10-Q 1 d92476e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 UNITED STATES 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, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to ----------------- ----------------- TECHLITE, INC. (Exact name of small business issuer as specified in its charter) Commission file Number: 333-68071 State of Incorporation: Oklahoma IRS Employer Identification No.: 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) Indicated 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 proceeding 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 September 30th, 2001, there were 4,467,422 shares of the registrant's common stock, par value $0.001 per share, outstanding Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. TECHLITE, INC. BALANCE SHEETS AS OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND THE ELEVEN MONTHS ENDED DECEMBER 31, 2000

See Notes to Financial Statements 1 TECHLITE, INC. STATEMENTS OF INCOME (UNAUDITED)

See Notes to Financial Statements 2 TECHLITE, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)

See Notes to Financial Statements 3 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. 4 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

5 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 3: NOTES PAYABLE

6 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 3: NOTES PAYABLE (Continued) Aggregate annual maturities of debt at September 30, 2001, listed by fiscal year-end are as follows: 2001 $ 1,067,161 2002 179,711 2003 292,531 2004 314,663 2005 338,663 Thereafter 411,146 ------------- $ 2,603,423 =============

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:

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. 7 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:

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 September 30, 2001 and December 31, 2000. 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. 8 TECHLITE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 7: BACKLOG (Continued)

NOTE 8: CONTINGENCIES The Company is a defendant in, and is threatened with, various legal proceedings with respect to certain vendor creditors. 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: CHANGE IN FINANCIAL REPORTING YEAR The Board of Directors changed the Company's fiscal year-end from January 31 to December 31. These financial statements have been prepared to reflect the Company's financial activities for the eleven month period February 1, 2000 to December 31, 2000 and the nine months ended September 30, 2001 and the eight month period ended September 30, 2000. There should be no material difference in comparing the nine months ended September 30, 2001 to the eight months ended September 30, 2000 versus comparing the nine months ended September 30, 2001 to the nine months ended October 31, 2000. NOTE 10: OTHER ASSETS AND OTHER LIABILITIES Other assets of $66,125 at September 30, 2001, represents $50,875 owed the company from individuals who were issued stock as of September 30, 2001, but had not yet paid for the stock, and $15,250 of advances to employees. Other liabilities of $664,210, at September 30, 2001, represents money received from individuals purchasing new shares of stock, however, as of the September 30, 2001, their stock had not been issued. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. 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 - Third Quarter of Fiscal 2001 Compared to Two months ended September 30, 2000. Our revenues of $294,045 for the quarter ended September 30, 2001 (Q3 2001) increased by $129,354, from revenues of $164,691 for the two-month period ended September 30, 2000 (shortened Q3 2000, due to our change in fiscal year reporting from January 31 to December 31). This increase was due primarily to management having devoted more attention and efforts to building and expanding core business sales and operations. We were able to secure $874,349 in new business during the third quarter of 2001. Our gross margin of $88,313, or 30 percent of sales, during Q3 decreased from gross margin of 33.6 percent of sales during the shortened Q3 2000. General and administrative expenses for Q3 2001 were $664,799, or 226 percent of sales, compared with general and administrative expenses of $283,208, or 172 percent of sales, for the shortened Q3 of 2000. The increase in general and administrative expenses was due to primarily management having devoted its attention and efforts during the first half of FY 2001 to acquiring other companies in the same industry. We had a net loss of $569,138 for Q3 2001 compared to net loss of $217,368 for shortened Q3 2000. This increase was due to the significant increase in general and administrative expenses during Q3 2001. Results of Operations - First Three Quarters of Fiscal 2001 Compared to First Eight months of fiscal 2000 Our revenues of $365,965 for the first three quarters of fiscal year 2001 were down by $461,380 from revenues of $827,345 during the first eight months of fiscal year 2000. This reduction was due primarily to management's having devoted its attention and efforts during the first half of FY 2001 to acquiring other companies in the same industry. Our gross margin of $92,785 or 25.4 percent of sales, during Q3 2001 compared favorably to a gross margin of $120,885, or 14.6 percent of sales for the eight months ended September 30, 2000. Sales, general and administrative expenses for first three quarters of FY 2001 were $2,027,732, or 5.5 times sales, compared with general and administrative expenses of $1,555,259, or 1.9 times sales, for the first eight months in FY 2000. The increase of in sales, general and administrative expenses was due primarily to management's having devoted its attention and efforts during the first half of FY 2001 to acquiring other companies in the same industry. Liquidity and Capital Reserves Our net loss of $569,138 for Q3 2001 from operations represented negative cash flow. We covered this through sales of common stock ($311,407), net borrowings of $53,489, and increases in accounts payable of $117,299 and increases of other accrued liabilities of $154,259. 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 remain optimistic about the future at TechLite. We continue to develop a national presence through targeted working alliances, working partnerships, and continue to look for acquisitions of similar companies in our business that would enhance our competitive and financial position. This will continue to allow TechLite and our affiliates to offer a national presence to companies and corporations that reach beyond the geographical territories of each affiliate individually. We are also currently developing and pursuing new strategic sales and marketing opportunities with synergistic companies that can utilize our existing client base. It will also allow us to offer more related services to the same client, which will continue to diversify and broaden the company's revenues. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 9, 2001, TechLite, Inc. and its president, Jim Arvidson, were sued for $125,000 in R. Stuart Snyder v. Capital Growth Communication, et al., Case No. 01CC10335, Superior Court for Orange County, California. The plaintiff alleges that the defendants represented to him that they would sell him 100,000 shares of freely-tradable common stock of TechLite for $125,000, that he paid $125,000 to TechLite but that TechLite never transferred to him the 100,000 shares of stock and refused to return to him the $125,000 he paid for the stock. In Broken Arrow Electric Supply, Inc. v. TechLite, Inc., Case No. CJ 2000-4842, District Court of Tulsa County, Oklahoma, the plaintiff - now a judgment creditor - instituted garnishment proceedings against TechLite's bank accounts on November 1, 2001 to collect its $137,080 judgment, post-judgment interest and court costs. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K The following exhibits are filed, by incorporation by reference, as part of this Form 10- QSB (a) EXHIBITS 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 N. 333-68137; incorporated herein (b) REPORTS ON FORM 8-K. None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TechLite, Inc. Date November 19, 2001 /s/ J.D. Arvidson By ----------------------------- J. D. Arvidson

TECHLITE INC 10-Q