices that the
Company will deem to be acceptable. While the Company has plans to increase the
scope of its operations that will require investment in fixed assets and
additional working capital, there are no assurances that the Company will be
successful in obtaining such additional capital on terms that are acceptable to
the Company. If the Company is unable to successfully obtain additional capital,
it may be forced to significantly and materially alter its operations and/or
change or modify its plans for growth and expansion.
Capital Expenditures
The Company purchased additional equipment of $229,000 in the nine months
ended September 30, 2002, primarily to initiate manufacturing and assembly
operations for the Vera- Cam. In addition, the Company purchased $338,000 in
intangible assets during the nine months ended September 30, 2002, consisting
primarily of research and development investment in new products.
Item 3. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this Quarterly Report on Form 10-Q, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary whether:
(i) this Quarterly Report on Form 10-Q contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this Quarterly Report on Form 10-Q, and
(ii) the financial statements, and other financial information included in
this Quarterly Report on Form 10-Q, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this Quarterly
Report on Form 10-Q.
There have been no significant changes in the Company's internal controls
or in other factors since the date of the Chief Executive Officer's and Chief
Financial Officer's evaluation that could significantly affect these internal
controls, including any corrective actions with regards to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None/Not Applicable.
ITEM 2. CHANGES IN SECURITIES
None/Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None/Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None/Not Applicable.
ITEM 5. OTHER INFORMATION
None/Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
99.1 CEO Certification
99.2 CFO Certification
(b) Reports on Form 8-K.
On October 10, 2002, the Company filed Amendment Number 2 to the Current
Report on Form 8-K dated May 13, 2002 relating to changes in the registrant's
certifying accountant.
On August 19, 2002, the Company filed a Current Report on Form 8-K relating
to Regulation FD disclosure of CEO and CFO Section 906 certifications for the
quarter ended June 30, 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 12th day of November, 2002.
LumaLite Holdings, Inc.
/s/ Dale A. Rorabaugh
--------------------------------------------
Dale A. Rorabaugh
Chief Executive Officer
/s/ Hank Schumer
------------------------------------------
Hank Schumer
Chief Financial Officer
I, Dale A. Rorabaugh, certify that:
1. I have reviewed this quarterly report on form 10-QSB of LumaLite
Holdings, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in exchange act rules 13a-14 and 15d-14) for the registrant
and have:
A) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
B) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "evaluation date"); and
C) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the evaluation date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
B) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Dale A. Rorabaugh
Dale A. Rorabaugh
CEO
(Principal Executive Officer)
I, Hank Schumer, certify that:
1. I have reviewed this quarterly report on form 10-QSB of LumaLite
Holdings Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in exchange act rules 13a-14 and 15d-14) for the registrant
and have:
A) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
B) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "evaluation date"); and
C) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the evaluation date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
B) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Hank Schumer
Hank Schumer
CFO
(Principal Financial and Accounting Officer)