U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-4846-3
LUMALITE HOLDINGS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 82-0288840
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2810 VIA ORANGE WAY, SUITE B, SPRING VALLEY, CA 91978
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(619) 660-5410
(ISSUER'S TELEPHONE NUMBER)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.001
PAR VALUE.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORT(S), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB. X .
THE AGGREGATE MARKET VALUE OF ALL SHARES OF VOTING STOCK HELD BY NON-AFFILIATES
WAS $1,593,000 AT FEBRUARY 14, 2003, BASED ON THE LATEST TRADE DATE ON THE OTC
BULLETIN BOARD MAINTAINED BY THE NASD. IN DETERMINING THIS FIGURE, THE
REGISTRANT HAS ASSUMED THAT ALL DIRECTORS AND EXECUTIVE OFFICERS ARE AFFILIATES.
SUCH ASSUMPTION SHALL NOT BE DEEMED CONCLUSIVE FOR ANY OTHER PURPOSE. THE NUMBER
OF SHARES OUTSTANDING OF EACH CLASS OF THE REGISTRANT'S COMMON STOCK, AS OF
FEBRUARY 14, 2003, WAS AS FOLLOWS: COMMON STOCK $.001 PAR VALUE 28,964,234
SHARES.
TOTAL REVENUES FOR FISCAL YEAR ENDED DECEMBER 31, 2002: $2,099,944
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES ; NO X
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Lumalite Holdings, Inc. ("Lumalite Holdings," the "Company," "we," and
"us"), formally Consil Corp., was originally formed to hold certain mineral
properties in Shoshone County, Idaho known as the "Silver Summit mine." In 1995,
our stockholders approved the sale of our interest in the Silver Summit mine and
adjacent mining properties to Sunshine Precious Metals, Inc. for a cash payment
of $750,000 plus a variable production royalty tied to the price of silver. In
2000, Sunshine filed for bankruptcy under Title 11 Chapter 11 of the U.S. Code
and shut down operations at the Sunshine Mine.
Following the sale of the Silver Summit mine in 1995, we were actively
involved in mineral exploration and acquisition activities, primarily in Mexico.
Theses activities were unsuccessful and, beginning in the fourth quarter of 1997
and continuing through late 2001, we engaged in no active business operations,
had no employees and maintained only minimal accounting, management and officer
functions.
Beginning in late 2001 and continuing through early 2002, we entered
into a series of transactions that resulted in our resuming business operations,
although in a significantly different industry than the traditional industries
in which we have operated. Those transactions, which are described in more
detail below, include the following transactions:
o In December 2001, we entered into a merger agreement with
Lumalite, Inc. ("Lumalite"). Lumalite is a California
corporation that develops and manufactures dental products.
o In early January 2002, we completed a private placement of
shares with three accredited investors for $500,000.
o In March 2002, our stockholders approved, and in April 2002 we
effected, a number of corporate actions that our management
believes will enhance our business operations following the
merger with Lumalite. Those actions included changing our
corporate name from "Consil Corp." to "Lumalite Holdings,
Inc.", effecting a 25 for 1 reverse split of our outstanding
shares of common stock, amending and restating our articles
and bylaws and moving our state of incorporation from Idaho to
Nevada.
o In connection with our merger with Lumalite, we converted a
significant amount of our debt into shares of our common stock
and one of our principal shareholders contributed its holdings
to our capital. Our management believes these actions had a
beneficial effect on our financial position.
THE YEAR 2002 OPERATIONS
THE MERGER
In January 2002, we entered into an Agreement and Plan of Merger with
LumaLite, ConSil Merger Corp., a Nevada corporation that we formed as a
wholly-owned subsidiary to effect the
merger, and certain shareholders of LumaLite. Under the terms of the merger
agreement, ConSil Merger Corp. merged with and into LumaLite, with LumaLite
surviving the merger and becoming our wholly-owned subsidiary. The merger was
completed during April 2002.
Upon completion of the merger, all of the issued and outstanding shares
of common stock of LumaLite were cancelled and converted into and became a right
to receive, in the aggregate, 17,800,000 post-reverse split shares (as described
below) of our common stock. In connection with the merger, we assumed all of the
then outstanding options (whether vested or un-vested) to purchase LumaLite's
common stock and we have reserved an aggregate of 98,298 post-reverse split
shares of our common stock for issuance under the options. The 17,800,000
post-reverse split shares of common stock issued to the LumaLite stockholders in
the merger collectively represent approximately 62.46% of our voting stock. As a
result, if the LumaLite stockholders act in concert, they will have significant
control over our business and operations, including the right to elect our Board
of Directors.
In connection with the merger, our sole director appointed four
nominees of LumaLite to fill the existing vacancies on our Board of Directors
and then resigned as a member of our board. The four new directors are named,
and their backgrounds are described, in the section entitled "Directors,
Executive Officers, Promoters and Control Person; Compliance with Section 16(a)
of the Exchange Act," below.
LumaLite was incorporated in California in June 1999 to develop,
manufacture and sell advanced medical devices for the dental industry that use
its proprietary technology. LumaLite's current business consists of selling
teeth-whitening systems and whitening gels to dentists through a nation-wide and
international system of distributors. LumaLite's business will constitute our
primary business operations for the foreseeable future.
Dental patients interested in whitening their teeth have several
options, including home- bleaching techniques and "power bleaching" techniques
provided in dentists' offices. For at-home bleaching, the dentist provides the
patient with a special custom-fitted bleaching tray and a bleaching or whitening
gel. The patient then wears the gel for a few hours each day for up to two
weeks. Power bleaching, which is considered to be superior to at-home bleaching,
is generally done at a dentists' office using a system that allows maximum
contact for the bleaching gel with the teeth, while minimizing the gel's contact
with the mouth's soft tissue. Power bleaching is often combined with
applications of heat and/or light, which activates the solution used for the
whitening process. Lumalite's products are primarily power bleaching products
marketed to dentists and, under normal office conditions, provide what Lumalite
considers to be a significant whitening effect during each office visit.
In the fourth quarter of 2000, Lumalite introduced the LumaArchTM, a
tooth whitening system that takes approximately 30 to 40 minutes to
simultaneously whiten both upper and lower teeth, which is approximately
one-half the time that its primary competitor's technology takes. The LumaArch
uses LumaLite's patented liquid light technology and special optics to provide
what LumaLite believes is a highly reliable in-office teeth whitening system at
a relatively low cost. LumaLite's principal competitors include BriteSmile
(which markets in-office teeth whitening products through a system of affiliated
dental offices), Discus Dental (which markets both in-office and home whitening
products) and Den-Mart, Inc. (which offers teeth whitening and other dental
products for dentists).
LumaLite's current business strategy is comprised of four elements: (i)
an internal effort to
develop product line extensions to take advantage of existing distribution
channels; (ii) potential acquisition of targeted companies and/or assets to
enhance its existing products and technology; (iii) accessing public capital
markets with a view to more effectively expanding its business and providing
greater liquidity for its present shareholders and potential investors; and (iv)
seeking new business opportunities in the dental and medical device and
instrumentation industries.
LumaLite's audited financials for the period ended December 31, 2002
show revenues of $2,099,944 for the year ended December 31, 2001 and $4,020,359
for the year ended December 31, 2001. Pre-tax net income (loss) for the years
ended December 31, 2002 and 2001 were ($535,617) and $688,013, respectively.
Despite having commenced operations and having revenue, LumaLite may be
considered to be an early operational stage and, therefore, subject to risk
factors that affect any start-up or newly-emerging business. Accordingly, there
is no assurance that LumaLite will achieve its business strategy.
THE PRIVATE PLACEMENT
In January 2002, we completed a private placement of 12,500,000 shares
of our common stock with three accredited investors for an aggregate purchase
price of $500,000. Following the reverse split of our common stock, as described
below, the three accredited investors hold a total of 500,000 post-reverse split
shares of our common stock. We believe the placement qualified for the exemption
from registration provided under ss. 4 (2) of the Securities Act of 1933, as
amended.
The proceeds from the placement of the 12,500,000 shares of common
stock were placed in escrow. Under the terms of the escrow, $100,000 was
released to us on the execution of the escrow agreement, which occurred on
January 7, 2002, and the balance of the escrow funds were released to us in
March and April 2002. The escrowed amounts used primarily to pay costs and
expenses associated with our merger with LumaLite and for general corporate
expenses and working capital.
OUR NAME CHANGE AND THE REVERSE SPLIT
On April 11, 2002, we amended our Articles of Incorporation to change
our name from "ConSil Corp." to "LumaLite Holdings Inc." The purpose of this
amendment was to reflect the scope and type of our business activities following
the completion of the merger. At the same time, we effected a reduction in our
outstanding capitalization by effecting a "reverse split" pursuant to which we
issued one share of our common stock in exchange for every twenty-five (25)
outstanding shares of our common stock. As a result of the reverse split, the
pre-merger number of issued and outstanding shares of our common stock was
reduced from 21,949,707 shares to approximately 877,988 shares. The rights and
preferences of our common stock were not modified or amended in connection with
the reverse split.
THE AMENDMENT AND THE RESTATEMENT OF OUR ARTICLES OF
INCORPORATION AND BYLAWS
In connection with the merger with LumaLite, we adopted new Articles of
Incorporation and Bylaws with the intent of "modernizing" our Article of
Incorporation and Bylaws, and providing provisions in those documents which are
normally found in charter documents for public corporations (including such
matters as the use of teleconferencing, facsimile and telephone devices and
public trading securities procedures).
OUR CHANGE OF DOMICILE
On April 11, 2002, we changed our state of incorporation from Idaho to
Nevada. In connection with the change of domicile, we adopted a new certificate
of incorporation and bylaws essentially identical (except for required state-law
imposed changes) to the amended Articles of Incorporation and Bylaws described
above.
The change in domicile effected a change only in our legal domicile. It
did not result in any change in our business, our management, the location of
our principal facilities, our fiscal year, or our assets or liabilities or,
except to the extent of any difference between Idaho and Nevada law, the general
legal principals under which we will operate. For a comparison of the
differences between Idaho and Nevada corporate law provisions, see the summary
of those changes set forth in our proxy statement on Schedule 14A filed with the
Securities and Exchange Commission on February 21, 2002.
THE DEBT CONVERSION
In June 1996, we entered into a loan agreement with Hecla Mining
Company, our former principal shareholder. The original principal amount of the
loan was $725,000 and we amended the agreement several times to extend the due
date of the loan. In July 2001, Hecla assigned its interest in the loan. Upon
the effectiveness of the merger, the current holders of the debt converted the
principal amount of the debt, plus accrued interest, into 10,118,744
post-reverse split shares of our common stock. Those shares represent
approximately 35.5% of our outstanding common stock on a post-reverse split and
post-merger basis, although none of the holders will individually hold 10% or
more of our common stock.
CONTRIBUTION OF SHARES
In connection with the merger, Lincoln Properties Ltd L.C., one of our
principal stockholders prior to the private placement, the reverse split and the
merger, contributed its shares of common stock back to us. Lincoln Properties
held and contributed a total of 296,732 post-reverse split shares of our common
stock.
OUR CORPORATE STRUCTURE
We conduct our business operations though a parent corporation,
LumaLite Holdings, Inc. (formally ConSil Corp.), and our wholly-owned
subsidiaries, LumaLite, Inc. and Minera ConsSil, S.A. de C.V. Minera has no
assets and conducts no operations. Our parent corporations's assets primarily
consist of its direct interest in our wholly-owned subsidiaries. Our operations
are primarily conducted through our LumaLite, Inc. subsidiary.
Our principal operating office is located at 2810 Via Orange Way, Suite
B, Spring Valley, California, and our telephone number there is (800) 400-2262.
Our worldwide website is located at www.luma-lite.com. The information
on that site is not part of this report. Our logo and certain titles and logos
for our services are our property. Each trademark, trade-name or service mark of
any other company appearing in this report belongs to its holder. We have
previously reported some of the information regarding the transactions and
operations set forth in this report in greater detail in other reports we have
filed with the Securities and Exchange Commission, including in reports
described below in the section entitled "Reports on
Form 8-K" and our proxy statement on Schedule 14(a) filed February 21, 2002. You
should read the information in this report in connection with those reports and
filings which are incorporated herein by this reference.
COMPETITION
The Company expects to encounter substantial competition in its efforts
to locate attractive opportunities, primarily from business development
companies, venture capital partnerships and corporations, venture capital
affiliates of large industrial and financial companies, small investment
companies, and wealthy individuals. Many of these entities will have
significantly greater experience, resources and managerial capabilities than the
Company and will therefore be in a better position than the Company to obtain
access to attractive business opportunities.
EMPLOYEES
The Company's employees at the present time consist of 12 full time
employees, none of whom are represented by a union.
ITEM 2. DESCRIPTION OF PROPERTY
LumaLite's principal business operations are conducted from a leased
6,000 sq. ft. combination administrative, research, manufacturing and warehouse
space located in Spring Valley, California. The lease for the property expires
in November 2005. We believe the lease is on commercially reasonable terms and
that it is adequate for LumaLite's current needs. LumaLite believes there is
additional lease space available on commercially reasonable terms in the same
general area if it requires additional space for its operations.
LumaLite maintains administrative and manufacturing equipment, as well
as supplies and inventory, at its principal business location. Its manufacturing
equipment consists primarily of assembly and final-testing machines and
equipment. LumaLite has the ability to source its manufacturing equipment and
components from a number of equipment vendors. LumaLite believes that all of its
manufacturing equipment is in good condition, normal wear and tear excepted.
In connection with our business activities, we have not historically
engaged, and do not intend in the future to engage, in any significant
investment activities, including investments in real estate or interests in real
estate, investments in real estate mortgages or in securities or interests of
persons primarily engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS
We are not subject to any material actual or pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, we
did not submit any matter to a vote of our security holders, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock is traded on the over-the-counter market. Quotations
have been published on the OTC Bulletin Board and in the National Quotation
Bureau "pink sheets" under the symbol CSLV. Our common stock was listed for
trading on the CDNX in Vancouver, British Columbia, Canada, on April 2, 1996
under the symbol CS. In connection with our name change and our merger with
LumaLite, our symbol was changed to "LMIT." There has not been an active market
for the common stock and the below-described quotations, when available, do not
constitute a reliable indication of the price that a holder of the common stock
could expect to receive upon sale of any particular quantity thereof.
The following high and low bid information was provided by PC Financial
Network. The quotations provided reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Bid
High Low
---------- ---------
2002
First Quarter $ - $ -
Second Quarter $ 2.25 $ -
Third Quarter $ 0.19 $ 0.08
Fourth Quarter $ 0.11 $ 0.05
2001
First Quarter $ 0.03 $ 0.02
Second Quarter $ 0.03 $ 0.02
Third Quarter $ 0.03 $ 0.03
Fourth Quarter $ 0.08 $ 0.08
We had 3,223 holders of record of our common stock as of December 31,
2002.
We have not declared or paid dividends since our inception in 1969 and
we do not expect to declare or pay dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following information should be read in conjunction with the
information in Item 7, Financial Statements, and other information regarding our
financial performance for the period covered by this report included elsewhere
in this report. The following discussions and other parts of this report may
contain forward-looking statements that involve risks and uncertainties. Our
actual results may differ significantly from the results discussed in those
forward-looking statements. Factors that might cause such differences include,
but are no limited to, our history of unprofitability and the uncertainty of our
profitability, our ability to develop and introduce new services and products,
the uncertainty of market acceptance of those services or products, our
potential reliance on collaborative industries in which we operate and general
economic and business conditions, some or all of which may be beyond our ability
to control.
OVERVIEW
We have historically engaged in mining or mining-related activities. We
were initially formed to hold certain mining properties known as the Silver
Summit Mine, but in 1995 we sold that property to Sunshine Precious Metals,
Inc., which filed for Chapter 11 reorganization in 2000 and which has
subsequently shut down its operations.
Following the sale of the Silver Summit Mine in 1995, we engaged in
mineral exploration and acquisition activities, primarily in Mexico. Those
efforts were unsuccessful and during the fourth quarter of 1997 we essentially
discontinued all active business operations.
In late 2001, we initiated a number of actions which were intended to
(i) modernize our organizational documents, (ii) improve our financial status
and (iii) provide us with active ongoing operations, including the merger with
LumaLite. As noted above in the section entitled "Business," those actions were
completed April 2002. As a result, the financial information set forth in this
section relates primarily to our financial condition during a portion of the
period that we did not have any active or ongoing business operations.
RESULTS OF OPERATIONS
The following table set forth, for the years ended December 31, 2002 and 2001,
certain items from the Company's Condensed Statements of Operations expressed as
a percentage of net sales.
2002 2001
----------------- ------------------
Sales, Net 100.0% 100.0%
Cost of Sales 55.8% 42.4%
----------------- ------------------
Gross Margin 44.2% 57.6%
Operating Expenses 69.3% 40.8%
----------------- ------------------
Operating Income (Loss) (25.1)% 16.8%
Other Income (Expense), Net (0.4)% 0.3%
----------------- ------------------
Income (Loss) Before Income Taxes (25.5)% 17.1%
Income Taxes (benefit) (4.9)% 7.1%
----------------- ------------------
Net Income (Loss) (20.6)% 10.0%
================= ==================
NET SALES
Net sales for December 31, 2002 compared to December 31, 2001 decreased
by approximately $1,920,000 or 48%. This decrease was due primarily to the lack
of new product introductions as well as slowing economy, lack of funding for
development and marketing and the distraction of top management to complete the
merger with LumaLite.
COST OF SALES
Cost of sales for 2002 decreased approximately $533,000 or 31% compared
to 2001. As a percentage of sales, cost of sales increased 13.4% from 42.4% to
55.8%. This decrease in cost of sales was due to the slowing economy and
decreasing sales.
OPERATING EXPENSES
Operating expenses during 2002 decreased approximately $185,000 or
11.3% compared to 2001 from $1,640,748 to $1,455,534. As a percentage of sales,
operating expenses increased 28.5% from 40.8% to 69.3%. This decrease in
operating expenses is attributable to decreased sales and business activity due
to slowing economy.
FINANCIAL CONDITIONS AND LIQUIDITY
For the past several years, we have funded our cash requirements at the
parent company level through debt and equity transactions. The proceeds from
these transactions were primarily used to fund our exploration activities and,
once we ceased active operations, to maintain our limited assets and minimal
accounting, management and reporting functions. Our foreign subsidiary interest
has been financed by a combination of equity investments and shareholders loans,
but since 1997 that funding has been limited to the amounts necessary to
maintain that entity's corporate existence and minimal administrative functions.
Our principal source of funding during the past few years has been
advances from Hecla Mining Company, which was, until mid-2001, our principal
shareholder. In July 2001, Hecla transferred to REA, LLC, all outstanding debt
owed to them. As of December 31, 2001, our obligations to REA (including
interest) totaled $971,163. As part of the transactions related to the merger
with LumaLite, REA agreed to convert the outstanding debt into equity. See
"Business" above.
As of December 31, 2002, we had current assets of $757,000, compared to
$1,293,000 of current liabilities. Our operations did not generate any cash flow
(other than minimal interest income from investments of our cash), and that cash
flow was marginally sufficient to cover our operational expenses, which provided
$83,000 of cash during the year ended December 31, 2002. The primary use of cash
for operating activities was for funding our general and administrative
expenses. At December 31, 2002, we had a stockholders deficit totaling $227,000.
In late 2001, our management began actively pursuing a number of
strategies to either increase our cash flow from operations or to provide
working capital for our ongoing operations. These strategies included:
o The sale of equity securities;
o Extending or modifying repayment terms of the Hecla
indebtedness;
o Incurring additional debt;
o Reduction in capital expenditures and control of operating
expenses;
o A merger, strategic relationship or other transaction.
Absent the infusion of either debt or equity financing, substantial
reductions in our operating expenses and/or a merger or strategic relationship
with a third party, management believes we would not have continued as a going
concern.
In late 2001, our management began negotiations with LumaLite regarding
a potential merger or other transaction. As noted above in the section entitled
"Business" in late December 2001, we entered into a merger agreement with
LumaLite and closed that transaction the week of April 15, 2002. As a result of
the consummation of the merger and the acquisition of LumaLite's ongoing
business operations, we believe that our options to acquire additional debt or
equity financing will be enhanced.
To the extent we acquire the amounts necessary to fund our ongoing
business plan through the issuance of equity securities, our shareholders may
experience dilution in the value per share of their equity securities. The
acquisition of funding through the issuance of debt could result in a
substantial portion of our cash flow from operations being dedicated to the
payment of principal and interest on that indebtedness, and could render us more
vulnerable to competitive pressures and economic downturns. There are no
assurances that our subsidiaries will be able to obtain the financing required
to make planned capital expenditures, provide working capital or meet other cash
needs on terms which are economically acceptable to us.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are those which we believe require
significant judgements, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain. A discussion of our
critical accounting policies is set forth in the Notes to our Financial
Statements included as part of this Report.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
From time to time, the Financial Accounting Standards Board ("FASB")
issues pronouncements regarding financial accounting standards, including
standards regarding accounting and reporting standards for business combinations
and other matters. For more information regarding the significant accounting
policies and standards applicable to our operations, see the Notes to the
Financial Statements.
OPERATIONS
The Company intends to seek, investigate and, if such investigation
warrants, acquire an interest in one or more business opportunities presented to
it by persons or firms who or which desire to seek perceived advantages of a
publicly held corporation.
The Company will not restrict its search to any specific business,
industry or geographical location, and the Company may participate in a business
venture of virtually any kind or nature. The discussion of the proposed business
under this caption and throughout is purposefully general and is not meant to be
restrictive of the Company's virtually unlimited discretion to search for and
enter into potential business opportunities.
The Company may obtain funds in one or more private placements to
finance the operation of any acquired business, if necessary. Persons purchasing
securities in these placements and other shareholders will likely not have the
opportunity to participate in the decision relating to any
acquisition. The Company's proposed business is sometimes referred to as a
"blind pool" because any investors will entrust their investment monies to the
Company's management before they have a chance to analyze any ultimate use to
which their money may be put. Consequently, the Company's potential success is
heavily dependent on the Company's management, which will have unlimited
discretion in searching for and entering into a business opportunity. There can
be no assurance that the Company will be able to raise any funds in private
placement.
NEED FOR ADDITIONAL FINANCING
The Company believes that its existing capital will be insufficient to
meet the Company's cash needs, including the costs of compliance with the
continuing reporting requirements of the Securities Exchange Act of 1934, as
amended, for the coming year. There is no assurance, however, that the available
funds will ultimately prove to be adequate to allow it to complete a business
combination, and once a business combination is completed, the Company's needs
for additional financing are likely to increase substantially.
FEDERAL INCOME TAX ASPECTS OF INVESTMENT IN THE COMPANY
The discussion contained herein has been prepared by the Company and is
based on existing law as contained in the Code, amended United States Treasury
Regulations ("Treasury Regulations"), administrative rulings and court decisions
as of the date of this Annual Report. No assurance can be given that future
legislative enactments, administrative rulings or court decisions will not
modify the legal basis for statements contained in this discussion. Any such
development may be applied retroactively to transactions completed prior to the
date thereof, and could contain provisions having an adverse affect upon the
Company and the holders of the Common Stock. In addition, several of the issues
dealt with in this summary are the subjects of proposed and temporary Treasury
Regulations. No assurance can be given that these regulations will be finally
adopted in their present form.
FORWARD LOOKING STATEMENT
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements that
reflect Management's current views with respect to future events and financial
performance. Those statements include statements regarding the intent, belief or
current expectations of the Company and members of its management team as well
as the assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission. Important factors currently known to
Management could cause actual results to differ materially from those in
forward-looking statements. The Company undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence
of unanticipated events or changes in the future operating results over time.
The Company believes that its assumptions are based upon reasonable data derived
from and known about its business and operations and the business and operations
of the Company. No assurances are made that actual results of operations or the
results of the Company's future activities will not differ materially from its
assumptions.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and supplementary data are
included beginning immediately following the signature page to this report. See
Item 13 for a list of the financial statements and financial statement schedules
included.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
We are not generally subject to any foreign currency risk, and we are,
in management's opinion, subject to only minimum interest rate risk. Our
interest rate risk generally arises from our variable interest rate loans, as
described in our Financial Statements below and from fluctuations in interest
earnings arising from our limited investment portfolio. As noted above in the
section entitled "Business", our debt with Hecla was assigned to third parties
and, in connection with the consummation of our merger with LumaLite, was
converted into shares of our common stock. With respect to market risk arising
from our investment portfolio, we have taken measures which we believe minimize
fluctuations in those interest rates. We do not use derivative financial
investments in our financial portfolio. Based on the recent actions of the
Federal Research Board, our management believes that both interest rates and
inflation will be stable for the remainder of 2003. As a result, our management
believes that we will suffer minimal market risk form our operations.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
DIRECTORS AND EXECUTIVE OFFICERS.
All directors of our company hold office until the next annual meeting
of the shareholders or until their successors have been elected and qualified.
The officers of our company are appointed by our board of directors and hold
office until their death, resignation or removal from office. As at the date of
this annual report, our officers and directors, their ages, positions held and
duration of positions held are as follows. There are no family relationships
between or among any of our directors:
NAME AGE POSITION WITH DATE POSITION
THE COMPANY FIRST HELD
Dr. Dale Rorabaugh 59 Chairman of the Board and CEO April 15, 2002
Michael Jackson 56 Director, President April 15, 2002
Hank Schumer 75 Director, Secretary-Treasurer and CFO April 15, 2002
Joseph Forehand 47 Director, Vice President of Operations April 15, 2002
BUSINESS EXPERIENCE
The following is a brief account of the education and business
experience during at least the past five years of each director, executive
officer and significant employee, indicating the principal occupation during
that period, and the name and principal business of the organization in which
such occupation and employment were carried out.
DR. DALE RORABAUGH. Dr. Rorabaugh joined us in connection with the
merger with LumaLite and is the Chairman of our parent corporation's Board of
Directors and its Chief Executive Officer. He also serves as C.E.O. and as a
director of LumaLite. Dr. Rorabaugh was one of the founders of LumaLite. He was
most recently President of the Aurora Group, a company specializing in Research
& Development of new products for the medical profession. Prior to that he was
President of Eclipse Ventures from 1994-2000, which developed a Corneal
Topographer used in Lasik surgery in the ophthalmic industry, prior to this he
was President of Dicon where he developed an automated visual field device. The
company was sold to Cooper-Vision. Dr. Rorabaugh holds a degree in Physics from
the University of Virginia and a Doctor of Optometry degree from the University
of California at Berkeley.
MICHAEL JACKSON. Michael Jackson joined us in connection with the
merger with LumaLite and is a member of our Board of Directors and our
President. He also serves as President and as a director of LumaLite. Before
joining LumaLite, Mr. Jackson was most recently Vice President of Marketing and
Sales with HGM Medical Laser, a medical sales business. Before that, Mr. Jackson
was Vice President of Sales for the Western Region for Kreativ, Inc., a dental
sales organization. Mr. Jackson attended Virginia Polytechnic Institution, where
he studied engineering.
HANK SCHUMER. Hank Schumer joined us in connection with the merger as
our Secretary- Treasurer, Chief Financial Officer, and as a member of its Board
of Directors. Mr. Schumer Previously was a partner in the Aurora Group and
Eclipse Ventures. Mr. Schumer has a Bachelor of Electrical Engineering degree
from C.C.N.Y. and a Masters in Business Administration from Drexel Institute of
Technology.
JOSEPH FOREHAND. Joined us in connection with the merger as a member of
our Board of Directors, and Vice President of Operations. Before joining
LumaLite, he was Vice President of Operations at Kreativ, Inc., a dental
equipment manufacturing concern. Mr. Forehand attended the University of
Alabama, where he studied engineering.
STRUCTURE OF OUR BOARD OF DIRECTORS
At each annual meeting of our shareholders, the directors are elected
and hold office for a term expiring at the annual meeting of our shareholders
held the next succeeding year, or until their earlier resignation or removal.
Our Certificate of Incorporation provides that our directors may be removed only
for cause, and only by the affirmative vote of the holders of two-thirds of the
common shares entitled to vote at a meeting of our shareholders.
During 2002, our Board of Directors consisted of four persons. We did
not have any standing committees. Our directors did not receive cash
compensation for serving on our Board (or any committee of our Board), or for
any other services they provide to us in their capacity as directors. They are,
however, entitled to reimbursement for expenses they incur in connection with
attending Board or Committee meetings.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the personal liability of our
directors and officers for monetary damages to the maximum extent permitted by
Nevada law. Under Nevada law, those limitations include limitations on monetary
damages for any action taken or failed to be taken as an officer or director,
except for an act or omission that involves intentional misconduct or a knowing
violation of the law, or payment of proper distributions. Nevada law also
permits a corporation to indemnify any current or former director, officer,
employee or agent if the person acted in good faith in a manner in which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation. In the case of a criminal proceeding, the indemnified person must
also have had no reasonable cause to believe that his conduct was unlawful.
Our bylaws provide that, to the full extent permitted by out
certificate of incorporation and the Nevada Business Corporation Act, we will
indemnify, and advance expenses to, our officers, directors and employees in
connection with any action, suit or proceeding, civil or criminal, to which
those person are made a party by reason of their being a director, officer or
employee. That indemnification is in addition to the advancement of expenses.
At present, we are not involved in any litigation or proceeding
involving any director of officer where indemnification by us would be required
or permitted.
CONFLICTS OF INTEREST
Certain conflicts of interest existed at December 31, 2002 and may
continue to exist between the Company and its officers and directors due to the
fact that each has other business interests to which he devotes attention. Each
officer and director may continue to do so notwithstanding the fact that
management time should be devoted to the business of the Company.
Certain conflicts of interest may exist between the Company and its
management, and conflicts may develop in the future. The Company has not
established policies or procedures for the resolution of current or potential
conflicts of interests between the Company, its officers and directors or
affiliated entities. There can be no assurance that management will resolve all
conflicts of interest in favor of the Company, and failure by management to
conduct the Company's business in the Company's best interest may result in
liability to the management. The officers and directors are accountable to the
Company as fiduciaries, which means that they are required to exercise good
faith and integrity in handling the Company's affairs. Shareholders who believe
that the Company has been harmed by failure of an officer or director to
appropriately resolve any conflict of interest may, subject to applicable rule
of civil procedure, be able to bring a class action or derivative suit to
enforce their rights and the Company's rights.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934, or the "Exchange
Act," requires our executive officers and directors, and persons who own 10% or
more of a registered class of our equity securities (all of whom we refer to
collectively as "reporting persons") to file reports of ownership and changes in
ownership with the Securities and Exchange commission if we and our equity
securities meet certain requirements. We have not received copies of filings on
forms 3, 4 or 5 for any such reporting person for the year ended December 31,
2002.
ITEM 10. EXECUTIVE COMPENSATION
Prior to the merger, LumaLite entered into written employment
agreements with the four persons named in Item 9 above. Those persons served as
LumaLite's executive offers and directors prior to the merger and, with the
completion of the merger, also serve as executive officers and directors of our
parent corporation.
The employment agreements are all dated effective January 1, 2002 and
have initial terms of five years. The agreements are automatically renewable for
one-year extension terms, subject to notice by either party of his or its intent
to terminate the agreement. The agreements provide for stated base salary
amounts ($120,000 per year in the case of Mr. Jackson, $130,000 per year in the
case of Dr. Rorabaugh, $120,000 in the case of Mr. Forehand, and $80,000 in the
case of Mr. Schumer), payable in monthly installments. Compensation for any
extension terms will be as mutually agreed to by the parties at the beginning of
the extension period. The contract may be terminated upon the mutual agreement
of the parties, upon the death of the employee or upon LumaLite's dissolution,
bankruptcy or receivership.
The contracts do not provide for any "change of control" payments,
severance payments or other provisions relating to payments to the employee in
the event of any fundamental change in LumaLite's business, operations or
ownership. The agreements also do not contain any non- competition,
non-solicitation or assignment of inventions provisions, although they do
require the employee and LumaLite, during the term of the agreement, to use
their best efforts to avoid areas which may involve conflicts of interest
between LumaLite and the employee with respect to activities engaged in by the
employee.
We have maintained one stock option plan. The LumaLite Holdings, Inc.
2002-2003 Consultants and Employees Stock Option Plan provides for stock-based
grants to selected consultants, officers, directors and other key employees. The
options have a five or ten-year life. The following summarizes stock option
activity during the years ended December 31, 2002 and 2001:
December 31, 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, 24,575 and 24,573 options, respectively).
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of shares of our common stock by (i) each person known by us to own
more than 5% of our outstanding
common stock, (ii) each of our directors and, (iii) all of our executive
officers and directors as a group. Except as noted, each person has sole voting
and sole investment or dispositive power with respect to the shares shown. The
information presented is based on information as of December 31, 2002, and is
based on 28,964,234 outstanding shares of common stock. The inclusion of any
shares of common stock as "beneficially owned" in this chart does not constitute
an admission of actual beneficial ownership (which is a broad definition under
the securities laws) of those shares. Unless otherwise indicated, each person is
deemed to beneficially own any shares issuable on exercise of stock options or
warrants held by that person that are currently exercisable or become
exercisable within 60 days after the record date:
(1) (2) (3) (4)
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent of
Class Owner Owner Class
-------------------------------------------------------------------------------------------------------------------
Common Stock Eugene Breznock 3,525,260 12.17%
27956 State Hwy 128
Winters, CA 95694
Directors & Executives
Dr. Dale Rorabaugh, CEO & Director 4,571,853 15.78%
2810 Via Orange Way, Suite B
Spring Valley, CA 91978
Michael Jackson, President & Director 2,577,614 8.89%
2810 Via Orange Way, Suite B
Spring Valley, CA 91978
Hank Schumer, Director/Sec/Treas./CFO 1,777,590 6.14%
2810 Via Orange Way, Suite B
Spring Valley, CA 91978
Joseph Forehand, Director, VP Oper. 2,577,614 8.89%
2810 Via Orange Way, Suite B
Spring Valley, CA 91978
Directors and executive officers as a Group 11,504,671 39.72%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the third quarter of 2000, Helca forgave $248,897 of our
accounts payable to Helca Mining Company and Minera Helca, S.A. de C.V. (Helca's
wholly owned subsidiary). We recorded the forgiveness of the accounts payable as
an equity contribution.
LumaLite Holdings, Inc. (formerly Consil Corp.) And LumaLite, Inc., a
California corporation, developers and marketers of medical products for the
dental industry, a wholly owned subsidiary of LumaLite Holdings, Inc., concluded
an Exchange Agreement on March 14th , 2003 which effectively returns LumaLite,
Inc. to a non-public entity. This action was taken due to the fact
that LumaLite Holdings, Inc. was unable to raise the capital necessary to
properly fund LumaLite, Inc. and establish a liquid market for the LumaLite
Holdings, Inc.'s stock. As a result, LumaLite, Inc. has incurred substantial
debt that in turn is having an adverse effect on the market for the LumaLite
Holdings, Inc.'s stock. The terms of the Exchange Agreement may be summarized as
follows:
Both parties desire to cause a divestiture of LumaLite, Inc. from
LumaLite Holdings, Inc. by exchanging the shares of Lumalite, Inc. held
by LumaLite Holdings, Inc. for all of the outstanding shares of
LumaLite Holdings, inc. stock held by shareholders of LumaLite, Inc.
prior to the merger, who desire to exchange such stock.
1. The shares of stock of LumaLite, Inc. held by LumaLite
Holdings, Inc. shall be cancelled..
2. LumaLite, Inc. agrees to the return and cancellation of any
shares of stock in LumaLite Holdings, Inc. which were
delivered to shareholders of LumaLite, Inc. who consent to
have their shares of LumaLite Holdings, Inc. stock exchanged
for LumaLite, Inc. shares. LumaLite, Inc. will deliver at
least 80% of the shares held by shareholders of LumaLite, Inc.
prior to the merger who received shares of LumaLite Holdings,
Inc. subsequent to the merger.
3. LumaLite, Inc. agrees to assume all debts of LumaLite, Inc.
with certain minor exceptions.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS PAGE
Independent Auditor's Report F-1
Consolidated Balance Sheets, December 31, 2002 and 2001 F-2
Consolidated Statements of Operations,
For the Years Ended December 31, 2002 and 2001 F-4
Consolidated Statements of Changes in Stockholders' Equity,
For the Years Ended December 31, 2002 and 2001 F-5
Consolidated Statements of Cash Flows,
For the Years Ended December 31, 2002 and 2001 F-6
Notes to Consolidated Financial Statements F-8
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules required by Regulation S-X
are included herein.
All Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. EXHIBITS
The exhibit numbers in the following list correspond to the numbers
assigned to such Exhibits in Item 601 of Regulation S-K.
Exhibit
Number Exhibit
2.1 Exchange Agreement dated March 14, 2003 between LumaLite Holdings, Inc.
and LumaLite, Inc.
3.1 Articles of Articles of Incorporation and By-Laws. (1)
10.2 Agreement and Plan of Merger (1)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 2002
covered by this Form 10-KSB.
ITEM 14. 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 annual report on Form 10- KSB, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary whether:
(i) this annual report on Form 10-KSB 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 annual
report on Form 10-KSB, and
(ii) the financial statements, and other financial information
included in this annual report on Form 10-KSB, 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 annual report on Form 10-KSB.
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.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LUMALITE HOLDINGS, INC.
By: /s/ Dr. Dale Rorabaugh
Dr. Dale Rorabaugh, CEO & Director
Date: March 19, 2003
By: /s/ Michael Jackson
Michael Jackson, President & Director
Date: March 19, 2003
By: /s/ Hank Schumer
Hank Schumer, Director/Sec/Treas./CFO
Date: March 19, 2003
By: /s/ Joseph Forehand
Joseph Forehand, Director, Vice President of Operations
Date: March 19, 2003
I, Dr. Dale Rorabaugh, certify that:
1. I have reviewed this annual report on form 10-KSB of LumaLite
Holdings, Inc.
2. Based on my knowledge, this annual 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
annual report.
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the "evaluation date");
and
C) presented in this annual 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 annual 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: March 19, 2003
/s/ Dr. Dale Rorabaugh
Dr. Dale Rorabaugh
CEO & Director
(Principal Executive Officer)
I, Hank Schumer, certify that:
1. I have reviewed this annual report on form 10-KSB of LumaLite
Holdings, Inc.
2. Based on my knowledge, this annual 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
annual report.
3. Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the "evaluation date");
and
C) presented in this annual 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 annual 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: March 19, 2003
/s/ Hank Schumer
Hank Schumer
Director/Sec/Treas./CFO
(Principal Financial and Accounting Officer)
CONTENTS
Page
Independent Accountants' Report............................................................................F - 1
Consolidated Balance Sheets
December 31, 2002 and 2001...............................................................................F - 2
Consolidated Statements of Operations for the
For the Years Ended December 31, 2002 and 2001..........................................................F - 4
Consolidated Statement of Stockholders' Equity for the
For the Years Ended December 31, 2002 and 2001..........................................................F - 5
Consolidated Statements of Cash Flows for the
For the Years Ended December 31, 2002 and 2001..........................................................F - 6
Notes to Consolidated Financial Statements.................................................................F - 8
INDEPENDENT ACCOUNTANTS' REPORT
LumaLite Holdings, Inc.
We have audited the accompanying consolidated balance sheets of
LumaLite Holdings, Inc. as of December 31, 2002 and 2001, and the related
consolidated statements of operations, cash flows, and stockholders' equity
(deficit) for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 December 31, 2002 and 2001 consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of LumaLite Holdings, Inc. as of December 31, 2002 and 2001,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles in the United States of
America.
Respectfully submitted
/S/ ROBISON, HILL & CO.
Certified Public Accountants
Salt Lake City, Utah
January 30, 2003
except Note 9 for which
the date is March 19, 2003
F - 1
LUMALITE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------------
2002 2001
----------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 27,160 $ 52,492
Receivables 223,152 388,569
Inventory 359,894 316,706
Other current assets 147,257 -
----------------- ----------------
Total Current Assets 757,463 757,767
----------------- ----------------
Fixed Assets:
Manufacturing equipment 44,170 -
Demo equipment 39,437 24,750
Computer equipment 14,942 6,681
Furniture & fixtures 6,334 4,709
Test equipment 5,958 5,958
----------------- ----------------
110,841 42,098
Less Accumulated Depreciation (25,390) (10,646)
----------------- ----------------
Net Fixed Assets 85,451 31,452
----------------- ----------------
Other Assets:
Intra Oral Camera - Licensing Rights- net 220,278 -
Other Assets - Deposits 3,662 3,662
----------------- ----------------
Total Other Assets 223,940 3,662
----------------- ----------------
TOTAL ASSETS $ 1,066,854 $ 792,881
================= ================
F - 2
LUMALITE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
December 31,
-------------------------------------
2002 2001
----------------- -----------------
LIABILITIES
Current Liabilities:
Accounts Payable $ 681,644 $ 172,879
Accrued Expenses 228,319 283,153
Accrued Wages 173,447 186,482
Short-Term Loans & Notes Payable 100,000 -
Related Party Loans - Current 110,000 -
----------------- -----------------
Total Current Liabilities 1,293,410 642,514
----------------- -----------------
STOCKHOLDERS EQUITY
Preferred Stock, par value $.001 per share
Authorized 10,000,000 shares,
None issued at December 31, 2002 and 2001 - -
Common Stock, par value $.001 per share,
100,000,000 shares authorized, Issued
28,964,234 shares at December 31, 2002
and 17,800,000 shares at December 31, 2001 28,964 17,800
Additional Paid-in Capital 312,978 268,900
Retained Earnings (Deficit) (568,498) (136,333)
----------------- -----------------
Total Stockholders' Equity (226,556) 150,367
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,066,854 $ 792,881
================= =================
See accompanying notes and accountants' report.
F - 3
LUMALITE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year
Ended
December 31,
-------------------------------------
2002 2001
----------------- -----------------
REVENUES
Sales $ 2,099,944 $ 4,020,359
Cost of Sales 1,171,425 1,704,426
----------------- -----------------
Gross Margin 928,519 2,315,933
EXPENSES
Selling & Marketing 744,384 586,971
Research and Development 264,002 56,870
General & Administrative 447,148 996,907
----------------- -----------------
1,455,534 1,640,748
----------------- -----------------
Net Income from Operations (527,015) 675,185
----------------- -----------------
Other Income (Expense)
Interest Income 463 12,828
Interest Expense (9,065) -
----------------- -----------------
Net Other Income (Expense) (8,602) 12,828
----------------- -----------------
Net Income (Loss) Before Income Taxes (535,617) 688,013
Income Tax Expense (benefit) (103,452) 284,032
----------------- -----------------
NET INCOME (LOSS) $ (432,165) $ 403,981
================= =================
See accompanying notes and accountants' report.
F - 4
LUMALITE HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Additional Retained
Common Stock Paid-in Earnings /
------------------------------------
Shares Value Capital (Deficit)
----------------- ------------------ ---------------- ----------------
Balance at December 31, 2000 20,160,578 $ 20,161 $ 182,776 $ (540,314)
Common stock issued for expenses
during January, 2001 141,839 142 7,871 -
Common stock issued for expenses
during July, 2001 44,250 44 2,456 -
Purchase of treasury stock for cash
during July, 2001 (5,269,697) (5,270) 493 -
Common stock issued for expenses
during August, 2001 68,030 68 2,959 -
Common stock issued on exercise
of Stock options during
December, 2001 2,655,000 2,655 72,345 -
Net Income - - 403,981
----------------- ------------------ ---------------- ----------------
Balance at December 31, 2001 17,800,000 17,800 268,900 (136,333)
Common stock issued for cash
during January, 2002 500,000 500 499,500 -
Common stock issued in connection
with reverse merger with
LumaLite, Inc. April, 2002 388,275 388 (1,211,123) -
Common stock cancelled and returned
to company during April, 2002 (296,732) (297) 297 -
Common stock issued in exchange
for debt during April, 2002 10,118,744 10,119 717,273 -
Common stock issued in exchange
for services during December, 2002 453,947 454 38,131
Net income (loss) (432,165)
----------------- ------------------ ---------------- ----------------
Balance at December 31, 2002 28,964,234 $ 28,964 $ 312,978 $ (568,498)
================= ==================================== ================
See accompanying notes and accountants' report.
F - 5
LUMALITE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The
Year Ended
December 31,
-------------------------------------
2002 2001
------------------ -----------------
Cash Flows From Operating Activities
Net income (loss) for the period $ (432,165) $ 403,981
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation and amortization 99,466 9,818
Changes in Operating Assets and Liabilities
(Increase) decrease in Receivables 165,417 (285,164)
(Increase) decrease in Inventory (43,188) (259,766)
(Increase) decrease in Other current assets (147,257) 128,000
Increase in Accounts Payable 508,765 42,305
Increase (Decrease) in Accrued Expenses (54,834) 256,126
Increase (Decrease) in Checks Written
In excess of Cash in Bank - (17,229)
Increase (Decrease) in Accrued Wages (13,035) (142,743)
------------------ -----------------
Net Cash Provided by (Used in) Operating
Activities 83,169 135,328
------------------ -----------------
Cash Flows From Investing Activities
Purchase of Equipment (68,743) (37,250)
Purchase of Licensing rights (305,000) -
Rent Deposit - (2,305)
------------------ -----------------
Net Cash Used by Investing Activities (373,743) (39,555)
------------------ -----------------
Cash Flows From Financing Activities
Proceeds from Loans - Related Party 110,000 -
Proceeds/ Payments Short-Term Loans 100,000 (20,044)
Payments on Related Party Loans - (207,000)
Proceeds from Sale of Common Stock 538,585 89,357
Merger costs (483,343) -
(Increase) in Stock Subscription
Receivable - 250,000
Cost of Treasury Stock - (5,594)
Principle Payments on Long-term Debt - (150,000)
------------------ -----------------
Net Cash Provided by (Used in) Financing
Activities 265,242 (43,281)
------------------ -----------------
Increase (Decrease) in Cash (25,332) 52,492
Cash at beginning of period 52,492 -
------------------ -----------------
Cash at End of Period $ 27,160 $ 52,492
================== =================
F - 6
LUMALITE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For The
Year Ended
December 31,
--------------------------------------
2002 2001
------------------ ------------------
Supplemental Disclosure of Interest and Income Taxes Paid
Interest paid during the period $ 9,064 $ 36,849
================== ==================
Income taxes paid during the period $ 120,000 $ 952
================== ==================
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.
F - 7
LUMALITE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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.
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 years ended December 31,
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.
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.
Reclassifications
Certain reclassifications have been made in the 2001 financial
statements to conform with the 2002 presentation.
F - 8
LUMALITE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Depreciation and Amortization
Fixed assets are stated at cost. Depreciation is calculated using the
200 percent declining balance and straight-line methods over the estimated
useful lives of the assets as follows:
Asset Rate
------------------------------------------------ -----------------
Manufacturing equipment 7 years
Demo equipment 7 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.
Licensing Rights are being amortized over the life of the license
agreement.
Inventories
Inventories are stated at lower of cost or market, with cost determined
on the first-in, first-out method.
Inventories consist of:
Year Ended December 31,
2002 2001
----------------- -----------------
Finished Goods $ 151,154 $ 112,543
Raw Materials 208,740 204,164
----------------- -----------------
Total Inventory $ 359,894 $ 316,707
================= =================
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 two financial institutions, in the form of demand deposits.
F - 9
LUMALITE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 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 Year Ended December 31, 2002
-----------------------------------------------------------
BASIC EARNINGS PER SHARE
Income to common shareholders $ (432,165) 28,964,234 $ (0.01)
================== =================== ==================
For the Year Ended December 31, 2001
-----------------------------------------------------------
BASIC LOSS PER SHARE
Loss to common shareholders $ 403,981 17,800,000 $ 0.02
================== =================== ==================
The effect of outstanding common stock equivalents would be
anti-dilutive for December 31, 2002 and are thus not considered. Options to
purchase 98,298 shares of common stock were outstanding during 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.
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.
As of December 31, 2002, the Company had a net operating loss
carryforward for income tax reporting purposes of approximately $1,181,000 that
may be offset against future taxable income through 2022. Current tax laws limit
the amount of loss available to be offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount available to
offset future taxable income may be limited. Accordingly, the potential tax
benefits of the loss carryforwards are offset by a valuation allowance of the
same amount. Carryback of net operating losses resulted in a tax benefit of
$103,000.
At December 31, 2001 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. The tax expense consists
of Federal tax $224,000 and California State tax $59,000.
F - 10
LUMALITE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 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.
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.
NOTE 2 - STOCK OPTIONS
The options have a five or ten-year life. The following summarizes
stock option activity during the years ended December 31, 2002 and 2001:
December 31, 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; 24,575 and 24,573 options, respectively).
F - 11
LUMALITE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 3 - 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 4 - RELATED PARTY TRANSACTIONS
Notes payable to related parties are as follows:
December 31,
2002 2001
----------------- ------------------
Promissory note, repayable to
Officers of the Company, due
on demand including
interest at 15%, unsecured $ 110,000 $ -
================= ==================
NOTE 5 - COMMITMENTS
The Company has entered into a lease agreement for its office
and warehouse facilities. The rental charges are approximately $5,426 per month.
The lease expires November 30, 2005.
The minimum future lease payments under these leases for the next five years
are:
Twelve Months Real Property Equipment
Ended December
31:
------------------------- -------------------------------------
2003 $ 63,176 -
2004 65,727 -
2005 56,974 -
2006 - -
2007 - -
----------------- -----------------
Total minimum future lease payments $ 185,877 $ -
=====================================
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.
F - 12
LUMALITE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 6 - SHORT-TERM LOANS & NOTES PAYABLE
Short-term notes payable consist of an 18 month amortized loan with a
bank in the amount of $100,000 at 7.75% interest which matures January 1, 2004.
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 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).
NOTE 8 - 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
F - 13
LUMALITE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 8 - DEFAULT ON SALE OF COMMON STOCK (Continued)
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 9 - DIVESTITURE OF LUMALITE, INC.
LumaLite Holdings, Inc. (formerly Consil Corp.) And LumaLite, Inc., a
wholly owned subsidiary of LumaLite Holdings, Inc., concluded an Exchange
Agreement on March 14th , 2003 which effectively returns LumaLite, Inc. to a
non-public entity. This action was taken due to the fact that LumaLite Holdings,
Inc. was unable to raise the capital necessary to properly fund LumaLite, Inc.
and establish a liquid market for the LumaLite Holdings, Inc.'s stock. As a
result, LumaLite, Inc. has incurred substantial debt that in turn is having an
adverse effect on the market for the LumaLite Holdings, Inc.'s stock. The terms
of the Exchange Agreement may be summarized as follows:
Both parties desire to cause a divestiture of LumaLite, Inc. from
LumaLite Holdings, Inc. by exchanging the shares of Lumalite, Inc. held
by LumaLite Holdings, Inc. for all of the outstanding shares of
LumaLite Holdings, inc. stock held by shareholders of LumaLite, Inc.
prior to the merger, who desire to exchange such stock.
1. The shares of stock of LumaLite, Inc. held by LumaLite
Holdings, Inc. shall be cancelled..
2. LumaLite, Inc. agrees to the return and cancellation of any
shares of stock in LumaLite Holdings, Inc. which were
delivered to shareholders of LumaLite, Inc. who consent to
have their shares of LumaLite Holdings, Inc. stock exchanged
for LumaLite, Inc. shares. LumaLite, Inc. will deliver at
least 80% of the shares held by shareholders of LumaLite, Inc.
prior to the merger who received shares of LumaLite Holdings,
Inc. subsequent to the merger.
3. LumaLite, Inc. agrees to assume all debts of LumaLite, Inc.
with certain minor exceptions.
F - 14