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 MARCH 31, 1999
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)
36 Avenue Cardinal - Mermillod, Carouge, Switzerland 1227 (Address of principle
executive offices) (Zip Code)
Registrant's telephone number, including area code 41-22-301-0360
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 filing requirements
for the past 90 days. Yes _____ No X
----
Indicate the number of shares outstanding of the registrant's Common Stock, par
value $.001 par value per share, as of June 10, 1999 was 27,679,602.
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 9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 15
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS 16
SIGNATURES 17
EXHIBIT INDEX 18
2
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
Assets March 31, December 31,
1999 1998
(unaudited)
Current assets:
Cash and cash equivalents $ 55,648 $ 207,938
Prepaid expenses and other assets 10,718 9,878
--------------------------------
Total current assets 66,366 217,816
Property and equipment:
Office and photographic equipment 72,993 60,108
Less: Accumulated depreciation (33,599) (33,599)
--------------------------------
39,394 26,509
--------------------------------
Total assets $ 105,760 $ 244,325
================================
Liabilities and stockholders' deficit
Current liabilities:
Borrowings under bank line-of-credit $ 377,388 $ 408,641
Accounts payable and accrued liabilities 341,113 151,699
Accounts payable to affiliated companies 133,834 156,412
Notes payable to related party 41,109 44,066
--------------------------------
Total current liabilities 893,444 760,818
Notes payable to directors 245,925 255,809
--------------------------------
Total liabilities 1,139,369 1,016,627
Stockholders' deficit:
Common stock, $0.001 par value;
Authorized; 100,000,000 shares
Issued and outstanding; 25,800,000 and 25,000,000 25,800 25,000
shares at March 31, 1999 and December 31, 1998,
respectively
Additional paid-in capital 344,626 45,426
Stock subscribed 688,347 688,347
Stock subscriptions receivable (34,965) (34,965)
Deficit accumulated during the development stage (2,166,343) (1,537,032)
Cumulative translation adjustment 108,926 40,922
--------------------------------
Total stockholders' deficit (1,033,609) (772,302)
--------------------------------
Total liabilities and stockholders' deficit $ 105,760 $ 244,325
================================
See Notes to Unaudited Consolidated Financial Statements
3
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Period from
Three inception
months Three months (February 7,
ended ended 1992)
March 31, March 31, Through
March 31,
1999 1998 1999
Sales to third parties $ - $ - $ 814,540
Sales to affiliated company - - 203,040
----------------------------------------------------
- - 1,017,580
Cost of sales - - 1,005,756
----------------------------------------------------
Gross profit (loss) - - 11,824
Operating expenses:
Research and development 39,344 - 39,344
Selling and marketing 43,832 2,642 214,159
General and administrative 538,152 8,970 1,681,230
----------------------------------------------------
621,328 11,613 1,934,733
----------------------------------------------------
Operating loss (621,328) (11,613) (1,922,909)
Interest expense, net 7,983 11,593 243,434
----------------------------------------------------
Net loss $ (629,311) $ (23,205) $(2,166,343)
====================================================
Basis and diluted loss per share $ (0.03) $ (0.00)
Shares used to compute basic 25,008,888 20,000,000
and diluted loss per share
See Notes to Unaudited Consolidated Financial Statements
4
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period from
inception
Three months Three months (February 7, 1992)
ended ended through March 31,
March 31, March 31,
1999 1998 1999
OPERATING ACTIVITIES
Net loss $ (629,311) $ (23,205) $ (2,166,343)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Depreciation - 2,019 35,866
General and administrative expense associated with 300,000 300,000
stock issued (Note 7)
Changes in operating assets and liabilities:
Accounts receivable from affiliated company 3,860 (10,718)
Prepaid expenses and other current assets (840) 30
Accounts payable and accrued liabilities 189,414 (3,098) 341,113
Accounts payable to affiliated companies (22,578) (2,448) 133,834
-------------------------------------------------
Net cash provided by (used in) operating activities (163,315) (22,842) (1,366,248)
INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 10,216
Purchase of property and equipment (12,885) (1,484) (85,476)
-------------------------------------------------
Net cash provided by (used in) investing activities (12,885) (1,484) (75,260)
FINANCING ACTIVITIES
Net change in bank line of credit (31,253) 1,744 377,388
Change in notes payable to directors (9,884) (4,587) 245,925
Change in note payable to related party (2,957) 145 41,109
Cash received for subscriptions of common stock 723,808
-------------------------------------------------
Net cash provided by (used in) financing activities (44,094) (2,698) 1,388,230
Effects of changes in foreign exchange rates 68,004 29,957 108,926
-------------------------------------------------
Increase (decrease) in cash (152,290) 2,933 55,648
Cash and cash equivalents at beginning of period 207,938 494 -
Cash and cash equivalents at end of period $ 55,648 $ 3,427 $ 55,648
===================================================
Supplemental disclosure of cash flow information:
Interest paid $ 4,869 $ 6,202 $ 198,507
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"). 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 month
period ended March 31, 1999 is 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, 1998, included in the Company's Annual Report on Form 10-K for such fiscal
year.
Effective August 13, 1998, the Company acquired 100% of the then outstanding
common stock of Swiss Lumitech for consideration of 4,000,000 newly issued
common shares ($ 0.001 par value) of the Company. As a result of this
transaction, the shareholders of Swiss Lumitech became majority shareholders of
the Company, owning 80% of the Company's then issued 5,000,000 voting common
shares before giving effect to the previously disclosed 5 for 1 stock split.
For accounting purposes, the acquisition of Swiss Lumitech was treated as a
purchase (reverse acquisition) of the Company by Swiss Lumitech. In a reverse
acquisition, the historical shareholders' equity of the acquiror prior to the
merger is retroactively restated (a recapitalization) for the equivalent number
of shares received in the merger after giving effect to any difference in par
value of the issuers and acquirer's stock by an offset to paid in capital. All
share and per-share information has been presented in the accompanying
consolidated financial statements as if recapitalization had occurred as of the
first day presented in the financial statements. Accordingly, the accompanying
consolidated financial statements and related notes reflect the operations of
the Company combined with the operations of Swiss Lumitech from February 7,
1992, the inception date of Swiss Lumitech, to March 31, 1999.
2. Description of Business
ADLU is a developmental stage company, which, through Swiss Lumitech, has
developed and patented a process to create luminescent color pictures of
photographic quality, which can be applied to a variety of objects in numerous
applications (the "Luminescence Technology"). The Company plans to market the
Luminescence Technology and related products under the brand name "Brightec".
Although Swiss Lumitech believes it has developed the Brightec products to a
marketable form, it has yet to commercially market the Brightec products and
generate revenues therefrom.
The Company's success will depend in part on its ability to obtain and maintain
patent protection in the United States and other countries where the
Luminescence Technology is patented or a patent application is in process. The
commercial
6
success of the Company also depends in part on neither infringing patents or
proprietary rights of third parties nor breaching any licenses that may relate
to the Company's Luminescence Technology and Brightec products.
From the period January 1, 1996 to December 31, 1997, the Company's business
strategy was to sell watches on to which the Luminescence Technology had been
applied, to an affiliated company. Effective December 31, 1997, the Company
ceased such activities and focused its efforts on further developing the
Luminescence Technology and Brightec products and raising funds to finance its
new business strategy. Accordingly, the Company is classified as a development
stage company in accordance with Statement of Financial Accounting Standards No.
7, "Accounting and Reporting by Development Stage Enterprises."
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 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 includes all changes in equity during a period
except those resulting from investments by and distributions to stockholders.
For the three months ended March 31, 1999 and 1998, the Company's comprehensive
income (loss) was as follows:
Period from
inception
(February 7,
Three months ended 1992) through
March 31, March 31,
1999 1998 1999
Net loss $(629,311) $(23,205) $(2,166,343)
Foreign currency translation gain 68,004 29,957 108,926
-------------------------------------------------
Total comprehensive income (loss) $(561,307) $ 6,752 $(2,057,417)
=================================================
5. New Accounting Pronouncement
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
2000. 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.
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 operated 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 $25,000 and $10,000 in 1998 and 1999, respectively, and
committed to pay an additional $125,000 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, and the $125,000
were charged to expense in the three months ended March 31, 1999. Accounts
payable and accrued expenses at March 31, 1999 include the $125,000.
8. Commitments
At December 31, 1998, the Company and its principal supplier, Socol SA ("Socol")
had agreed informally on terms for the continuation of their on-going
relationship; and on March 31, 1999, the Company and Socol entered into a letter
agreement in which the Company confirmed its agreement to issue 1,000,000 shares
of its common stock to Socol; and Socol confirmed both (i) its agreement to
accept such shares in full consideration for Socol's participation in and
efforts in connection with the Luminescence Technology, and (ii) its disclaimer
of any interest or right in or to the Company's Brightec products, the
Luminescence Technology Patent or the proprietary information and know how
relating to said Patent and Brightec products. The Company has not reflected the
above letter agreement in the consolidated financial statements as of March
31,1999 as the Company anticipates finalizing a definitive Socol agreement
during the second or third quarter of 1999.
9. 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 March 31, 1999, the
Company has yet to commercially market Brightec and generate revenues therefrom
and the Company's operations to date have generated accumulated losses of $
2,166,343. At March 31, 1999, the Company's current liabilities exceed its
current assets by $ 827,078 and
8
the Company had outstanding advances of approximately $61,952 above the limit
available to it under its line-of-credit arrangements with a Swiss bank.
In order to generate awareness and future sales of Brightec products, the
Company anticipates making significant investments in personnel and resources
over the next 12 month period. The Company also intends to repay a significant
amount of the Company's debt, including the bank line-of-credit. In addition,
during 1999, the Company intends to establish a U.S. based sales and
administrative office, and hire additional employees. The Company expects that
it may require up to approximately $4.0 million of cash or available credit
during the next 12 month period to finance payment of existing liabilities,
including the bank line-of-credit, purchases of raw materials and operating
expenses. The Company has engaged a Geneva, Switzerland based investment
company (the "Geneva Advisor") to assist the Company in its efforts to raise
between $5.0 million to $10.0 million through a combination of debt or equity
securities intended to be offered to institutional and private investors. The
Geneva Advisor will be compensated approximately $36,000, plus five percent (5%)
of the funds raised in consideration for its services. In addition, the Geneva
Advisor will assist the Company in seeking temporary bridge financing of up to
$1.0 million, the proceeds of which will be used to fund the Company's
operations until it can complete its efforts to raise permanent financing.
There can be no assurances that the Company will be able to raise the funds it
requires.
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, whether through the Geneva Advisor or other sources, 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 financing required to support the Company's operations. Accordingly,
management believes that no adjustments or reclassifications of recorded assets
and liabilities is required.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
9
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 process to create
luminescent color pictures of photographic quality, which can be applied to a
variety of objects in numerous applications (the "Luminescence Technology").
The Company will market the Luminescence Technology and related products under
the brand name "Brightec".
The Company was incorporated on April 16, 1986 as Hyena Capital, Inc., a Nevada
corporation. For the period from incorporation to August 13, 1998, the Company
had no operations of any kind. On August 13, 1998, the Company acquired 100% of
the then outstanding common stock of Swiss Lumitech, a company founded in
Switzerland on February 7, 1992, which had developed and patented the
Luminescence Technology.
For accounting purposes, the acquisition of Swiss Lumitech was treated as a
purchase (reverse acquisition) of the Company by Swiss Lumitech. Accordingly,
the following discussion reflects the combined operations of the Company and
Swiss Lumitech from the inception date of Swiss Lumitech.
The Company's current business strategy is to derive revenues by granting
licenses to use the Luminescence Technology, and more significantly, from the
subsequent sale of related luminescent substances and sheets. The Company
intends to grant licenses for a particular application in a specific geographic
region. In addition, the Company intends to sell the related Brightec products
to each licensee.
The Company has not commenced commercial marketing and licensing of Brightec,
but expects these marketing activities to commence in the latter half of 1999.
The Company expects to sell both directly and through distributors. The Company
intends to initially launch its operations in the United States, commencing
primarily with the professional photo-outlet market in high tourist density
locations, such as amusement parks, cruise-liners and popular destination
cities.
The marketing of Brightec products is dependent on the Company's successful
raising of capital, as described in `Liquidity and Capital Resources - Ability
to Continue as a Going Concern'. If the Company is unable to successfully raise
such funds or market Brightec or manufacture Brightec products, there is
substantial doubt as to the Company's ability to continue as a going concern.
Prior to its acquisition by the Company, Swiss Lumitech engaged in the
development of the Luminescence Technology and utilized it to develop a range of
luminescent watches, which it distributed through an affiliated company,
Lumitech BV ("the
10
Netherlands Affiliate"). Prior to developing the Luminescence Technology, Swiss
Lumitech's operations consisted of unrelated activities.
At March 31, 1999, the Company had not begun commercial marketing and licensing
of Brightec and has generated accumulated losses of $ 2,166,343. Also, the
Company does not anticipate earning revenues from the sale of Brightec until the
third quarter of 1999, at the earliest. The Company's current liabilities exceed
its current assets by $ 827,078 and the Company has not secured additional
financing to fund its planned operations for 1999. As a result of these
factors, the ability of the Company to continue to operate as a going concern
cannot be predicted at this time and is primarily dependent upon the Company's
ability to obtain the necessary financing to enable it to successfully market
Brightec and then upon future profitable operations. See `Liquidity and Capital
and Capital Resources - Ability to Continue as a Going Concern'.
Results of Operations
Results of Operations for the three months ended March 31, 1999 compared to the
three months ended March 31, 1998:
Revenues:
Due to the Company's change in strategy described above, the Company recorded no
revenues during the three month periods ended March 31, 1999 and 1998. The
Company expects future revenues, if any, to come from the licensing the
Luminescence Technology, and more significantly, from the subsequent sale of
related luminescent substances and sheets.
Cost of Sales:
Due to the Company's change in strategy described above, the Company recorded no
cost of sales during the three month periods ended March 31, 1999 and 1998. The
Company expects that future gross margins, if any, will result from the sale of
Brightec products. Historical results are not indicative of expected future
results.
Research and Development Expenses:
Research and development expenses increased by $39,344 from $0 in 1997. The
increase in 1998 in 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
continue to increase in dollar amount 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 increased by $41,153 in 1998 from $2,642 in 1997. The
increase in 1998 in selling expenses is primarily attributable to expenses
incurred for marketing materials to support the launch of the Brightec brand
name. The Company expects that selling and marketing expenses will continue to
increase in dollar amount 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 increased to $538,152 in
1998 from $8,970 in
11
1997. The increase in expenses in 1998 related primarily to the issuance and
expense of 800,000 shares of the Company's common stock, with a value of
$300,000, and expense of $125,000, related to an agreement with the co-inventor
of the Luminescence Technology and the costs of being a public company. The
Company expects that, exclusive of the costs related to the agreement with the
co-inventor, general and administrative expenses will continue to increase in
dollar amount as a result of an expansion in the Company's administrative staff
to support its operations and as a result of being a public company. Also, the
Company expects to expense approximately $375,000 of patent and patent
application costs in the last three quarters of 1999, as discussed under
"Liquidity and Capital Resources - Commitments".
Liquidity and Capital Resources:
Cash and cash equivalents decreased to $55,648 at March 31, 1999 from $207,938
at December 31, 1998.
Net cash used in operating activities in the three months ended March 31, 1999
was $163,315. The net cash used in operating activities during three months
ended March 31, 1999 was principally the result of the net loss of $629,311,
adjusted for noncash expenses including $300,000 associated with common stock
issued and a decrease in and accounts payable to affiliated companies, partially
offset by an increase in accounts payable and accrued liabilities.
Net cash used in investing activities in the three months ended March 31, 1999
was approximately $12,885, consisting of capital expenditures for property and
equipment.
Net cash used in financing activities in the three months ended March 31, 1999
was approximately $44,094. The net cash used was primarily the $31,253 decrease
in borrowings under the bank line-of-credit.
Net cash used in operating activities in the three months ended March 31, 1998
was $22,842. The net cash used in operating activities during the three months
ended March 31, 1998 was principally the result of the net loss of $23,205
adjusted for noncash expenses including depreciation and the changes in certain
assets and liabilities.
Ability to Continue as a Going Concern
At March 31, 1999, 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 $ 2,166,343. The Company's current liabilities exceed its
current assets by $ 827,078 at March 31, 1999. Also, at March 31, 1999 the
Company exceeded the borrowings available under the line-of-credit with a bank
by $61,952, at the March 31, 1999 rate of exchange. As of June 17, 1999 the
Company has approximately $ 8,000 of funds available. 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.
In order to generate future revenues from the sale of Brightec products, the
Company anticipates making significant investments in personnel and resources
over the next 12 month period. The Company also intends to repay a significant
amount of debt, including the bank line-of-credit. In addition, during 1999, the
Company intends to establish a U.S. based sales and administrative office, and
hire additional employees.
12
The Company expects that it may require up to approximately $4.0 million of cash
or available credit during the next 12 month period to finance payment of
existing liabilities, including the bank line-of-credit, purchases of raw
materials and operating expenses. The Company has engaged a Geneva, Switzerland
based investment company (the "Geneva Advisor") to assist the Company in its
efforts to raise between $5.0 million and $10.0 million through a combination of
debt or equity securities intended to be offered to institutional and private
investors. The Geneva Advisor will be compensated approximately $36,000, plus
five percent (5%) of the funds raised in consideration for its services. In
addition, the Geneva Advisor will assist the Company in seeking temporary bridge
financing of up to $1.0 million, the proceeds of which will be used to fund the
Company's operations until it can complete its efforts to raise permanent
financing. There can be no assurances that the Company will be able to raise the
funds it requires.
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 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 presently reliant on
one supplier, Socol, for certain of the materials used to manufacture Brightec
products. Furthermore, Socol is reliant on two other suppliers for the Alkaline
Earth component crucial to Socol's production activities for the Company.
Should Socol, for any reason, terminate its relationship with the Company, this
would have a material adverse short-term impact on the Company's ability to
produce Brightec products and generate sales. The inability to obtain
sufficient key components as required, or to develop alternative sources could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Management believes that with the assistance of the Geneva Advisor, it will be
successful in raising the necessary financing to fund the Company's operations
through the 1999 calendar year. Accordingly, management believes that no
adjustments or reclassifications of recorded assets and liabilities are
necessary at this time.
During the third and fourth quarters of 1998, the Company commenced seeking new
investors to raise additional financing for the Company. During 1998, the
Company received $688,347 in consideration for subscriptions to purchase
1,867,602 shares of common stock. At December 31, 1998, pending the finalization
of the Company's equity structure, the shares were not issued. It is expected
that the shares will be issued to the investors early in the second quarter of
1999, after the finalization of the Company's equity structure.
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 $315,436, at the March 31, 1999 rate of exchange. At March 31,
1999 and 1998, the Company had exceeded such limit, but in each instance, the
bank granted the Company a temporary extension, with no stated expiration date,
to exceed the limit by the bank. The line-of-credit agreement contains terms
and conditions, restricting the
13
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 the March
31, 1999, the borrowings under the bank line-of-credit carries interest at
6.35%. 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. The Company does not
believe the bank line-of-credit will be reduced or terminated in the near future
and intends to repay it in full during 1999.
Commitments
At December 31, 1998, the Company and its principal supplier, Socol had agreed
informally on terms for the continuation of their on-going relationship; and on
March 31, 1999, the Company and Socol entered into a letter agreement in which
the Company confirmed its agreement to issue 1,000,000 shares of its common
stock to Socol; and Socol confirmed both (i) its agreement to accept such shares
in full consideration for Socol's participation in and efforts in connection
with the Luminescence Technology, and (ii) its disclaimer of any interest or
right in or to the Company's Brightec products, the Luminescence Technology
Patent or the proprietary information and know how relating to said Patent and
Brightec products. The Company anticipates finalizing a definitive Socol
agreement during the second quarter of 1999.
The Company had no material capital expenditure commitments as of March 31,
1999.
Effects of Inflation
Management believes that financial results have not been significantly impacted
by inflation and price changes.
Year 2000
The Company is undergoing a review of its information systems, including a
preliminary assessment of all of its internal and external systems and processes
with respect to the Year 2000 issue. The Company plans to test all of its
systems and processes (and the associated Year 2000 "fixes") for Year 2000
compliance during 1999; and will initiate a review of potential Year 2000
matters with its significant suppliers (which is expected to be completed by the
end of 1999) to determine the extent to which the Company is vulnerable to the
failure of those third parties to remediate their own Year 2000 issues. Although
the actual costs cannot be determined until the review is completed, there can
be no assurance that the systems of other companies will be converted on a
timely basis and will not have a corresponding adverse effect on the Company's
results of operations.
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 early stage of its
assessment the Company cannot predict the impact of the conversion to the Euro.
14
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.
15
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS
(a) Exhibits.
The following exhibits are filed as part of this report:
EXHIBIT NUMBER DESCRIPTION
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27 Financial Data Schedule
16
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: June 15, 1999
By: /s/ Patrick Planche
-------------------------------------------
President, Chief Executive Officer
Principal Financial Officer
17
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- ----------------------------------
27 Financial Data Schedule