UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 033-55254-27
ADVANCED LUMITECH, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0438637
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1601 Trapelo Road 02451
Waltham, MA (Zip Code)
(Address of principle executive offices)
781-890-2200
(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. Yes X No
- --
Indicate the number of shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of November 9, 2000: 33,060,270.
ADVANCED LUMITECH, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 14
PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 6 EXHIBITS 15
SIGNATURES 16
EXHIBIT INDEX 17
2
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
Assets SEPTEMBER 30, 2000 DECEMBER 31, 1999
-------------------------------------
(unaudited)
Current assets:
Cash and cash equivalents $ 1,654 $ 490,276
Prepaid expenses and other assets 24,536 9,347
-----------------------------------
Total current assets 26,190 499,623
Property and equipment:
Office and photographic equipment 94,362 76,815
Less: Accumulated depreciation (47,122) (38,454)
-----------------------------------
47,240 38,361
Total assets $ 73,430 $ 537,984
===================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Borrowings under bank line-of-credit $ 272,553 $ 376,828
Accounts payable 185,045 231,470
Accrued liabilities 210,430 362,636
Accounts payable to affiliated companies 243,909 236,594
Notes payable to related party 45,037 41,161
-----------------------------------
Total current liabilities 956,974 1,248,689
Notes payable to directors 225,412 321,273
-----------------------------------
Total liabilities 1,182386 1,569,962
Stockholders' deficit:
Common stock, $0.001 par value;
Authorized; 100,000,000 shares
Issued and outstanding; 33,060,270 and 31,997,770
shares at September 30, 2000 and December 31, 1999,
respectively 33,060 31,998
Additional paid-in capital 5,516,495 4,678,775
Stock subscribed
Stock subscriptions receivable (34,965)
Deferred compensation (58,083)
Deficit accumulated during the development stage (6,855,503) (5,811,742)
Cumulative translation adjustment 196,992 162,039
-----------------------------------
Total stockholders' deficit (1,108,956) (1,031,978)
Total liabilities and stockholders' deficit $ 73,430 $ 537,984
===================================
See Notes to Unaudited Consolidated Financial Statements
3
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
PERIOD FROM
INCEPTION
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS (FEBRUARY 7,
ENDED ENDED ENDED ENDED 1992) THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999 2000
-------------------------------------------------------------------------------------------------
Sales to third $ 2,343 $ - $ 2,766 - $ 817,306
parties
Sales to affiliated - - - - 203,040
company
-------------------------------------------------------------------------------------------------
2,343 - 2,766 - 1,020,756
Cost of sales - - - - 1,005,756
-------------------------------------------------------------------------------------------------
Gross profit 2,343 - 2,766 - 14,590
(loss)
Operating expenses:
Research and 49,853 36,727 260,449 109,826 934,781
development
Selling and 51,218 72,501 199,796 158,862 636,811
marketing
General and 45,110 63,333 533,854 698,775 4,933,839
administrative
-------------------------------------------------------------------------------------------------
146,181 172,561 994,099 967,463 6,505,431
-------------------------------------------------------------------------------------------------
Operating loss (143,838) (172,561) (991,333) (967,463) (6,490,841)
Interest expense, (18,985) 8,229 (52,424) 24,009 (364,662)
net
Net loss $ (162,823) $ (180,790) $ (1,043,761) $ (991,472) $ (6,855503)
=================================================================================================
Basic and diluted
loss per share $ (0.00) $ (0.01) $ (0.03) $ (0.04) $ (0.00)
Shares used to
compute basic
and diluted loss
per share 33,042,492 26,718,916 32,827,928 26,102,939
See Notes to Unaudited Consolidated Financial Statements
4
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
PERIOD FROM
NINE MONTHS NINE MONTHS INCEPTION (FEBRUARY 7,
ENDED ENDED 1992) THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30
2000 1999 2000
--------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (1,043,761) $(991,472) $ (6,855,503)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Inventory written-off - - 72,079
Depreciation 8,668 20,240 49,390
General and administrative expense associated with stock
based compensation (Note 6) 213,133 300,000 3,282,050
Changes in operating assets and liabilities:
Accounts receivable from affiliated company
Inventory (72,079)
Prepaid expenses and other current assets (15,186) 3,481 (24,533)
Accounts payable and accrued liabilities (314,284) 324,630 395,475
Accounts payable to affiliated companies 122,968 (23,020) 243,909
-------------------------------------------------------
Net cash used in operating activities (1,028,462) (366,141) (2,909,212)
INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 5,584 15,800
Purchase of property and equipment (23,131) (14,670) (112,430)
--------------------------------------------------------
Net cash (used in) investing activities (17,547) (14,670) (96,630)
FINANCING ACTIVITIES
Net change in bank line of credit (104,275) (18,159) 272,553
Change in notes payable to directors (95,864) 138,597 225,409
Change in note payable to related party 3,876 (3,242) 45,037
Stock subscription receivable 34,965
Deferred Compensation 40,950 40,950
Cash received for sale of common stock and 642,782 2,191,590
exercise of stock options ---------------------------------------------------------
Net cash provided by financing activities 522,534 117,196 2,810,504
Effects of changes in foreign exchange rates 34,953 63,525 196,992
---------------------------------------------------------
Increase (decrease) in cash (488,622) (200,090) 1,654
Cash and cash equivalents at beginning of period 490,276 207,938 0
Cash and cash equivalents at end of period 1,654 $ 7,848 1,654
=========================================================
See Notes to Unaudited Consolidated Financial Statements
5
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Advanced Lumitech, Inc. ("ADLU" or the "Company") and its wholly-
owned subsidiary, Lumitech SA ("Swiss Lumitech"). As a result of the unexpected
resignation of the Company's independent auditor, Ernst & Young LLP , on August
2, 2000, neither the accompanying unaudited consolidated financial statements
for the periods ended September 30, 2000 nor the unaudited consolidated
financial statements for the periods ended June 30, 2000 and previously reported
in the Company's Form 10-Q for the quarter then ended have been reviewed by the
Company's independent auditors as required by Regulation S-K promulgated under
the Securities Act of 1934. At such time as the Company has engaged a new
independent auditor, this Form 10-Q and the Company's previously filed Form 10-Q
shall be amended to reflect the review of such auditor and any necessary
revisions to the Company's unaudited consolidated financial statements included
in such Forms 10-Q. The Company believes that the unaudited consolidated
financial statements reflect all adjustments (consisting of only normal
recurring adjustments), necessary for a fair presentation of the Company's
financial position, results of operations and cash flows at the dates and for
the periods indicated. The results of operations for the three and nine month
periods ended September 30, 2000 are not necessarily indicative of results
expected for the full fiscal year or any other future periods. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes for the year ended December
31, 1999, included in the Company's Annual Report on Form 10-K/A for such fiscal
year.
2. DESCRIPTION OF BUSINESS
Advanced Lumitech, Inc. is a development stage company, which, through its
subsidiary, Swiss Lumitech, is developing and has patented a luminescent imaging
media (the "Luminescent Product"), which can be used in a variety of products in
numerous fields such as safety and signs, consumer electronics and color
printing and which will be marketed under the brand name 'Brightec'. The
Company uses a new generation of high yield luminescent material, based on
alkaline earth chemistry, which provides significantly greater luminescence than
traditional zinc sulfide luminescent material.
The Company's success will depend in large measure upon its ability to raise the
necessary financing to effectively market and produce Brightec products over the
next 9-12 month period and then upon future profitable operations and the
generation of positive operating cash flows or finding additional financing.
See "ABILITY TO CONTINUE AS A GOING CONCERN", below.
3. BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share is computed on the basis of the
weighted average number of shares of common stock outstanding. There is no
difference between basic and diluted net loss per common share since the Company
has recorded losses since inception.
4. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 requires disclosure of total non-
stockholder changes in equity
6
in interim periods and additional disclosures of the components of non-
stockholder changes in equity on an annual basis. Total non-stockholder changes
in equity include all changes in equity during a period except those resulting
from investments by and distributions to stockholders. For the nine months ended
September 30, 2000 and 1999, the Company's comprehensive income (loss) was as
follows:
PERIOD FROM
INCEPTION (FEBRUARY 7,
1992)
NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000
-------------------------------------------------------------
Net loss $ (1,043,761) $ (991,472) $ (6,855,503)
Foreign currency translation gain 34,953 63,525 196,992
-------------------------------------------------------------
Total comprehensive loss $ (1,008,808) $ 927,947 $ (6,658,511)
------------------------------------------------------------
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 will become effective in January
2001. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. To date the Company has not
utilized derivative instruments or hedging activities and, therefore, the
adoption of SFAS 133 is not expected to have a material impact on the Company's
financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation (the Interpretation). This
Interpretation clarifies how companies should apply the Accounting Principles
Board's Opinion No. 25, Accounting for Stock Issued to Employees. The
Interpretation will be applied prospectively to new awards, modifications to
outstanding awards, and changes in employee status on or after July 1, 2000,
except as follows: the definition of an employee applies to awards granted
after December 15, 1998: the Interpretation applies to modifications that reduce
the exercise price of an award after December 15, 1998; and the Interpretation
applies to modifications that add a reload feature to an award made after
January 12, 2000. At the present time, there are no awards granted by the
Company, which have resulted in an adjustment as a result of this
Interpretation.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements. SAB
101 clarifies the SEC staff's views on applying generally accepted accounting
principles to revenue recognition in financial statements. In March 2000, the
SEC issued an amendment, SAB 101A, which deferred the effective date of SAB 101.
The Company adopted SAB 101 in the second quarter of 2000 in accordance with the
amendment. The adoption of this SAB has not had and is not expected to have a
significant impact on the Company's financial statements.
7
6. SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131, establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. During the periods presented in the
consolidated financial statements, the Company has been active in only one
operating segment - Luminescence Technology development. Long-lived assets are
principally located in Switzerland.
7. EQUITY
At December 31, 1998, the Company and the co-inventor of the Luminescence
Technology had agreed in principle to an amendment to their agreement that
would, among other things, eliminate an obligation of the Company to pay the co-
inventor royalties calculated as a percentage of sales of products based upon
the Luminescence Technology, and instead provide for the issuance of common
stock of the Company and the making of cash payments to said co-inventor. On
March 31, 1999, the Company and the co-inventor entered into an agreement
amending the earlier royalty agreement pursuant to which the Company (i) has
paid the co-inventor $59,520, $57,000 and $25,000 in 2000, 1999 and 1998,
respectively, and committed to pay an additional $16,500 from time to time as
the Company's liquidity and working capital requirements permit, and (ii) agreed
to issue 800,000 shares of the Company's common stock to the co-inventor. The
800,000 shares of the Company's common stock were issued on March 31, 1999. The
800,000 shares of the Company's common stock, with a value of $300,000, were
charged to expense in the three months ended March 31, 1999.
In August, 2000 the Company issued 40,000 shares of its common stock to a vendor
in exchange for the forgiveness of approximately $17,800 of trade payables due
to the vendor.
Deferred compensation represents the cost, based on SFAS 123, of granting
options to consultants in 1999, measured under variable stock option accounting
and recognized over the vesting period of the options. In the nine months ended
September 30, 2000 the Company recognized a total of $58,083 in compensation
expense associated with those options, $20,475 in each of the first two
quarters and $17,133 in third quarter, thereby bringing the amount of deferred
compensation to zero.
8. ABILITY TO CONTINUE AS A GOING CONCERN
The consolidated financial statements have been prepared on the basis that the
Company will continue to operate as a going concern, including the realization
of its assets and settlement of its liabilities at their carrying values in the
ordinary course of business for the foreseeable future. At September 30, 2000,
the Company has yet to commercially market Brightec and generate revenues
therefrom and the Company's operations to date have generated accumulated losses
of $6,855,503. At September 30, 2000, the Company's current liabilities exceed
its current assets by $930,784.
In order to generate awareness and future sales of Brightec products, the
Company anticipates making significant investments in personnel and resources
over the next 24-month period. The Company also intends to repay a significant
amount of the Company's debt, including the bank line-of-credit. The Company
expects that it may require up to approximately $6.0 million of cash or
available credit during the next 12-month period to finance payment of existing
8
liabilities, including the bank line-of-credit, purchases of raw materials and
operating expenses. The Company plans to raise approximately $6.0 million from
one or more strategic collaborations and from private placements of its shares
and warrants. The Company is continuing discussions with potential
collaborators and investors in its effort to obtain additional funding.
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 market and produce Brightec products over the next 12
month period and then upon future profitable operations and the generation of
positive operating cash flows or finding additional financing. However, should
the Company fail to raise such funds or the Company's line-of-credit is reduced
or terminated 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 the Company will be successful in its efforts to raise
the additional financing required to support the Company's operations.
Accordingly, management believes that no adjustments or reclassifications of
recorded assets and liabilities are required at this time.
9. RECLASSIFICATIONS
Certain amounts at December 31, 1999 have been reclassified to conform to the
current presentation.
9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As a result of the unexpected resignation of the Company's independent auditor,
Ernst & Young LLP, on August 2, 2000, neither the accompanying unaudited
consolidated financial statements for the periods ended September 30, 2000 nor
the unaudited consolidated financial statements for the periods ended June 30,
2000 and previously reported in the Company's Form 10-Q for the quarter then
ended have been reviewed by the Company's independent auditors as required by
Regulation S-K promulgated under the Securities Act of 1934. At such time as
the Company has engaged a new independent auditor, this Form 10-Q and the
Company's previously filed Form 10-Q shall be amended to reflect the review of
such auditor and any necessary revisions to the Company's unaudited consolidated
financial statements included in such forms 10-Q.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Any statements contained in this Form 10-Q 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 the 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; the Company's
dependence on certain sole source suppliers; 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 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.
General
The Company is a developmental stage company, which, through its subsidiary,
Swiss Lumitech, has developed and patented an exclusive new luminescent imaging
media ("Luminescence Product"), which can be applied to a variety of objects in
numerous fields such as safety and signs, consumer electronics and color
printing. The Company will market the Luminescence Technology and related
products under the brand name `Brightec'. The Company uses a new generation of
high yield luminescent material, based on alkaline earth chemistry, which
provides significantly greater luminescence with longer duration than
traditional zinc sulphide based materials.
The Company will, either directly or in collaboration with others, manufacture,
market and sell luminescent sheets and substances that are specially designed
for state-of-the-art printing using pigments with the greatest light intensity.
Various categories and sizes of luminescent sheets will permit widespread
applications in photography, color printing, textiles, decoration and other
printing technologies. The Company's luminescent substances are targeted for
industrial and commercial applications such as paints, inks and compounds.
10
During the fourth quarter of 1999, the Company moved its corporate offices to
the United States, assembled an executive team and identified preliminary market
opportunities and sales and distribution channels. Although the Company has not
commenced commercial manufacturing or marketing of Brightec and has generated no
revenues to date, it expects, although there are no assurances, that
manufacturing scale-up and marketing and sales activities will commence in
2001. Such manufacturing, marketing and sales activities of Brightec products
are entirely dependent upon the successful raising of financing, as described in
"Management's Discussion and Analysis - Liquidity and Capital Resources". As
discussed in Note 8 to the Consolidated Financial Statements, these conditions,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.
Results of Operations for the three and nine months ended September 30, 2000
compared to the three and nine months ended September 30, 1999
Research and Development Expenses:
Research and development expenses increased by $13,126 in the quarter ended
September 30, 2000, from $36,727 in the same quarter in 1999. Research and
development expenses increased by $150,623 in the nine-month period ended
September 30, 2000, from $109,826 in the same period in 1999. The increases in
2000 are due to salaries and supplies related to the development efforts to
further develop the luminescence technology and related Brightec products. The
Company expects that research and development expenses will increase in dollar
amount in 2001 as the Company develops new products and applications for the
products.
Selling and Marketing Expenses:
Selling and marketing expenses consist primarily of compensation, marketing and
promotional materials and an allocation of facility related expenses. Selling
and marketing expenses decreased by $21,283 in the quarter ended September 30,
2000, from $72,501 in the same quarter in 1999. Selling and marketing expenses
increased by $40,934 in the nine-month period ended September 30, 2000, from
$158,862 in the same period in 1999. The increases in 2000 for the nine months
in selling expenses is primarily attributable to the addition of personnel in
the U.S. in conjunction with the Company's expectations of establishing
operations in the U.S. and expenses incurred for marketing materials to support
the launch of the Brightec brand name. The decrease in the third quarter is
related to delays in the introduction of the Company's products. The Company
expects that selling and marketing expenses will increase in dollar amount in
2001 as the Company introduces and promotes products.
General and Administrative:
General and administrative expenses consist primarily of compensation of
executive personnel, legal and accounting costs and an allocation of facility
related expenses. General and administrative expenses decreased by $18,223 in
the quarter ended September 30, 2000 from $63,333 in the same quarter in 1999.
General and administrative expenses decreased $164,921 in the nine-month period
ended September 30, 2000 from $698,775 in the same period in 1999. The decrease
in expenses in 2000 related primarily to a 1999 non-cash charge of $300,000
relating to the shares issued and expenses of $125,000, both related to a
settlement agreement with the co-inventor of the Luminescent Technology. These
savings were partially offset by a non-cash compensation cost of approximately
$196,000 in 2000 in connection with the resignation of an officer and of an
employee and approximately $58,000 in non-cash amortization of deferred
11
compensation arising from the issuance of stock and stock options to consultants
during 1999. The Company expects that general and administrative expenses will
increase in dollar amount in the future as a result of growth in the Company's
administrative staff to support its operations and as a result of being a public
company.
Liquidity and Capital Resources:
Cash and cash equivalents decreased to $1,654 at September 30, 2000 from
$490,276 at December 31, 1999. Net cash used in operating activities in the
nine months ended September 30, 2000 was $1,028,462. Net cash used in operating
activities during nine months ended September 30, 2000 was principally the
result of the net loss of $1,043,761, adjusted for non-cash expenses of
approximately $213,000 associated with common stock issued which was offset by a
decrease in accounts payable and accrued liabilities.
Net cash used in investing activities in the nine months ended September 30,
2000 was approximately $17,500, consisting of capital transactions for property
and equipment.
Net cash provided by financing activities in the nine months ended September 30,
2000 was approximately $523,000. The net cash provided of was primarily due to
the exercise of options and the sale of common stock in the amount of
approximately $640,000, offset principally by reductions in bank borrowings of
approximately $104,000 and amounts due to directors of approximately $96,000 .
Ability to Continue as a Going Concern
At September 30, 2000, the Company had not begun to commercially market Brightec
and generate revenues therefrom and the Company's operations to date have
generated accumulated losses of $6,855,503. The Company's current liabilities
exceed its current assets by $930,784 at September 30, 2000, as compared to a
deficit of $749,066 as of December 31, 1999. As of November 1, 2000 the Company
has less than $2,000 of cash and bank credit available to it. In addition, at
September 30, 2000, Swiss Lumitech was not in compliance with certain statutory
capital requirements under Swiss law. 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. 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.
In order to generate future revenues from the sale of Brightec products, the
Company anticipates making significant investments in personnel, manufacturing
and marketing resources over the next 9-12 month period, either directly or
through strategic collaborative alliances. The Company also intends to repay a
significant amount of debt, including the remaining bank line-of-credit. In
addition, during the first half of 2001, the Company intends to establish a
U.S. based sales and marketing capability and hire additional employees. The
Company expects that it may require up to approximately $6.0 million of cash or
available credit during the next 12-month period (obtained either directly or
through collaborations) to finance payment of existing liabilities, including
the bank line-of-credit, purchases of raw materials and operating expenses to
complete development of its first product. The Company is continuing
discussions with institutional, private and collaborative investors in its
effort to obtain additional financing.
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 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's line-of-credit is reduced or
terminated, or the
12
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.
In addition to the above-mentioned factors, the Company is primarily reliant on
two suppliers for the Alkaline Earth component used in the production of
Brightec products. Should both suppliers, for any reason, be unwilling to sell
to the Company, such unwillingness could have a material adverse short-term
impact on the Company's ability to complete development of and to produce
Brightec products and hence on its business, financial condition and results of
operations.
The Company plans to raise approximately $6.0 million from one or more strategic
collaborations and from one or more private placements of its shares and
warrants. There can be no assurances that the Company will be able to raise the
additional funds it requires. Management believes that the Company will be
successful in its efforts to raise the additional financing required to support
the Company's operations. Accordingly, management believes that no adjustments
or reclassifications of recorded assets and liabilities are necessary at this
time.
Credit Availability
The Company, through Swiss Lumitech, has borrowings under a line-of-credit with
a Swiss bank. Pursuant to the terms of the bank line-of-credit, the Company may
borrow up to 480,000 SF or approximately $271,000 at current exchange rates. At
December 31, 1999, the Company had exceeded such limit, but in the bank granted
the Company a temporary extension, with no stated expiration date, to exceed the
limit. At September 30, 2000 the Company's borrowings were not in excess of the
line of credit. The line-of-credit agreement contains terms and conditions,
restricting Swiss Lumitech's ability to pledge its assets as security for
separate borrowings and requiring the payment of interest each quarter. In
addition, any and all accounts receivable generated by the Company are
automatically pledged to the bank pursuant to the terms of the line-of-credit
agreement. At September 30, 2000, the borrowings under the bank line-of-credit
carried interest at 8.50%. The line-of-credit is guaranteed up to available
borrowings by a relative of certain directors.
Should the Company's line-of-credit be reduced or terminated, or if 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.
Commitments
The Company had no material capital expenditure commitments as of September 30,
2000.
Effects of Inflation
Management believes that financial results have not been significantly impacted
by inflation and price changes.
Euro Currency
The participating member countries of the European Union have adopted the Euro
as its common legal currency on January 1, 1999. At this stage of its assessment
the Company cannot predict the impact of the conversion to the Euro.
13
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company faces exposure to financial market risks, including adverse
movements in foreign currency exchange rates and changes in interest rates.
These exposures may change over time as business practices evolve and could have
a material adverse impact on the Company's financial results. The Company's
primary exposure has been related to local currency revenue and operating
expenses in Europe. Historically, the Company has not hedged specific currency
exposures as gains and losses on foreign currency transactions have not been
material to date.
14
PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Recent sales of unregistered securities
On August 11, 2000 the Company issued 40,000 shares of its Common Stock to
a trade vendor in exchange for the forgiveness of a trade payable due to
the vendor of $17,782.45. In making this sale, the Company relied upon
exemption provisions pursuant to Regulation S, promulgated under the
Securities Act of 1933, as amended.
ITEM 6 EXHIBITS
(a) Exhibits.
The following exhibits are filed as part of this report:
EXHIBIT NUMBER DESCRIPTION
-------------- -----------------------------
27 Financial Data Schedule
15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED LUMITECH, INC.
Date: November 14, 2000
By: /s/ Patrick Planche
------------------------------------
President, Chief Executive Officer
Principal Financial Officer
16
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -------------------------------------
27 Financial Data Schedule
17