10QSB 1 sept03-10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED: SEPTEMBER 30, 2003 COMMISSION FILE NUMBER:000-27087 LITEGLOW INDUSTRIES, INC. --------------------------------------------------------------------------- (Debtor in Possession) (Exact name of registrant as specified in its charter) UTAH 65-0516403 --------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2301 N.W. 33rd Court, Unit 112, Pompano Beach, Florida 33069 --------------------------------------------------------------------------- (Address, including zip code, of principal executive offices) (954) 971-4569 --------------------------------------------------------------------------- (Registrant's telephone number, including area code) --------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 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 reports), and (2) has been subject to such filings for the past 90 days. YES [X] [NO] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicated by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: As of September 30, 2003, the number of the Company's shares of par value $.001 common stock outstanding was $4,030,082. 1 LITEGLOW INDUSTRIES, INC. (Debtor in possession) FORM 10-QSB SEPTEMBER 30, 2003 INDEX Part I - FINANCIAL INFORMATION Item 1 - Financial Statements Balance Sheets............................................................3 Statements of Operation...................................................4 Statements of Cash Flow...................................................5 Notes to Financial Statements.............................................6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations...............7-9 PART II - OTHER INFORMATION...........................................10 SIGNATURES...............................................................12 CERTIFICATIONS.........................................................13-14 2 LITEGLOW INDUSTRIES, INC. (Debtor in possession) BALANCE SHEET SEPTEMBER 30, 2003 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 219,517 Accounts receivable, net 1,842,173 Inventory, net 1,381,445 Prepaid expenses 175,363 ------------ Total current assets 3,618,498 Property and equipment less accumulated depreciation 364,230 Goodwill, net 175,660 Deferred loan costs 12,500 Deposits 49,336 ------------ $ 4,220,224 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 6,756 Current maturities of long-term capital leases obligations 23,908 Line of credit 2,275,202 Loans payable shareholder 69,716 Accounts payable and accrued expenses 1,302,375 ------------ Total current liabilities 3,677,957 Long-term debt less current maturities 1,689 Long-term capital lease obligations less current maturities 17,461 ------------ Total liabilities 3,697,107 ------------ Stockholders' equity (deficit): Preferred stock par value $.001 issued and authorized 1,000,000 1,000 Common stock, $.001 par value; authorized 10,000,000 shares 4,030,082 shares issued and outstanding 4,030 Additional paid-in capital 3,368,792 Retained deficit (2,850,705) ------------ Total stockholders' equity 523,117 ------------ $ 4,220,224 ============ The accompanying notes are an integral part of these financial statements 3 LITEGLOW INDUSTRIES, INC. (Debtor in possession) STATEMENT OF OPERATIONS (unaudited)
Nine Months Nine Months Three Months Three Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Sales $ 6,600,772 $ 9,540,447 $ 2,543,520 $ 2,980,577 Cost of sales 4,248,060 5,238,486 1,799,548 1,659,666 ----------- ----------- ----------- ----------- Gross profit 2,352,712 4,301,961 743,972 1,320,911 Selling, general and administrative expenses 3,083,235 2,878,130 980,403 873,240 ----------- ----------- ----------- ----------- Income (loss) from operations (730,523) 1,423,831 (236,431) 447,671 ----------- ----------- ----------- ----------- Other income (expenses): Interest expense (87,222) (131,656) (29,675) (43,102) Lawsuit settlement - 2,000 - 2,000 Gain (loss) on disposal of assets - (40,000) - - ----------- ----------- ----------- ----------- Total other income (expenses) (87,222) (169,656) (29,675) (41,102) ----------- ----------- ----------- ----------- Income (loss) before income taxes (817,745) 1,254,175 (266,106) 406,569 Income tax expense (benefit) - - - - ----------- ----------- ----------- ----------- Net income (loss) $ (817,745) $ 1,254,175 $ (266,106) $ 406,569 =========== =========== =========== =========== Net income (loss) per common share: Basic: Net income (loss) per common share (.21) .32 (.07) .11 Diluted: Net income (loss) per common share (.21) .14 (.07) .05 Weighted average shares outstanding basic 3,862,500 3,889,423 4,030,082 3,780,082 =========== =========== =========== =========== Weighted average shares outstanding diluted 3,862,500 8,889,423 4,030,082 8,780,082 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements 4 LITEGLOW INDUSTRIES, INC. (Debtor in possession) STATEMENT OF CASH FLOWS (unaudited)
Nine Months Nine Months Ended Ended September 30, September 30, 2003 2002 ------------- ------------- Cash flows from operating activities: Net income (loss) $ (817,745) $ 1,254,175 Adjustments to reconcile net income to net cash provided by (used for) operating activities Depreciation and amortization 81,339 58,409 Non cash compensation 12,500 - Loss (gain) on disposal of equipment - 40,000 Bad debt allowance (236) 90,965 Inventory and returns allowances 242,060 54,518 Changes in assets and liabilities: Accounts receivable (184,989) (914,415) Inventory 360,870 (762,596) Prepaid expenses (55,475) (32,672) Other current assets - (19,193) Deposits and other assets 749 (5,973) Deferred loan costs (25,000) 5,333 Accounts payable and accrued expenses (131,705) 523,657 ---------- ---------- Net cash provided from (used for) operations (517,632) 292,208 ---------- ---------- Net cash used in investing activities: Purchase of equipment (73,373) (132,594) ---------- ---------- Net cash used for investing activities (73,373) (132,594) ---------- ---------- Cash flows from (used in) financing activities: Repayments of stockholder loans (64,580) (87,507) Purchase and retirement of treasury stock - (24,250) Proceeds from line of credit 818,397 333,221 Payments of long term debt and leases (31,973) (83,305) ---------- ---------- Net cash provided by financing activities 721,844 138,159 ---------- ---------- Net increase in cash and cash equivalents 130,839 297,773 Cash and cash equivalents, beginning of period 88,678 2,012 ---------- ---------- Cash and cash equivalents, end of period $ 219,517 $ 299,785 ========== ========== Supplemental disclosure: Interest paid $ 87,222 $ 131,656 ========== ========== Stock issued for services $ 12,500 $ - ========== ========== Assets acquired with debt $ - $ 40,000 ========== ==========
The accompanying notes are an integral part of these financial statements 5 LITEGLOW INDUSTRIES, INC. (Debtor in possession) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 NOTE 1: FINANCIAL STATEMENTS The Company The accompanying financial statements represent those of Liteglow Industries, Inc. (the "Company"). The Company was incorporated April 25, 1984, in the State of Utah. The Company primarily engages in the business of designing, manufacturing and marketing a diverse line of automotive aftermarket accessory and specialty products. The Company initially focused its efforts on developing a line of 12-volt automotive accessories designed to enhance vehicle appearance, including neon license plate frames and neon under-car lighting kits. Significant Accounting Policies The accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements included in its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002. The balance sheet as of September 30, 2003, the statements of operation and cash flows for the three and nine months ended September 30, 2003, and 2002 have been prepared by the Company, without audit. 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 at September 30, 2003, and for all periods presented, have been made. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto as of December 31, 2002. NOTE 2: NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed by dividing the income (loss) by the average number of common shares outstanding, increased by common stock equivalents determined using the treasury stock method. NOTE 3: GOING CONCERN The accompanying financial statements have been prepared assuming that Liteglow Industries, Inc. will continue as a going concern. The Company has suffered losses from operations during the nine months ended September 30, 2003. On October 2, 2003, Liteglow Industries, Inc. filed a voluntary petition of relief pursuant to Chapter 11 of the United States Bankruptcy Act. Prior to the filing, the lender providing the line of credit to the Company, informed the Company that it was in technical default of a loan covenant. Furthermore, at September 30, 2003 the Company could not demonstrate that it had sufficient liquidity to meet its routine operating costs for the next year. These circumstances raise substantial doubt about the entity's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 6 LITEGLOW INDUSTRIES, INC. (Debtor in possession) FORM 10-QSB SEPTEMBER 30, 2003 PART I - FINANCIAL INFORMATION Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Financial Statements appearing elsewhere in this Report. It includes an analysis of the three and nine months ended September 30, 2003, and 2002, respectively. Forward-Looking Statements -------------------------- Except for the historical statements and discussions contained herein, statements contained in this report constitute "forward- looking statements" as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended. These forward- looking statements rely on a number of assumptions concerning future events, and are subject to a number of risks and uncertainties and other factors, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements. Readers are cautioned not to put undue reliance on such forward- looking statements, each of which speaks only as of the date hereof. Factors and uncertainties that could affect the outcome of such forward-looking statements include, among others, market and industry conditions, increased competition, changes in governmental regulations, general economic conditions, pricing pressures, and the Company's ability to continue its growth and expand successfully into new markets and services. The Company disclaims any intention or obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Bankruptcy Petition ------------------- On October 2, 2003, Liteglow Industries, Inc. filed a voluntary petition for bankruptcy relief pursuant to 11 U.S.C. Chapter 11. Under Chapter 11, certain claims against the Debtor in existence prior to the filing of the petition for relief under the federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor-in-Possession. The Company believes that the following events necessitated the need to file for bankruptcy protection. Prior to the filing, the lender providing the line of credit to the Company informed the Company that it was in technical default of a loan covenant; however, the Company disputes the merit of this claim. Additionally, certain major chain store customers returned significant amounts of its unsold inventory under a guarantee clause, and took credits that offset invoices that were to be paid in the current period thereby impairing the Company's cash flow. Finally, litigation costs relating to a settled patent infringement case exceeded $250,000 and other threatened and pending lawsuits involving the Company necessitated the Company seeking relief. The Company is unsure of the post-petition impact the bankruptcy will have on operations. 7 LITEGLOW INDUSTRIES, INC. (Debtor in possession) FORM 10-QSB SEPTEMBER 30, 2003 Results of Operations Three and Nine Months Ended September 30, 2003 and 2002 Net sales for the quarter ended September 30, 2003 were $2,543,520 compared to net sales of $2,980,577 for the quarter ended September 30, 2002. The decrease in sales of $347,057 was primarily the result of the sales to three major retailers in 2002, who have reduced or eliminated its purchasing for 2003 due to economic conditions. For these same periods, cost of sales was $1,799,548 compared to $1,659,666 for 2003 and 2002, respectively. The gross profit for the quarter ended September 30, 2003 and 2002 was $743,972 and $1,320,911, respectively. The Company's selling, general and administrative expenses increased to $980,403 from $873,240, respectively. The increase in selling, general and administrative expenses is primarily a result of litigation expenses relating to patent infringements and vendor disputes. The Company had (loss) from operations of ($236,431) compared to a profit from operations of $447,671 for the quarter ended September 30, 2003 and 2002 respectively. Net sales for the nine months ended September 30, 2003 were $6,600,772 compared to net sales of $9,540,447 for the nine months ended September 30, 2002. The decrease in sales of $2,939,675 was primarily the result of economic conditions. For these same periods, costs of sales were $4,248,060 compared to $5,238,486 for 2003 and 2002, respectively. The gross profit for the nine months ended September 30, 2003 and 2002 was $2,352,712 and $4,301,961, respectively. The Company's lower profit margins were a result primarily of discounts and allowances given to the major retailers. The Company's selling, general and administrative expenses increased to $3,083,235 from $2,878,130 for the nine months ended September 30, 2003 and 2002, respectively. The increase in selling, general and administrative expenses is primarily a result of litigation costs discussed above. The Company had loss from operations of ($730,523) for the nine months ended September 30, 2003 compared to income from operations of $1,423,831 for the nine months ended September 30, 2002. The Company decreased its inventory during the first nine months of 2003 by $360,870 compared to a increase of $762,596 for the same period of 2002. The Company continues to make efforts to better anticipate inventory needs. No income tax expense or benefit is recorded in the nine months, and three months ended September 30, 2003 and 2002 as the Company will utilize its net operating loss carryforward to offset the current tax expense. Liquidity and Capital Resources Total current assets decreased to $3,618,498 at September 30, 2003 compared to $4,319,901 at September 30, 2002 primarily as a result of decreasing its accounts receivable and inventory levels. The Company's total assets decreased to $4,220,224 at September 30, 2003 compared to $4,899,417 at September 30, 2002 primarily as a result of decreasing its current assets described above. 8 LITEGLOW INDUSTRIES, INC. (Debtor in possession) FORM 10-QSB SEPTEMBER 30, 2003 Liquidity and Capital Resources (continued) The Company's accounts payable and accrued expenses decreased to $1,302,375 at September 30, 2003 compared to $1,364,673 at September 30, 2002. The Company's total current liabilities increased to $3,677,957 at September 30, 2003 from $3,269,425 at September 30, 2002 primarily due to the current levels of amounts due on the line of credit and amounts owed for accounts payable and accrued expenses. The Company's net cash used for operations was ($517,632) for the nine months ended September 30, 2003 compared to net cash provided by operations of $292,208 for the nine months ended September 30, 2002. 9 LITEGLOW INDUSTRIES, INC. (Debtor in possession) FORM 10-QSB SEPTEMBER 30, 2003 PART II - OTHER INFORMATION Item 1 - Legal Proceedings ----------------- The Company is a party to the following legal proceedings: Liteglow Industries, Inc. (United States Bankruptcy Court for the Southern District of Florida, Case No. 03-27244-BKC-RBR) On October 2, 2003, the Company filed a voluntary petition (the "Petition") for relief under Chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Florida, case number 03-27244- BKC-RBR. The automatic stay provisions of the Bankruptcy Code prohibit creditors from taking action against the Company without first obtaining court approval. Further, the Company is permitted to operate under Company management while the Company formulates a plan of reorganization. Since the date of filing of the Petition, the Company has entered into a Court approved cash collateral agreement with Merrill Lynch Business Financial Services, Inc. which authorizes the Company to use revenues to operate the business while in Chapter 11. The Company has the sole and exclusive right to file a Plan of Reorganization on or before February 2, 2004. Merrill Lynch Business Financial Services, Inc. v. Liteglow Industries, Inc. (Circuit Court In and For the 17th Judicial Circuit, Broward County, Florida, Case No. CACE 03-15827 21) On September 12, 2003, Liteglow Industries, Inc. (the "Company") was served with a complaint filed by Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch"), the Company's secured lender, in the 17th Judicial Circuit Court in and for Broward County, Florida. Merrill Lynch alleges that the Company has breached certain loan covenants by the Company's failure to maintain certain financial ratios. While the Company continues to timely make all payments required under the Note, Merrill Lynch has ceased advancing money to the Company. Merrill Lynch seeks to have the entire outstanding balance paid of approximately $2.2 million dollars as well as replevy the assets in which Merrill Lynch claims a security interest. Merrill Lynch has also named Spencer Krumholz, the Company's Chairman and Chief Executive Officer, as a defendant. Mr. Krumholz is the sole guarantor of the Note. The Company believes that it has not breached any loan covenants and is current in all payment obligations under the Note. The Merrill Lynch litigation is stayed while the Company attempts to reorganize under Chapter 11. The Company is unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. However, since the filing of the Company's Chapter 11, the Company and Merrill Lynch have been engaged in discussions that may provide the framework for an amicable settlement. 10 LITEGLOW INDUSTRIES, INC. (Debtor in possession) FORM 10-QSB SEPTEMBER 30, 2003 Lott & Friedland, P.A. v. Liteglow Industries, Inc. (Miami-Dade County Judicial Circuit Case No. 03-20462) On September 3, 2003, Lott & Friedland, P.A. (the "Law Firm") filed a complaint in state court seeking to collect outstanding attorneys fees and costs in the amount of $140,773.40. The attorneys fees and costs were generated from the Law Firm's engagement to defend the Company from patent infringement claims. The Law Firm's litigation is stayed while the Company attempts to reorganize under Chapter 11. The Company anticipates resolving the claim as a part of the reorganization plan. The Company is unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. Airborne Freight Corporation v. Liteglow Industries, Inc. (Broward County, Florida Circuit Case No. 03-16554-18-CACE) On September 19, 2003, Airborne Freight Corporation ("Airborne") filed a complaint in state court seeking to collect on an alleged dishonored check in the amount of $5,475.36. The Company alleges that Airborne delivered a shipment of Liteglow product three weeks late resulting in the cancellation and return of the order. The Company stopped payment on the check issued to Airborne. The Airborne litigation is stayed while the Company attempts to reorganize under Chapter 11. The Company anticipates resolving the claim as a part of the reorganization plan. The Company is unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. Item 2 - Changes in Securities --------------------- None Item 3 - Defaults upon Senior securities ------------------------------- None Item 4 - Submission of Matters to Vote of Security Holders ------------------------------------------------- None Item 5 - Other information ----------------- None Item 6 - Exhibits and reports on Form 8-K -------------------------------- (a) 99.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Spencer Krumholz) 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LITEGLOW INDUSTRIES, INC. ------------------------- Registrant Date: December 1, 2003 /s/Spencer Krumholz ------------------------------ Spencer Krumholz, Chief Executive Officer 12 CERTIFCATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT SECTIONS 13(a) & 15(d) AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Spencer Krumholz, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Liteglow Industries, 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. I am 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 officer 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. 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. /s/Spencer Krumholz Date: December 1, 2003 ---------------------------- Spencer Krumholz Chief Executive Officer & Chief Financial Officer 13