10QSB 1 techlite10qsb63002.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ TechLite, Inc. (Exact name of registrant as specified in its charter) Commission File No. 333-68071 State of Incorporation: Oklahoma IRS Employer I.D. Number: 73-1522114 6106 East 32nd Place, Suite 101 Tulsa, Oklahoma 74135 918-664-1441 ------------ (Address and telephone number of registrant's principal executive offices and principal place of business) Indicate by check mark whether any registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 [ ] As of August 8, 2002, there were 6,390,755 shares of the registrant's common stock, par value $0.001 per share, outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] 1 PART I - FINANCIAL INFORMATION Item 1. Financial Statements 2 TECHLITE, INC. BALANCE SHEETS AS OF THE SIX MONTHS ENDED JUNE 30, 2002 AND THE YEAR ENDED DECEMBER 31, 2001
June 30, 2002 December 31, 2002 (Unaudited) (Audited) ------------- ----------------- ASSETS Cash 4,731 81,303 Contract receivables 10,307 113,389 Inventory 6,935 7,724 Property & equipment Equipment 202,132 205,370 Furniture and fixtures 33,637 33,637 Building and land 400,000 400,000 Leasehold improvements 73,064 73,064 Autos and trucks 216,370 198,657 ---------- ---------- 925,203 910,728 Less accumulated depreciation 453,390 413,600 471,813 497,128 ---------- --------- Other assets, net 7,205 17,085 ---------- --------- Total Assets 500,991 716,629 ========== ========= LIABILITIES Accounts payable 981,063 989,829 Accrued wages 28,500 - Billings in excess of costs & estimated earnings on uncompleted contracts 53,386 73,837 Taxes payable 206,286 171,874 Notes payable 2,952,929 2,666,367 Other liabilities 199,210 739,210 ---------- --------- Total Liabilities 4,421,374 4,641,117 ---------- --------- EQUITY Preferred stock, $.001 par value; 10,000,000 authorized shares; none issued - - Common stock, $.001 par value; 40,000,000 authorized shares; 6,390,755 and 4,467,422 issued and outstanding at June 30, 2002 6,391 4,468 and December 31, 2001, respectively Treasury stock (10,000) - Paid-in-capital 4,252,561 3,412,484 Retained earnings(deficit) (8,169,335) (7,341,440) ---------- ---------- Total Equity (3,920,383) (3,924,488) ---------- ---------- Total Liabilities & Equity 500,991 716,629 ========== ==========
See Notes to Financial Statements 3 TECHLITE, INC. STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended ------------------ ---------------- June 30 June 30 June 30 June 30 2002 2001 2002 2001 ---- ---- ---- ---- Contract revenues earned 127,933 43,215 321,995 71,920 Cost of revenues earned 74,373 43,049 217,795 67,448 -------- -------- -------- ---------- Gross profit 53,560 166 104,200 4,472 General & administrative expenses 321,346 880,369 949,196 1,362,933 -------- -------- -------- --------- Income(Loss) from operations (267,786) (880,203) (844,996) (1,358,461) Other income 7,574 7,869 17,101 18,207 -------- -------- -------- --------- Income(Loss) before taxes (260,212) (872,334) (827,895) (1,340,254) Provision for income taxes - - - - -------- -------- -------- --------- Net Income (Loss) (260,212) (872,334) (827,895) (1,340,254) ======== ======== ========= ========== Net Income(Loss) per common share (0.04) (0.21) (0.13) (0.32) ======== ======== ========= ==========
See Notes to Financial Statements 4 TECHLITE, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended Six Months Ended ------------------ --------------- June 30 June 30 June 30 June 30 2002 2001 2002 2001 ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) (260,212) (872,334) (827,895) (1,340,254) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 19,895 19,896 39,790 40,092 Stock given as compensation - - 292,000 - Decrease (increase) in contract receivables 129,562 (12,342) 108,082 23,123 Decrease (increase) in inventory - - 789 30,528 Decrease (increase) in other assets/receivables (5,100) (104,332) 4,880 (104,332) Net increase (decrease) in billings related to costs and estimated earnings on uncompleted contracts (2,910) 83,664 (20,451) 74,409 Increase (decrease) in accounts payable 45,601 (4,534) (8,766) 67,200 Increase (decrease) in other accrued liabilities 48,973 173,882 76,025 314,051 -------- ---------- -------- ---------- Net cash provided by operating activities (24,191) (716,100) (335,546) (895,183) -------- ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of equipment - (2,611) (6,713) (2,611) Sale of equipment - 330 3,238 330 -------- ---------- -------- ---------- Net cash used in investing activities - (2,281) (3,475) (2,281) -------- ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principle payments on notes payable (16,185) (1,323,163) (40,892) (1,341,519) New borrowings 44,894 1,302,544 313,341 1,369,210 Purchase of treasury stock - - (10,000) - Sale of stock - 739,000 - 869,775 -------- ---------- -------- ---------- Net cash used in financing activities 28,709 718,381 262,449 897,466 -------- ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,518 - (76,572) 2 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 213 69 81,303 67 -------- ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 4,731 69 4,731 69 ======== ========== ======== ==========
See Notes to Financial Statements 5 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations ---------------------- The Company is organized as an Oklahoma corporation located in Tulsa, Oklahoma. The Company is an energy efficient lighting specialist primarily engaged in performing retrofits of lighting systems in commercial, educational and healthcare facilities. The work is performed primarily under fixed-price contracts which were obtained either through negotiations or bidding process. The length of the contracts vary, typically between 1 and 18 months. Due to the nature of the construction industry, once work is completed on a contract, new contracts must be identified and obtained. The ultimate success in obtaining new contracts from year to year is subject to the inherent uncertainties of the bidding and negotiation process associated with the construction industry. Revenue Recognition -------------------- Revenues from fixed-price construction contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. This method is used because the Company considers expended costs to be the best available measure of progress on these contracts. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. Cost Recognition ----------------- Contract costs include all direct material, labor, and equipment costs and those indirect costs related to contract performance such as indirect labor, supplies, and tool costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revenues are determined. Use of Estimates ------------------ The preparation of financial statements in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 6 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Depreciation ------------ Furniture and equipment are depreciated using the straight-line method over the estimated useful life of each asset, which is generally from five to seven years. Income Taxes ------------- Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109, Accounting for Income Taxes. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized, as explained in Note 5. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. NOTE 2: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows:
June 30, December 31, 2002 2001 ---- ---- Costs incurred on uncompleted contracts $ 161,506 $ 98,382 Estimated earnings 35,645 34,256 --------- ---------- 197,151 132,638 Billings to date 250,537 206,475 --------- ---------- $ (53,386) $ (73,837) ========= ========== Included in the accompanying balance sheet under the following captions: Billings in excess of costs and estimated earnings on uncompleted contracts $ 53,386 $ 73,837 ========= ===========
7 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 3: NOTES PAYABLE
June 30, December 31, 2002 2001 ---- ---- Unsecured notes payable, due on demand, at 8% to 10% $ 223,322 $ 222,322 Notes payable to banks, collateralized by equipment, due in monthly installments plus interest through September 2002, at 5.75% 10,231 27,344 Unsecured line of credit, at 16.75% 23,043 24,665 Note payable, collateralized by accounts receivable, quarterly interest due through June 2002, then due in 48 monthly installments plus interest beginning in July 2002 and ending in June 2006, at 7.0% 1,032,189 1,032,189 Note payable, collateralized by 750,692 shares of Company stock owned by two officers and additional real estate owned by one officer, due July 2002, at 5.75% 250,830 250,830 Note payable, collateralized by Company stock, real estate and vehicles, due July 2006, at 8.75% 134,094 143,088 Note payable, non-interest bearing, convertible to Company stock at the option of the lender 311,847 Unsecured notes payable to company officers, due March 2001, at 8% 119,232 119,232 Note payable, collateralized by 8300 shares of Emerson Electric stock owned by a Company shareholder, due September 2002, at 5.75% 395,100 395,100 Notes payable, building and land, due in monthly installments plus interest through October 2013, at 9% 346,766 359,929 ---------- ---------- 2,846,654 2,574,699 Accrued interest 106,275 91,668 ---------- ---------- $ 2,952,929 $ 2,666,367 ========== ==========
8 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 3: NOTES PAYABLE (Continued) Aggregate annual maturities of debt at June 30, 2002, listed by fiscal year-end are as follows:
2002 $ 1,043,107 2003 161,933 2004 294,672 2005 316,998 2006 331,430 Thereafter 698,514 ------------ $ 2,846,654 ============
NOTE 4: PROPERTY AND EQUIPMENT Property and equipment consist of buildings, vehicles, equipment, furniture and leasehold improvements. The vehicles and equipment are depreciated over five years, furniture is depreciated over seven years, leasehold improvements are depreciated over ten years and buildings are depreciated over 25 years. Accumulated depreciation is summarized as follows:
June 30, December 31, 2002 2001 ---- ---- Buildings $ 68,100 $ 60,400 Vehicles 176,126 160,772 Equipment 159,826 147,326 Furniture 21,861 20,353 Leasehold improvements 27,477 24,749 -------- --------- $453,390 $ 413,600 ======== =========
NOTE 5: INCOME TAXES AND DEFERRED INCOME TAXES Based on the Company's significant net operating losses it appears it is more likely than not that the deferred tax asset created by the net operating losses may not be realized. Therefore, a 100% allowance has been applied to the net deferred tax asset. 9 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 5: INCOME TAXES AND DEFERRED INCOME TAXES (Continued) There is no provision for income taxes included in these financial statements. The net operating losses will be carried forward. A reconciliation of the income tax expense (refund) at the statutory rate to income tax expense at the Company's effective tax rate is shown below:
June 30, December 31, 2002 2001 ---- ---- Computed at the statutory rate of 34% $ (281,484) $ (673,961) Increase in tax resulting from: Net operating loss carryforward 281,484 673,961 ---------- ---------- $ 0 $ 0 ========== ==========
NOTE 6: SIGNIFICANT ESTIMATES AND CONCENTRATIONS Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerability due to certain concentrations. Those matters include the following: Estimates of revenue on uncompleted construction contracts are explained in Note 1, under Revenue Recognition and are described in detail in Note 2. NOTE 7: BACKLOG The following schedule summarizes changes in backlog on contracts during the periods ended June 30, 2002 and December 31, 2001. Backlog represents the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress at year end and from contractual agreements on which work has not yet begun. 10 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 7: BACKLOG (Continued)
June 30, December 31, 2002 2001 ---- ---- Backlog, beginning of period $ 207,893 $ 27,454 New contracts during the period 203,371 980,333 Contract adjustments 0 6,034 --------- ------------ 411,264 1,013,821 Less contract revenues earned during the period 321,995 805,928 --------- ------------ Backlog, end of period $ 89,269 $ 207,893 ========= ============
NOTE 8: CONTINGENCIES The Company is a defendant in, and is threatened with, various legal proceedings with respect to certain vendor creditors. The Internal Revenue Service has also filed a federal tax lien with respect to unpaid payroll taxes. Management believes the ultimate liability, to the extent not provided for in the amounts currently recorded as liabilities in the financial statements, are not likely to have a material effect on the financial statements taken as a whole. NOTE 9: OTHER ASSETS AND OTHER LIABILITIES Other assets of $7,205 at June 30, 2002, represents $5,000 owed the company from individuals who were issued stock as of June 30, 2002, but had not yet paid for the stock, $1,400 of utility deposits, and $805 of advances to employees. Other assets of $17,085 at December 31, 2001, represents $15,000 owed the company from individuals who were issued stock as of December 31, 2001, but had not yet paid for the stock, $1,400 of utility deposits, and $685 of advances to employees. Other liabilities of $199,210 and $739,210, at June 30, 2002 and December 31, 2001, respectively, represents money received from individuals purchasing new shares of stock, however, the stock had not been issued by the end of the reporting period. NOTE 10: UNISSUED SHARES OF COMPANY STOCK As of June 30, 2002, the Company has collected $199,210 for the sale of 246,710 shares of Company stock. As of June 30, 2002, the stock has not been issued. The transaction is reflected in the financial statements through the 11 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 10: UNISSUED SHARES OF COMPANY STOCK (Continued) receipt of cash and recording of other liabilities of $199,210. The number of share of Company stock issued and outstanding at June 30, 2002 and the net loss per share do not reflect these additional shares as they were not issued at June 30, 2002. NOTE 11: STOCK COMPENSATION General and administrative expenses of $949,196 and $2,215,755 includes $292,000 and $847,406 of expenses associated with exchanging Company stock for marketing and administrative services for the periods ended June 30, 2002 and December 31, 2001, respectively. Shares exchanged during the periods ended June 30, 2002 and December 31, 2001 were 973,333 and 817,625, respectively. The value of the stock exchanged had an average estimated value of approximately $.30 and $1.04 per share, for the periods ended June 30, 2002 and December 31, 2001, respectively. General and administrative expense of $292,000 and $847,406 was recorded during the periods ended June 30, 2002 and December 31, 2001, respectively. NOTE 12: NOTE PAYABLE CONVERTIBLE TO COMPANY STOCK The Company has entered into an agreement to provide a non-interest-bearing line of credit. The line of credit may be converted, any time before January 5, 2003, to TechLite, Inc. common stock at $0.30 per share. As of June 30, 2002, the Company has drawn $311,847 on the line of credit and none of this amount has been converted to Company stock. 12 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 and the accompanying notes thereto and is qualified in its entirety by the foregoing and by more detailed financial information appearing elsewhere. See "Item 1. Financial Statements." Results of Operations - Second Quarter of 2002 Compared to Second Quarter --------------------------------------------------------------------------- of 2001 -------- Our revenues of $43,215 for the quarter ended June 30, 2001 (Q2 2001) increased by $84,718 or 196 percent to revenues of $127,933 for the quarter ended June 30, 2002 (Q2 2002). This increase was due primarily to a more targeted sales approach aimed at fast-track opportunities. General and administrative expenses for Q2 2002 were $321,346, a reduction of $559,023, compared with general and administrative expenses of $880,369 for Q2 2001. The decrease in general and administrative expenses was due primarily to cost cutting measures. We had a net loss of $260,212 for Q2 2002 compared to net loss of $872,334 for Q2 2001. At the end of Q2 2002 our backlog of business was $89,269, compared to a backlog of $487,809 at the end of Q2 2001. Results of Operations - First Half of 2002 Compared to First Half of 2001 --------------------------------------------------------------------------- Our revenues of $321,995 for the first half of fiscal year 2002 represented an increase of $250,075 from revenues of $71,920 during the first half of 2001. This increase was due primarily to new sales strategies. General and administrative expenses for the first half of 2002 were $949,196, compared with general and administrative expenses of $1,362,933 for the first half of 2001, a reduction of $413,737 or 30 percent. The decrease was due primarily to expense and personnel reductions. We had a net loss from operations of $844,996 during the first half of 2002, a decrease of $513,465, or 38 percent, over a net loss from operations of $1,358,461 during the first half of 2001. Our total net loss of $827,895 for the first half of 2002 exceeded a net loss of $1,340,254 for the first half of 2001, a decrease of 38 percent. Liquidity and Capital Reserves --------------------------------- Our net loss of $827,895 for the first half of 2002 represented severe negative cash flow. We covered this primarily through an increase of $76,025 in 13 other accrued liabilities, in stock given as compensation in the amount of $292,000 and in new borrowings of $313,341. Outlook ------- This outlook section contains a number of forward-looking statements, all of which are based on current expectations. Actual results may vary considerably. We feel that our outlook has brightened considerably since embarking upon an aggressive strategy to write business and reduce our overhead. This includes reducing our conventional in-house sales force and forging strategic agreements to penetrate selected markets. Among the benefits of this approach is the deferral of most of our sales cost until after an order is received and avoiding most sales cost in cases where an order is not received. It also involves going to market through non-traditional outlets, where our type of work, though not typically part of the standard basket of goods, can nevertheless be realized by capitalizing on existing end-user goodwill. Expectations are high that this effort will ramp up quickly, yielding results that will markedly boost sales. TechLite remains committed to existing national alliances, particularly in the areas of survey and delivery that will fulfill the increased sales. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits The following exhibits are filed, by incorporation by reference, as part of this Form 10-QSB: Exhibit Item 2 - Agreement of merger of October 16, 1998, between TechLite, Inc. and TechLite Applied Sciences, Inc.* 3.1 - Articles of Incorporation of TechLite, Inc.* 3.2 - Bylaws of TechLite, Inc.* 10.1 - 1998 stock Option Plan adopted by TechLite, Inc.* * Previously filed with Form S-4, Commission File No. 333-68137; incorporated herein. (b) Reports on Form 8-K None 14 SIGNATURES In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 19, 2002 TECHLITE, INC. By:/s/ J.D. Arvidson ------------------------------------- J.D. Arvidson Chief Executive Officer 15 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the accompanying Quarterly Report of TechLite, Inc., (the "Company") on Form 10-QSB for the period ended June 30, 2002 (the "Report"), I, J.D. Arvidson, Chief Executive Officer of the Company, hereby certify that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ J.D. Arvidson Dated: August 19, 2002 ------------------------------------ J.D. Arvidson Chairman and Chief Executive Officer The above certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and is not being filed as part of the Form 10-Q or as a separate disclosure document. 16 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the accompanying Quarterly Report of TechLite, Inc., (the "Company") on Form 10-QSB for the period ended June 30, 2002 (the "Report"), I, J.D. Arvidson, Chief Financial Officer of the Company, hereby certify that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ J.D. Arvidson Dated: August 19, 2002 ------------------------------------ J.D. Arvidson Chief Financial Officer The above certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and is not being filed as part of the Form 10-Q or as a separate disclosure document. 17