SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[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 PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the Transition
Period From ________ to ________.
COMMISSION FILE NUMBER 002-97360-A
Light Management Group, Inc.
----------------------------
(Exact name of issuer as specified in its charter)
Nevada 75-2727932
- ---------------------------------------- ------------------------------------
(State or other Jurisdiction (I.R.S. Employer
of incorporation or Organization) Identification No.)
3060 Mainway, Suite 301,
Burlington, Ontario, Canada L7M 1A3
- ---------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(905) 319-1111
-------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. X Yes No
--- ---
As of March 17, 2003, there were 60,300,153 shares of the Issuers common stock,
par value $.0001 per share, issued and outstanding.
Light Management Group, Inc.
TABLE OF CONTENTS
Section 3.01 Form 10-QSB
Item Page
Part I. Financial Information
Item 1. Financial Statements
(i) Consolidated Balance Sheet as of September 30, 2002. F-1
(ii) Consolidated Statements of Operations for the three
and nine months ended September 30, 2002 and
September 30, 2001. F-2
(iii) Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and September
30, 2001. F-3
(iv) Notes to Consolidated Financial Statements. F-4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 2
Item 3. Disclosure Controls and Procedures 5
Section 3.02
Part II. Other Information
Item 1. Legal Proceedings 6
Item 2. Changes in Securities and Use of Proceeds 6
Item 6. Exhibits and Reports on Form 8-K 6
Signatures 7
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 8
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 9
Exhibit Index 10
-1-
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
LIGHT MANAGEMENT GROUP, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002
(Unaudited)
September 30,
ASSETS 2002
----
CURRENT ASSETS:
Cash $ 2,434
Accounts receivable 59,318
Inventories 523,444
Prepaid expenses and other current assets 61,707
-------------
TOTAL CURRENT ASSETS 646,903
PROPERTY AND EQUIPMENT - net of accumulated depreciation and amortization 226,787
PATENTS - net 391,091
-------------
TOTAL ASSETS $ 1,264,781
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,147,219
Accrued expenses 1,505,112
Note payable - bank 32,219
Loans payable 70,609
Due to officers 499,911
Due to related party 226,536
-------------
TOTAL CURRENT LIABILITIES 3,481,606
Note payable - bank (net of current portion) 56,547
-------------
TOTAL LIABILITIES 3,538,153
-------------
STOCKHOLDERS' DEFICIT:
Preferred Stock - $.0001 par value, 10,000,000
authorized shares, 2,766,798 shares issued and outstanding 277
Common stock - $.0001 par value, 200,000,000
authorized shares, 48,874,517 shares issued and outstanding 4,888
Additional paid in capital 21,062,945
Deferred compensation (431,707)
Accumulated deficit (22,615,617)
Accumulated other comprehensive loss (294,158)
-------------
TOTAL STOCKHOLDERS' DEFICIT (2,273,372)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,264,781
=============
See Notes to Consolidated Financial Statements
F-1
LIGHT MANAGEMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
For The Three Months Ended For The Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
------------------------------ -------------------------------
2002 2001 2002 2001
------------ ------------ ------------- ------------
SALES $ 158,901 $ 255,019 $ 431,996 $ 956,252
COST OF SALES 81,386 89,191 232,775 467,687
------------ ------------ ------------- ------------
GROSS PROFIT 77,515 165,828 199,221 488,565
------------ ------------ ------------- ------------
OPERATING EXPENSES
Selling, general and administrative expenses
(including non-cash salaries, bonuses and services
of $418,630 and $1,099,484 for the three and nine
months ended Sept. 30, 2002 respectively.) 988,685 1,016,044 3,072,910 2,985,823
Impairment of goodwill 500,000 - 1,000,000 -
Depreciation and amortization 86,661 123,230 260,140 382,399
------------ ------------ ------------- ------------
TOTAL OPERATING EXPENSES 1,575,346 1,139,274 4,333,050 3,368,222
------------ ------------ ------------- ------------
LOSS FROM OPERATIONS (1,497,831) (973,446) (4,133,829) (2,879,657)
LOSS ON EXTINGUISHMENT OF DEBT - - - 765,000
INTEREST EXPENSE 15,058 6,753 80,487 17,454
------------ ------------ ------------- ------------
NET LOSS (1,512,889) (980,199) (4,214,316) (3,662,111)
PREFERRED STOCK DIVIDEND 55,336 55,336 166,008 166,008
------------ ------------ ------------- ------------
NET LOSS APPLICABLE TO COMMON STOCK $ (1,568,225) $ (1,035,535)$ (4,380,324) $ (3,828,119)
============ ============ ============= ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.03) $ (0.05)$ (0.12) $ (0.17)
============ ============ ============= ============
Weighted Average Shares Used in Computation - Basic and diluted 46,475,010 22,797,523 36,823,716 22,182,154
============ ============ ============= ============
NET LOSS $ (1,512,889) $ (980,199)$ (4,214,316) $ (3,662,111)
OTHER COMPREHENSIVE LOSS, NET OF TAX
Foreign currency translation adjustment (19,802) (50,255) (171,290) (19)
------------ ------------ ------------- ------------
COMPREHENSIVE LOSS $ (1,532,691) $ (1,030,454)$ (4,385,606) $ (3,662,130)
============ ============ ============= ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
LIGHT MANAGEMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine Months Ended
----------------------------------
Sept. 30, Sept. 30,
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,214,316) $ (3,662,111)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred compensation 121,917 109,434
Depreciation and amortization 260,140 382,399
Loss on extinguishment of debt - 765,000
Impairment of goodwill 1,000,000 -
Stock issued for salaries and bonuses 383,904 9,570
Stock issued for consulting services 715,580 296,450
Changes in assets and liabilities:
Accounts receivable 6,582 497,829
Inventories (223,444) 49,091
Prepaid expenses and other current assets 170,021 (70,430)
Accounts payable 239,410 822,320
Accrued expenses 655,661 427,075
---------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (884,545) (373,373)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,764) (112,353)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable - bank (44,777) (43,945)
Net proceeds from loans payable 67,149 -
Proceeds from loans payable - related party 449,215 436,942
Sale of common stock 564,446 40,000
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,036,033 432,997
---------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (171,290) 45,203
NET DECREASE IN CASH AND CASH EQUIVALENTS (22,566) (7,526)
CASH AND CASH EQUIVALENTS - Beginning of period 25,000 55,236
---------------- ----------------
CASH - End of period $ 2,434 $ 47,710
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 5,493 $ 17,454
================ ================
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Related party debt converted to preferred stock $ - $ 3,200,000
================ ================
Related party debt converted to common stock $ 386,667 $ 1,600,000
================ ================
Loans payable converted to common stock $ 159,267 $ -
================ ================
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
LIGHT MANAGEMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by accounting principles
generally accepted in United States of America for complete financial
statements. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for all periods presented have
been made. The results of operations for the nine month period ended September
30, 2002 are not necessarily indicative of the operating results that may be
expected for the year ending December 31, 2002. These financial statements
should be read in conjunction with the Company's report for the year ended
December 31, 2001 on Form 10-KSB, together with the financial statements and
accompanying notes thereto.
2. GOING CONCERN
-------------
The accompanying unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has had
recurring losses and a working capital deficiency of approximately $2,835,000 at
September 30, 2002, which create substantial doubt about the Company's ability
to continue as a going concern. The recovery of assets and continuation of
future operations are dependent upon the Company's ability to obtain additional
debt or equity financing and its ability to generate revenues sufficient to
continue pursuing its business purposes. The Company is actively pursuing
financing to fund future operations and acquisitions. The accompanying unaudited
consolidated financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
3. NEW ACCOUNTING PRONOUNCEMENTS ADOPTED
-------------------------------------
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 142, which eliminates the amortization for goodwill and
other intangible assets with indefinite lives. Intangible assets with lives
restricted by contractual, legal, or other means will continue to be amortized
over their useful lives. Goodwill and other intangible assets not subject to
amortization are tested for impairment annually or more frequently if events or
changes in circumstances indicate that the asset might be impaired. SFAS No. 142
requires a two-step process for testing impairment. First, the fair value of
each reporting unit is compared to its carrying value to determine whether an
indication of impairment exists. If impairment is indicated, then the implied
fair value of the reporting unit's goodwill is determined by allocating the
unit's fair value to its assets and liabilities (including any unrecognized
intangible assets) as
F-4
LIGHT MANAGEMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
if the reporting unit had been acquired in a business combination. The amount of
impairment for goodwill and other intangible assets is measured as the excess of
its carrying value over its implied fair value. The Company has conducted the
initial test of the carrying value of its goodwill, as required by SFAS No. 142.
The management of the Company believes that it could not estimate expected cash
flows from future revenues to substantiate such carrying value and determined
that an impairment in value had occurred. Therefore, the Company took an
impairment charge of approximately $500,000 at June 30, 2002 and an additional
$500,000 at September 30, 2002.
In accordance with SFAS No. 142, the Company discontinued amortization of
goodwill effective January 1, 2002. The pro forma effects of the adoption of
SFAS No. 142 on net income and basic and diluted earnings per share are as
follows:
Sept. 30, 2002 Sept. 30, 2001
-------------- --------------
Net loss, as reported $ (4,214,316) $(3,662,111)
Intangible amortization net of $0 tax -- (85,305)
------------- -----------
Net loss, pro forma $ (4,214,316) $(3,747,416)
============= ===========
Basic and diluted earnings per share:
- -------------------------------------
Net loss, as reported $ (0.12) $ (0.17)
Intangible amortization net of $0 tax -- --
------------- -----------
Net loss, pro forma $ (0.12) $ (0.17)
============= ===========
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-lived
Assets". SFAS 144 superceded Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and Assets to be
Disposed of" and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transaction". SFAS 144 also amends
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of SFAS 144 are effective for fiscal
years beginning after December 15, 2001. The Company has adopted SFAS 144 and
accordingly has written down assets that have been determined to be impaired by
$1,000,000.
On April 30, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No.13, and
Technical Corrections." The rescission of SFAS No.4, "Reporting Gains and Losses
from Extinguishments," and SFAS No.64, "Extinguishments of Debt made to Satisfy
Sinking Fund Requirements," which amended SFAS No.4, will affect income
statement classification of gains and losses from extinguishment of debt. SFAS
No.4 requires that gains and losses from extinguishment of debt be classified as
an extraordinary item, if material. Under SFAS No. 145, if the extinguishment of
debt is a routine and recurring transaction by the entity, as in a risk
management strategy, then it should not be considered extraordinary under the
criteria in APB Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," as it does not meet the
unusual in nature and infrequency of occurrence criteria in APB Opinion No. 30.
SFAS No. 145 will be effective for fiscal years beginning after May 15, 2002.
The Company has chosen to early adopt the provisions of SFAS No. 145 and as such
has reclassified the loss on extinguishment of debt from an extraordinary item
to other expense.
F-5
LIGHT MANAGEMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
In June 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullified
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred versus the date an entity commits to an exit plan
under EITF 94-3. SFAS No. 146 also establishes that fair value is the objective
for initial measurement of the liability. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company has not yet determined the
impact of SFAS No.146 on its financial position and results of operations, if
any.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The recognition and measurement
provisions are effective on a prospective basis to guarantees issued or modified
after December 31, 2002. The adoption of this interpretation is not expected to
have an impact on our financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
disclosure requirements apply to all companies for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. The adoption of SFAS No. 148 is not expected to have a
material impact on the Company's financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". FIN 46 provides guidance on the
identification of entities for which control is achieved through means other
than through voting rights, variable interest entities, and how to determine
when and which business enterprises should consolidate variable interest
entities. This interpretation applies immediately to variable interest entities
created after January 31, 2003. It applies in the first fiscal year or interim
period beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The adoption of this interpretation is not expected to have an impact on our
financial statements.
F-6
LIGHT MANAGEMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
4. BORROWINGS
----------
During the nine months ended September 30, 2002, the Company borrowed an
aggregate of approximately $67,000, from three unrelated sources, of which
approximately $25,000 bears interest at 8% per annum and is payable on demand.
The terms of the remaining borrowing of approximately $42,000 have not yet been
determined.
In April 2002, the Company settled approximately $159,300 of its loans payable
by issuing 1,532,670 shares of common stock valued $0.10 per share.
The business loan agreement with one of the banks expired on June 29, 2002. The
Company utilized the pledged cash of $25,000 to repay a portion of the loan. As
of September 30, 2002, the outstanding balance of such loan is $25,000 and is
due on demand.
5. Related Party Transactions
--------------------------
Due to officers on the accompanying consolidated balance sheet represents the
balance owed to the Chairman of the Company and to the Chief Executive Officer
for advances to and expenses paid on behalf of the Company. Such balance is
interest-free and payable upon demand.
The balance payable to the Chairman of the Company at September 30, 2002 was
$460,314. In February 2002, the Company settled $300,000 of its loans payable by
issuing 3,000,000 shares of common stock valued at $570,000. The excess of the
market value of the stock over the loan, of $270,000, was recorded as management
compensation and included in non-cash salaries and services in the accompanying
consolidated financial statements.
Also, in February 2002, the Company repaid $86,667 representing the balance owed
to the Chief Executive Officer of the Company for accrued salaries by issuing
866,667 shares of common stock valued at $164,667. The excess of the market
value of the stock over the loan, of $78,000, was recorded as management
compensation and included in non-cash salaries and services in the accompanying
consolidated financial statements.
6. NON-CASH SALARIES AND SERVICES
------------------------------
During the three and nine months ended September 30, 2002, the Company issued
shares of stock to various employees and consultants. An aggregate of 349,500
and 2,897,417 shares were issued for approximately $47,880 and $751,500 of
salaries, bonus, and consulting services (in addition to the 3,866,667 shares
issued to officers as described in Note 5 above) for the three and nine months,
respectively. Certain of these costs are for services to be provided in the
future and accordingly, prepaid compensation of approximately $432,000 is shown
as deferred compensation and included as an increase to stockholders' deficit in
the accompanying consolidated balance sheet.
F-7
LIGHT MANAGEMENT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
7. CONTINGENCIES
-------------
On May 1, 2002, a Class Action Suit ("Class Lawsuit") was filed in the United
States District Court for the Southern District of New York against the Company
and certain of its current and former officers and directors (collectively as
the "Defendants"). The plaintiff in this Class Lawsuit claims that the
defendants have violated Sections 10(b) and 20(a) of the Securities and Exchange
Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of
material misrepresentations to the market between June 9, 1999 through November
20, 2001, thereby artificially inflating the market price of the Company's
common stock. The Company intends to vigorously defend this Class Lawsuit. The
Company is unable, however, to predict the outcome of this matter, or reasonably
estimate a range of possible loss given the current status of the litigation.
The Company has been served with the Consolidated Amended Complaint and is
preparing to file and serve a response. The Company has not ruled out other
responses, including, without limitation, moving to dismiss portions of the
Consolidated Amended Complaint.
8. SALES OF COMMON STOCK
---------------------
On February 15, 2002, the Company entered into an agreement with a foreign
corporation, to sell 15,000,000 shares of common stock, which shall be 32% of
the bid price of the Company's common stock as quoted on the United States stock
exchange for the five consecutive trading days immediately preceding the date
the purchase order is received by the Company. Addenda to this agreement have
been executed, providing for an additional 10,000,000 shares of common stock to
be made available for sale, for an aggregate of 25,000,000 shares. As of
September 30, 2002, the Company had sold approximately 15,909,000 shares of
common stock for $479,000. The shares of common stock sold have not been
registered under the Securities Act of 1933, as amended, and may not be offered
or sold in the United States absent registration or an applicable exemption from
the registration requirements.
In addition, during the nine months ended September 30, 2002, the Company also
issued 850,000 shares of common stock for $85,000.
9. SUBSEQUENT EVENTS
-----------------
Subsequent to September 30, 2002, the Company sold approximately 8,026,000
additional shares of common stock in private offshore transactions for $135,000.
In October 2002, the Company settled $210,000 of its loans payable to the
Chairman of the Company by issuing 3,000,000 shares of common stock. The Company
also issued 399,000 shares of common stock to Consultants for consulting
services.
F-8
FORWARD-LOOKING STATEMENTS CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
Certain statements included in this report, including, without limitation,
statements contained under the caption "Item 2. Management's Discussion and
Analysis or Plan of Operation," and such other statements, except historical
facts, regarding the Company's financial position, business strategy and plans
of management for future operations, may constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements, which include, but are not limited to, words such as "expect,"
"anticipate," "estimate," "plan," "project" and "intend" are based on
management's beliefs and assumptions, and on information currently available to
management and involve certain known and unknown risks, uncertainties and other
factors which may cause these statements to be materially different from any
future results, performance or achievements expressed or implied by these
forward-looking statements. Such factors include, among others, the Company's
ability to finance its operations and the ability to obtain such financing,
uncertainties relating to the integration of acquired businesses and operations,
the Company's ability to successfully implement its business plan and integrate
any proposed and future business arrangements; potential fluctuations in
financial results, dependence on product development, rapid technological and
market change, failure to complete the manufacture of products on schedule and
on budget, uncertainties relating to business and economic conditions in markets
in which the Company operates or which relate to customer plans and commitments;
dependence on intellectual property rights; the competitive environment in which
the Company operates and such other risks as detailed from time to time in the
Company's periodic reports filed with the United States Securities and Exchange
Commission (SEC) and other regulatory authorities.
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission (SEC) has issued proposed guidance for
disclosure of critical accounting policies. The SEC defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effects of matters that are inherently uncertain and may change in
subsequent periods.
Our financial statements are prepared in accordance with generally accepted
accounting principles. Preparation of the statements in accordance with these
principles requires that we make estimates, using available data and our
judgment for such things as valuing assets, accruing liabilities, and estimate
expenses. The following is a list of what we feel are the most critical
estimations that we make when preparing our financial statements.
Accounts Receivable - Allowance for Doubtful Accounts
We routinely review our accounts receivable, by customer account, aging, to
determine the collectibility of the amounts due based on information we receive
from the customer, past history, and economic conditions. In doing so, where
necessary we will adjust our allowance for doubtful accounts accordingly to
reflect any cumulative amount that we feel is uncollectable. This estimate may
vary from the proceeds that we actually collect. If the estimate is too low we
may incur higher bad debt expenses in the future resulting in lower net income.
If the estimate is too high, we may experience lower bad debt expense in the
future resulting in higher net income.
2
Inventories
Inventories are recorded at the actual cost. No write-downs have been taken, as
management believes that the inventory will not be in stock long enough for it
to become obsolete.
Fixed Assets - Depreciation
We maintain machinery and equipment, and furniture and fixtures to operate our
business. These assets have extended lives. We estimate the life of individual
assets to spread the cost over the expected life. The basis for such estimates
in use, technology, required maintenance and obsolescence. We periodically
review these estimates and adjust them if necessary. Nonetheless, if we over
estimate the life of an asset(s), at a point in the future, we would have to
incur higher depreciation costs or write-off, lower income. If we under estimate
the life of an asset(s) we would absorb too much depreciation in the early years
and experience higher net income in the later years when the asset is still in
service.
Goodwill and Intangible Asset Impairment
We have acquired several companies. In recording the transaction, we are
required to recognize the full price. The difference between the value of the
assets and liabilities acquired, including transaction costs and identifiable
intangible assets, and the purchase price is recorded as goodwill. If goodwill
is not impaired, it remains as an asset on our balance sheet. If it is impaired
we are required to write down the asset to an amount that accurately reflects
its carrying value. Since we have not had an independent expert to value our
goodwill balance, management has determined that the goodwill may be impaired;
therefore, we have decided that the balance should be written off. We have not
taken an impairment charge for the Patents, but will continue to amortize them,
as we believe they have value over time and are producing income through one of
the divisions.
Item 2. Management's Discussion and Analysis or Plan of Operation
General
The following discussion should be read in conjunction with the financial
statements, including the notes thereto, included in this form 10-QSB as a
separate section (Item 1).
Light Management Group, Inc. ("LMG" or the "Company") was organized under the
laws of the State of Nevada on April 20, 1998 under the name Triton Acquisition
Corporation ("Triton"). Triton officially changed its name to Light Management
Group, Inc. on February 23, 2000.
LMG, through wholly owned subsidiaries, develops new applications for optical
and light technologies. LMG offers products based on its proprietary
acousto-optic deflection and related non-diode laser, photonics and optic
technologies. These technologies are used in the fiber optic communications,
biomedical, out-of-home advertising, industrial and aerospace markets.
3
LMG's research and development provides ideation, patenting and development of
new products.
The difficulties in the high technology sector have presented challenges in
advancing new technologies in the market. Among these challenges is obtaining
funding, which requires constant attention for many companies. LMG has been in
discussions with various private and public lenders and anticipates that it will
have the funding necessary to meet its cash requirements to the end of the
fourth quarter 2002. The Company expects to use the money to address operating
requirements as well as to fund ongoing product research, development and
testing. However, there can be no assurance that such funding will be available
to the Company on terms and conditions acceptable to the Company, or that the
Company will be able to obtain funding at all.
Results of Operations
Nine Months Ended September 30, 2002 Compared To Nine Months Ended September 30,
2001
REVENUES - The Company had sales revenues of $956,252 for the nine months ended
September 30, 2001, as compared to $431,996 for the nine months ended September
30, 2002. This decrease is primarily the result of a decline in Laser Projection
Equipment Sales of $483,862 in the first nine months of 2002. This is due in
part to the decreased demand in the out-of-home advertising sector where these
product sales are targeted, as well as extended time required for licensing
approval. The Company had sales revenues of $255,019 for the three months ended
September 30, 2001, as compared to $158,901 for the three months ended September
30, 2002. This decrease is primarily the result of a continued decline in Laser
Projection Equipment Sales in 2002 as noted above. At this time, Management's
expectation is that there will be no significant improvement until the end of
the second quarter of 2003. Revenues from the Exclusive Advertising subsidiary
continued to match the pace for 2001.
GROSS PROFIT - Gross Profit decreased from $488,565 for the nine months ended
September 30, 2001, as compared to $199,221 for the nine months ended September
30, 2002, and from $165,828 for the three months ended September 30, 2001 to
$77,515 for the three months ended September 30, 2002. Gross Profit percentages
decreased from 51.1% for the nine months ended September 30, 2001 to 46.1% for
the nine months ended September 30, 2002, and from 65.0% for the three months
ended September 30, 2001 to 48.8% for the three months ended September 30, 2002.
This decrease in gross profit is attributable to the decrease in Laser
Projection Equipment Sales which carries a greater profit margin than the
advertising sales revenue.
OPERATING EXPENSES - The operating expenses incurred by the Company for the nine
months ended September 30, 2001 were $3,368,222 as compared to $4,333,050 for
the nine months ended September 30, 2002. The general expenses decreased by
$1,012,397, and non-cash compensation increased by $1,099,484. The operating
expenses incurred by the Company for the three months ended September 30, 2001
were $1,139,274, as compared to $1,575,346 for the three months ended September
30, 2002. The general expenses decreased by $445,989, and non-cash compensation
increased by $418,630. The decrease in expenses are attributed to the start up
costs for the Company's office in Georgia, which opened in the second quarter of
2001, and also the reduction of costs in the first three quarters of 2002
attributable to business promotions as well as consulting and professional
services. Shares of the Company's capital stock issued for new consulting
services and salary adjustments account for the increase in the non-cash
compensation during this period.
4
NET LOSS - As a result of the above changes, the net loss for the nine months
ended September 30, 2001 was $3,662,111, as compared to a net loss of $4,214,316
for the nine months ended September 30, 2002, and the net loss for the three
months ended September 30, 2001 was $980,199, as compared to a net loss of
$1,512,889 for the three months ended September 30, 2002. In summary, the
decreases in Sales were matched by decreases in Operating Expenses as expected;
however, these decreases were offset by the shares of the Company's capital
stock issued for new consulting services and salary adjustments which account
for an increase in the non-cash compensation during this period, as well as the
Impairment in Goodwill charge taken during 2002. Depreciation and amortization
also decreased by $122,000 for the nine month period, and by $37,000 for the
three month period.
Current Liquidity and Capital Resources
The Company has financed its cash requirements primarily through borrowings from
related parties and sales of common shares. Net cash used in operating
activities for the nine month period ended September 30th 2002 was $884,545.
As of September 30, 2002, the working capital deficiency was $2,835,000. This
lack of liquidity, together with the Company's net losses for the years ended
December 31, 2001 and 2000, resulted in the Company's independent auditors
including an explanatory paragraph in their report on our December 31, 2001
financial statements about our ability to continue as a going concern.
The Company's current assets, as of September 30, 2001, were $1,422,487 as
compared to $646,903 as of September 30, 2002. The bulk of this amount is in
inventory of $523,444 and prepaid expenses of $61,707 and accounts receivable of
$59,318.
As of September 30, 2002, the Company's accounts payable increased to $1,147,219
and accrued expenses increased to $1,505,112, as compared to $1,057,790 and
$618,805, respectively, as of September 30, 2001. Proceeds of borrowings from
related parties were $449,215 and $67,149 from unrelated third parties during
the nine months ended September 30, 2002. The proceeds were used for the on
going operations of the Company.
Shareholder's deficit as of September 30, 2002 was $2,273,372, as compared to
equity of $2,433,868 as of September 30, 2001.
The Company's previous banking facility under that Business Loan Agreement with
Citizens Bank expired on June 29, 2002. The Company will need to raise
additional capital to fund its operations and future acquisitions, as well as to
fund ongoing product research, development and testing. Although the Company has
been in discussions with various private and public lenders, there can be no
assurance that such funding will be available to the Company on terms and
conditions acceptable to the Company, or that the Company will be able to obtain
any such funding at all. It is therefore anticipated that the Company will
obtain such additional funding through public or private equity or debt
financing.
5
On each of May 10, 2002, August 8, 2002 and December 31, 2002, the Company
successfully cloned sales of its capital stock in private offshore transactions
for an aggregate of 23,935,404 shares of its common stock, resulting in net
proceeds to the Company of $160,000, $284,000 and $170,000, respectively. The
proceeds were utilized by the Company for the on going operations.
In addition, during the nine months ended September 30, 2002 the Company issued
1,532,670 shares of its common stock in satisfaction of an outstanding debt of
the Company, and accepted subscription agreements from various individuals for
the sale of 850,000 shares of the Company's Common Stock for an aggregate
purchase price of $85,000.
Research and Development
On January 14, 2000, the Company acquired all of the common stock of 1028177
Ontario, Ltd., d/b/a Light Research and Development ("LRD"). LRD is the research
entity through which the Company conducts its research and development of new
optic, laser and related technologies. LRD is operated by the research team led
by Dr. Donald Iwacha, Ph.D., Dr. Arkadi Rozenchtein, Ph.D. and Dr. Gennadii
Ivtsenkov. In addition to the development of new ideas and concepts, through
LRD, the Company expects to focus on developing new applications using LMG's
acousto-optic technology in five targeted growth areas: digital communications;
visual media (e.g., outdoor advertising); industrial equipment; aerospace; and
bio-medical. LRD intends to build product prototypes and, in time, commercially
viable working models which it anticipates developing into new technologies and
products.
LRD introduced the Acousto-Optic Deflector (AOD) Switch for the Communications
market on December 20, 2000. In 2001, Letters of Intent were signed with a
number of companies, including Empyrean Communications, Inc., France Telecom,
FibreWired Burlington Hydro Communications (FWBHC) and the Boeing Company to
evaluate the switch. Subsequent work has resulted in connection with FWBHC and
Boeing. Specifically, the Company successfully completed Phases I, II and III
testing at FWBHC, with Phase III testing having been completed in May 2002. As a
next step in working with FWBHC, LRD is proceeding with the development of the
necessary type of intelligent platform required for the (AOD) Switch. With
respect to Boeing, the initial product proved too heavy and too large for the
sought after application and, despite subsequent submission of a proposal for a
miniaturized version with improved characteristics, project evaluation
constraints have prohibited further evaluation. No work has resulted as of yet
in connection with Empyrean or France Telecom and, because of the non-binding
nature of such Letters of Intent, there can be no assurance that any projects
will be developed with such companies.
In March 2001, the Company introduced the first Ultra-violet (UV) Scanner using
Acousto-Optic Deflection technology. An agreement was subsequently entered into
with the Baylor College of Medicine in Texas to supply such an Ultra-violet (UV)
Scanner to the medical college for testing and evaluation in various research
projects. The Company is currently in the process of final preparations and
testing of a unit built to Baylor specifications.
6
Item 3. Controls and Procedures
Within 90 days prior to the date of filing this Quarterly Report on Form 10-QSB,
the Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
and the Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to the
rules promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in providing reasonable assurance that
material information relating to the Company required to be included in the
Company's periodic Securities and Exchange Commission filings are timely
recorded, processed, summarized and communicated to the Company's management,
Chief Executive Officer and Chief Financial Officer, as appropriate, to permit
timely decisions regarding required disclosure under the Exchange Act.
Subsequent to the date of that evaluation, there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls, nor were any significant deficiencies
and material weaknesses identified which required any corrective actions.
7
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
On May 1, 2002, a Class Action Suit ("Class Lawsuit") was filed in the
United States District Court for the Southern District of New York against the
Company and certain of its current and former officers and directors
(collectively as "Defendants"). The plaintiff in this Class Lawsuit alleges that
defendants have violated Sections 10(b) and 20(a) of the Securities and Exchange
Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of
material misrepresentations to the market between June 9, 1999 through November
20, 2001, and thereby artificially inflating the market price of the Company's
common stock. The Company intends to vigorously defend this Class Lawsuit. The
Company is unable, however, to predict the outcome of these cases, or reasonably
estimate a range of possible loss given the current status of the litigation.
The Company has been served with the Consolidated Amended Complaint and is
preparing to file and serve an Answer. The Company has not ruled out other
responses, including, without limitation, moving to dismiss portions of the
Consolidated Amended Complaint.
Item 2. Changes in Securities and Use of Proceeds
As previously reported, on August 8, 2002 and up to September 30, 2002, the
Company closed on the purchase and sale of 14,294,669 and an additional
1,614,099 shares, respectively of its common stock, par value $.0001 per share
(the "Common Stock"), pursuant to that certain Regulation S Stock Purchase
Agreement dated February 15, 2002, and most recently amended as of October 21,
2002 (as amended, the "Agreement"), which sale resulted in aggregate net
proceeds to the Company of approximately $444,000 and $35,000 respectively. In
addition, on December 31, 2002, the Company closed on the purchase and sale of
an additional 8,026,636 shares of the Common Stock pursuant to the Agreement,
which sales resulted in aggregate net proceeds to the Company of approximately
$135,000. The sale and issuance of the Common Stock to the purchaser under the
Agreement was based, in part, upon representations and warranties of the
purchaser, including a representation that the sale of the Common Stock to the
Purchaser was to a "non-U.S. Person" outside the "United States" in accordance
with the "offering restrictions," as those terms are defined in the rules
promulgated under Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"). Such sales were exempt from the registration requirements of
the Securities Act pursuant to Regulation S promulgated by the Securities and
Exchange Commission of the Securities Act. The shares of Common Stock have not
been registered under the Securities Act and may not be offered or sold in the
United States absent registration or an applicable exemption from the
registration requirements.
Item 6. Exhibits and Reports on 8-K
(a) Exhibits:
99.1 Certification of the Chief Executive Officer of the Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
8
99.2 Certification of the Chief Financial Officer of the Company
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None.
9
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 21st day of March, 2003.
Light Management Group, Inc.
By: /s/ Donald Iwacha
---------------------------------
Name: Donald Iwacha
Title: President and CEO
10
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Donald Iwacha, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Light Management
Group, 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 we 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 function):
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; and
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: March 21, 2003 /s/ Donald Iwacha
-------------------------------
Name: Donald Iwacha
Title: Chief Executive Officer
11
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Barrington Simon, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Light Management
Group, 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 we 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 function):
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; and
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: March 21, 2003 /s/ Barrington Simon
-------------------------------
Name: Barrington Simon
Title: Chief Financial Officer
12
INDEX
Exhibit Description
- ------- -----------
99.1 Certification of the Chief Executive Officer of the Company pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer of the Company pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
13