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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 033-55254-27
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ADVANCED LUMITECH, INC.
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(Name of small business issuer in its charter)
Nevada 87-0438637
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8C Pleasant Street, First Floor, South Natick, MA 01760
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(Address of principal executive offices, Zip code)
(508) 647-9710
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(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of class)
Check whether the Company (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 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.
[ ]Yes [X] No
The Company had 100,000,000 shares of Common Stock, $.001 par value, issued and outstanding as of
August 15, 2005.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
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____________________________________________________________________________________________________
INDEX
Page Number
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 2005 and
December 31, 2004 4
Consolidated Statements of Operations for the Three
Months Ended March 31, 2005 and 2004 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2005 and 2004 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
-2-
Exhibit Index 24
Exhibit 31 Certification of Chief Executive and Financial Officer Pursuant
to 18 U.S.C Section 1850, As Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (filed herewith) E1
Exhibit 32 Certification of Chief Executive and Financial Officer
Pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C
Section 1850, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (filed herewith) E2
NOTE REGARDING FORWARD LOOKING STATEMENTS:
ANY STATEMENTS CONTAINED IN THIS FORM 10-QSB THAT DO NOT DESCRIBE HISTORICAL FACTS, INCLUDING
WITHOUT LIMITATION STATEMENTS CONCERNING EXPECTED REVENUES, EARNINGS, PRODUCT INTRODUCTIONS AND
GENERAL MARKET CONDITIONS, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS AS THAT TERM IS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ANY SUCH FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN ARE BASED ON CURRENT EXPECTATIONS, BUT ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES
THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTATIONS. THE FACTORS THAT COULD CAUSE
ACTUAL FUTURE RESULTS TO DIFFER MATERIALLY FROM CURRENT EXPECTATIONS INCLUDE THE FOLLOWING: THE
COMPANY'S ABILITY TO RAISE THE FINANCING REQUIRED TO SUPPORT THE COMPANY'S OPERATIONS; THE COMPANY'S
ABILITY TO ESTABLISH ITS INTENDED OPERATIONS; FLUCTUATIONS IN DEMAND FOR THE COMPANY'S PRODUCTS AND
SERVICES; THE COMPANY'S ABILITY TO MANAGE ITS GROWTH; THE COMPANY'S ABILITY TO DEVELOP, MARKET AND
INTRODUCE NEW AND ENHANCED PRODUCTS ON A TIMELY BASIS; THE COMPANY'S LACK OF CUSTOMERS; AND THE
ABILITY OF THE COMPANY TO COMPETE SUCCESSFULLY IN THE FUTURE. FURTHER INFORMATION ON FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE ANTICIPATED IS DETAILED HEREIN IN ITEM 2, RISK
FACTORS, AND IN VARIOUS FILINGS MADE BY THE COMPANY FROM TIME TO TIME WITH THE SECURITIES AND
EXCHANGE COMMISSION. ANY FORWARD-LOOKING STATEMENTS SHOULD BE CONSIDERED IN LIGHT OF THOSE FACTORS.
-3-
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED LUMITECH, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited) (Audited)
March 31, 2005 December 31, 2004
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ASSETS
Current assets
Cash and cash equivalents $ 73,357 $ 4,310
Accounts receivable 31,912 -
Interest receivable 40,266 38,750
Inventory 32,524 31,348
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TOTAL CURRENT ASSETS 178,059 74,408
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Office and photographic equipment 23,511 23,511
Less accumulated depreciation (23,511) (23,511)
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- -
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Note receivable from related party 250,000 250,000
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TOTAL ASSETS $ 428,059 $ 324,408
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 3,487 $ 3,505
Accounts payable 256,039 367,329
Accrued expenses 266,680 243,219
Advance from related party(ies) 32,196 64,196
Notes payable to related party 50,000 100,000
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TOTAL CURRENT LIABILITIES 608,402 778,249
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Long-term liabilities
Long-term debt, net of current maturities 160,411 162,986
Liability for shares to be issued 497,000 467,000
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657,411 629,986
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1,265,813 1,408,235
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Stockholders' deficit
Common stock 100,000 100,000
Additional paid-in capital 7,731,403 7,731,403
Stock subscribed 1,262,000 850,000
Accumulated deficit (10,071,835) (9,908,695)
Accumulated other comprehensive income (loss) 140,678 143,465
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(837,754) (1,083,827)
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TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 428,059 $ 324,408
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The accompanying notes are an integral part of these financial statements
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ADVANCED LUMITECH, INC. AND SUBSIDIARY
Statements of Operations
(Unaudited)
For the Three Months Ended March 31,
2005 2004
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Sales $ 35,442 $ 176,216
Cost of sales 34,103 169,273
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Gross profit 1,339 6,943
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Operating expenses
Research and development 18,594 62,687
Selling and marketing 33,452 168,399
General and administrative 112,295 138,175
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164,341 369,261
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Operating loss (163,002) (362,318)
Other Income (Expense) (138) (2,087)
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Net loss (163,140) (364,405)
Accumulated deficit - beginning (9,908,695) (8,355,390)
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Accumulated deficit - ending $(10,071,835) $(8,719,795)
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Basic and diluted net loss per share $(0.00) $(0.00)
================ ================
Weighted average number of shares used in
computation of basic and diluted net loss per share 100,000,000 98,283,620
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COMPREHENSIVE LOSS
Net loss $(163,140) $(364,405)
Other comprehensive loss (2,787) 15,467
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Comprehensive income $(165,927) $(348,938)
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The accompanying notes are an integral part of these financial statements
-5-
ADVANCED LUMITECH, INC. AND SUBSIDIARY
Statements of Cash Flows
(Unaudited)
For the Three Months Ended March 31,
2005 2004
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Cash flows from operating activities
Net loss $ (163,140) $ (364,405)
Adjustments to reconcile net loss to net cash used for
operating activities:
Accrued interest on note receivable - related party (1,516) (3,406)
Depreciation - 677
Foreign exchange loss - (9,422)
General and administrative expense associated
with stock based transactions 30,000 72,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (31,912) (235,087)
Inventory (1,176) 38,011
Increase (decrease) in:
Accounts payable (111,290) 136,785
Accrued liabilities 23,461 (39,858)
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Net cash used for operating activities (255,573) (404,705)
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Cash flows from financing activities
Principal payments on long-term debt (2,593) (1,679)
Principal payments on note payable - related party (50,000) -
Repayment of advances from related party (32,000) (50,000)
Sale of common stock, exercise of
warrants and stock subscribed 412,000 350,000
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Net cash provided by financing activities 327,407 298,321
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Effects of changes in foreign exchange rates (2,787) 15,467
Net increase (decrease) in cash and cash equivalents 69,047 (90,917)
Cash and cash equivalents - beginning 4,310 335,803
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Cash and cash equivalents - ending $73,357 $244,886
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Supplemental disclosures of cash flows information
Cash paid during the period for interest $9,766 $5,493
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The accompanying notes are an integral part of these financial statements
-6-
ADVANCED LUMITECH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. OPERATIONS
Advanced Lumitech, Inc. d/b/a Brightec ("ADLU" or "Company") develops and markets luminescent films
incorporating luminescent or phosphorescent pigments (the "Luminescent Product"). These pigments
absorb and reemit visible light producing a "glow" which accounts for the common terminology "glow
in the dark." The Company's Luminescent Product will be sold primarily as a printable luminescent
film designed to add luminescence to existing or new products. The Company manufactures through
third-party manufacturers, markets and sells graphic quality printable luminescent films (the
"Luminescent Product"). These films are based on the Company's proprietary and patented technology,
which enables prints to be of photographic quality by day and luminescent under low light or night
conditions. The Company expects that its Luminescent Product will be available for sale in a number
of versions appropriate for commonly used commercial and personal printing technology, including
offset printing, laser or inkjet printing, plus a variety of "print on demand" digital technologies.
The Company offers its products in sheets and rolls.
2. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at March 31, 2005 and for the
three-month periods ended March 31, 2005 and 2004 include the accounts of the Company and its
wholly-owned subsidiary. All inter-company transactions and balances have been eliminated in
consolidation. In our opinion, these unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements included in our Annual Report on
Form 10-KSB for the year ended December 31, 2004, and include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results for such interim
periods. These financial statements should be read in conjunction with the audited consolidated
financial statements included in our Annual Report on Form 10-KSB for the year ended December 31,
2004. The results of operations for the three-month period ended March 31, 2005 are not necessarily
indicative of the results expected for the fiscal year ending December 31, 2005.
Certain footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been condensed or omitted
pursuant to such rules and regulations, although we believe that the disclosures in these financial
statements are adequate to make the information presented not misleading.
3. LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN
The Company has a working capital deficit of $430,343 and an accumulated deficit of $10,071,835 at
March 31, 2005, and recurring net losses since inception. The ability of the Company to continue to
operate as a going concern is primarily dependent upon the ability of the Company to raise the
necessary financing, to effectively produce and market Brightec products at competitive prices, to
establish profitable operations and to generate positive operating cash flows. If the Company fails
to raise funds, or the Company is unable to generate operating profits and positive cash flows,
there are no assurances that the Company will be able to continue as a going concern and it may be
unable to recover the carrying value of its assets.
Management believes that it will continue to be successful in raising the necessary financing to
fund the Company's operations through the 2005 calendar year; however, there can be no assurances
that such financing can be obtained.
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ADVANCED LUMITECH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market value and consist of the
following:
March 31, 2005 December 31, 2004
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Raw materials $ 5,437 $ 19,867
Work-in-process 22,765 7,181
Finished goods 4,322 4,300
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$ 32,524 $ 31,348
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5. INCOME TAXES
The Company has not calculated the tax benefits of its net operating losses as of March 31, 2005 and
December 31, 2004 since it does not have the required information. The Company has not filed its
federal and state corporate tax returns for years ended December 31, 2004, 2003, 2002 and 2000. The
tax return filed for 2001 will need to be amended. Due to the uncertainty over the Company's ability
to utilize these operating losses, any deferred tax assets, when determined, would be fully offset
by a valuation allowance.
6. RELATED PARTY TRANSACTIONS
As of March 31, 2005 and December 31, 2004, a ten-year note of $250,000 was receivable from the
Company's president, who is also a director and stockholder. This loan, due no later than December
31, 2011, bears interest at a fixed rate of 5.05% and is full-recourse. Interest is on the loan is
accrued quarterly and due annually. No interest payments on such loan have been made to date.
At March 31, 2005 and December 31, 2004, the Company owed the president $32,196 and $55,196,
respectively, in connection with advances made by him to the Company in prior years. During the
three months ended March 31, 2005, the Company made advances to this shareholder of $ 37,500 and
repaid $60,500 of the outstanding advances due. All such advances bear interest at the Internal
Revenue Service short term "Applicable Federal Rate," calculated and accrued monthly.
During the quarter ended March 31, 2005 and the year ended December 31, 2004, the Company recognized
net interest income of $2,926 and $13,627, respectively, on the above note receivable and advances.
As of March 31, 2005 and December 31, 2004, net accrued interest was receivable from the president
of $40,266 and $38,750, respectively.
"In December 2004, the principal stockholder advanced the Company $9,000, on a non-interest bearing
basis; the advance was repaid in January 2005."
OTHER NOTES
Other related party debt is described in Notes 7 and 9.
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ADVANCED LUMITECH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
7. NOTES PAYABLE TO RELATED PARTY
In December 2002, the Company borrowed $50,000 from its largest stockholder under a convertible
demand promissory note, which bears interest at 8.00% and is payable in full on demand within one
year. The principal, if not paid within thirty days of when due, bears interest at the rate of
10.00%. The note is convertible into that number of shares of the Company's common stock determined
by dividing the unpaid principal amount, together with all accrued but unpaid interest on the note,
at the conversion date by $0.10, subject to certain adjustments. At March 31, 2005 and December 31,
2004, accrued interest of $555 and $3,575, respectively, was due on the note.
In early 2003, the Company issued a second convertible demand promissory note to this stockholder to
borrow up to an additional $55,000 with the same terms as the $50,000 note, except that the interest
rate on the note is a fixed 8.00%. At March 31, 2005 and December 31, 2004, $50,000 was outstanding
under this note and accrued interest of $4,478 and $2,997, respectively, was due.
8. COMMON STOCK
NUMBER OF SHARES OF COMMON STOCK AUTHORIZED
Under the Company's charter, 100,000,000 shares of common stock are authorized. As of March 31,
2005, 100,000,000 shares of common stock are issued and outstanding and the Company has committed to
issue an additional 17,634,765 shares. It is anticipated that a vote of the Company's stockholders
to increase the number of shares of common stock authorized will occur in 2005.
STOCK SUBSCRIBED
Stock subscribed represents amounts received for equity investments for which shares of common stock
remain unissued at March 31, 2005.
As of December 31, 2004, 10,107,145 shares with an aggregate purchase price of $850,000 were
subscribed but unissued.
In January 2005, the Company sold 350,000 shares of common stock to two investors at a purchase
price of $0.10 per share for an aggregate purchase price of $35,000. In February 2005, the Company
sold to an investor 2,500,000 shares of common stock and a warrant to purchase 2,500,000 shares of
common stock, at an exercise price of $0.10 per share, expiring on April 1, 2005, for an aggregate
purchase price of $250,000, together with a second warrant to purchase 2,085,000 shares of common
stock at an exercise price of $0.12 per share, expiring on July 1, 2005, for an aggregate purchase
price of $250,000. On March 29, 2005, the stockholder exercised warrants to purchase 1,250,000
shares of the Company's common stock for an aggregate exercise price of $125,000. In February 2005,
the Company sold 20,000 shares of common stock to an investor at a purchase price of $0.10 per share
for an aggregate of $2,000.
As a result of the above transactions, 14,227,145 shares with an aggregate purchase price of
$1,262,000 are subscribed but unissued as of March 31, 2005.
LIABILITY FOR SHARES TO BE ISSUED
Liability for shares to be issued represents commitments to issue shares of common stock in exchange
for services provided or the settlement of debt. Such shares remain unissued at March 31, 2005.
As of December 31, 2004, 3,210,000 shares with an aggregate value of $467,000 are committed but
unissued.
In February 2005, the Company agreed to issue 120,000 shares of common stock, at an agreed-upon
value of $0.25 per share, in exchange for consulting services of $30,000 provided in January and
February 2005.
As a result of the above transactions, 3,330,000 shares with an aggregate value of $497,000 are
committed but unissued as of March 31, 2004.
-9-
ADVANCED LUMITECH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
REDEMPTION OF SHARES
In December 2004, the Company's president agreed to allow the Company to redeem 77,620 shares of his
common stock for no consideration in order to allow the Company to fulfill its commitments to issue
shares to certain consultants and investors in the Company. The Company will use its best efforts to
increase the number of authorized shares of its common stock as soon as reasonably practicable and,
upon such event, it will issue 77,620 replacement shares (adjusted for any recapitalization
transactions) for no additional consideration.
9. LONG-TERM DEBT
As of March 31, 2005 and December 31, 2004, $163,898 and $166,491, respectively, was outstanding in
connection with an agreement entered into in 2002 with the mother-in-law of the Company's president.
This agreement provides for the repayment of 2,000 Swiss francs of principal each January 1 and July
1, together with accrued interest on the unpaid balance payable quarterly at the rate of 4.25% per
annum. The Company recorded interest expense with respect to this obligation for the three-months
ended March 31, 2005 and the year ended December 31, 2004 of $1,727 and $7,562, respectively. At
each balance sheet date the outstanding debt is translated to U.S. dollars and any required
adjustment is recorded in the cumulative translation adjustment account within the equity section of
the balance sheet.
The maturities of long-term debt for the next five years and in the aggregate are as follows:
TWELVE MONTHS ENDED AMOUNT
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March 31, 2006 $ 3,487
March 31, 2007 3,487
March 31, 2008 3,487
March 31, 2009 3,487
March 31, 2010 3,487
Thereafter 146,463
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$ 163,898
==========
10. STOCK OPTIONS
The Company's 1999 stock option/stock issuance plan (the 1999 Plan) provides for the grant by the
Company of options, awards or rights to purchase up to 5,000,000 shares of the Company's common
stock, which generally vest over a five-year period and terminate ten years from the date of grant.
These options are not transferable, except by will or domestic relations order. There were no
options granted, exercised, or cancelled during the three months ended March 31, 2005 and the
comparable three months of 2004. As of December 31, 2004, options to purchase 2,800,000 shares of
the Company's common stock had been granted under the 1999 Plan, of which options to purchase
1,600,000 shares of the Company's common stock had been cancelled, options to purchase 200,000 share
of the Company's common stock had been exercised and options to purchase 1,000,000 shares of the
Company's common stock remain outstanding and are exercisable at an exercise price of $0.50 per
share. At December 31, 2004, 3,800,000 shares of the Company's common stock remained available for
grant under the 1999 Plan.
In addition to the 1999 Plan, in the fourth quarter of 2004 the Company granted to a former
consultant employee a non-qualified option to purchase 4,462,911 shares of the Company's common
stock at an exercise price of $0.10 per share. The option is fully vested and is exercisable for a
period of three years.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of the Company should
be read in conjunction with the Consolidated Financial Statements and Notes thereto included
elsewhere in this Quarterly Report on Form 10-QSB and our Annual Report on Form 10-KSB for the year
ended December 31, 2004. This Quarterly Report on Form 10-QSB contains forward-looking statements
based on our current expectations, assumptions, estimates and projections about the Company and our
industry. These forward-looking statements are usually accompanied by words such as "believes",
"anticipates", "plans", "expects" and similar expressions. Forward-looking statements involve risks
and uncertainties and our actual results may differ materially from the results anticipated in these
forward-looking statements as a result of certain factors, as more fully described in this section
under the caption "Risk Factors".
CRITICAL ACCOUNTING POLICIES
Certain of the Company's accounting policies are particularly important to the portrayal and
understanding of its financial position and results of operations and require the application of
significant judgment by management. As a result, these policies are subject to an inherent degree of
uncertainty. In applying these policies, the Company uses its judgment in making certain assumption
and estimates. The Company's critical accounting policies, which consist of revenue recognition,
account receivable reserves and inventories, are described in the Annual Report on Form 10-KSB for
the year ended December 31, 2004. There have been no material changes to the Company's critical
accounting policies as of March 31, 2005.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2004
REVENUES:
In January 2005, the Company made its fourth commercial sale of its Luminescent Product, which was
sold to a major poster board marketer that introduced a "Garage Sale Kit" that includes a sheet of
Brightec's glow-in-the dark paper in an 11"x14" poster board format. This "Garage Sale Kit" was test
marketed by a major mass-retailer in approximately 1,000 of its stores. The Company's revenue, net
of returns, allowances and discounts, for the three months ended March 31, 2005 was $35,442 compared
to $176,216 for the comparable three months of 2004.
GROSS PROFIT:
The Company's gross profit percentage was 3.78% for the three month period ended March 31, 2005,
which was primarily due to the requirement of reducing its Luminescent product sale price to compete
favorably in the poster board mass-retail market. In order to increase its gross profit percentage
and compete favorably in the marketplace, the Company will need to lower its manufacturing costs.
-11-
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses decreased by $44,093 for the three months ended March 31, 2005 to
$18,594 from $62,687 for the comparable three months of 2004. The decrease in research and
development expenses was primarily due to a decrease in the number of manufacturing trial runs in
the first quarter of 2005.
SELLING AND MARKETING EXPENSES:
Selling and marketing expenses decreased by $134,947 for the three months ended March 31, 2005 to
$33,452 from $168,399 for the comparable three months of 2004. The decrease in selling and marketing
expenses was primarily due to a decrease in professional fees and consulting services, which
consisted primarily of ending services for a marketing consultant and a marketing and corporate
branding consultant. The decrease in selling and marketing expenses included non-cash charges
relating to commitments to issue shares of the Company's Common Stock in exchange for consulting
services of $30,000 for the three months ended March 31, 2005, compared to $72,000 for the
comparable three months of 2004.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses consisted primarily of the compensation of the executive
officer, and payments for rent and consultants, as well as legal and accounting costs. General and
administrative expenses decreased by $25,880 for the three months ended March 31, 2005 to $112,295
from $138,175 for the comparable three months of 2004. This decrease was primarily due to a decrease
in consulting fees and accounting fees.
OTHER INCOME (EXPENSES):
For the three months ended March 31, 2005, the net of interest expense and interest income was $267
compared to $2,087 for the comparable period in 2004. Interest expense and interest income are
dependent on the level of loans due to and from affiliated parties. Other Income (Expense) also
includes $129 from foreign currency translation gains relating to the amount of US Dollars required
to purchase Swiss francs in order to pay its interest obligation on long-term debt versus the amount
accrued, in US Dollars, when the interest was due.
INCOME TAXES:
The Company has not calculated the tax benefits of its net operating losses, since it does not have
the required information. Due to the uncertainty over the Company's ability to utilize these
operating losses, any deferred tax assets, when determined, would be fully offset by a valuation
allowance.
LIQUIDITY AND CAPITAL RESOURCES AS OF MARCH 31, 2005:
Since inception, the Company's operations have not generated sufficient cash flow to satisfy the
Company's capital needs. The Company has financed its operations primarily through the private sale
of shares of its Common Stock, warrants to purchase shares of the Company's Common Stock and debt
securities. The Company has generated, from inception through March 31, 2005, cumulative net cash
proceeds from the sale of its equity of approximately $4.3 million. The Company's net working
-12-
capital deficit at March 31, 2005 was $430,343 compared to a deficit of $703,841 at December 31,
2004. The Company's authorized capital stock consists of 100,000,000 shares of Common Stock, of
which 100,000,000 were issued and outstanding at March 31, 2005. As of March 31, 2005, the Company
had also made commitments to issue an additional 17,634,765 shares of Common Stock, none of which
the Company can issue. The 17,634,765 additional shares of Common Stock can be issued at such time
as the Company is able to increase the number of authorized shares of its Common Stock. The number
of shares committed excludes shares of Common Stock to be issued upon the exercise of outstanding
options and warrants. Amounts received for these additional committed shares, which were purchased
for cash have been received by the Company and are reflected in the Company's financial statements
as Stock subscribed. Amounts received for these additional committed shares that are to be issued in
exchange for consulting services or in exchange for settlement of obligations owed by the Company,
are reflected in the Company's financial statements as liability for shares to be issued. In
December 2004, the Company's president agreed to allow the Company to redeem 77,620 shares of his
common stock for no consideration in order to allow the Company to fulfill its commitments to issue
shares to certain consultants and investors in the Company. Upon the increase in the number of
authorized shares of its Common Stock, the Company will issue 77,620 replacement shares (adjusted
for any re-capitalization transactions) for no additional consideration.
Cash and cash equivalents increased to $73,357 at March 31, 2005 from $4,310 at December 31, 2004.
Net cash used for operating activities for the three months ended March 31, 2005 was $255,573.
Net cash provided by financing activities for the three months ended March 31, 2005 was $327,407.
The net cash provided was the result of cash received of $412,000 from the sale and subscription of
common stock and the exercise of warrants, net of principal payments on long-term debt ($2,593),
principal payments on a note payable to a related party ($50,000) and re-payment of advances to a
related party ($ 32,000) of $84,593.
ABILITY TO CONTINUE AS A GOING CONCERN:
At March 31, 2005, the Company has generated minimal revenues from commercial sales of the Company's
products. To date, the Company's operations have generated accumulated losses of approximately
$10,072,000. At March 31, 2005, the Company's current liabilities exceed its current assets by
$430,343. The Company's ability to remedy this condition is uncertain due to the Company's current
financial condition. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The Company believes it has the ability to obtain additional funds from
its principal stockholders or by raising additional debt or equity securities as described below.
The Company is continuing discussions with investors in its effort to obtain additional financing.
However, there can be no assurances that the Company will be able to raise the funds it requires, or
that if such funds are available, that they will be available on commercially reasonable terms.
The ability of the Company to continue to operate as a going concern is primarily dependent upon the
ability of the Company to generate the necessary financing to effectively market and produce
Brightec products, to establish profitable operations and to generate positive operating cash flows.
If the Company fails to raise funds or the Company is unable to generate operating profits and
positive cash flows, there are no assurances that the Company will be able to continue as a going
concern and it may be unable to recover the carrying value of its assets. Management believes that
it will be successful in generating the necessary financing to fund the Company's operations through
the 2005 calendar year. Accordingly, management believes that no adjustments or reclassifications of
recorded assets and liabilities are necessary at this time.
-13-
CREDIT AVAILABILITY:
The Company had no line-of-credit facilities as of March 31, 2005.
COMMITMENTS:
The Company had no material capital expenditure commitments as of March 31, 2005.
EFFECTS OF INFLATION:
Management believes that financial results have not been significantly impacted by inflation and
price changes.
-14-
RISK FACTORS
THE COMPANY HAS A LIMITED OPERATING HISTORY UPON WHICH AN INVESTOR CAN EVALUATE ITS
POTENTIAL FOR FUTURE SUCCESS.
The Company has had four commercial sales of its Luminescent Products aggregating a total
of approximately $300,000. Therefore, there is limited historical financial information about the
Company upon which to base an evaluation of the Company's performance or to make a decision
regarding an investment in shares of the Company's Common Stock. The Company has generated an
accumulated deficit of approximately $10.07 million through March 31, 2005. To date, the Company's
operations have largely been limited to its effort to develop the manufacturing process for its
Luminescent Product. Sales of the Company's products may fail to achieve significant levels of
market acceptance. The Company's business will be subject to all the problems, expenses, delays and
risks inherent in the establishment of an early stage business enterprise, including limited
capital, delays in product development, manufacturing, costs overruns, price increases in raw
materials and unforeseen difficulties in manufacturing, uncertain market acceptance and the absence
of an operating history. Therefore, the Company may never achieve or maintain profitable operations,
and the Company may encounter unforeseen difficulties that may deplete its limited capital more
rapidly than anticipated.
THE COMPANY WILL REQUIRE ADDITIONAL CAPITAL, AND IF ADDITIONAL CAPITAL IS NOT AVAILABLE,
THE COMPANY MAY HAVE TO CURTAIL OR CEASE OPERATIONS.
To become and remain competitive, the Company will be required to make significant
investments in the Company's infrastructure, including hiring employees to provide sales, marketing,
product development and financial reporting services on an ongoing basis. The Company does not at
this time have any committed sources of financing. There can be no assurance that additional
necessary financing will be attainable on terms acceptable to the Company in the future or at all.
If financing is not available on satisfactory terms, the Company may be unable to operate at its
present level, market or sell its products, establish or maintain a system of financial controls or
develop and expand its business, develop new products or develop new markets, and its operating
results may be adversely affected. Debt financing, if available, increases expenses and must be
repaid regardless of operating results. The availability of debt or equity financing is uncertain,
and successful equity financing would result in additional dilution to existing stockholders. The
losses incurred to date, the uncertainty regarding the ability to raise additional capital and
questions concerning the Company's ability to generate net income and positive cash flows from
operations indicate that the Company may be unable to continue as a going concern for a reasonable
period of time. The Company's report of independent registered public accounting firm, as of and for
the year ended December 31, 2004, also indicates that there is substantial doubt about the Company's
ability to continue as a going concern.
THE COMPANY HAS A LIMITED NUMBER OF EMPLOYEES TO CARRY ON ITS OPERATIONS.
As of March 31, 2005, the Company had only two full-time employees and several part-time
consultants. The Company has not had sufficient resources to hire additional employees and the
Company's continued inability to hire additional employees will have a material adverse effect on
the Company's ability to carry on and expand its business operations.
-15-
THE COMPANY HAS LIMITED FINANCIAL AND OPERATIONAL CONTROLS.
The Company has been unable to attract additional directors and has no audit or
compensation committees. In addition, the Company's employees have limited financial experience and
the Company currently lacks an adequate system of internal financial or management controls. The
Company does not have an accounting department but relies on outside bookkeeping services to record
financial activity and consultants to assist in the preparation with financial statements. The
Company has received a letter from its independent registered public accountants indicating that the
Company has material weaknesses with respect to (1) accurately recording day-to-day transactions,
(2) the lack of segregation of duties, (3) the approval of significant transactions in a timely
manner by the Company's board of directors and (4) the preparation of its financial statements in an
accurate and timely fashion. If the Company is unable to raise additional capital, it will not have
sufficient resources to implement an adequate system of internal management and financial controls
and will be unable to hire employees with adequate financial and accounting experience.
THERE EXISTS SIGNIFICANT CONCENTRATION OF OWNERSHIP OF THE COMPANY'S COMMON STOCK.
One of the Company's stockholders, David Geffen, owns a significant percentage of the
Company's outstanding Common Stock. As a result, this stockholder may be able to influence the
outcome of matters requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. This concentration of ownership of the Company's Common Stock
may have the effect of impacting the probability and timing of a change in control of the Company.
This could deprive the Company's stockholders of an opportunity to receive a premium for their
Common Stock as part of a sale of the Company and might otherwise affect the market price of the
Company's Common Stock.
THE COMPANY'S PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET AND THE COMPANY HAS HAD LIMITED
PRODUCT SALES TO DATE.
The Company relies on a single product and has had limited product sales to date. Because
the Company has only commenced limited marketing of its Luminescent Product, it can give no
assurance that this product will be commercially accepted in the marketplace or that the market for
its product will be as large as expected by the Company.
THE COMPANY RELIES ON THIRD-PARTY MANUFACTURERS TO PRODUCE ITS PRODUCTS.
The Company currently has no manufacturing facilities and relies on several third party
manufacturers to produce the Company's Luminescent Product. Loss of these manufacturing facilities
would have a significant adverse effect on the Company's operations. There can be no assurance that
the Company's third party manufacturers will continue to manufacture the Company's products.
THE COMPANY RELIES ON PATENTS, LICENSES AND INTELLECTUAL PROPERTY RIGHTS TO PROTECT ITS
PROPRIETARY INTERESTS.
The Company's future success depends in part on its ability to maintain patents and other
intellectual property rights covering its Luminescent Products. There can be no assurance that the
Company's patents and patent applications are sufficiently comprehensive to protect the Company's
products. The process of seeking further patent protection can be long and expensive and there can
be no assurance that the Company will have sufficient capital resources to cover the expense of
patent prosecution or maintenance for its applications or existing patents or that all or even any
patents will issue from currently pending or any future patent applications or if any of the patents
when issued will be of sufficient scope or strength, provide meaningful protection or any commercial
advantage to the Company. The Company's limited financial resources may limit the Company's ability
to bring any action to enforce its current patents.
-16-
THE COMPANY IS DEPENDENT UPON A SOLE SOURCE FOR RAW MATERIALS TO MANUFACTURE IT PRODUCTS.
The principal raw materials used by the Company, in connection with the manufacturing of
its Luminescent Product, are purchased from a sole source supplier. The unavailability of such raw
material or significant price increases of such raw material would have a material adverse effect on
the Company's business. The Company currently has no secondary source for such raw material.
RIGHTS TO ACQUIRE SHARES OF THE COMPANY'S COMMON STOCK WILL RESULT IN SIGNIFICANT DILUTION
TO OTHER HOLDERS OF SHARES OF THE COMPANY'S COMMON STOCK.
As of March 31, 2005, warrants and options to acquire a total of 9,297,911 shares of the
Company's Common Stock were outstanding. As of such date, the Company had also made commitments to
issue an additional 17,634,765 shares of Common Stock to investors in the Company at such time as
the Company is able to increase the number of shares of the Company's authorized Common Stock, which
require the approval of the Company's stockholders. The existence of such stock options, warrants,
and commitments could adversely affect the price at which shares of the Company's Common Stock may
be sold or the ability of the market to absorb such additional shares of Common Stock if such
investors decide to sell such shares and the terms on which the Company can obtain additional
financing.
THERE IS A LIMITED MARKET FOR THE COMPANY'S COMMON STOCK.
The Company's Common Stock is thinly traded and may experience price volatility, which
could affect a stockholders ability to sell the Company's Common Stock or the price at which it may
be sold. There has been and may continue to be a limited public market for the Common Stock of the
Company. The shares of the Company's Common Stock are not traded on any established market and the
Company's Common Stock was de-listed from the NASDAQ small cap market in 2001 due to non-compliance
with certain continuing listing requirements. The Company's Common Stock is currently quoted on the
"pink sheets" under the symbol "ADLU.PK".
THE COMPANY'S FAILURE TO COMPETE EFFECTIVELY MAY LIMIT ITS ABILITY TO ACHIEVE
PROFITABILITY.
Competition in the area in which the Company expects to market the Luminescent Products is
intense, and the Company's competitors have substantially greater resources than the Company.
THE COMPANY IS DEPENDENT ON ITS FOUNDER AND KEY EMPLOYEE.
The success of the Company is dependent upon the continued availability of its founder,
Patrick Planche. The unavailability of Patrick Planche or the Company's inability to attract and
retain other key employees could severely affect the ability of the Company's current and proposed
conduct of its business.
-17-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2005 and December 31, 2004, the Company did not participate in any derivative
financial instruments or other financial and commodity instruments for which fair value disclosure
would be required under SFAS No. 107, "Disclosures About Fair Value of Financial Instruments". Our
investments are primarily cash in financial institutions and short-term money market accounts that
are carried on the Company's books at cost.
The functional currency of the Company is the U.S. dollar, with the Swiss franc being the functional
currency of Brightec SA. Foreign currency denominated assets and liabilities are translated into
U.S. dollar equivalents based on exchange rates prevailing at the end of each period. Revenues and
expenses are translated at average exchange rates during the period. Aggregate foreign exchange
gains and losses arising from the translation of foreign currency denominated assets and liabilities
are included as a component of comprehensive loss. Foreign exchanges gains and losses arising from
transactions are included in the current year net loss.
-18-
ITEM 4. CONTROLS AND PROCEDURES
During the last five years, the Company did not have an accounting department, but instead relied on
outside bookkeeping services to record financial activity and consultants to assist in the
preparation of its financial statements. Upon the completion of audit of the December 31, 2004
financial statements, the Company received a letter from its independent registered public
accounting firm indicating that the Company has material weaknesses with respect to (1) accurately
recording day-to-day transactions, (2) the lack of segregation of duties, (3) the approval of
significant transactions in a timely manner by the Company's Board of Directors and (4) the
preparation of its financial statements, in an accurate and timely fashion. The Company's management
agrees with the assessment of the Company's independent registered public accounting firm and is
developing a plan to address these material weaknesses.
No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f)
under the Exchange Act) occurred during the fiscal quarter ended March 31, 2005 that has materially
affected, or is reasonably likely to materially affect, the Company's internal control over
financial reporting.
-19-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company is a party or to which any of
its properties are subject.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following securities were sold by the Company during the period January 1, 2005 to March 31,
2005 and were not registered under the Securities Act of 1933, as amended (the "Securities Act").
On January 3, 2005, the Company sold 250,000 shares of Common Stock to Thomas and Mary McGagh at a
purchase price of $0.10 per share for an aggregate purchase price of $25,000.
On January 11, 2005, the Company sold 100,000 shares of Common Stock to Francis T. Steverman at a
purchase price of $0.10 per share for an aggregate purchase price of $10,000.
On February 4, 2005, the Company sold 2,500,000 shares of Common Stock and a warrant to purchase
2,500,000 shares of Common Stock, at an exercise price of $0.10 per share, expiring on April 1, 2005
to Jeffrey Stern Revocable Trust, together with a second warrant to purchase 2,085,000 shares of
Common Stock at an exercise price of $0.12 per share, expiring on July 1, 2005, for an aggregate
purchase price of $250,000. On March 29, 2005, Jeffrey Stern Revocable Trust exercised warrants to
purchase 1,250,000 shares of the Company's Common Stock for an aggregate exercise price of $125,000.
On February 24, 2005, the Company sold 20,000 shares of Common Stock to Stephen and Marcella Elios
at a purchase price of $0.10 per share for an aggregate of $2,000.
In February 2005, the Company agreed to issue 120,000 shares of Common Stock, at an agreed-upon
value of $0.25 per share, to Schwartz Communications in exchange for consulting services of $30,000
provided in January and February 2005.
On February 4, 2005, the Company agreed to issue 1,000,000 shares of Common Stock, at an agreed-upon
value of $0.075 per share, to Harry Schult in exchange for consulting services of $75,000 provided
from late 2004 to July 2005. In addition, Harry Schult received a stock option in connection with
such consulting services to purchase an additional 500,000 shares of Common Stock, at an exercise
price of $0.001 per share for a period of ten years, but vesting only upon a change of control of
the Company.
All shares of Common Stock issued by the Company were issued without registration pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended. All
purchasers of shares of the Company's Common Stock who purchased such shares of Common Stock for
cash represented that they were acquiring the securities for investment and for their own account.
All purchasers of the Company's Common Stock who are United States residents and purchased such
securities for cash also represented to the Company that they were accredited investors as of the
date of such investment. A legend was placed on the stock certificates representing all securities
purchased stating that the securities have not been registered under the Securities Act and cannot
be sold or otherwise transferred without an effective registration or an exemption there from.
-20-
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
-21-
ITEM 6. EXHIBITS
Number Description of Exhibit
31 Certification of Patrick Planche, President and Chief Executive Officer, pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32 Certification of Patrick Planche, President and Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
-22-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADVANCED LUMITECH, INC.
Date: August 16, 2005 By: /s/ Patrick Planche
---------------------------------------
Patrick Planche
President and Chief Executive Officer
-23-
EXHIBIT INDEX
- ----------------------------------------------------------------------------------------------------
Number Description of Exhibit
31 Certification of Chief Executive and Financial Officer Pursuant to 18 U.S.C
Section 1850, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (filed herewith) E-1
32 Certification of Chief Executive and Financial Officer Pursuant to Rule 13a-14(b)
of the Exchange Act and 18 U.S.C. Section 1850, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. (filed herewith) E-2
-24-
Exhibit 31
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
I, Patrick Planche, certify that:
1. I have reviewed this Quarterly Report of Advanced Lumitech, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the small business issuer as of, and for, the periods
presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under my supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to me by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business issuer's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the small business issuer's internal control over financial
reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the small business issuer's audit
committee of the board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the small business issuer's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the small business issuer's internal control over
financial reporting.
Date: August 16 2005 /s/Patrick Planche
----------------------------------------------
Patrick Planche, President, Chief Executive
Officer, Treasurer and Chief Financial Officer
E-1
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Advanced Lumitech, Inc. (the "Company") on Form 10-QSB
for the period ended March 31, 2005, as filed with the Securities and Exchange Commission on the
date hereof (the "Report'), I, Patrick Planche, President, Chief Executive Officer, Treasurer and
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
/s/ Patrick Planche
- ---------------------------------------
Patrick Planche, President,
Chief Executive Officer, Treasurer and
Chief Financial Officer
August 16, 2005
E-2
