Lumen Foods - Business Plan, FAQ

Below you will find some of the questions we have been asked in the short time we have had Lumen Foods on the market. We've also added questions that we would ask if WE were the buyer, plus questions that you SHOULD be asking, even if you don't. We have done everything possible to try and put ourselves in the shoes of the prospective buyer and cover all the issues that we know, as insiders, could and would be pertinent. This is in keeping with our desire to see Lumen Foods continue on and become successful, even though we will be giving up ownership. Each question in the following header clicks to its answer down below. All questions are answered by Greg Caton (the Company's founder) or Cathryn Caton (CEO since 2003) or both -- and with each question the answering part(ies) are specified:

1. Why are you selling the business?
2. Can I move Lumen Foods out of Lake Charles?
3. How long have you owned the business?
4. How did you arrive at an asking price of $380,000?
5. If Lumen Foods were to be moved, what would it cost?
6. What are the company's biggest missed opportunities?
7. You have a great product and only $700,000 a year
in sales, so why haven't you done better?
8. What caused your sales to go up from 1998 to 2003
and then settle down from 2003 to 2006 into
a little over $700,000 a year in sales? Why the drop?
9. How much working capital do I need to bring in
above and beyond the purchase price?
10. Why was real property excluded in the 2005 balance sheet? 11. Is there any possibility of legal blowback from Alpha
Omega Labs' legal problems in 2003 to Lumen Foods
today?
12. Do you have any other legal issues of any kind?
13. Under what terms would you continue to be available
as consultants to the business and under what terms?
14. When would you be ready to consummate a deal,
once the prospect completes due diligence?
15. How long have you had Lumen Foods on the market?
16. Does your Company have favorable credit?
What about relations with your credit card processor?

Answers

1. Why are you selling the business?

[ Both answering ]: Ours has been a case of an "embarrassment of riches."

In 2003 we were running three manufacturing operations: Lumen Foods, Alpha Omega Laboratories, and a new startup named PreservX. We founded them all of them from scratch, and, in fact, Lumen Foods funded the start-ups of both Alpha Omega Laboratories and PreservX. Our gross was $150,000 per month and PreservX had a new, large corporate customer -- the largest we had ever had -- that would soon be adding over $100,000 per month in additional sales. In other words, our monthly gross would be much less than what we are selling Lumen Foods for now!

On September 17, 2003, the U.S. Government came in and closed down Alpha Omega Labs', our online herbal operation. They seized all the inventory and told us not to sell any more herbal products.

Ever.

(The case has created considerable discussion on the internet within the alternative health care community -- and a video is currently being produced concerning the event.)

We have had to show certain parties various legal transcripts, because when we describe what happened to us, they tend not to believe us. But, of course, it's all true. And we have the paperwork to prove it. (We touch upon this in more detail in the Executive Summary).

As a result of this incident, we are selling what remains of our empire and moving to Texas. Our PreservX operation was sold to Bill Woodward of Lake Charles for $600,000 and is now globalpreservatives.com. Our one remaining operation is Lumen Foods and we have priced it to sell quickly, as well. As a result of our misfortune, we are selling not only Lumen Foods, but our personal home. We believe that anyone who has been through what we have would do similarly.

But our misfortune can be your gain. We already sold PreservX on the cheap. We're selling Lumen Foods on the cheap. And we're selling our home on the cheap.

The short answer is: we simply wish to move on.

2. Can I move Lumen Foods out of Lake Charles?

(Both answering): Of course, but the pros and cons of "staying" versus "leaving" should be acknowledged.

Keeping Lumen Foods in Lake Charles means no moving costs. You would only need an additional $40,000 in working capital to build your own accounts receivable (since our bank account, along with payables and receivables, are not transferred with the business). However, if you move Lake Charles, depending on where you are moving it to, you will incur, by our estimation, anywhere from $20,000 to $50,000 in additional costs -- transportation of equipment, inventory, furnishings, etc.; leasehold improvements at the new facility; personnel moving costs, where applicable; etc.

In addition, we are selling Lumen Foods with the 25,000 square feet of commercial property out of which it operates. What would you do with this property? If you sell it, there are time factors and elements of uncertainty that enter into the picture that do not exist if you keep it where it's at.

3. How long have you owned the business?

(Greg Caton): For over 20 years. I founded the company in 1986 and we've run it continually ever since. We discuss this under History & Future Growth.

4. How did you arrive at an asking price of $380,000?

(Both): Like most sellers of a small business, there are both objective and subjective factors. We already knew that our operating inventory runs fairly consistent -- between $90,000 and $100,000. If someone wanted to acquire the equipment we use to make Lumen products and make all the necessary modifications (i.e. in the case of the coating pans, welders have to place slates at specific locations in the interior, etc.) it would cost well over $150,000.

So, that's $250,000, right there . . . and nearly half of that falls under Current Assets.

The additional $130,000 covers the real estate spread between the $138,000 that is now owed Capital One, and the original purchase of $268,000 in 1993 and 1995. Essentially, all furnishings, software, film, artwork, good will for the business which consistently grosses around $700,000 per year, is free. If you want a more precise breakdown, our IRS Asset Allocation Form provided it by broad category; while "Assets Included" gives you an idea of what physical production assets, necessary to run Lumen Foods, are included in the sale.

Our own opinion is that we're selling the business quite "cheap" and in return we are asking for all, or close to all, the purchase price in return. (We deal with financing in another FAQ question). We made a decision early on that we did not want to create a situation where our family was turned into a collection agency. We understand that requires an even closer due diligence on the part of a prospective buyer -- and that's to be expected.

5. If Lumen Foods were to be moved, what would it cost?

(Greg Caton): Cathryn and I don't even agree on this figure. There are, after all, a number of variables, including distance from Lake Charles to the new target location, how much improvement in electrical, plumbing, bringing up to FDA / good manufacturing standards, is required at the new location, etc.

We do agree that moving all the equipment and inventory, getting the equipment installed with the right electrical conditions, and building "finished goods" inventory to meet orders so that there is no disruption in continuing business while the move is taking place, present the bulk of any moving expense.

You should plan on anywhere from $25,000 to $75,000.

6. What are the company's biggest missed opportunities?

(Both): Lumen Foods has always suffered for lack of attention because there was never a time when we didn't have multiple companies. We didn't get into manufacturing just to make a living. We enjoy the process. We enjoy starting new operations, from setting up the building structure to attending the trade shows to bringing out new products. One of our companies, the one that the FDA eventually targeted for extinction -- (despite assurances from the best FDA legal minds in the country that we had all of our bases covered), had over 350 different products -- mostly herbal, and of these, better than 150 were manufactured or re-packaged in-house.

We are currently involved in setting up a new manufacturing company in China for the worldwide distribution of a new, patented product that we developed prior to 2003.

Lumen Foods would greatly benefit from product diversification and fragmentation into other niches. For years, we've been encouraged to make variations for pets. We didn't. We were too busy. We've been told by our retailers to create corrugated end-aisle product displays. We didn't. We decided to put the money elsewhere. We were told to get better food brokers. We gave it one round in 2000 and then pared back to just one in the Northwest, so that we could make our life simpler.

We could have taken The Lumen Book, which sold over 45,000 copies, and made updates so that we could kick start a repeat of our profitable mail order campaigns of the early and mid-1990's with Adventist publications. We didn't. That was time and trouble that would have taken us away from our research into herbal medicines.

We could have taken our successful sauce recipes and done line extensions with jarred, complete, ready-to-eat meals. We did this experimentally on the mail order side, but when retailers and marketers said we would have to cough up slotting fees to get this product into the mainstream, we said "Forget it." We didn't feel the gamble was necessary because each of our operations was already profitable.

Stonewall's Jerquee is, by all accounts, the best-loved, best-selling vegetarian jerky in the health food trade. It constitutes nearly 100% of Lumen Foods current sales. The greatest missed opportunity is that we haven't converted this popularity from its current cult status with more mainstream exposure.

7. You have a great product and only $700,000 a year in sales, so why haven't you done better?

(Both): This is a variation on the last question. And the short version is that we have had -- and still have -- other projects that vie for our time, attention, and money.

8. What caused your sales to go up from 1998 to 2003 and then settle down from 2003 to 2006 into a little over $700,000 a year in sales? Why the drop?

(Both): We grossed an extra $1,000,000 in 1999 alone by turning soybean.com into a full-line pit stop for those concerned about the Y2K computer problem. From 1998 to 2000 that special event-driven project bumped up sales considerably. We decided not to get back into the survival market when that niche revived in 2001. Again -- an issue of resource allocation of time, energy and money.

Secondly, Alpha Omega Labs became a worldwide phenomenon in the early 2000's, and, of course, since we owned both ventures, we funnelled as much business in Lumen Foods direction as possible. (In the late summer of 2003, Alpha Omega Labs alone grossed about $90,000 per month.) That gravy train ended in 2003. So, the $700,000+ sales that the financial statements show from 2003 to 2006 now represents the core business of Lumen Foods' product, which, again, now centers around the successful Stonewall's Jerquee meatless snack.

9. How much working capital do I need to bring in above and beyond the purchase price?

As stated in the answer in Question #2, you would need about $40,000 for your general account, largely to build your own accounts receivable. Above and beyond that, your capital requirements will depend on which direction you intend to take the business. Lumen Foods is an established company. It spends next to nothing on sales and marketing -- but this matters little with a well-established, niche product. It is sufficiently mature in its market that its customers are extremely loyal. We would prefer, however, to sell Lumen Foods to a party that is positioned to realize its true potential. Something we never did due to our many promising options.

10. Why was real property excluded in the 2005 balance sheet?

(Cathryn): We added it back in to our Balance Sheet for the 4th quarter (May 1, 2006 to July 31, 2006).

The reason it was excluded was that the property was initially forfeited as part of a plea agreement with the Federal Government (FDA) over the Alpha Omega Labs fiasco. It has now been returned under a separate, bilaterally-signed agreement; however, prior to this the Government took the property, but refused to make the mortgage payments on it or pay the property tax. (Even our own attorneys didn't know they were capable of doing this -- but they did.)

With our property returned, all back (property) taxes paid in full, and clear title regained, we can now offer the commercial property as part of the deal.

11. Is there any possibility of legal blowback from Alpha Omega Labs' legal problems in 2003 to Lumen Foods today?

(Greg): Zero to none. The prosecution on our herbal operation in 2003 was set in stone by political factors before they ever closed it down. It is no longer an operating entity. Besides, the U.S. Food & Drug Administration regularly inspects our Lumen Foods facility -- after all, as a food company, this oversight is required by law. If there were any other problems, we would have known them by now.

12. Do you have any other legal issues of any kind?

(Both): None.

13. Under what terms would you continue to be available as consultants to the business and under what terms?

(Both): That's up to you. We would make ourselves available for as long as YOU felt necessary for very modest consulting fees. Exact terms would have to be discussed because every prospect is different. Some would want us to maintain all the web activity; some would not want us to have anything to do with it. Some would want us involved in operations; others, not all at.

14. When would you be ready to consummate a deal, once the prospect completes due diligence?

(Both): Within a couple of weeks. It will take time to have the Buy/Sell Agreement re-drafted and reviewed to everyone's satisfaction. We would expect the Buyer to pay for these legal expenses, which we would then pay in settlement from the proceeds in reimbursement.

15. How long have you had Lumen Foods on the market?

(Cathryn): We put Lumen Foods up for sale in 2004, by placing a couple of ads on the internet. Because Greg was still incarcerated as an herbalist (see Executive Summary), this seemed impractical. Also, the prospects who wanted to purchase the business were cash poor and expected us to do the bulk of the financing. (Lumen Foods is profitable and would fund any reasonable source of debt financing, so if we took a substantial percentage in "paper," the whole world would want it. Why not, if the business funds the entire purchase and the new buyer puts no equity into his business?) So we withdrew the ads in early 2005 and decided to wait. Lumen Foods is profitable, so we didn't mind waiting a year before going back to the market. Since April, 2006, we have been running ads on the internet.

That's where we are now. (11/24/06).

16. Does your Company have favorable credit?
What about relations with your credit card processor?

Herbologics, Ltd. d/b/a Lumen Foods has excellent credit. We provide credit information on this subdirectory for your review.

The relations we have with our credit card processor is excellent. Our discount cards on all major credit cards is well under 2.8%, despite being a mail order company that takes phone orders worldwide. We have taken many years to acquire our good rating based on years of business with extremely low numbers of "chargebacks."

In addition, our credit rating is excellent because we have not had any readily resolveable, product-related disputes, let alone litigation, since 1988.