SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 2001.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from __________ to __________.
COMMISSION FILE NUMBER: 2-97360-A
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LIGHT MANAGEMENT GROUP, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
NEVADA 75-2727932
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3060 Mainway, Suite 301, Burlington, Ontario L7M 1A3
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(800) 465-9216
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(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 for 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.
YES X NO
On August 7, 2001, the number of shares outstanding of the issuer's Common
Stock, $0.0001 par value (the only class of voting stock), was 22,676,382.
Table of Contents
PART I - FINANCIAL INFORMATION...............................................1
ITEM 1. FINANCIAL STATEMENTS.......................................1
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OR PLAN OF
OPERATION..................................................2
PART II - OTHER INFORMATION..................................................4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS....................................................4
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...........................5
INDEX TO EXHIBITS............................................................6
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
As used herein, the term "Company" refers to Light Management Group, Inc., a
Nevada corporation, and its subsidiaries and predecessors unless otherwise
indicated. Consolidated, unaudited, condensed interim financial statements
including a balance sheet for the Company as of the three (3) and six (6) months
ended June 30, 2001, statement of operations, statement of shareholders equity
and statement of cash flows for the interim period up to the date of such
balance sheet and the comparable period of the preceding year are attached
hereto and begin on page F-1 and are incorporated herein by this reference.
1
LIGHT MANAGEMENT GROUP, INC
CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
ASSETS
CURRENT ASSETS:
Cash $ 42,358
Accounts receivable ( net of allowance of $2,000) 127,810
Inventory 954,070
Prepaid expenses and other current assets 305,328
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TOTAL CURRENT ASSETS 1,429,566
PROPERTY AND EQUIPMENT - net of accumulated depreciation 340,644
GOODWILL - net 2,389,094
PATENTS - net 712,873
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TOTAL ASSETS $ 4,872,177
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 704,875
Accrued expenses 411,164
Note payable - bank 69,348
Loans payable - officers 215,442
Due to related parties 53,935
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TOTAL CURRENT LIABILITIES 1,454,764
Note payable - bank (net of current portion) 73,369
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TOTAL LIABILITIES 1,528,133
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STOCKHOLDERS' EQUITY
Preferred Stock - $.0001 par value, 10,000,000
authorized shares, 2,766,798 shares
issued and outstanding 277
Common stock - $.0001 par value, 100,000,000
authorized shares, 22,707,382 shares
issued and outstanding 2,271
Additional paid in capital 18,302,798
Deferred compensation (648,118)
Accumulated deficit (14,324,127)
Accumulated other comprehensive loss 10,943
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TOTAL STOCKHOLDERS' EQUITY 3,344,044
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,872,177
============
See notes to consolidated financial statements
F-1
LIGHT MANAGEMENT GROUP, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended For The Six Months Ended
--------------------------------------------------------
June 30, June 30, June 30, June 30,
----------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
SALES $ 273,436 $ 56,162 $ 701,233 $ 355,093
COST OF SALES 153,874 31,450 378,496 78,859
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GROSS PROFIT 119,562 24,712 322,737 276,234
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EXPENSES
Selling, general and administrative expenses 1,331,103 669,982 1,969,779 2,527,394
Litigation expenses - (34,978) - 390,384
Depreciation and amortization 131,581 62,739 259,169 125,101
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 1,462,684 697,743 2,228,948 3,042,879
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (1,343,122) (673,031) (1,906,211) (2,766,645)
INTEREST EXPENSE 3,347 21,825 10,701 26,775
---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,346,469) (694,856) (1,916,912) (2,793,420)
EXTRAORDINARY ITEM - loss on cancellation of debt - - (765,000) -
---------- ---------- ---------- ----------
NET LOSS (1,346,469) (694,856) (2,681,912) (2,793,420)
PREFERRED STOCK DIVIDEND (55,336) - (110,672) -
---------- ---------- ---------- ----------
NET LOSS APPLICABLE TO COMMON STOCK $(1,401,805) $ (694,856) $(2,792,584) $(2,793,420)
========== ========== ========== ==========
NET LOSS PER SHARE - BASIC AND DILUTED
Loss before extraordinary item $ (0.06) $ (0.04) $ (0.09) $ (0.15)
Extraordinary item - - (0.04) -
---------- ---------- ---------- ----------
NET LOSS PER SHARE $ (0.06) $ (0.04) $ (0.13) $ (0.15)
========== ========== ========== ==========
Weighted Average Shares Used in Computation -
Basic and diluted 22,526,767 18,941,797 21,869,369 18,376,174
========== ========== ========== ==========
NET LOSS $(1,346,469) $ (694,856) $(2,681,912) $(2,793,420)
OTHER COMPREHENSIVE LOSS, NET OF TAX
Foreign currency translation adjustment 72,847 (119,926) 50,236 (119,926)
---------- ---------- ---------- ----------
COMPREHENSIVE LOSS $ 1,273,622 $ 814,782 $2,631,676 $2,913,346
========== ========== ========== ==========
See notes to consolidated financial statements
F-2
LIGHT MANAGEMENT GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended
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June 30, June 30,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,681,912) $ (2,793,420)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 259,169 125,101
Extraordinary item - loss on cancellation of debt 765,000 -
Stock issued for salaries - 348,475
Stock issued for legal services - 126,661
Stock issued for consulting services 262,220 800,737
Acquisition of research and development with stock - 630,000
Changes in assets and liabilities (net of effect of acquisitions):
Decrease (Increase) in accounts receivable 557,923 86,051
Decrease (Increase) in inventory 20,438 (539,000)
(Increase) in prepaid and other current assets (114,302) (7,196)
Decrease in deferred compensation 72,956 -
Increase (Decrease) in accounts payable 688,839 (417,626)
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NET CASH USED IN OPERATING ACTIVITIES (169,669) (1,640,217)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (120,612) (693,174)
Purchase of patent - (567,657)
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NET CASH USED IN INVESTING ACTIVITIES (120,612) (1,260,831)
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CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) Proceeds from note payable - bank (41,483) 126,731
Proceeds from (Repayment of) loans payable - officers 223,428 (66,401)
Net increase in related party loan - 3,036,751
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NET CASH PROVIDED BY FINANCING ACTIVITIES 181,945 3,097,081
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EFFECT OF EXCHANGE ON CASH 95,458 (119,926)
NET (DECREASE) INCREASE IN CASH (12,878) 76,107
CASH - Beginning of year 55,236 -
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CASH - End of period $ 42,358 $ 76,107
============ ============
See notes to consolidated financial statements
F-3
LIGHT MANAGEMENT GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SUPPLEMENTAL INFORMATION OF CASH FLOW INFORMATION:
Cash paid for interest $ 10,701 $ 21,825
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Cash paid for taxes $ - $ -
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NON-CASH FINANCING AND INVESTING ACTIVITIES:
Related party debt converted to preferred stock $3,200,000 -
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Related party debt converted to common stock $1,600,000 -
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Shares issued for acquisition of Exclusive Advertising, Inc. $ - $ 2,500,000
============ =============
See notes to consolidated financial statements
F-4
LIGHT MANAGEMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 2001
(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 generally accepted accounting principles 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 Six month
period ended June 30, 2001, are not necessarily indicative of the
operating results that may be expected for the year ending December 31,
2001. These financial statements should be read in conjunction with the
Company's December 31, 2000 Form 10-KSB, financial statements and
accompanying notes thereto.
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has had recurring
losses, which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans with respect to these
matters include raising additional working capital through equity or debt
financing and ultimately achieving profitable operations. The accompanying
financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
3. STOCKHOLDERS' EQUITY
In March, 2001, the Company settled $3,200,000 of its loans payable, to an
entity in which the Company's principal shareholder and Chief Executive
Officer is also a shareholder, by issuing 2,766,798 shares of Series A
cumulative Preferred Stock convertible into common stock on a one-for-one
basis. Furthermore, the Company settled an additional $1,600,000 of its
loans payable to such entity by issuing 1,855,072 shares of common stock
valued at $2,365,000. As a result of the later transaction the Company
recorded an extraordinary loss on extinguishment of debt of $765,000.
During the six months ended June 30, 2001 the Company issued an aggregate
of 266,000 shares of stock to various consultants for approximately
$262,000 of consulting services provided during such period.
F-5
4. JUNE 2000 RESTATEMENT
The financial statements for the six months ended June 30, 2000 have been
restated to reflect adjustments noted by the Company during the
preparation of its year ending December 31, 2000 financial statements. The
restatement is principally related to the issuance of shares of the
Company's common stock for services, and the reversal of sales revenue and
the reclassification of certain inventory previously classified as
property and equipment. The effect on the previously reported results was
to decrease sales by $729,045, increase total expenses by $554,355 and
increase net loss by $1,283,400. Basic and diluted loss per share
increased by ($0.04) to ($0.13).
5. NEW ACCOUNTING STANDARD
In July, 2001, the Financial Standards Board issued Statement of Financial
Accounting Standard ("SFAS No. 141) "Business Combinations" and SFAS No.
142 "Goodwill and Intangible Assets" ("SFAS No. 142"). SFAS No. 141
requires that all business combinations initiated after June 30, 2001 be
accounted for using purchase method of accounting and prohibits the use of
pooling-of-interest method for such transactions. SFAS No. 142 applies to
all goodwill and intangible assets acquired in a business combination.
Under the new standard, all goodwill, including goodwill acquired before
initial application of the standard should not be amortized but should be
tested for impairment at least annually at the reporting unit level, as
defined in the standard. Intangible assets other than goodwill should be
amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 121. The new standard is effective for fiscal
years beginning after December 15, 2001. The Company currently expenses
approximately $171,000 annually for the amortization of goodwill.
F-6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OR PLAN OF
OPERATION
Forward-looking information
This quarterly report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. These statements relate to future
events or to our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. There are a number of factors that could cause the Company's
actual results to differ materially from those indicated by such forward-looking
statements.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, the Company
does not assume responsibility for the accuracy and completeness of such
statements. The Company is under no duty to update any of the forward- looking
statements after the date of this report to conform such statements to actual
results.
General
The Company specializes in the development of new applications of optical and
light technologies. These technologies use sound waves to focus and direct
lasers. For example, one of the Company's proprietary laser projection systems,
called the RGB Laser Projection System, produces graphic images in moving three
dimensional designs that are utilized to market products on large-scale
billboards. This laser system possesses software features which allow images to
be manipulated into almost any position, size, or scale in 256 colors. This
acousto- optic laser projection system works by a raster imaging process
allowing images to be projected in three dimensional appearance, and to be
active and moving across the full screen size.
Much of the Company's growth has been effected through mergers and acquisitions,
as its operations are now conducted through five subsidiaries, three of which
were acquired externally. The Company expects to continue to grow internally, as
its technological products become more well known and are sold in increasing
quantities, and externally, as it seeks to effect other acquisitions.
On April 20, 2001, the Company executed a Stock Purchase Agreement whereby it
agreed to acquire fifty-one percent (51%) of Equitech Int'l Corporation
("Equitech") for a total consideration of five million dollars (US $5,000,000),
as follows: (1) the Company has agreed to tender a cash payment in the amount of
two million five hundred thousand dollars (US $2,500,000) on the closing date of
the Agreement; and, in addition, (2) the Company has agreed to issue and
transfer to Equitech an amount of shares of Company's common stock equal to two
million five hundred thousand dollars (US $2,500,000). Although the Company
firmly believes it will be able to procure financing to effect the Equitech
acquisition, such financing has not yet been effected, and therefore, no
assurance can be given that the Equitech acquisition will be
2
consummated. The Company believes Equitech offers a variety of synergies
regarding its technologies, processes and employees that make it an ideal
business partner.
Results of Operations
As further discussed in note 4 to the unaudited financial statements attached
hereto, the financial statements for the three (3) months and six (6) months
ended June 30, 2000, have been restated to reflect adjustments noted by the
Company during the preparation of its financial statements for the year ended
December 31, 2000. The following discussion sets forth certain financial
information regarding the Company's operations. The Company's financial
statements, and the following discussion on results of operations, set forth
financial information for the three months and six months ended June 30, 2001
and June 30, 2000.
The Company had sales revenues of $273,436 for its quarter ended June 30, 2001
as compared to $56,162 for the quarter ended June 30, 2000. For the six months
ended June 30, 2001, the Company had sales revenues of $701,233 as compared to
$355,093 for the six months ended June 30, 2000. The revenues of the Company
have been less than hoped and are believed to reflect the economic stagnation
across North America as well as the comprehensive qualification process inherent
in the industries to which the Company's products are targeted.
Operating expenses increased from $697,743 for the quarter ended June 30, 2000
to $1,462,684 for the second quarter of the year 2001. This increase is largely
attributable to an increase in selling, general and administrative expenses
which resulted from an increase in the amount of services rendered from
independent professionals and consultants. These expenses increased from
$669,982 for the quarter ended June 30, 2000, to $1,331,103 for the quarter
ended June 30, 2001. The increase in total operating expenses resulted in an
increase in the net loss for the quarterended June 30, 2001 of $1,346,469, as
compared to a net loss of $694,856 for the same period in 2000. A significant
portion of these operating expenses for the quarter ended June 30, 2001, arose
in connection with the opening of the Company's office in Norcross, Georgia, a
suburb of Atlanta.
Operating expenses decreased from $3,042,879 for the six months ended June 30,
2000 to $2,228,948 for the same period in 2001. This decrease is attributable to
a decrease in selling, general and administrative expenses from $2,527,394 for
the six months ended June 30, 2000 to $1,969,779 for the same period in 2001,
and a decrease in litigation expenses from $390,384 for the six months ended
June 30, 2000 to zero for the same period in 2001. This decrease in total
operating expenses when combined with lesser sales revenues resulted in a slight
improvement in the Company's net loss for the six months ended June 30, 2001 of
$2,681,912 from $2,793,420 as of June 30, 2000.
Current Liquidity and Capital Resources
We have relied upon our principal shareholder and chief executive officer for
our capital requirements and liquidity. The Company has had recurring losses,
which raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans with respect to these matters include raising
additional working capital through equity or debt
3
financing and ultimately achieving profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of shareholders of the Company was held on July 27, 2001. The
following matters were voted upon at the meeting.
PROPOSAL NO. 1: Election of the Board of Directors until the next Annual
Shareholders Meeting. The number of votes cast for each
nominee was sufficient for all to be elected.
BROKER
FOR AGAINST WITHHELD NON-VOTES
Barrington Simon 17,087,711 4,600 1,720 8,519,955
Dr. Arkadi Rozenchtein 17,087,711 4,600 1,620 8,520,055
Ian Brock 17,087,711 1,600 1,620 8,520,055
Austin Thorne 16,071,762 20,820 1,002,249 8,520,155
PROPOSAL NO. 2: Ratification of the employment of Feldman Sherb & Co., P.C. as
the Company's independent auditor for the fiscal year ending
December 31, 2001. The number of votes required for this
proposal to pass was 8,547,416 and, as the total number of
votes cast for this proposal was 17,083,239, the proposal
passed.
BROKER
FOR AGAINST WITHHELD NON-VOTES
17,083,239 2,100 9,492 8,520,155
PROPOSAL NO. 3: Amendment of the Company's Articles of Incorporation to
increase the number of shares of the Company's common stock
authorized for issuance from 100,000,000 to 200,000,000. The
number of votes required for this proposal to pass was
14,679,189 and, as the total number of votes cast for this
proposal was 16,038,997, the proposal passed.
BROKER
FOR AGAINST WITHHELD NON-VOTES
16,038,997 1,040,924 14,910 8,520,153
PROPOSAL NO. 4: Adoption of the 2001 Stock Incentive Plan. The number of
votes required for this proposal to pass was 8,547,416 and, as
the total number of votes cast for this proposal was
16,090,364, the proposal passed.
BROKER
FOR AGAINST WITHHELD NON-VOTES
16,090,364 971,887 32,080 8,520,155
4
PROPOSAL NO. 5: Any other business as may properly come before the meeting or
any adjournment thereof. The number of votes required for
this proposal to pass was 8,547,416 and, as the total number
of votes cast for this proposal was 16,070,262, the proposal
passed.
BROKER
FOR AGAINST WITHHELD NON-VOTES
16,070,262 20,820 1,002,249 8,520,155
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter for which this report is
filed.
The following exhibits are attached hereto. Exhibits marked with an asterisk
have been filed previously with the Commission and are incorporated herein by
reference.
3.1 * Articles of Incorporation
3.2 * Bylaws.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on
Form 10-QSB to be executed on its behalf by the undersigned, hereunto duly
authorized.
LIGHT MANAGEMENT GROUP, INC.
/s/ Dr. Donald Iwacha
Dr. Donald Iwacha
President, Chief Executive Officer
Dated: August 14, 2001
5
INDEX TO EXHIBITS
Exhibits marked with an asterisk have been filed previously with the
Commission and are incorporated herein by reference.
EXHIBIT NO. PAGE NO. DESCRIPTION
3.1 * Articles of Incorporation
3.2 * Bylaws
6