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, 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)
41-22-301-0360
(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 ____ No X
Indicate the number of shares outstanding of the registrant's Common Stock, par
value $.001 par value per share, as of November 18, 1999 was 28,799,770.
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
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
Assets September 30, 1999 December 31, 1998
------------------- -------------------
(unaudited)
Current assets:
Cash and cash equivalents $ 7,848 $ 207,938
Prepaid expenses and other assets 6,397 9,878
------------------- -------------------
Total current assets 14,245 217,816
Property and equipment:
Office and photographic equipment 98,107 60,108
Less: Accumulated depreciation (58,839) (33,599)
------------------- -------------------
39,268 26,509
=================== ===================
Total assets $ 53,513 $ 244,325
=================== ===================
Liabilities and stockholders' deficit Current liabilities:
Borrowings under bank line-of-credit $ 390,482 $ 408,641
Accounts payable and accrued liabilities 476,329 151,699
Accounts payable to affiliated companies 133,392 156,412
Notes payable to related party 40,824 44,066
------------------- -------------------
Total current liabilities 1,041,027 760,818
Notes payable to directors 394,406 255,809
------------------- -------------------
Total liabilities 1,435,433 1,016,627
Stockholders' deficit:
Common stock, $0.001 par value;
Authorized; 100,000,000 shares
Issued and outstanding; 27,679,602 and 25,000,000 shares at September 30,
1999 and December 31, 1998, respectively
27,680 25,000
Additional paid-in capital 342,746 45,426
Stock subscribed 688,347 688,347
Stock subscriptions receivable (34,965) (34,965)
Deficit accumulated during the development stage (2,510,175) (1,537,032)
Cumulative translation adjustment 104,447 40,922
------------------- -------------------
Total stockholders' deficit (1,381,920) (772,302)
=================== ===================
Total liabilities and stockholders' deficit $ 53,513 $ 244,325
=================== ===================
See Notes to Unaudited Consolidated Financial Statements
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, 1992)
ended ended ended ended through September
September 30, September 30, September 30, September 30, 30,
1999 1998 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 36,727 - 109,826 - 109,826
Selling and marketing 72,501 24,134 158,862 43,620 329,189
General and administrative 63,333 - 698,775 - 1,841,853
-------------------- ------------------ ------------------- ------------------ -------------------
172,561 24,134 967,463 43,620 2,280,868
-------------------- ------------------ ------------------- ------------------ -------------------
Operating loss (172,561) (24,134) (967,463) (43,620) (2,269,044)
Interest expense, net 8,229 12,621 24,009 38,581 259,460
==================== ================== =================== ================== ===================
Net loss $ (180,790) $ (36,755) $ (991,472) $ (82,201) $ (2,528,504)
==================== ================== =================== ================== ===================
Basis and diluted
loss per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
Shares used to compute basic and
diluted loss per share
26,718,916 5,000,000 26,102,939 25,000,000
See Notes to Unaudited Consolidated Financial Statements
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months Nine months Period from inception
ended ended (February 7, 1992)
September 30, September 30, through September 30,
1999 1998 1999
----------------- ---------------- ---------------------
Operating activities
Net loss $ (991,472) $(82,201) $ (2,528,504)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Inventory written-off - - 72,079
Depreciation 20,240 2,698 56,106
General and administrative expense - 300,000
associated with stock issued (Note 7) 300,000
Changes in operating assets and liabilities:
Accounts receivable from affiliated - 5,330 -
company
Prepaid expenses and other current assets 3,481 (487) (78,476)
Accounts payable and accrued liabilities 324,630 (164,074) 476,329
Accounts payable to affiliated companies (23,020) 133,392
----------------- ---------------- ---------------------
Net cash used in operating activities (366,141) (238,734) (1,569,074)
Investing activities
Proceeds from disposal of property and - - 10,216
equipment
Purchase of property and equipment (14,670) (24,336) (87,079)
----------------- ---------------- ---------------------
Net cash (used in) investing activities (14,670) (24,336) (76,863)
Financing activities
Net change in bank line of credit (18,159) 7,246 390,482
Change in notes payable to directors 138,597 394,406
Change in note payable to related party (3,242) (74,380) 40,642
Cash received for subscriptions of common stock - 373,250 723,808
----------------- ---------------- ---------------------
Net cash provided by financing activities 117,196 306,116 1,549,338
Effects of changes in foreign exchange rates 63,525 14,445 104,447
----------------- ---------------- ---------------------
Increase (decrease) in cash (200,090) 57,491 7,848
Cash and cash equivalents at beginning of period 207,938 494 -
Cash and cash equivalents at end of period $ 7,848 $ 57,985 $7,848
================= ================ =====================
See Notes to Unaudited Consolidated Financial Statements
ADVANCED LUMITECH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Advanced Lumitech, Inc. ("ADLU" or the "Company") and its
wholly-owned subsidiary, Lumitech SA ("Swiss Lumitech"). The Company believes
that the unaudited consolidated financial statements reflect all adjustments
(consisting of only normal recurring adjustments), necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows at the dates and for the periods indicated. The results of operations for
the three and nine month periods ended September 30, 1999 is not necessarily
indicative of results expected for the full fiscal year or any other future
periods. The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes for the
year ended December 31, 1998, included in the Company's Annual Report on Form
10-K for such fiscal year.
Effective August 13, 1998, the Company acquired 100% of the then outstanding
common stock of Swiss Lumitech for consideration of 4,000,000 newly issued
common shares ($ 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 September 30, 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 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 nine months ended September 30, 1999 and 1998, the Company's
comprehensive income (loss) was as follows:
Period from inception
Nine months ended (February 7, 1992)
September 30, through September 30,
1999 1998 1999
---------------- ------------------ --------------------
Net loss $ (991,472) $ (82,201) $(2,528,504)
Foreign currency translation gain 63,525 14,445 104,447
---------------- ------------------ --------------------
Total comprehensive loss $ 927,947 $ (67,756) $ (2,424,057)
---------------- ------------------ --------------------
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.
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 $33,694 and $25,000 in 1999 and 1998, respectively, and
committed to pay an additional $101,306 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 September 30, 1999 include the $101,306.
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 in September 1999, the Company and Socol entered into a
definitive agreement in which the Company agreed to issue 2,500,000 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, (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, (iii)its agreement to transfer all know how relating to said
patent and Brightec products and proprietary information to Lumitech (iv) to
provide certain substances at cost and (v) that there is no exclusivity to Socol
with regard to the manufacturing of such substances. The Company has not
reflected the above letter agreement in the consolidated financial statements as
of September 30, 1999 as the shares have not been issued. As such, the Company
expects to take a non-cash charge of approximately $1.9 million related to the
Socol agreement in the fourth 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 September 30, 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 $ 2,528,504. At September 30, 1999, the Company's current liabilities exceed
its current assets by $ 1,026,782 and the Company had outstanding advances of
approximately $78,560 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 plans to raise approximately $4.5 million in a private
placement of its shares and warrants. In November 1999, the Company successfully
placed a $375,000 unit of its common stock and warrants to purchase 500,000
shares at $1.00 in the first placement of the $4.5 million. There can be no
assurances that the Company will be able to raise the additional 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 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 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 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, focusing
primarily on the pre-printed picture and high-quality ink-jet media markets.
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 Netherlands Affiliate"). Prior to developing the Luminescence
Technology, Swiss Lumitech's operations consisted of unrelated activities.
At September 30, 1999, the Company had not begun commercial marketing and
licensing of Brightec and has generated accumulated losses of $ 2,528,504. The
Company's current liabilities exceed its current assets by $ 1,026,782. 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 and nine months ended September 30,
1999 compared to the three and nine months ended September30, 1998:
Revenues:
Due to the Company's change in strategy described above, the Company recorded no
revenues during the three and nine month periods ended September 30, 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 and nine month periods ended September 30, 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 $36,727 in the quarter ended
September 30, 1999, from $0 in the same quarter in 1998. Research and
development expenses increased $109,826 in the nine-month period ended September
30, 1999, from $0 in the same period in 1998. The increases in 1999 are
primarily due to 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 $48,367 in the quarter ended September 30,
1999, from $24,134 in the same quarter in 1998. Selling and marketing expenses
increased by $115,242 in the nine-month period ended September 30, 1999, from
$43,620 in the same period in 1998. The increases in 1999 in selling expenses is
primarily attributable to the addition of personnel in the U.S. in conjunction
with the Company's plan to establish operations in the U.S and 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 by $63,333 in
the quarter ended September 30, 1999 from $0 in the same quarter in 1998.
General and administrative expenses increased $698,775 in the nine-month period
ended September 30, 1999 from $0 in the same period in 1998. The increase in
expenses in 1999 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 and the addition of personnel
in the U.S. in conjunction with the Company's plan to establish operations in
the U.S. 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 take a non-cash charge of
approximately $1,875,000 in the fourth quarter related to the 2.5 million shares
to be issued under the Socol agreement. See Note 8 to the Consolidated Financial
Statements - Commitments.
Liquidity and Capital Resources:
Cash and cash equivalents decreased to $7,848 at September 30, 1999 from
$207,938 at December 31, 1998. Net cash used in operating activities in the nine
months ended September 30, 1999 was $366,141. The net cash used in operating
activities during nine months ended September 30, 1999 was principally the
result of the net loss of $991,472, adjusted for noncash expenses including
$300,000 associated with common stock issued and a decrease in accounts payable
to affiliated companies, partially offset by an increase in accounts payable and
accrued liabilities.
Net cash used in investing activities in the nine months ended September 30,
1999 was approximately $14,670, consisting of capital expenditures for
property and equipment.
Net cash provided by financing activities in the nine months ended September 30,
1999 was approximately $117,196. The net cash provided of $117,196 was primarily
due to an increase in the notes payable to directors.
Ability to Continue as a Going Concern
At September 30, 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 $2,528,504. The Company's current liabilities
exceed its current assets by $ 1,026,782 at September 30, 1999. Also, at
September 30, 1999 the Company exceeded the borrowings available under the
line-of-credit with a Swiss bank by $78,560, at the September 30, 1999 rate of
exchange. As of November 18, 1999 the Company has approximately $ 100,000 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. 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
is continuing discussions with institutional 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 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.
The Company plans to raise approximately $4.5 million in a private placement of
its shares and warrants. In November 1999, the Company successfully placed a
$375,000 unit of its common stock and warrants to purchase 500,000 shares at
$1.00 in the first placement of the $4.5 million. There can be no assurances
that the Company will be able to raise the additional funds it requires.
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 $315,000, at the September 30, 1999 rate of exchange. At September
30, 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 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, 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.
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 in September 1999, the Company and Socol entered into a
definitive agreement in which the Company agreed to issue 2,500,000 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, (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, (iii)its agreement to transfer all know how relating to said
patent and Brightec products and proprietary information to Lumitech (iv) to
provide certain substances at cost and (v) that there is no exclusivity to Socol
with regard to the manufacturing of such substances. The Company has not
reflected the above letter agreement in the consolidated financial statements as
of September 30, 1999 as the agreement has Company anticipates finalizing a
definitive Socol agreement during the second or third quarter of 1999.
The Company had no material capital expenditure commitments as of September 30,
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.
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.
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
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 19, 1999
By: /s/ Patrick Planche
-----------------------------
President, Chief Executive Officer
Principal Financial Officer
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
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27 Financial Data Schedule