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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-50588
LIGHTFIRST INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-4437640
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 NORTHWEST POINT BOULEVARD, SUITE 700, ELK GROVE VILLAGE, IL 60007
(Address of principal executive offices)
(847) 640-8880
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
[ ] Yes [X] No
As of April 30, 2004 there were 6,406,000 shares of the registrant's common
stock outstanding, par value $.001.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2004
TABLE OF CONTENTS
Page No.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 1
Balance Sheets as of March 31, 2004 and December 31, 2003 1
Statements of Operations 2
Statements of Shareholders' Deficiency 3
Statements of Cash Flows 4
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIGHTFIRST INC.
(A Development Stage Company)
BALANCE SHEETS
March 31, December 31,
2004 2003
----------- ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 3,180 $ 9,645
Accounts receivable, net of allowance for doubtful
accounts of $10,000 31,994 4,019
Deferred offering costs 225,015 204,853
----------- ------------
TOTAL CURRENT ASSETS 260,189 218,517
PROPERTY - Computer equipment 44,196 39,430
Less accumulated depreciation 31,246 27,695
----------- ------------
12,950 11,735
OTHER ASSETS
Customer list, net of accumulated amortization of
$239,542 and $217,765 at March 31, 2004 and
December 31, 2003, respectively 21,774 43,551
Deposit 17,894 17,894
----------- ------------
39,668 61,445
----------- ------------
$ 312,807 $ 291,697
=========== ============
CURRENT LIABILITIES
Line of credit payable to shareholder $ 1,489,986 $ 1,264,987
Accounts payable 507,568 430,388
Deferred revenue 247,248 130,123
Accrued payroll 858,118 722,855
Accrued payroll taxes and related penalties 1,155,208 1,151,670
Due to officer/shareholder 1,681 1,681
Accrued interest payable to shareholder 100,151 64,986
----------- ------------
TOTAL CURRENT LIABILITIES 4,359,960 3,766,690
LONG-TERM LIABILITIES
Notes payable to shareholder 620,000 620,000
Accrued interest payable to shareholder 106,245 88,387
----------- ------------
726,245 708,387
SHAREHOLDERS' DEFICIENCY
Common stock, $.001 par value:
Authorized, 10,000,000 shares
Issued and outstanding, 6,406,000 shares 6,406 6,406
Additional paid-in capital 1,383,744 1,383,744
----------- ------------
1,390,150 1,390,150
Deficit accumulated during the development stage (6,163,548) (5,573,530)
----------- ------------
(4,773,398) (4,183,380)
----------- ------------
$ 312,807 $ 291,697
=========== ============
See notes to financial statements.
1
LIGHTFIRST INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Period from
inception
(April 11, 2001) Quarter ended Quarter ended
to March 31, 2004 March 31, 2004 March 31, 2003
----------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited)
Revenues $ 1,267,669 $ 112,664 $ 124,667
Cost of revenues 1,180,140 114,262 125,819
----------------- -------------- --------------
GROSS PROFIT 87,529 (1,598) (1,152)
General and administrative expenses 6,123,698 534,410 525,897
----------------- -------------- --------------
LOSS FROM OPERATIONS (6,036,169) (536,008) (527,049)
Other income (expense):
Interest income 1,200 - 304
Interest expense (208,327) (54,010) (21,096)
Net realized (loss) from sale of investments 79,748 - -
----------------- -------------- --------------
(127,379) (54,010) (20,792)
----------------- -------------- --------------
NET LOSS $ (6,163,548) $ (590,018) $ (547,841)
================= ============== ==============
Net loss per share:
Basic and diluted $ (1.03) $ (0.09) $ (0.09)
================= ============== ==============
Weighted average shares outstanding:
Basic and diluted 6,002,383 6,406,000 6,387,800
================= ============== ==============
See notes to financial statements.
2
LIGHTFIRST INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
PERIOD FROM INCEPTION (APRIL 11, 2001) TO DECEMBER 31, 2003
AND THREE MONTHS ENDED MARCH 31 2004 (UNAUDITED)
Deficit
Common Stock accumulated
----------------------- Additional during the Total
Number of paid-in development shareholders'
shares Amount capital stage deficiency
----------- -------- ----------- ------------ --------------
Balance at April 11, 2001 - $ - $ - $ - $ -
Issuance of common stock to founding shareholder 5,000,000 5,000 (4,900) - 100
Issuance of common stock to consultant 187,000 187 (137) - 50
Issuance of common stock to investors 691,800 692 691,108 - 691,800
Net loss for the period April 11, 2001
through December 31, 2001 - - - (802,970) (802,970)
----------- ------- --------- ------------ ------------
BALANCE AT
DECEMBER 31, 2001 5,878,800 5,879 686,071 (802,970) (111,020)
Issuance of common stock to investors 508,200 508 507,692 - 508,200
Net loss for the year - - - (2,472,470) (2,472,470)
----------- ------- ----------- ------------ ------------
BALANCE AT
DECEMBER 31, 2002 6,387,000 6,387 1,193,763 (3,275,440) (2,075,290)
Issuance of common stock in exchange for services 19,000 19 189,981 - 190,000
Net loss for the year - - - (2,298,090) (2,298,090)
----------- ------- ----------- ------------ ------------
BALANCE AT
DECEMBER 31, 2003 6,406,000 6,406 1,383,744 (5,573,530) (4,183,380)
Net loss for the quarter ended March 31, 2004 - - - (590,018) (590,018)
----------- ------- ----------- ------------ ------------
BALANCE AT
MARCH 31, 2004 $ 6,406,000 $ 6,406 $ 1,383,744 $ (6,163,548) $ (4,773,398)
=========== ======= =========== ============ ============
See notes to financial statements.
3
LIGHTFIRST INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From inception Quarter ended Quarter ended
(April 11, 2001) March 31, March 31,
to March 31, 2004 2004 2003
---------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS - OPERATING ACTIVITIES
Net loss for the period $ (6,163,548) $ (590,018) $ (547,841)
To reconcile net loss to net cash used for operating activities
Bad debts 16,638 -- --
Compensation expense 190,000 -- --
Interest expense 207,383 54,010 21,089
Depreciation and amortization 270,788 25,328 24,731
Net realized (gain) loss from sale of investments (79,748) -- --
Changes in certain assets and liabilities affecting operations:
Accounts receivable (41,994) (27,975) (39,780)
Prepaid expenses -- -- --
Deposit (17,894) -- --
Accounts payable 507,568 77,180 104,735
Deferred revenue 98,341 117,125 135,410
Accrued expenses 2,012,339 137,814 171,754
---------------- ------------- -------------
NET CASH USED FOR
OPERATING ACTIVITIES (3,000,127) (206,536) (129,902)
CASH FLOWS - INVESTING ACTIVITIES
Increase in note receivable (6,638) -- (100)
Purchases of property (44,196) (4,766) --
Purchase of investments (108,260) -- --
Proceeds from the sale of investments 732,808 -- --
Acquisition of customer list (112,409) -- --
---------------- ------------- -------------
NET CASH PROVIDED FROM (USED FOR)
INVESTING ACTIVITIES 461,305 (4,766) (100)
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from issuance of common stock to minority shareholders 655,250 -- --
Proceeds from issuance of common stock to founding shareholder 100 --
Proceeds from line of credit payable to shareholder 2,109,986 224,999 168,000
Deferred offering costs (225,015) (20,162) (41,235)
Due (from) to officer/shareholder 1,681 -- 1,286
---------------- ------------- -------------
NET CASH PROVIDED FROM
FINANCING ACTIVITIES 2,542,002 204,837 128,051
---------------- ------------- -------------
NET DECREASE IN CASH 3,180 (6,465) (1,951)
Cash at beginning of period -- 9,645 4,608
---------------- ------------- -------------
CASH AT END OF PERIOD $ 3,180 $ 3,180 $ 2,657
================ ============= =============
See notes to financial statements.
4
LIGHTFIRST, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Cont'd
Period from
inception
(April 11, 2001) to Quarter ended March 31,
March 31, -----------------------------
2004 2004 2003
-------------------- ---------- -----------
(Unaudited) (Unaudited) (Unaudited)
NON-CASH OPERATING, INVESTING AND
FINANCING ACTIVITIES
Investments received as consideration for
sale of common stock $ 544,800 $ - $ -
========= == ==
Acquisition of customer list offset by
deferred revenue $ 148,907 $ - $ -
========= == ==
Issuance of common stock in exchange for
services $ 190,000 $ - $ -
========= == ==
See notes to financial statement.
5
LIGHTFIRST INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE A: UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited interim balance sheet as of March 31, 2004, the
statements of operations and cash flows for the three months ended March
31, 2004 and 2003 and the statement of shareholders' deficiency for the
three months ended March 31, 2004 are unaudited. The unaudited interim
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. In the
opinion of the Company's management, the unaudited interim financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the
Company's results of operations and its cash flows for the three months
ended March 31, 2004 and 2003. The results for the three months ended
March 31, 2004 are not necessarily indicative of the results to be
expected for the year ended December 31, 2004.
The accompanying financial statements should be read in conjunction with
the financial statements and related notes presented in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003.
NOTE B: GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLANS
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business as a going
concern. The Company has been in the development stage since its inception
on April 11, 2001.
The Company has a limited operating history and its future prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in the new and rapidly evolving markets for Internet based
products and services. These risks include the failure to develop and
protect the Company's online brands, the failure of vendors and
third-party providers to supply hardware and software products and
services, systems and online security failure, the rejection of the
Company's services by Internet consumers, vendors and advertisers, the
inability of the Company to maintain and increase their customer base in
levels sufficient to generate profitable operations, as well as other
risks and uncertainties. The success of the Company also depends on the
continued growth of the Internet as a viable commercial marketplace.
In February 2004, a Registration Statement filed on Form S-1 with the
Securities and Exchange Commission ("SEC") was approved. The purpose of
this filing is to give the Company the ability to go to the public markets
for additional equity capital. There are no assurances that shares of
common stock will be sold in connection with the Registration Statement.
In the event the Company is not able to raise additional equity capital or
obtain additional amounts of debt financing, there is uncertainty as to
the Company's ability to continue as a going concern.
Management is currently devoting substantial efforts to sell its common
shares in connection with its Initial Public Offering. Should the public
offering be consummated, management believes the Company will be better
able to execute its business plan and begin their revenue producing
activities related to electronic bill presentation and related services.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and the notes to those statements that appear
elsewhere in this report, and it contains forward-looking statements that
reflect our plans, estimates, beliefs, expectations, and intentions. You can
identify these statements by words such as "expect," "anticipate," "intend,"
"plan," "objective", "believe," "seek," "hope," "look," "is designed to,"
"estimate," "may," "will" and "continue" or similar words. Our actual results
could differ materially from those discussed in the forward-looking statements.
See "Risks and Uncertainties" for information regarding factors known to us that
could cause reported financial information not to be necessarily indicative of
future results and that could cause our future results to differ from our
expectations.
OVERVIEW
Our objective is to be a leading provider of consolidated electronic
bill presentment and payment services, or e-bill consolidation services, for
consumers. E-bill consolidation is the practice of using a single online
location to manage the bill paying process: the typical e-bill consolidator
provides electronic bill presentment, bill payment, and record-keeping services.
We have developed a new model that looks to build upon the prevailing model by
adding discounts, rebates and payment programs that add convenience and value to
the online bill paying experience.
Our model expands our role in the online billing process by
positioning us as an intermediary that will manage the relationship between
consumers and providers of household products and services, such as utilities,
telecommunications services, insurance, financial services, and others. As the
intermediary, we intend to use the combined buying power of our customer base to
negotiate volume discounts, rebate and reward arrangements, reduced interest
rates and premiums, and other money-saving advantages for our customers. In
addition, our model incorporates processes that are designed to help us overcome
the barriers that have, until now, prevented widespread adoption of e-bill
consolidation services by the mass market.
We currently earn revenues by providing Internet dial-up access to
approximately 10,000 customers in the Chicago, Illinois metropolitan area. Our
business plan calls for the use of our e-bill consolidation service to create
four additional primary revenue streams:
- we intend to purchase and resell products and services to our
customers at a markup;
- we hope to earn commissions and referral fees from businesses we
introduce to our customers;
- we intend to retain a portion of any administrative discounts that
we can negotiate for our customers; and
- we intend to retain a portion of any vendor rebates our customers
earn by using a co-branded credit card that we plan to offer.
To date, we have focused mainly on building our distribution
network, an essential first step in generating all of our revenue streams. We
have not focused on establishing the significant strategic relationships that we
believe are essential to developing the revenue streams described above but
intend to do so following our initial public offering. Specifically, we will
seek to enter into agreements with billers that will allow us to offer
money-saving benefits to our customers. The agreements we hope to negotiate with
billers will fall into one of four categories: reseller agreements, affiliate
agreements, administrative discount agreements and rebate agreements. We expect
these agreements to provide us
7
with revenue from price mark-ups, commissions, referral fees, rebates and
credits. In addition, we must enter into a relationship with a financial
institution that will extend credit to our customers so they can take advantage
of our full array of bill-paying options. We intend to structure such a
financial institution relationship so that we receive a portion of any loan
revenues generated by such lending. We believe completing our initial public
offering, which we commenced shortly after our registration statement was
declared effective by the Securities and Exchange Commission on February 13,
2004, is an important factor in winning these strategic contracts. We intend to
pursue these relationships when our initial public offering is complete.
Since our inception on April 2001, we have incurred significant
losses and, as of March 31, 2004, we had an accumulated deficit of $6,163,548.
These losses have resulted from the significant costs incurred for marketing and
building our distribution channel and expenses for the development and
maintenance of our technology platform. We intend to continue to invest heavily
in marketing, product development, and technology. As a result, we believe that
we will continue to incur substantial operating losses for the foreseeable
future.
CRITICAL ACCOUNTING POLICIES
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America, which require that management make numerous estimates and assumptions.
Actual results could differ from those estimates and assumptions, affecting our
reported results of operations and financial position. Our significant
accounting policies are more fully described in Note A to our audited financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2003. The critical accounting policies described here are those
that are most important to the depiction of our financial condition and results
of operations. Their application requires our management's subjective judgment
in making estimates about the effect of matters that are inherently uncertain.
We have incurred costs in connection with raising additional capital
through the sale of our common stock. These costs have been capitalized and will
be charged against additional paid-in capital should common stock be issued. If
there is no issuance of common stock, the costs incurred will be charged to
operations.
Revenues consist of subscriber Internet access service fees and are
recorded when earned (i.e., at the time services are provided). Deferred revenue
consists of amounts collected for annual Internet access service subscriptions
at the beginning of the subscription year. Of this deferred revenue, a
proportionate amount is recognized at the end of each month in which service has
been provided.
Deferred income tax assets and liabilities arise from temporary
differences associated with differences between the financial statement and tax
basis of assets and liabilities, as measured by the enacted tax rates that are
expected to be in effect when these differences reverse. Deferred tax assets and
liabilities are classified as current or noncurrent, depending on the
classification of the assets or liabilities to which they relate. Deferred tax
assets and liabilities not related to an asset or liability are classified as
current or noncurrent depending on the periods in which the temporary
differences are expected to reverse. The principal types of temporary
differences between assets and liabilities for financial statement and tax
return purposes are set forth in Note I to the financial statements included in
our Annual Report on Form 10-K for the year ended December 31, 2003.
8
RESULTS OF OPERATIONS
Three months ended March 31, 2004, compared with the three months ended March
31, 2003.
The following table summarizes our operating results as a percentage
of total revenue for each of the periods shown.
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2004 MARCH 31, 2003
------------------- -------------------
% OF NET % OF NET
AMOUNT REVENUE AMOUNT REVENUE
--------- -------- --------- --------
(UNAUDITED)
Revenue 112,664 100.0% 124,667 100.0%
Cost of Revenue 114,262 101.4% 125,819 100.9%
--------- -------- --------- --------
Gross Profit (1,598) -1.4% (1,152) -0.9%
Operating Expenses
Sales & Marketing 221,785 196.9% 190,225 152.6%
Product Development 103,595 92.0% 94,516 75.8%
General & Administrative 209,030 185.5% 241,156 193.4%
--------- -------- --------- --------
General & Administrative Total 534,410 474.3% 525,897 421.8%
--------- -------- --------- --------
Operating Income (Loss) (536,008) -475.8% (527,049) -422.8%
Other Income (Expense)
Interest Income 0 0.0% 304 0.2%
Interest Expense (54,010) -47.9% (21,096) -16.9%
Gain (Loss) on Sale of Investment 0 0.0% 0 0.0%
--------- -------- --------- --------
Total Other Income (54,010) -47.9% (20,792) -16.7%
Loss before provision for income tax (590,018) -523.7% (547,841) -439.4%
Provision for income tax 0 0.0% 0 0.0%
Net Income (Loss) (590,018) -523.7% (547,841) -439.4%
========= ======== ========= ========
REVENUE
During the first quarter 2004, net revenues decreased 9.6% relative
to the first quarter 2003, from $124,667 to $112,664. The decrease in revenue
was due to a reduction in the number of subscribers resulting from non-renewals
of subscriptions following the change in our network service provider in the
fourth quarter of 2003 and from normal attrition. Dial-up Internet access
service revenue accounted for all of the revenue for these periods.
9
COST OF REVENUE
Cost of revenue decreased from $125,819, or 100.9% of net revenues,
for the quarter ended March 31, 2003, to $114,262 or 101.4% of net revenues, for
the quarter ended March 31, 2004. The 9.2% decrease in dollars can be attributed
to deferred collocation costs that resulted in excess one-time charges during
the first quarter of 2003 and to a credit for collocation services that we
received in the first quarter of 2004. The decrease was partially offset by an
increase of approximately $2,500 per month in collocation charges pursuant to a
new collocation agreement into which we entered in July 2003 and which took
effect in September 2003. The increase as a percentage of revenue is
attributable to a decrease in revenues during the three months ended March 31,
2004 relative to the three months ended March 31, 2003.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing costs relate to expenses to
develop our markets and channels of distribution to those markets, primarily the
cost of building up our pool of independant sales agents, whom we call City
Managers. These costs include the salaries for the Area Directors responsible
for recruiting, training, and managing City Managers. During the first quarter
2004, we continued our efforts to grow our roster of City Managers. Sales and
marketing expenses increased from $190,225, or 152.6% of net revenues, for the
quarter ended March 31, 2003, to $221,785, or 196.9% of net revenues for the
quarter ended March 31, 2004. The 14.2% increase in dollars primarily due to an
increase in the number of Area Directors in the quarter ended March 31, 2004 as
compared to the same period in the prior year. We increased sales and marketing
staff in preparation for the completion of our initial public offering and the
increased sales and marketing activities that we anticipate we will undertake
after the offering. The increase as a percentage of net revenue is due to this
increase in costs and the decrease in net revenues during the same period.
Product Development. Product development costs consist of internal
costs and external fees to develop our technical platform and back-end systems,
including salaries for our software development staff. Product development costs
increased to $103,595, or 92.0% of net revenues for the quarter ended March 31,
2004, from $94,516, or 75.8% of net revenues, for the quarter ended March 31,
2003. The 9.6% increase in dollars was attributable to costs associated with the
implementation of new measures that we undertook during the quarter ended March
31, 2004 to combat increasing virus activity on the Internet. The increase as a
percentage of net revenues was attributable to this increase in costs and the
decrease in revenues during the same period.
General and Administrative. The main components of general and
administrative expenses were wages and employee benefits, taxes and insurance
expenses, and professional and consulting fees. General and administrative
expenses decreased from $241,156, or 193.4% of net revenues, for the three
months ended March 31, 2003, to $209,030, or 185.5% of net revenues, for the
three months ended March 31, 2004. The decrease in dollars was primarily due to
a tax penalty incurred during the three months ended March 31, 2003, to which
there was no comparable expense in the three months ended March 31, 2004, but
which is partially offset by increases in insurance costs, printing costs,
professional fees and rent. As a percentage of net revenues, the decrease in
general and administrative expenses is a result of the overall decrease in
costs, which is partially offset by a decrease in net revenues.
INTEREST INCOME AND EXPENSE
Interest Income. Interest income was $0 for the quarter ended March
31, 2004 and $304 for the quarter ended March 31, 2003. Interest income for the
quarter ended March 31, 2003 consisted of interest on one promissory note held
by the Company. That promissory note was not in effect during the first quarter
of 2004.
10
Interest Expense. Interest expense was $54,010 in the quarter ended
March 31, 2004 and $21,096 in the quarter ended March 31, 2003. The increase was
primarily due to increases in accrued interest resulting from increases in
principal owed by us under our operating line of credit, as well as accrual of
interest on two promissory notes made by us in July and November 2002,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $206,536 during the
quarter ended March 31, 2004 and $129,902 during the quarter ended March 31,
2003. The decrease in cash flow was primarily the result of a decrease in
revenues and an increase in sales and marketing expenses. During the quarter
ended March 31, 2004, we financed our operations primarily through accrued
expenses and accrued accounts payable of $137,814 and $77,180 respectively.
Net cash used for investing activities was $4,766 for the quarter
ended March 31, 2004. This consisted primarily of computer equipment purchases.
Net cash provided from investing activities was $100 for the quarter ended March
31, 2003.
Net cash provided by financing activities was $204,837 for the
quarter ended March 31, 2004 and $128,051 for the quarter ended March 31, 2003.
For the quarter ended March 31, 2004, cash from financing activities consisted
of $224,999 in cash received pursuant to a line of credit from a shareholder,
and was offset by deferred offering costs of $20,162. For the quarter ended
March 31, 2003, cash from financing activities consisted primarily of $168,000
in cash received pursuant to a line of credit from a shareholder, and was offset
by deferred offering costs.
We have not generated any net cash from operations since our
inception. We have funded operations primarily through private sales of equity
securities, borrowings from third parties, deferred salary arrangements with our
employees, tax payment deferrals and trade payables.
We are party to a secured credit line agreement with a shareholder,
under which we owed an outstanding principle balance of $1,490,000 as of
March 31, 2004. As of the same date, we had approximately $1,410,000 in credit
available under this agreement. On March 1, 2004, the agreement was modified to
increase the credit line from $1,500,000 to $3,000,000. The terms of the credit
line agreement allow the company to draw funds against the line of credit for
any legitimate business purpose with three days' notice, provided that the
creditor, in his sole discretion, approves the request. We intend to continue
financing our operations with proceeds from this credit line until we receive
the proceeds of our initial public offering, which we expect will occur on July
12, 2004. All amounts outstanding under the line of credit loan agreement,
including principal and accrued interest, become due and payable on January 1,
2005 or upon the occurrence of an acceleration event, as defined in the loan
documents, including a successful public offering of the company's stock.
We filed a Registration Statement on Form S-1 (File No. 333-107769)
with the Securities and Exchange Commission, which was declared effective by the
Commission on February 13, 2004. Shortly thereafter, we commenced an initial
public offering, on a best efforts basis, of 2,000,000 shares of the Company's
common stock at a price of $10 per share. The offering closes on July 12, 2004.
To receive the proceeds of the offering, we must sell a minimum of 1,200,000
shares for an aggregate price of $12,000,000. We may elect to close the offering
on an earlier date if we have received subscriptions for the maximum amount of
2,000,000 shares. Receipt of the proceeds of the offering, should it occur, will
contribute significantly to our liquidity.
Income Taxes
We have historically reported net losses and, in accordance with
accounting principles generally accepted in the United States, have not recorded
any income tax benefits from these losses. We reported a net loss for the first
quarter of 2004 and have recorded income taxes at an effective tax rate of 0%.
To the extent that we report taxable income in future periods, we intend to use
net operating loss carryforwards to the extent available to offset the taxable
income and reduce cash outflows for income taxes.
RISKS AND UNCERTAINTIES
Risks and uncertainties that could impact our business, results of
operations and cash flows and cause future results to differ from our
expectations include the following: (1) that we have not completed our initial
public offering and there are no assurances that we will be able to do so; (2)
that we have
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historically not been profitable and we may not be able to attain or sustain
profitability; (3) that our business strategy is new and unproven; (4) that our
marketing strategy is non-traditional and may not be effective in acquiring
customers; (5) that our efforts to develop the LightFirst brand may be
unsuccessful; (6) that we have not yet entered into the agreements with
providers of households products and services that are critical for us to fully
implement our business plan and that there are no assurances that we will be
able to do so; (7) that we have not yet entered into an agreement with a bank or
similar financial institution, which is critical for us to provide some of the
features that we propose to provide, and that there are no assurances that we
will be able to do so on favorable terms or at all; (8) that we operate in an
industry that is highly competitive, and our competitors have greater resources
and brand recognition than we do; (9) that we rely on third-party providers for
key services that are critical to our operations and that any change in our
ability to obtain these services on reasonable terms could harm our business;
(10) that service interruptions, breakdowns, or breaches in security could cause
us to lose customers and/or expose us to liability; (11) that we may experience
losses due to defaults on payments by our customers or fraud; (12) that we might
become subject to laws and regulations, compliance with which could increase the
cost of doing business; (13) that changes in general economic conditions may
have a negative effect on our business; (14) that we may not be able to protect
our proprietary technologies or successfully defend infringement claims and may
be required to enter licensing arrangements on unfavorable terms; and (15) that
some other unforeseen event or circumstance could impair our operations. The
intention of this list is to present some of the known risks that could cause
future operating results to differ materially from our expectations and from the
forward-looking statements contained in this report. This list is not a complete
list of factors that could affect our business and results of operations, and it
should be read in conjunction with the more detailed descriptions of risk
factors contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 and our Registration Statement on Form S-1 filed with the
Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently have no floating rate indebtedness, hold no derivative
instruments, and do not earn foreign-sourced income. Accordingly, changes in
interest rates or currency exchange rates do not have a direct effect on our
financial position. To date the effects of inflation on us have been immaterial.
ITEM 4. CONTROLS AND PROCEDURES
We maintain "disclosure controls and procedures," as such term is
defined under Exchange Act Rule 13a-14(c), that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. We have carried out an evaluation, within the 90 days prior to
the date of filing of this report, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based upon his evaluation and subject to the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded
that there were no significant deficiencies or material weaknesses in the our
disclosure controls and procedures and therefore there were no corrective
actions taken.
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There have been no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date we completed our evaluation.
As described in the Company's registration statement on Form S-1,
declared effective by the Commission on February 13, 2004, and elsewhere in this
report, the company currently has one director, Mr. Martin P. Gilmore. The
Company has nominated three independent persons for membership on the board of
directors, each of whom has agreed to serve on the board of directors upon the
completion of the Company's initial public offering. As such, the company's sole
director, who is also the Company's Chief Executive Officer and Chief Financial
Officer, currently oversees disclosure controls and procedures. Upon the
completion of the offering, such oversight will become the responsibility of the
audit committee.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have an outstanding tax liability, including assessed penalties,
in excess of approximately $1,152,000 as of December 31, 2003 for unpaid FICA,
Medicare, state and federal employment taxes. This tax liability arose because
certain of our employees were initially characterized as being self-employed
when they should have been characterized as our employees. We incurred the tax
liability between May 2001 and June 2003, and it includes approximately $399,000
of penalties and interest. The balance of approximately $753,000 represents the
amount under current tax law that should have been withheld from employees'
checks as well as our matching contributions to FICA, Medicare and unemployment
taxes. On July 22, 2003, the State of Illinois filed a tax lien against us for
approximately $62,000, which represents Illinois' portion of the tax liability.
To date, the Internal Revenue Service has not filed a lien against us, but it
could do so in the future. We intend to use a portion of the proceeds from our
initial public offering to satisfy our tax liability.
We are not a party to any other material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) The Company has filed a Registration Statement on Form S-1 (File No.
333-107769) with the Securities and Exchange Commission, which was declared
effective by the Commission on February 13, 2004. Shortly thereafter, the
Company commenced an initial public offering, on a best efforts basis, of
2,000,000 shares of the Company's common stock at a price of $10 per share. The
Company is selling the stock itself without the assistance of underwriters. As
of the date of this quarterly report, the offering has not yet closed and, as
such, no proceeds from the offering have been received by the Company. The
Company will receive the proceeds of the offering on July 12, 2004, provided
that the Company sells a minimum of 1,200,000 shares before that date.
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During the quarter ended March 31, 2004, the Company incurred
approximately $20,000 in expenses related to its public offering. These expenses
consisted entirely of legal expenses due to the Company's law firm. No payments
for offering-related expenses have been paid directly or indirectly to any
underwriter or broker, to directors or officers the Company or their associates,
to persons owning ten (10) percent or more of any class of equity securities of
the Company, or to affiliates of the Company.
(e) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ending March 31, 2004.
ITEM 5. OTHER INFORMATION.
(a) None
(b) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 902 of the Sarbanes-Oxley Act of 2002
(b) Reports on form 8-K
The company has not been required to file a Form 8-K, as it has not
experienced any material changes that have affected its usual way of doing
business, or that would otherwise significantly affect its ability to
conduct business in the future. Furthermore, the company has not
experienced any changes that materially alter its current financial
condition, or that would reasonably be expected to influence its future
financial condition.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LIGHTFIRST INC.
(Registrant)
By: /s/ Martin P. Gilmore
-------------------------------
Martin P. Gilmore
President and Chief Executive Officer
May 17, 2004
Pursuant to the requirements of the Securities Act of 1933, this report has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Martin P. Gilmore President, Chief Executive Officer and May 17, 2004
- --------------------- Chairman of the Board of Directors
Martin P. Gilmore (Principal Executive Officer)
/s/ Martin P. Gilmore Chief Financial Officer May 17, 2004
- --------------------- (Principal Financial Officer and
Martin P. Gilmore Principal Accounting Officer)
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