Filed On 10/17/01 · SEC File 333-71726 · Accession Number 950152-1-505057
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
10/17/01 Technical Consumer Products Inc S-1 14:194 Bowne of Cleveland/FA
Document/Exhibit Description Pages Size
1: S-1 Technical Consumer Products, Inc. S-1 92 491K
2: EX-3.1 Articles of Incorporation/Organization or By-Laws 3 13K
3: EX-3.2 Articles of Incorporation/Organization or By-Laws 15 52K
4: EX-10.7 Material Contract 8 44K
5: EX-10.8 Material Contract 12 50K
6: EX-10.9 Material Contract 2± 10K
7: EX-10.10 Material Contract 14 45K
8: EX-10.11 Material Contract 9 37K
9: EX-10.12 Material Contract 10 44K
10: EX-10.13 Material Contract 11 43K
11: EX-10.14 Material Contract 11 42K
12: EX-10.15 Exhibig 10.15 4 18K
13: EX-16.1 Letter re: Change of Certifying Accountant 2 14K
14: EX-23.1 Consent of Experts or Counsel 1 6K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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TECHNICAL CONSUMER PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 3641 31-1799461
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
------------------------
300 LENA DRIVE
AURORA, OHIO 44202
TELEPHONE: (330) 995-6111
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------
MATTHEW G. LYON
VICE PRESIDENT -- FINANCE
AND OPERATIONS AND TREASURER
300 LENA DRIVE
AURORA, OHIO 44202
TELEPHONE: (330) 995-6111
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
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CHRISTOPHER M. KELLY, ESQ. JOHN J. JENKINS, ESQ.
JONES, DAY, REAVIS & POGUE CALFEE, HALTER & GRISWOLD LLP
NORTH POINT 1400 MCDONALD INVESTMENT CENTER
901 LAKESIDE AVENUE 800 SUPERIOR AVENUE
CLEVELAND, OHIO 44114 CLEVELAND, OHIO 44114
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.001 par value per
share $48,300,000 $12,075
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT THAT IS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 17, 2001
Shares
TCP Logo
Common Stock
---------------------
Technical Consumer Products, Inc. is offering shares of its
common stock. Prior to this offering, there has been no public market for our
common stock. The initial public offering price of our common stock is expected
to be between $ and $ per share. We will apply to
have our common stock approved for quotation on The Nasdaq National Market under
the symbol "TCPS."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
7.
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PER SHARE TOTAL
------------------------ ------------------------
Public offering price........................... $ $
Underwriting discounts and commissions.......... $ $
Proceeds to us (before expenses)................ $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Technical Consumer Products, Inc. has granted the underwriters a 30-day
option to purchase up to an additional shares of common stock to cover
over-allotments.
We expect to deliver the shares of common stock on or about
, 2001.
[Download Table]
McDonald Investments Inc. FAC/Equities
THE DATE OF THIS PROSPECTUS IS , 2001.
ARTWORK DESCRIPTIONS
INSIDE FRONT COVER
The inside front cover is entitled "Lighting the Way to Energy Efficiency"
and contains photographs of the following TCP products: a TCP SpringLamp, flood
light, GoodLamp, Circline lamp and a capsule shaped lamp superimposed over an
artist's rendition of an electronic circuit board. TCP's logo appears on the
bottom right corner of the photograph.
GATEFOLD
The inside front cover includes a gatefold with a photograph of a two piece
SpringLamp set consisting of a ballast and a lamp. Surrounding the photograph of
the SpringLamp are the following narrative descriptions: "Complete assortment of
accessories," "Instant-on ballast technology," "Innovative 2-piece modular
version," "100% tested," "Unconditional warranty" and "SpringLamp." On the
bottom left corner of the photograph is the ENERGY STAR Program logo followed by
the phrase "TCP is a partner in the ENERGY STAR Program." Visible on the ballast
is certain text printed directly on to the ballast including a stamp evidencing
that the ballast is listed by Underwriters Laboratories, the ballast's FCC
identification number and the name "TCP."
INSIDE BACK COVER
The inside back cover is divided into four equally sized quadrants centered
around TCP's logo.
The upper left quadrant is entitled "SpringLamp" and includes photographs
of a SpringLamp, a SpringLamp enclosed in a round globe cover and a capsule
shaped cover and a SpringLamp partially inserted into an aluminum reflector.
Visible on the photograph of the ballast is certain text printed directly on to
the ballast including a stamp evidencing that the ballast is listed by
Underwriters Laboratories, the ballast's FCC identification number and the name
"TCP." These photographs are superimposed over a picture of a table lamp.
The upper right quadrant is entitled "Deco Mini Series & GoodLamps" and
includes photographs of a GoodLamp adjacent to a GoodLamp enclosed in a torpedo
shaped cover from TCP's Deco Mini Series as well as a photograph of the various
shapes and sizes of TCP's Deco Mini Series lamps. These photographs are
superimposed over a picture of the brightly illuminated interior of a room and a
hallway.
The lower left quadrant is entitled "Circline Lamps" and includes
photographs of a circline lamp as well as a circline lamp attached to TCP's lamp
holder arm bracket that is bent 45 degrees from the plane of the bulb. These
photographs are superimposed over a photograph of a table lamp with a
transparent lamp shade through which the circline lamp attached to the bent arm
holder bracket is visible.
The lower right quadrant is entitled "LED Lighting" and includes a
photograph of a light emitting diode lamp superimposed over a photograph of an
exit sign.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY...................... 3
RISK FACTORS............................ 7
FORWARD-LOOKING STATEMENTS.............. 15
USE OF PROCEEDS......................... 16
DIVIDEND POLICY......................... 16
S CORPORATION STATUS.................... 17
CAPITALIZATION.......................... 18
DILUTION................................ 19
SELECTED FINANCIAL DATA................. 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................ 21
BUSINESS................................ 28
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PAGE
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MANAGEMENT.............................. 43
RELATED PARTY TRANSACTIONS.............. 48
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................. 51
PRINCIPAL STOCKHOLDERS.................. 53
DESCRIPTION OF CAPITAL STOCK............ 54
SHARES ELIGIBLE FOR FUTURE SALE......... 60
UNDERWRITING............................ 62
LEGAL MATTERS........................... 65
EXPERTS................................. 65
WHERE YOU CAN FIND MORE INFORMATION..... 65
INDEX TO FINANCIAL STATEMENTS........... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING
AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in our common stock. You should read
the entire prospectus carefully, including the risk factors and our financial
statements and related notes to understand this offering fully. In this
prospectus, unless the context indicates otherwise, "TCP," "we," "us" and "our"
refer to Technical Consumer Products, Inc.
OUR BUSINESS
We design, develop and market high-quality, energy efficient lighting
products and accessories. Our wide variety of compact fluorescent products and
accessories offer the aesthetic features and application flexibility found in
traditional incandescent lighting while providing energy cost savings and
significantly longer product life. We believe that we offer the industry's most
comprehensive selection of compact fluorescent lighting products and accessories
including SpringLamp, the first compact fluorescent product with a twisted tube
design, and the United States market's first fully-dimmable product.
We have provided energy efficient lighting products and components to
original equipment manufacturers since 1986 and continue to sell our products to
original equipment manufacturers like General Electric Corp. and the Osram
Sylvania division of Siemens A.G. In 1997, we began marketing our products under
the TCP brand name to commercial and industrial customers, with sales in this
market increasing to $16.2 million for the first six months of fiscal 2001 from
$4.8 million in fiscal 1997 and $17.3 million in fiscal 2000. Our major
commercial and industrial customers include distributors like Graybar Electric
Company, Inc. and Rexel, Inc. who sell our products to a wide range of customers
including those in the hospitality, restaurant and entertainment, property
management and construction industries. We entered the residential consumer
market in June 2000 and now sell our compact fluorescent products and
accessories to consumers primarily through The Home Depot under its "Commercial
Electric" label as well as through K-mart and other retailers under the TCP
brand name. Our sales to retailers increased to $15.1 million for the first six
months of fiscal 2001 from $5.0 million in fiscal 2000. Our net sales were $31.3
million for the first six months of fiscal 2001 compared to $8.9 million for the
first six months of fiscal 2000.
We use our technological expertise to develop and commercialize innovative
new products. Most of our research and development activity has been funded
through licensing and royalty arrangements as well as through our suppliers and
customers as we work with them to develop or customize products to meet their
needs. We have built an extensive portfolio of lighting products based on
compact fluorescent technology and anticipate that we will continue to add new
products and product enhancements. We are a partner in the United States
government's ENERGY STAR Program and offer a variety of products that meet or
exceed the program's stringent criteria for long-life, energy savings, start
time, color and brightness.
Almost all of our products are made in Shanghai, China by companies
controlled by Ellis Yan, our Chairman, Chief Executive Officer and majority
stockholder. Mr. Yan's brother manages the operations of these companies, which
operate ISO 9002 certified facilities and have developed significant expertise
in making high-quality compact fluorescent lighting products. These companies
will be prohibited from selling competitive products to others under the
manufacturing and supply agreement that we will enter into prior to the
completion of this offering. We believe that the unique collaboration with our
suppliers made possible by Mr. Yan's ownership and the involvement of his family
enhances our ability to assure consistent high quality products and enables us
to quickly respond to customers' specialized product needs.
OUR MARKET OPPORTUNITY
According to industry sources, United States consumers spent $226.5 billion
on electricity in 2000. The Department of Energy estimates that the annual
domestic cost of electricity for lighting is more than $37 billion and that
households could cut lighting costs by 30% to 60% by using energy efficient
lighting products. According to the Environmental Protection Agency, or EPA,
compact fluorescents last up to 10 times longer than incandescents, use 75% less
energy and produce 90% less heat.
3
Energy efficient lighting has gained wide acceptance among commercial and
industrial customers. By using compact fluorescent products, these customers can
realize substantial savings in energy costs associated with lighting and air
conditioning. The longer operating lives of compact fluorescent products also
contribute to lower maintenance costs. Retail sales of all compact fluorescent
lamps represented only about .005% of the 2.2 billion light bulbs sold in the
United States from July 1999 through June 2000. We believe that the
significantly higher prices charged for, and lack of knowledge of the benefits
of, compact fluorescent lamps have contributed to the slower adoption in the
retail market and, thus, lower sales relative to commercial and industrial
customers. However, we believe that the improved quality, increasing variety of
applications and declining prices of new compact fluorescent products, along
with recent volatility in electricity prices, growing concerns about electricity
supply and government and utility sponsored incentive programs for energy
efficient lighting are making compact fluorescent lighting products more popular
with residential consumers.
NEW PRODUCT DEVELOPMENT
We will continue to work with our customers to improve and extend existing
product lines to provide compact fluorescent alternatives for virtually all
incandescent applications. Our new product development efforts focus on three
areas:
- Commercial grade ballasts. Ballasts convert electrical current into the
form required to operate fluorescent lamps. We are developing commercial
grade electronic ballasts for linear fluorescent tubes that incorporate
more energy efficient designs at a lower cost.
- Customized light fixtures. In order to capitalize on our strong position
in compact fluorescents, we have entered the lighting fixture market,
providing a number of customized light fixtures that incorporate energy
efficient lighting.
- Light emitting diode, or LED, lighting products. Our LED product
development efforts will focus on incorporating emerging LED technology
into a full range of lighting products. Over the long term, we expect LED
lighting products to become an energy efficient lighting alternative to
compact fluorescent lamps.
OUR STRATEGY
Our strategy is to become the market leader in the development and
commercialization of energy efficient lighting technologies. There are five key
elements to our business strategy:
- develop and commercialize innovative new products and energy management
solutions;
- further penetrate the commercial and industrial market;
- expand and diversify our retail presence into mass merchants and
supermarkets;
- increase consumer acceptance of energy efficient lighting products; and
- form strategic partnerships and/or acquire complementary businesses and
technologies.
OUR HISTORY
We began operations in 1986, were incorporated in Ohio in February 1993 and
reincorporated in Delaware in October 2001. Our principal executive offices are
located at 300 Lena Drive, Aurora, Ohio 44202. Our telephone number is (330)
995-6111. Our web site is www.springlamp.com. The information on our web site is
not a part of this prospectus.
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SpringLamp(R) is a registered trademark of Technical Consumer Products,
Inc. Technabright(TM) is a trademark of Technical Consumer Products, Inc. Other
trademarks used in this prospectus are the property of their respective owners.
4
THE OFFERING
COMMON STOCK OFFERED BY TCP... shares
COMMON STOCK TO BE OUTSTANDING
AFTER THIS OFFERING......... shares
USE OF PROCEEDS............... We intend to use the net proceeds from the
offering to repay certain indebtedness, expand
our warehouse facilities, make distributions to
our existing stockholders in connection with
revocation of our S corporation status, and to
fund working capital and general corporate
purposes, including research and development
and potential acquisitions of complementary
businesses and technologies. See "Use of
Proceeds."
PROPOSED NASDAQ NATIONAL
MARKET SYMBOL............... TCPS
The number of shares of our common stock to be outstanding after the
offering is based on shares outstanding as of , 2001 and does not
include shares that may be issued under our stock option plan.
Except where we state otherwise, you should assume the following when analyzing
information contained in this prospectus:
- a 56,000-for-1 stock split of our common stock will be completed prior to
the completion of this offering; and
- the underwriters will not exercise their option to purchase additional
shares in this offering.
5
SUMMARY FINANCIAL DATA
The tables below set forth summary financial data for the years ended
December 31, 1996, 1997, 1998, 1999 and 2000 and for the six months ended June
30, 2000 and 2001.
- We are an S corporation for income tax purposes, and, as a consequence,
we paid no federal or state income tax. The pro forma per share amounts
set forth below reflect a pro forma tax provision per share as if we had
been a C corporation during such periods.
- Adjusted pro forma net income per share data set forth below assumes that
we were a C corporation during the periods and gives effect to the
reduction in interest expense associated with the approximately $
million of debt that we expect to repay with the proceeds of the
offering, net of the related tax effect. This calculation is based on the
11.2 million shares outstanding as of June 30, 2001 plus the
shares required to be sold to retire our debt.
- The pro forma as adjusted balance sheet data set forth below gives effect
to (1) an assumed S corporation distribution of approximately
$ to our current stockholders and (2) to the offering and the
application of the net proceeds.
The data presented below should be read in conjunction with the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and with the financial statements and related notes
included elsewhere in this prospectus.
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FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
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1996 1997 1998 1999 2000 2000 2001
------ ------ ------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Total net sales......................... $3,704 $4,793 $8,900 $15,651 $22,278 $8,904 $31,277
Cost of goods sold...................... 3,347 3,921 6,694 11,551 16,968 6,594 24,621
Gross profit............................ 357 872 2,206 4,100 5,310 2,310 6,656
Selling, general and administrative
expenses.............................. 593 787 1,569 3,128 4,424 2,365 3,282
------ ------ ------ ------- ------- ------ -------
Income (loss) from operations........... (236) 85 637 972 886 (55) 3,374
Other income............................ -- -- -- 58 46 28 28
Interest expense........................ 151 241 315 232 461 207 275
------ ------ ------ ------- ------- ------ -------
Net income (loss)....................... $ (387) $ (156) $ 322 $ 798 $ 471 $ (234) $ 3,127
Net income (loss) per share --
basic and diluted..................... $(0.03) $(0.01) $ 0.03 $ 0.07 $ 0.04 $(0.02) $ 0.28
Pro forma net income (loss) per share --
basic and diluted..................... $(0.02) $(0.01) $ 0.02 $ 0.04 $ 0.02 $(0.01) $ 0.17
Weighted average shares outstanding --
basic and diluted..................... 11,200 11,200 11,200 11,200 11,200 11,200 11,200
OTHER DATA:
Adjusted pro forma net income per
share -- basic and diluted............
[Download Table]
AS OF JUNE 30, 2001
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PRO FORMA
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
BALANCE SHEET DATA:
Cash........................................................ $ 180
Accounts receivable......................................... 6,964
Inventories................................................. 7,171
Total assets................................................ 18,053
Long-term liabilities....................................... 7,784
Total stockholders' equity.................................. 2,060
6
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and all other information
contained in this prospectus before purchasing our common stock. If any of the
following risks actually occurs, we may not be able to conduct our business as
currently planned, and our financial condition and operating results could be
seriously harmed. In that case, the market price of our common stock could
decline, and you could lose all or part of your investment. See "Forward-Looking
Statements."
RISKS RELATED TO OUR BUSINESS
WE HAVE ONLY RECENTLY BECOME PROFITABLE, AND WE MAY NOT BE ABLE TO MAINTAIN
PROFITABILITY.
Although we began operations in 1986 and were incorporated in 1993, we did
not become profitable until 1998. We anticipate incurring increased operating
expenses, and, as a result, we will need to generate higher revenues to remain
profitable. We may be unable to generate higher revenues, or, even if we are
able to do so, we cannot be certain that we will be able to maintain
profitability.
OUR RAPID REVENUE GROWTH HAS BEEN DUE IN PART TO OUR RECENT ENTRY INTO THE
RESIDENTIAL CONSUMER MARKET, AND, AS A RESULT, IT MAY BE DIFFICULT TO EVALUATE
OUR BUSINESS AND PROSPECTS.
In June 2000, we began selling our products in the residential consumer
market through national retailers, primarily The Home Depot, which has accounted
for much of our rapid revenue growth. Because we have a short operating history
in the residential consumer market, you may have limited information about us
with which to evaluate our business, strategies, performance and prospects or an
investment in our common stock.
WE DEPEND ON A LIMITED NUMBER OF LARGE CUSTOMERS FOR A SIGNIFICANT PORTION OF
OUR NET SALES, AND, THEREFORE, SIGNIFICANT DECLINES IN THE LEVEL OF PURCHASES
BY, OR OUR INABILITY TO COLLECT ACCOUNTS RECEIVABLE FROM, ONE OR MORE OF THESE
CUSTOMERS COULD HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
We depend on a limited number of large customers for a significant portion
of our net sales. In 1998 and 1999, two customers accounted for approximately
30% and 22% of our net sales. The Home Depot accounted for approximately 46% of
our net sales for the six months ended June 30, 2001 and approximately 22% of
our net sales for 2000. We typically sell on a purchase order basis, and our
customers could discontinue carrying our products at any time. The loss of any
one of our large customers or a reduction in their orders could result in lower
than expected sales and cause our stock price to decline. Additionally, although
we have not to date experienced any failure to collect accounts receivable from
our large customers, an adverse change in the financial condition of any of
these customers could make it difficult for us to collect our accounts
receivable from these customers at all or on a timely basis, which could harm
our business and results of operations.
THE FAILURE OF RESIDENTIAL CONSUMERS TO REALIZE THE BENEFITS OF COMPACT
FLUORESCENT LIGHTING MAY PREVENT US FROM INCREASING OUR SALES.
Most lamps sold in the residential consumer market are incandescent.
Although compact fluorescent lighting is more energy efficient than incandescent
lighting, the sales price of a compact fluorescent lamp is significantly higher
than a comparable incandescent lamp. If residential consumers fail to recognize
the long-term cost benefits associated with compact fluorescent lighting and
choose light bulbs solely on the basis of the sales price, we may be unable to
increase our sales. Additionally, because of the higher initial price per bulb,
any economic downturns or recessions might cause consumers of compact
fluorescent lighting products to purchase incandescent lighting products.
Actual and perceived performance problems with compact fluorescent lighting
products may adversely affect consumers' acceptance of our products. For
instance, voltage fluctuations can shorten the life of a non-dimmable compact
fluorescent ballast, including the ballasts in our non-dimmable products.
Compact
7
fluorescent lamps sold by certain other suppliers are not illuminated, or
"burned-in," prior to sale and may require a "break-in" period before they reach
their optimal light output, and some compact fluorescent lamps may interfere
with the operation of other electrical appliances like televisions. If consumers
experience any of these problems, they may develop a negative perception of all
compact fluorescent lighting products, including our products, which may prevent
us from increasing our sales.
IF ELECTRICITY PRICES DECREASE, DEMAND FOR OUR PRODUCTS MAY SUFFER.
The cost savings that result from using our products are directly related
to the retail price of electricity. In the past several years, electricity
prices have increased in many areas of the United States. Recently, prices of
electricity have stabilized and even declined in some markets. If electricity
prices decline or remain relatively low, demand for our products may suffer.
IF LARGE, DIVERSIFIED LIGHTING COMPANIES DECIDE TO INCREASE THEIR PRESENCE IN
THE COMPACT FLUORESCENT LIGHTING INDUSTRY, WE MAY BE UNABLE TO COMPETE
EFFECTIVELY.
General Electric Corp., Philips Electronics N.V. and the Osram Sylvania
division of Siemens A.G. are our principal competitors. These larger companies
have significantly greater resources then we do, and, if any one of them decides
to increase its presence in our markets, we may be unable to compete effectively
with such competitor. These companies are much larger than us and have a number
of significant advantages over us, including:
- greater financial, technical, marketing and manufacturing resources;
- preferred vendor status with our existing and potential customer base;
and
- larger customer bases.
Increased competition with these companies could prevent the institution of
price increases or could require price reductions or increased spending on
research and development and marketing and sales, which could adversely affect
our results of operations.
OUR ORIGINAL EQUIPMENT MANUFACTURER CUSTOMERS, WHO ARE ALSO OUR COMPETITORS,
MAY EXPAND THEIR OWN PRODUCTION CAPABILITIES OR USE OF ALTERNATIVE SOURCES OF
SUPPLY, WHICH COULD CAUSE A DECLINE IN OUR SALES AND AN INCREASE IN THE AMOUNT
OF COMPETITION THAT WE FACE.
Our competitors in the compact fluorescent lighting industry include some
customers for whom we supply products. Our original equipment manufacturer
customers may expand their own production capabilities or use of alternative
sources of supply and stop buying from us. This would not only cause our sales
to decline but would also increase the amount of competition that we face.
WE DEPEND ON ELLIS YAN, AND THE LOSS OF HIS SERVICES MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS AND PROSPECTS, AS WELL AS OUR RELATIONSHIP WITH
OUR PRINCIPAL SUPPLIERS.
We depend a great deal on our Chairman and Chief Executive Officer, Ellis
Yan. Mr. Yan owns a majority of our shares and is also the majority owner of
Shanghai Zhenxin Electronic Engineering Co. Ltd. and Shanghai Jensing Electron
Electrical Equipment Co. Ltd., which manufacture almost all of our products.
These Chinese companies, which were formed by a joint venture between Mr. Yan
and an entity indirectly controlled by a local township in Shanghai, China,
share the same facilities, assets and personnel and essentially operate as the
same entity but are legally distinct in order to enjoy certain tax benefits in
China. We caution you not to evaluate our arrangements with our suppliers solely
on the basis of the rights that will be provided to us under our manufacturing
and supply agreement. Both of these companies operate under the direction of Mr.
Yan's brother and other members of his immediate family residing in China, and
it is those relationships that have allowed us to develop an effective
collaboration with our suppliers. We think the manufacturing capabilities and
ability to respond quickly to customer requests that our relationship with our
Chinese suppliers has provided to us is critical to our success. If Mr. Yan left
our company, our relationship
8
with our principal suppliers would be adversely affected. We do not have an
employment agreement with Mr. Yan, and he is under no obligation to work for us
for any specified period.
OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER, WHO IS ALSO OUR MAJORITY STOCKHOLDER,
IS THE MAJORITY OWNER OF OUR PRINCIPAL SUPPLIERS, WHICH WILL SUBJECT US TO
CONFLICTS OF INTEREST.
So long as Mr. Yan continues to control us and our principal suppliers, we
will be subject to conflicts of interest when dealing with these suppliers, and
Mr. Yan may influence certain decisions on behalf of our principal suppliers
that may be disadvantageous to us.
WE RELY PRIMARILY ON TWO RELATED SUPPLIERS TO MANUFACTURE AND SUPPLY OUR
PRODUCTS, AND, AS A RESULT, ANY INTERRUPTION OR DELAY IN THAT SUPPLY COULD
IMPAIR OUR ABILITY TO MEET CUSTOMER DEMAND.
We have elected not to use other suppliers and rely on our Chinese
suppliers to make almost all of our products. As a result, any significant
accidents, labor disputes, fires, severe weather, floods or other difficulties
encountered by our principal suppliers could result in product defects,
production delays, cost overruns or the inability to fulfill orders on a timely
basis. Any interruption or delay in the supply of our products from our current
principal suppliers or our inability to obtain our products from alternate
sources at acceptable quality and price levels and within a reasonable amount of
time would substantially impair our ability to meet scheduled product deliveries
to our customers and could cause our customers to cancel orders, both of which
could have a material adverse effect on our business and results of operations.
IF TAX BENEFITS AVAILABLE TO OUR SUPPLIERS ARE REDUCED OR REPEALED, THE COST OF
MANUFACTURING OUR PRODUCTS COULD INCREASE.
Because Ellis Yan owns at least a majority interest in our principal
suppliers, they enjoy tax benefits in China that are generally available to
foreign investment enterprises. However, these tax benefits may be reduced or
repealed at any time. Any such reduction or repeal could cause our principal
suppliers to increase the price at which they provide products to us, which may
have a material adverse effect on our business and results of operations.
CHINA'S LEGAL SYSTEM AND APPLICATION OF LAWS MAY PROHIBIT THE ENFORCEABILITY OF
OUR MANUFACTURING AND SUPPLY AND TECHNOLOGY LICENSE AGREEMENTS.
China has a civil law legal system. Decided court cases do not have a
binding legal effect on future decisions. Since the late 1970's, many new laws
and regulations covering general economic matters have been promulgated in
China. Despite this activity to develop the legal system, China's system of laws
is not yet complete, and, in the event we are unable to enforce our contractual
arbitration rights, it may be difficult to enforce our other contractual rights
in China, including those set forth in the manufacturing and supply and
technology license agreements that we will enter into with our suppliers. Even
where adequate law exists in China, enforcement of contracts based on existing
law may be uncertain and sporadic, and it may be difficult to obtain swift and
equitable enforcement. Additionally, there is no international treaty governing,
nor is there an acknowledgement of recognition regarding, enforcement of
judgments or jurisdiction between the United States and China. Our two principal
suppliers are joint venture companies incorporated in China with limited
liability. All of their supervisors and executive officers reside within China,
and all the assets of the suppliers and such persons are located in China.
Therefore, due to the lack of United States' jurisdiction in China, we may not
be able to bring legal actions or enforce judgments against our current
principal suppliers or any future suppliers located in China. In the event of a
dispute with our principal suppliers, we could be precluded from relief,
including damages and equitable remedies, which could have a material adverse
effect on our business and operations.
9
OBTAINING OUR PRODUCTS SOLELY FROM FOREIGN SUPPLIERS EXPOSES US TO INCREASED
RISKS INHERENT IN FOREIGN MANUFACTURING.
Almost all of our products are manufactured in China by two related
suppliers. Because of this, we are subject to numerous risks inherent in foreign
manufacturing that could materially impact our business and results of
operations, including the following:
- economic or political instability;
- fluctuations in currency exchange rates;
- transportation delays and interruptions;
- restrictive actions by foreign governments;
- difficulty in protecting our intellectual property;
- the laws and policies of the United States adversely affecting the
importation of goods (including duties, quotas and taxes); and
- trade and foreign tax laws.
In particular, our Chinese suppliers may be adversely affected by changes
in the laws and regulations of China, such as those relating to taxation, import
and export tariffs, environmental regulations, land use rights, property and
other matters. These changes could interrupt our suppliers' business, which
could interrupt the manufacturing of our products and delay delivery of our
product to our customers, or increase our suppliers' costs, which could cause
our suppliers to increase the price at which they provide products to us.
CHANGES IN CHINA'S ECONOMIC POLICIES COULD HARM OUR PRINCIPAL SUPPLIERS, WHICH
COULD INCREASE THE MANUFACTURING COSTS OF OUR PRODUCTS.
In the past, the economy of China has been a planned economy subject to
governmental plans and quotas. Since the late 1970's, China's government has
been reforming its economic and political systems, including encouraging private
economic activity and greater economic decentralization. Reforms of this kind
have resulted in significant growth and social change. China's policies for
economic reforms may not be consistent or effective, and our principal suppliers
may be adversely affected by changes in the political, economic or social
conditions in China. As a result of such changes, our suppliers may increase the
price at which they provide products to us.
CHINA CURRENTLY HAS PERMANENT NORMAL TRADE RELATIONS STATUS, BUT, IF ITS STATUS
CHANGES, OUR COST OF IMPORTING PRODUCTS COULD SIGNIFICANTLY INCREASE.
During 2000, China was granted permanent normal trade relations, or PNTR,
with the United States, pursuant to which the United States imposes the lowest
applicable tariffs on Chinese exports to the United States. However, this status
was conditioned on China's admission to the World Trade Organization, which is
expected to occur as early as November 2001. During recent months, political
relations between the United States and China have become increasingly strained,
particularly by the mid-air collision between a United States surveillance
aircraft and Chinese military plane in April 2001 and the United States' sale of
arms to Taiwan. Future controversies may arise that again threaten the status
quo, and we cannot be certain that the United States will not revoke or refuse
to extend China's "PNTR" status. To the extent China ceases to have "PNTR"
status or its exports become subject to political retaliation by the United
States government, the cost of importing our products from China could increase
significantly. We could also be subject to the imposition of retaliatory tariffs
or other import restrictions such as quotas as a result of any trade dispute
between China and the United States. These increased tariffs or other
restrictions could also significantly increase the cost of importing our
products. Any of these actions would impair our ability to supply products in a
cost-effective manner.
10
IF WE FAIL TO MANAGE OUR GROWTH, OUR SALES AND EARNINGS COULD BE HURT.
Over the past few years, we have experienced rapid growth, which has
strained our physical and personnel resources. Our business strategy is to
continue to expand our operations, which will further strain our management,
operational and financial resources. If we make mistakes in deploying our
financial or operational resources or fail to hire the additional qualified
personnel necessary to support higher levels of business, our sales and earnings
could be hurt.
WE DEPEND ON RETAILERS AND DISTRIBUTORS FOR A SIGNIFICANT PORTION OF OUR SALES,
AND OUR SALES AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED BY THEIR
ACTIONS.
Retailers and distributors compete in a volatile industry that is subject
to rapid change, consolidation, financial difficulty and increasing competition
from new distribution channels. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies. We may not be able to increase or sustain our amount of retail shelf
space or promotional resources or offer retailers price discounts, and, as a
result, our sales and results of operations may be adversely affected.
Additionally, any economic downturns or recessions could force retailers to
negotiate better terms of sale, which we may be unable to accept. Retailers may
give higher priority to products other than ours, thus reducing their efforts to
sell our products.
INCENTIVES OFFERED BY UTILITY COMPANIES TO CONSUMERS FOR PURCHASING ENERGY
EFFICIENT LIGHTING PRODUCTS MAY BE DECREASED OR DISCONTINUED, WHICH COULD
REDUCE OUR SALES.
Some utility companies have implemented programs in which consumers are
given incentives to purchase energy efficient lighting products. These
incentives come in a variety of different forms, such as coupons that lower the
price of the product or rebates that are either sent to the purchaser or
credited toward the purchaser's utility bill. Currently, our products qualify
for a number of such programs. However, if these programs are decreased or
discontinued by these utility companies or if our products no longer qualify for
such programs, our sales could be reduced.
OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY, MAKING FINANCIAL
FORECASTING DIFFICULT AND MAKING OUR STOCK PRICE VOLATILE.
Our quarterly results of operations are difficult to predict and may
fluctuate significantly from quarter to quarter. In some quarters, our operating
results may fall below the expectations of public market analysts and investors,
which could cause the price of our stock to decline. Our quarterly operating
results are difficult to forecast for many reasons, some of which are outside
our control, such as:
- the level of product, price and retailer competition;
- size and timing of product orders and shipments, particularly by
significant customers such as The Home Depot;
- changes in our overall product mix;
- timing of incentives offered by utility companies;
- our ability to develop new products and product enhancements;
- electricity prices;
- economic conditions in general;
- capacity and supply constraints or difficulties; and
- timing of marketing programs and those of our competitors.
As a result, you should not rely on historical results as an indication of our
future performance.
11
OUR FAILURE TO ACCURATELY FORECAST SALES COULD CAUSE US TO INCUR ADDITIONAL
COSTS, HAVE EXCESS INVENTORIES OR HAVE INSUFFICIENT QUANTITIES OF OUR PRODUCTS,
ANY OF WHICH COULD HARM OUR RESULTS OF OPERATIONS.
We use rolling forecasts based on anticipated product orders to determine
our product requirements from our principal suppliers. It is very important that
we accurately predict the demand for our products. If we overestimate our
product requirements, we may have excess inventory, which would increase our
costs. If we underestimate our product requirements, we may have inadequate
inventory, which could interrupt the supply of our products and delay delivery
of our products to our customers. Accordingly, if our sales do not meet our
expectations, our results of operations are likely to be negatively and
disproportionately affected, which may make our stock price fall dramatically.
Any of these occurrences could harm our results of operations.
THE COMPACT FLUORESCENT LIGHTING INDUSTRY IS RAPIDLY EVOLVING, AND, IF WE DO
NOT DEVELOP AND INTRODUCE NEW PRODUCTS IN A TIMELY MANNER, WE MAY NOT BE ABLE
TO MEET THE NEEDS OF OUR CUSTOMERS, AND OUR SALES MAY DECLINE.
Our success depends on introducing distinctive new products that anticipate
industry trends and changing consumer demands. If we do not introduce new
products, misinterpret consumer preferences or fail to respond to changes in the
consumer lighting industry, consumer demand for our products could suffer. In
addition, our competitors may introduce superior designs or products,
undermining our image and our products' desirability. Any of these events could
cause our sales to decline.
OUR MANAGEMENT HAS NO EXPERIENCE OPERATING A PUBLIC COMPANY.
No member of our current management team has ever operated a public
company. The members of our management team must develop the skills and
knowledge required to operate effectively as a public company. We cannot assure
you that they will be able to do so. If they are not successful in developing
these skills or if we do not attract and retain individuals who have significant
experience operating a public company, we may not be able to implement our
business plan, and our business could be materially and adversely affected.
THERE ARE FEW INTELLECTUAL PROPERTY BARRIERS TO ENTERING THE COMPACT
FLUORESCENT LIGHTING INDUSTRY, WHICH COULD INCREASE OUR COMPETITION.
Although we utilize patents and trade secrets to protect the confidential
and proprietary information used in the design and manufacture of our lighting
products, much of the knowledge and technology used in fluorescent lighting is
publicly available. Therefore, we could face additional competition in the
compact fluorescent lighting industry, and our results of operations may suffer.
TECHNOLOGICAL ADVANCES IN THE ENERGY EFFICIENT LIGHTING INDUSTRY COULD RENDER
OUR TECHNOLOGY OBSOLETE.
The energy efficient lighting industry recently has been subject to rapid
technological change. Currently, we focus on the production of compact
fluorescent lighting products and accessories, but our success will depend on
our ability to adapt and respond to technological change. If new technologies
and products emerge and we are unable to keep pace, our existing products could
become obsolete, and our sales may suffer.
WE DEPEND ON INDEPENDENT SALES AGENCIES FOR A SIGNIFICANT PORTION OF OUR SALES,
AND ANY LOSS OF SALES AGENCIES MAY REDUCE SALES.
We sell a significant portion of our products through independent, third
party sales agencies. We generally do not have long-term arrangements with these
sales agencies. Any sales agency may stop selling our products and begin selling
those of a competitor. The loss of one or more significant sales agencies
without successfully replacing them would reduce our sales and may damage
customer relationships.
12
WE MAY EXPERIENCE DIFFICULTY ASSIMILATING THE OPERATIONS OR PERSONNEL OF
COMPANIES THAT WE ACQUIRE, WHICH COULD THREATEN THE BENEFITS WE SEEK TO ACHIEVE
THROUGH ACQUISITIONS AND OUR FUTURE GROWTH.
Although acquisitions of complementary businesses and technologies are part
of our growth strategy, we do not have any acquisition experience. We may not be
able to successfully complete any acquisitions, including our proposed
acquisitions of enerSave data systems, Inc., a company that designs and develops
energy management systems, and JRS Technology, Inc., a company that designs and
develops commercial grade electronic ballasts. In addition, if we acquire these
companies or if we make any other strategic acquisitions, we could have
difficulty assimilating or retaining the acquired companies' personnel or
integrating their operations or services into our organization, which could
disrupt our ongoing business, distract our management and employees and reduce
or eliminate the financial or strategic benefits that we sought to achieve
through the acquisition and threaten our future growth. Moreover, we may need to
raise additional funds through public or private debt or equity financings to
acquire any businesses, which may result in dilution for stockholders and the
incurrence of indebtedness.
RECENT TERRORIST ATTACKS ON THE UNITED STATES MAY NEGATIVELY AFFECT OUR
BUSINESS.
On September 11, 2001, the United States was attacked by terrorists using
hijacked commercial airplanes. While it is too early to predict what effects
these events will eventually have on our business, it is likely that there will
be a decline in travel due to, among other things, the public's fears regarding
additional acts of terrorism. This decline in travel will likely have a negative
effect on the hospitality industry. Therefore, our sales to hotels may suffer
and our business may be negatively affected if the hospitality industry reduces
planned expenditures like replacing traditional incandescent lighting with
energy efficient compact fluorescent lamps.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL
YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
Prior to this offering, there has been no public market for shares of our
common stock. An active public trading market for our common stock may not
develop or, if it develops, may not be maintained after this offering, and the
market price could fall below the initial public offering price. As a result,
you could lose all or part of your investment. We and the representatives of the
underwriters will negotiate to determine the initial public offering price. The
initial public offering price may not be related to the price at which the
common stock will trade following this offering.
OUR DIRECTORS AND EXECUTIVE OFFICERS, WHO ARE ALSO OUR PRINCIPAL STOCKHOLDERS,
WILL HAVE SUBSTANTIAL CONTROL OVER OUR AFFAIRS AND MAY MAKE DECISIONS THAT NOT
ALL STOCKHOLDERS SUPPORT.
Following this offering, certain of our directors and executive officers,
who are also our principal stockholders, will beneficially own approximately
% of our outstanding common stock. These stockholders acting together will
have the ability to control most matters requiring approval by our stockholders.
These matters include the election and removal of directors, controlling the
management and affairs of the company and the approval of any merger,
consolidation or sale of all or substantially all of our assets. In addition,
they may dictate the management of our business and affairs. This concentration
of ownership could have the effect of delaying, deferring or preventing a change
in control or impeding a merger or consolidation, takeover or other business
combination of which you might otherwise approve.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT
DIFFICULT FOR OUR STOCKHOLDERS TO REPLACE OR REMOVE CURRENT MANAGEMENT AND
COULD DETER OR DELAY THIRD PARTIES FROM ACQUIRING US, WHICH MAY ADVERSELY
AFFECT THE MARKETABILITY AND MARKET PRICE OF OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws and in the
Delaware corporate law may make it difficult for stockholders to change the
composition of the board of directors in any one year and thus may make it
difficult to change the composition of management. In addition, the same
provisions may make it
13
difficult and expensive for a third party to pursue a tender offer, change in
control or takeover attempt that is opposed by our management and board of
directors. Public stockholders who might desire to participate in such a
transaction may not have an opportunity to do so. These anti-takeover provisions
could substantially impede the ability of public stockholders to benefit from a
change in control or change our management and board of directors and may
adversely affect the marketability and market price of our common stock.
WE WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS OF THIS OFFERING, WHICH
WE MAY NOT USE EFFECTIVELY.
We expect to use approximately $11.0 million of the net proceeds of this
offering to repay indebtedness and approximately $2.0 million of the net
proceeds to expand our warehouse facilities. We also intend to use a portion of
the proceeds to make distributions of substantially all of our undistributed S
corporation earnings to our existing stockholders in connection with revocation
of our S corporation status. As of June 30, 2001, we had approximately $2.1
million in undistributed S corporation earnings. The actual amount of the
distribution will depend on the amount of our income prior to completion of the
offering. Our management has broad discretion over the allocation of the balance
of the net proceeds and may use the proceeds in ways with which you and other
stockholders may disagree. In addition, our management may not be able to invest
the balance of the net proceeds effectively until they are put to use.
YOU WILL SUFFER SUBSTANTIAL DILUTION OF $ PER SHARE IN THE NET
TANGIBLE BOOK VALUE OF THE COMMON STOCK YOU PURCHASE.
The initial public offering price of our common stock will be substantially
higher than the book value per share of our common stock. Based on an assumed
initial public offering price of $ per share, if you purchase
shares of common stock in this offering, you will suffer immediate and
substantial dilution of $ per share in the net tangible book value
of the common stock.
IF OUR STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK FOLLOWING THIS
OFFERING, THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE.
Sales of shares of our common stock in the public market following this
offering or the perception that these sales may occur could cause the market
price of our common stock to decline. After this offering, we will have
shares of common stock outstanding. The number of shares of common
stock available for sale in the public market is limited by restrictions under
federal securities law and under lock-up agreements that all of our directors,
executive officers and stockholders have entered into with the underwriters and
with us. Those lock-up agreements restrict these people from selling, pledging
or otherwise disposing of their shares for a period of 180 days after the date
of this prospectus without the prior written consent of McDonald Investments
Inc. However, McDonald Investments Inc. may, in its sole discretion, release all
or any portion of the common stock from the restrictions of the lock-up
agreements. These sales might make it difficult or impossible for us to sell
additional securities when we need to raise capital. All of the shares sold in
this offering will be freely tradeable without restrictions or further
registration under the Securities Act, except for any shares purchased by our
affiliates as defined in Rule 144 of the Securities Act. The remaining
10,640,000 shares outstanding after this offering will be available for sale
into the public market at various times after the expiration of the initial
180-day lock-up period.
In addition, under a registration rights agreement that we will enter into
prior to completion of this offering, all of our current stockholders will have
"demand" and "piggyback" registration rights in connection with future offerings
of our common stock. "Demand" rights enable the holders to demand that their
shares be registered and may require us to file a registration statement under
the Securities Act at our expense. "Piggyback" rights require us to provide
notice to the relevant holders of our stock if we propose to register any of our
securities under the Securities Act and grant such holders the right to include
their shares in our registration statement. All of our current stockholders have
agreed not to exercise their registration rights without the consent of McDonald
Investments Inc. prior to 180 days following the date of this prospectus.
14
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We have attempted to
identify forward-looking statements by using such words as "anticipates,"
"believes," "can," "continue," "could," "estimates," "expects," "intends,"
"may," "plans," "potential," "should" or "will" or other similar expressions.
These forward-looking statements, which are subject to risks and uncertainties,
and assumptions about us, may include, among other things, projections of our
future financial performance, our anticipated growth strategies and anticipated
trends in our business. These statements are only predictions based on our
current expectations and projections about future events. Because these
forward-looking statements involve risks and uncertainties, you should be aware
that there are important factors that could cause our actual results, level of
activity, performance or achievements to differ materially from the results,
level of activity, performance or achievements expressed or implied by these
forward-looking statements, including those factors outlined under "Risk
Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, level of
activity, performance or achievement. Further, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
disclaim any obligation to update any of the forward-looking statements after
the date of this prospectus or to conform these statements to actual results.
You should not place undue reliance on forward-looking statements contained in
this prospectus.
15
USE OF PROCEEDS
We estimate that our net proceeds from our sale of the shares of
common stock we are offering will be approximately $ , or
approximately $ if the underwriters' over-allotment option is
exercised in full, assuming an initial public offering price of $
per share and after deducting estimated underwriting discounts and commissions
and the estimated offering expenses payable by us.
We presently intend to use a portion of the proceeds of this offering for
the following purposes:
- approximately $11.0 million to repay indebtedness, including
approximately $8.5 million outstanding under our credit facility,
approximately $931,000 owed to our principal suppliers, approximately
$500,000 outstanding under our State of Ohio 166 Program loan and
approximately $1.0 million that we anticipate borrowing under our credit
facility to acquire substantially all of the assets of two companies
described below; and
- approximately $2.0 million to expand our warehouse facilities.
We will also use a portion of the net proceeds for distributions to our
current stockholders of substantially all of our undistributed S corporation
earnings for tax purposes through the date of revocation of our S corporation
status. As of June 30, 2001, the amount of these undistributed S corporation
earnings was $2.1 million. The actual amount of the distribution will depend on
the amount of our income prior to completion of the offering.
We borrowed the money that we will repay with a portion of the net proceeds
from this offering under a revolving credit facility that we obtained on August
10, 2001. Under our credit facility, we may choose an interest rate of either
the prime rate as announced by the lender or 3% above the prevailing London
Interbank Offer Rate (LIBOR). As of September 30, 2001, we had $8.5 million of
prime rate borrowings bearing interest at 6.0%. We borrowed under our credit
facility primarily to provide working capital to support our operations as well
as to refinance our prior line of credit and repay a mortgage note. The credit
facility terminates on July 31, 2003.
We are in negotiations to acquire substantially all of the assets of
enerSave data systems, Inc. and JRS Technology, Inc., each for a purchase price
of $500,000. EnerSave data systems designs and develops energy management
systems and JRS Technology designs and develops commercial grade electronic
ballasts. We anticipate that we will close these acquisitions by the end of
October 2001 and that we will fund these acquisitions with borrowings under our
credit facility.
We intend to use the remainder of the net proceeds of this offering for
working capital and general corporate purposes. Accordingly, we will retain
broad discretion in the allocation of the net proceeds of this offering.
Additionally, we may use a portion of the net proceeds to pursue other possible
acquisitions of businesses, technologies or products complementary to our
business. Other than the acquisition of enerSave data systems and JRS
Technology, we currently have no commitments or agreements to make any
acquisitions, and we cannot assure you that we will make any acquisitions in the
future. Pending our use of the net proceeds, we intend to invest the net
proceeds in short-term, interest-bearing investment-grade or government
securities.
DIVIDEND POLICY
We currently intend to retain any future earnings to support the
development and expansion of our business and do not anticipate paying cash
dividends in the foreseeable future other than the dividends we intend to pay as
discussed below under "S Corporation Status." Our payment of any future
dividends will be at the discretion of our board of directors after taking into
account various factors, including our financial condition, operating results,
cash needs, growth plans and the terms of any credit agreements that we may be a
party to at the time. Under our existing credit facility, we may not pay any
dividends or make any distributions other than distributions payable solely in
our capital stock or distribution to enable our stockholders to pay their tax
liability resulting from our S corporation status. In addition, the terms of any
16
future credit agreement may prevent us from paying any dividends or making any
distributions or payments with respect to our capital stock.
S CORPORATION STATUS
Since our incorporation in 1993, we have been treated for federal and state
income tax purposes as an S corporation under Subchapter S of the Internal
Revenue Code and comparable state laws. As a result, our earnings have been
taxed for federal and state income tax purposes directly to our stockholders
rather than to us. In connection with this offering, we will convert from an S
corporation to be taxed as a C corporation. As a result of the revocation of our
S corporation status, we will record a net deferred tax asset and corresponding
income tax benefit effective upon the revocation date. The amount of the
deferred tax asset would have been approximately $108,000 if the revocation date
had been June 30, 2001. The actual amount will be determined after giving effect
to our operating results through the revocation date.
We expect to distribute a portion of the net proceeds of this offering to
our current S corporation stockholders, representing substantially all of our
undistributed S corporation earnings for tax purposes through the date of
revocation of S corporation status. As of June 30, 2001, the amount of these
undistributed S corporation earnings was $2.1 million. The actual amount of the
distribution of S corporation earnings will depend on the amount of our income
prior to completion of the offering.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2001:
- on an actual basis; and
- on a pro forma as adjusted basis to reflect our sale of shares
of common stock at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and the
estimated offering expenses payable by us, the payment of approximately
$ of previously undistributed S corporation earnings and the
repayment of approximately $ of long-term debt.
You should read this table together with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes included elsewhere in
this prospectus.
[Enlarge/Download Table]
JUNE 30, 2001
(UNAUDITED)
---------------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Long-term debt.............................................. $ 5,948 $
Notes payable affiliates.................................... 931
Other long-term liability................................... 973
Stockholders' equity:
Preferred stock, $0.001 par value; no shares authorized,
issued and outstanding, actual; and 5,000,000 shares
authorized, no shares issued and outstanding, as
adjusted............................................... --
Common stock, $0.001 par value; 11,200,000 shares
authorized, issued and outstanding, actual; and
30,000,000 shares authorized, shares
issued and outstanding, as adjusted.................... --
Additional paid-in capital................................ 1
Treasury stock subscription............................... (57)
Retained earnings......................................... 2,116
Total stockholders' equity............................. 2,060
-------- --------
Total capitalization................................... $ 9,912 $
======== ========
The information regarding the number of shares of common stock to be
outstanding after this offering is based on the number of shares outstanding as
of June 30, 2001 and does not include 2,016,000 shares that may be issued under
our stock option plan.
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DILUTION
Our net tangible book value as of June 30, 2001 was approximately
$2,060,000, or $0.18 per share of common stock. Net tangible book value per
share is determined by dividing the amount of our total tangible assets less our
total liabilities by the number of shares of common stock outstanding.
After giving effect to our sale of shares of common stock at
an assumed initial public offering price of $ per share and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us, our adjusted net tangible book value as of June 30, 2001 would
have been $ million, or $ per share. This amount
represents an immediate increase in net tangible book value to our existing
stockholders of $ per share and an immediate dilution to new
investors of $ per share. The following table illustrates this per
share dilution:
[Download Table]
Assumed initial public offering price per share............. $
Net tangible book value per share at June 30, 2001........ $0.18
Increase per share attributable to new investors..........
As adjusted net tangible book value per share after this
offering..................................................
Dilution per share to new investors......................... $
======
If the underwriters' over-allotment option is exercised in full, our as
adjusted net tangible book value at June 30, 2001 would have been approximately
$ per share, representing an immediate increase in net tangible
book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to
new investors.
The following table summarizes, on a pro forma basis, as of June 30, 2001
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid by our existing stockholders and
by new investors. The table assumes that the initial public offering price will
be $ per share.
[Enlarge/Download Table]
AVERAGE
PRICE PER
SHARES PURCHASED TOTAL CONSIDERATION SHARE
-------------------- -------------------- ---------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- -------- ---------
Existing stockholders....................... 11,200,000 % $200 % $.00002
New investors...............................
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Total..................................... % $ %
========== ======= ==== ======= =======
19
SELECTED FINANCIAL DATA
The following table presents our selected financial data. The selected
statement of operations data, except for the pro forma information, for each of
the three years in the period ended December 31, 2000 and the balance sheet data
for the years ended December 31, 1999 and 2000 are derived from the audited
financial statements and related notes that appear elsewhere in this document.
The balance sheet data as of December 31, 1998 has been derived from audited
financial statements and notes that are not included in this document. The
selected financial data presented below for the years ended December 31, 1996
and 1997 and for the six months ended June 30, 2000 and June 30, 2001 are
derived from our unaudited financial information, which include, in the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information for the periods and dates
presented. Results of operations for the six months ended June 30, 2001 are not
necessarily indicative of results for the year ending December 31, 2001.
- We are an S corporation for income tax purposes, and, as a consequence,
we paid no federal or state income tax. The pro forma per share amounts
set forth below reflect a pro forma tax provision per share as if we had
been a C corporation during such periods.
- Adjusted pro forma net income per share data set forth below assumes that
we were a C corporation during the periods and gives effect to the
reduction in interest expense associated with the approximately $
million of debt that we expect to repay with the proceeds of the
offering, net of the related tax effect. This calculation is based on the
11.2 million shares outstanding as of June 30, 2001 plus the
shares required to be sold to retire our debt.
The data presented below should be read in conjunction with the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and with the financial statements and related notes
included elsewhere in this prospectus.
[Enlarge/Download Table]
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Total net sales..................... $ 3,704 $ 4,793 $ 8,900 $15,651 $22,278 $ 8,904 $31,277
Cost of goods sold.................. 3,347 3,921 6,694 11,551 16,968 6,594 24,621
Gross profit........................ 357 872 2,206 4,100 5,310 2,310 6,656
Selling, general and administrative
expenses.......................... 593 787 1,569 3,128 4,424 2,365 3,282
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations....... (236) 85 637 972 886 (55) 3,374
Other income........................ -- -- -- 58 46 28 28
Interest expense.................... 151 241 315 232 461 207 275
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Net income (loss)................... $ (387)