UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 033-55254-27
ADVANCED LUMITECH, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 87-0438637
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8C Pleasant Street, First Floor, South Natick, MA 01760
-------------------------------------------------------
(Address of principal executive offices, Zip code)
(508) 647-9710
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
-----------------------------
(Title of class)
Check whether the Company (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. [ ]Yes [X] No
The Company had 100,000,000 shares of Common Stock, $.001 par value, issued and
outstanding as of June 30, 2005.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
STATEMENT REGARDING THIS AMENDMENT
The Company is amending its Form 10-QSB for the period June 30, 2005, as
previously filed on August 17, 2005.
A. Subsequent to the original issuance of the Company's June 30, 2005
consolidated financial statements, and based upon a further evaluation of the
factors utilized in determining the accounting and presentation of a December
2004 redemption of certain stockholder's common stock to permit the Company to
issue a like number of shares to other investors that held subscriptions for
shares of common stock, the Company determined that the redemption, and
subsequent redemptions should have been accounted for as liabilities; not as a
component of stockholders' deficit. At December 31, 2004, the Company recognized
the liability of $13,195. During the three month period ended June 30, 2005, the
Company redeemed additional shares valued at $2,443,907.
B. The Company determined that subscriptions received for the purchase of the
Company's common stock totaling $375,000 were improperly classified as a
component of stockholders' deficit and should have been classified as a
liability.
C. At December 31, 2004, the Company revalued certain options issued to a
former consultant in satisfaction of claims made against the Company. The
Company has now determined that the various factors used to value the options
under the Black/Scholes method were incorrect including the volatility factor,
which was not calculated based on the Company's openly traded stock prices. The
revaluation resulted in an increase amount of additional paid-in capital in the
amount of $90,524 and an increase in accumulated deficit of $90,524.
D. The Company determined that warrants issued for the purchase of the Company
common stock, originally classified as a component of stockholders' deficit,
should have been recognized as a liability. As of March 31, 2005, warrants
valued at $162,304 were recognized. During the three month period ended June 30,
2005, the Company issued warrants initially valued at $467,825 and warrants
valued at $162,304 were exercised. The Company is required to revalue this
liability at the end of every reporting period. Accordingly, at June 30, 2005,
the Company increased the value of the liability by $34,721 and recognized a
gain (loss) on value of derivative liabilities of and $72,348 and ($34,721) for
the three and six month periods ended June 30, 2005, respectively.
E. In April 2005, the Company issued to a stockholder a stock warrant for
3,600,000 shares of common stock as an inducement to exercise other stock
warrants for 3,335,000 shares of common stock with an aggregate exercise price
of $375,000. The new warrants issued were not valued or recorded. The value of
the new warrants was $467,825. As the value of the new warrants was in excess of
the amount received from the exercise of the older warrants, the value of the
new warrants was first applied to additional paid-in capital with the difference
of $92,825 being charged as financing costs.
The effect of these restatements was to increase the net loss of the Company by
$20,477 (less than $0.01 per share) and $127,546 ($0.01 per share) for the
three- and six month periods ended June 30, 2005, respectively, and increase
stockholders' deficit by $3,227,579.
Our stockholders should refer to the financial statements and accompanying notes
for a detailed explanation of the adjustments to the financial results of the
Company that are contained in this amended Form 10-QSB/A.
In all other material respects, this amended Quarterly Report on Form 10-QSB/A
is unchanged from the Quarterly Report on Form 10-QSB previously filed by the
Company on August 17, 2005. This amendment should also be read in conjunction
with our amended Quarterly Reports on Form 10-QSB/A for the quarters ended March
31, 2005, September 30, 2005 and March 31, 2006 as well as our amended Annual
Reports on Form 10-KSB/A for the years ended December 31, 2004 and December 31,
2005.
2
INDEX
Page Number
Statement Regarding Amendment 4
Introductory Statement 4 - 5
Part I. Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2005 and
December 31, 2004 6
Consolidated Statements of Operations for the Three
Months Ended June 30, 2005 and 2004 and the
Six Months Ended June 30, 2005 and 2004 7
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2005 and 2004 8
Notes to Consolidated Financial Statements 9 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 23
Part II. Other Information
-----------------
Item 1. Legal Proceedings 24
Item 2. Unregistered Sales of Equity and Use of Proceeds 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Exhibit Index 27
Exhibit 31 Certification of Chief Executive and Financial Officer Pursuant
to 18 U.S.C Section 1850, As Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. (filed herewith) E-1
Exhibit 32 Certification of Chief Executive and Financial Officer Pursuant
to Rule 13a-14(b) of the Exchange Act and 18 U.S.C Section 1850,
as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of
2002. (filed herewith) E-2
3
Restatement of June 30, 2005 Consolidated Financial Statements
The Company is restating its June 30, 2005 consolidated financial statements for
the following matters:
A. Subsequent to the original issuance of the Company's June 30, 2005
consolidated financial statements, and based upon a further evaluation of the
factors utilized in determining the accounting and presentation of a December
2004 redemption of certain stockholder's common stock to permit the Company to
issue a like number of shares to other investors that held subscriptions for
shares of common stock, the Company determined that the redemption, and
subsequent redemptions should have been accounted for as liabilities; not as a
component of stockholders' deficit. At December 31, 2004, the Company recognized
the liability of $13,195. During the three month period ended June 30, 2005, the
Company redeemed additional shares valued at $2,443,907. See Note 13 - Liability
to Stockholders for Redeemed Shares.
B. The Company determined that subscriptions received for the purchase of the
Company's common stock totaling $375,000 were improperly classified as a
component of stockholders' deficit and should have been classified as a
liability. See Note 12 - Liability for Stock Subscribed.
C. At December 31, 2004, the Company revalued certain options issued to a
former consultant in satisfaction of claims made against the Company. The
Company has now determined that the various factors used to value the options
under the Black/Sholes method were incorrect including the volatility factor,
which was not calculated based on the Company's openly traded stock prices. The
revaluation resulted in an increase amount of additional paid-in capital in the
amount of $90,524 and an increase in accumulated deficit of $90,524.
D. The Company determined that warrants issued for the purchase of the Company
common stock, originally classified as a component of stockholders' deficit,
should have been recognized as a liability. As of March 31, 2005, warrants
valued at $162,304 were recognized. During the three month period ended June 30,
2005, the Company issued warrants initially valued at $467,825 and warrants
valued at $162,304 were exercised. The Company is required to revalue this
liability at the end of every reporting period. Accordingly, at June 30, 2005,
the Company increased the value of the liability by $34,721 and recognized a
gain (loss) on value of derivative liabilities of and $72,348 and ($34,721) for
the three and six month periods ended June 30, 2005, respectively. See Note 11 -
Warrant Liability.
E. In April 2005, the Company issued to a stockholder a stock warrant for
3,600,000 shares of common stock as an inducement to exercise other stock
warrants for 3,335,000 shares of common stock with an aggregate exercise price
of $375,000. The new warrants issued were not valued or recorded. The value of
the new warrants was $467,825. As the value of the new warrants was in excess of
the amount received from the exercise of the older warrants, the value of the
new warrants was first applied to additional paid-in capital with the difference
of $92,825 being charged as financing costs. See Note 11 - Warrant Liability and
Note 12 - Liability for Stock Subscribed.
The result of these restatements was to increase the net loss of the Company by
$20,477 (less than $0.01 per share) and $127,546 ($0.01 per share) for the
three- and six month periods ended June 30, 2005, respectively, and increase
stockholders' deficit by $3,227,579.
Introductory Statement
Note Regarding Forward Looking Statements:
This Form 10-QSB/A and other reports filed by the Company from time to time with
the Securities and Exchange Commission, as well as the Company's press releases,
contain or may contain forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The information provided is based upon beliefs of, and information
currently available to, the Company's management, as well as estimates and
assumptions made by the Company's management. The Company is including this
cautionary statement in this Form 10-QSB/A to make applicable and to take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by or on behalf of
us. Statements that are not statements of historical fact may be deemed to be
forward- looking statements. Forward-looking statements can be identified by the
use of forward-looking terminology such as "believes", "may", "should",
"anticipates", "estimates", "expects", "future", "intends", "hopes", "plans" or
the
4
Introductory Statement - continued
negative thereof. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that could cause actual results of the
Company to vary materially from historical results or from any future results
expressed or implied in such forward-looking statements.
Any statements contained in this Form 10-QSB/A that do not describe historical
facts, including without limitation statements concerning expected revenues,
earnings, product introductions and general market conditions, may constitute
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Any such forward-looking statements contained
herein are based on current expectations, but are subject to a number of risks
and uncertainties that may cause actual results to differ materially from
expectations. The factors that could cause actual future results to differ
materially from current expectations include the following: the Company's
ability to raise the financing required to support the Company's operations; the
Company's ability to establish its intended operations; fluctuations in demand
for the Company's products and services; the Company's ability to manage its
growth; the Company's ability to develop, market and introduce new and enhanced
products on a timely basis; the Company's lack of customers; and the ability of
the Company to compete successfully in the future. Further information on
factors that could cause actual results to differ from those anticipated is
detailed herein in Item 3, Quantitative and Qualitative Disclosures About Market
Risk, and in various filings made by the Company from time to time with the
Securities and Exchange Commission. Any forward-looking statements should be
considered in light of those factors.
The Company will provide copies of its quarterly and annual reports, including
interim unaudited and audited consolidated financial statements to its security
holders. We also file periodic reports with the Securities and Exchange
Commission as well as reports on Form 8-K, proxy or information statements and
other reports required of publicly held reporting companies. The public may read
and copy any materials the Company files with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains the
reports, proxy and information statements, and other information that the
Company files electronically with the SEC, which is available on the Internet at
www.sec.gov. Further information about the Company and its subsidiaries may be
found at www.brightec.com.
5
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Advanced Lumitech, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited) (Audited)
June 30, 2005 December 31, 2004
----------------- -----------------
(As Restated) (As Restated)
ASSETS
Current assets
Cash $ 47,148 $ 4,310
Interest receivable 44,787 38,750
Inventory 67,638 31,348
----------------- -----------------
TOTAL CURRENT ASSETS 159,573 74,408
----------------- -----------------
Office and photographic equipment 23,511 23,511
Less accumulated depreciation (23,511) (23,511)
----------------- -----------------
-- --
----------------- -----------------
Note receivable from related party 250,000 250,000
----------------- -----------------
TOTAL ASSETS $ 409,573 $ 324,408
================= =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 6,263 $ 3,505
Accounts payable 198,711 367,329
Accrued expenses 236,908 243,219
Advance from related party 63,479 64,196
Liability for shares to be issued 328,000 467,000
Warrant liability 395,477 --
Liability for stock subscriptions received 375,000 850,000
Liability to stockholders for shares redeemed 2,457,102 13,195
Notes payable to related party -- 100,000
----------------- -----------------
TOTAL CURRENT LIABILITIES 4,060,940 2,108,444
----------------- -----------------
Long-term liabilities
Long-term debt, net of current maturities 91,378 162,986
----------------- -----------------
TOTAL LIABILITIES 4,152,318 2,271,430
----------------- -----------------
Stockholders' deficit
Common stock 100,000 100,000
Additional paid-in capital 6,547,894 7,808,732
Accumulated deficit (10,532,738) (9,999,219)
Accumulated other comprehensive income 142,099 143,465
----------------- -----------------
(3,742,745) (1,947,022)
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 409,573 $ 324,408
================= =================
The accompanying notes are an integral part of these financial statements.
6
Advanced Lumitech, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
(As Restated) (As Restated)
Sales to third parties $ 48,916 $ 41,965 $ 84,358 $ 218,181
Cost of sales 37,312 27,210 71,415 196,483
------------- ------------- ------------- -------------
Gross profit 11,604 14,755 12,943 21,698
------------- ------------- ------------- -------------
Operating expenses
Research and development 61,661 31,929 80,255 94,616
Selling and marketing 4,071 127,235 37,523 295,634
General and administrative 189,153 185,614 301,448 323,789
------------- ------------- ------------- -------------
254,885 344,778 419,226 714,039
------------- ------------- ------------- -------------
Operating loss (243,281) (330,023) (406,283) (692,341)
Other income (expense)
Gain (loss) on value of
derivative liabilities 72,348 -- (34,721) --
Financing costs (92,825) -- (92,825) --
Other 448 (1,482) 310 (3,569)
------------- ------------- ------------- -------------
(20,029) (1,482) (127,236) (3,569)
------------- ------------- ------------- -------------
Net loss (263,310) (331,505) (533,519) (695,910)
Accumulated deficit - beginning (10,269,428) (8,719,925) (9,999,219) (8,355,390)
------------- ------------- ------------- -------------
Accumulated deficit - ending $ (10,532,738) $ (9,051,430) $ (10,532,738) $ (9,051,300)
============= ============= ============= =============
Basic and diluted net loss
per share $ 0.00 $ 0.00 $ (0.01) $ (0.01)
============= ============= ============= =============
Weighted average number of
shares used in computation of
basic and diluted net loss per
share 100,000,000 98,283,620 100,000,000 98,283,620
============= ============= ============= =============
COMPREHENSIVE LOSS
Net loss $ (263,310) $ (331,505) $ (533,519) $ (695,910)
Other comprehensive income (loss) 1,421 (4,735) (1,366) 10,732
------------- ------------- ------------- -------------
Comprehensive loss $ (261,889) $ (336,240) $ (534,885) $ (685,178)
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
7
Advanced Lumitech, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30,
2005 2004
-------------- --------------
(As Restated)
Cash flows from operating activities
Net loss $ (533,519) $ (695,910)
Adjustments to reconcile net loss to net cash used for
operating activities:
Accrued interest on note receivable - related party (6,037) (5,579)
Depreciation -- 1,357
Foreign exchange loss -- (575)
Loss on value of derivative liabilities 34,721 --
Financing costs 92,825 --
General and administrative expense associated
with stock based transactions 30,000 144,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable -- (22,431)
Inventory (36,290) 66,953
Increase (decrease) in:
Accounts payable (148,618) 11,070
Accrued expenses (6,311) (39,214)
-------------- --------------
Net cash used for operating activities (573,229) (540,329)
-------------- --------------
Cash flows from investing activities
Advances to related parties -- (76,804)
-------------- --------------
Net cash used for investing activities -- (76,804)
-------------- --------------
Cash flows from financing activities
Principal payments on long-term debt (2,593) (3,277)
Principal payments on note payable - related party (100,000) (4,000)
Repayment of advances from related party (66,974) (6,196)
Cash received for sale of common stock, exercise of
warrants and stock subscribed 787,000 350,000
-------------- --------------
Net cash provided by financing activities 617,433 336,527
-------------- --------------
Effects of changes in foreign exchange rates (1,366) 10,732
Net increase (decrease) in cash 42,838 (269,874)
Cash - beginning 4,310 335,803
-------------- --------------
Cash - ending $ 47,148 $ 65,929
============== ==============
Supplemental disclosures of cash flows information
Cash paid during the period for interest $ 10,468 $ 5,192
============== ==============
Issuance of stock to settle accounts payable $ 20,000 $ --
============== ==============
Schedule of non-cash activities
Liability to stockholders for shares redeemed and cancelled $ 2,443,907 $ --
============== ==============
Issuance of warrants relating to private placements $ 550,156 $ --
============== ==============
Issuance of warrants for financing costs $ 92,825 $ --
============== ==============
Exercise of warrants classified as liabilities $ (82,341) $ --
============== ==============
The accompanying notes are an integral part of these financial statements.
8
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
1. OPERATIONS
Advanced Lumitech, Inc. d/b/a Brightec ("ADLU" or "Company") develops and
markets luminescent films incorporating luminescent or phosphorescent pigments
(the "Luminescent Product").These pigments absorb and reemit visible light
producing a "glow" which accounts for the common terminology "glow in the dark."
The Company's Luminescent Product will be sold primarily as a printable
luminescent film designed to add luminescence to existing or new products. The
Company manufactures through third-party manufacturers, markets and sells
graphic quality printable luminescent films (the "Luminescent Product"). These
films are based on the Company's proprietary and patented technology, which
enables prints to be of photographic quality by day and luminescent under low
light or night conditions. The Company expects that its Luminescent Product will
be available for sale in a number of versions appropriate for commonly used
commercial and personal printing technology, including offset printing, laser or
inkjet printing, plus a variety of "print on demand" digital technologies. The
Company offers its products in sheets and rolls.
Restatement of June 30, 2005 Interim Consolidated Financial Statements
The Company is amending its Form 10-QSB for the period June 30, 2005, as
previously filed on August 17, 2005.
A. Subsequent to the original issuance of the Company's June 30, 2005
consolidated financial statements, and based upon a further evaluation of the
factors utilized in determining the accounting and presentation of a December
2004 redemption of certain stockholder's common stock to permit the Company to
issue a like number of shares to other investors that held subscriptions for
shares of common stock, the Company determined that the redemption, and
subsequent redemptions should have been accounted for as liabilities; not as a
component of stockholders' deficit. At December 31, 2004, the Company recognized
the liability of $13,195. During the three month period ended June 30, 2005, the
Company redeemed additional shares valued at $2,443,907. See Note 13 - Liability
to Stockholders for Redeemed Shares.
B. The Company determined that subscriptions received for the purchase of the
Company's common stock totaling $375,000 were improperly classified as a
component of stockholders' deficit and should have been classified as a
liability. See Note 12 - Liability for Stock Subscribed.
C. At December 31, 2004, the Company revalued certain options issued to a
former consultant in satisfaction of claims made against the Company. The
Company has now determined that the various factors used to value the options
under the Black/Sholes method were incorrect including the volatility factor,
which was not calculated based on the Company's openly traded stock prices. The
revaluation resulted in an increase amount of additional paid-in capital in the
amount of $90,524 and an increase in accumulated deficit of $90,524.
D. The Company determined that warrants issued for the purchase of the Company
common stock, originally classified as a component of stockholders' deficit,
should have been recognized as a liability. As of March 31, 2005, warrants
valued at $162,304 were recognized. During the three month period ended June 30,
2005, the Company issued warrants initially valued at $467,825 and warrants
valued at $162,304 were exercised. The Company is required to revalue this
liability at the end of every reporting period. Accordingly, at June 30, 2005,
the Company increased the value of the liability by $34,721 and recognized a
gain (loss) on value of derivative liabilities of and $72,348 and ($34,721) for
the three and six month periods ended June 30, 2005, respectively. See Note 11 -
Warrant Liability.
E. In April 2005, the Company issued to a stockholder a stock warrant for
3,600,000 shares of common stock as an inducement to exercise other stock
warrants for 3,335,000 shares of common stock with an aggregate exercise price
of $375,000. The new warrants issued were not valued or recorded. The value of
the new warrants was $467,825. As the value of the new warrants was in excess of
the amount received from the exercise of the older warrants, the value of the
new warrants was first applied to additional paid-in capital with the difference
of $92,825 being charged as financing costs. See Note 11 - Warrant Liability and
Note 12 - Liability for Stock Subscribed.
The result of these restatements was to increase the net loss of the Company by
$20,477 (less than $0.01 per share) and $127,546 ($0.01 per share) for the
three- and six month periods ended June 30, 2005, respectively, and
9
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
1. OPERATIONS - continued
Restatement of June 30, 2005 Interim Consolidated Financial Statements -
continued
increase stockholders' deficit by $3,227,579.
2. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at June 30, 2005
and for the three-month and six-month periods ended June 30, 2005 and 2004
include the accounts of the Company and its wholly-owned subsidiary. All
inter-company transactions and balances have been eliminated in consolidation.
In our opinion, these unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements
included in our Annual Report on Forms 10-KSB and 10-KSB/A for the year ended
December 31, 2004, and include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results for such
interim periods. These financial statements should be read in conjunction with
the audited consolidated financial statements included in our Annual Report on
Forms 10-KSB and 10-KSB/A for the year ended December 31, 2004. The results of
operations for the three- and six month periods ended June 30, 2005 are not
necessarily indicative of the results expected for the fiscal year ending
December 31, 2005.
Certain footnote disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations, although
we believe that the disclosures in these financial statements are adequate to
make the information presented not misleading.
3. LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN
The Company has a working capital deficit of $3,901,367 and an accumulated
deficit of $10,532,738 at June 30, 2005, and recurring net losses since
inception. The ability of the Company to continue to operate as a going concern
is primarily dependent upon the ability of the Company to raise the necessary
financing, to effectively produce and market Brightec products at competitive
prices, to establish profitable operations and to generate positive operating
cash flows. If the Company fails to raise funds, or the Company is unable to
generate operating profits and positive cash flows, there are no assurances that
the Company will be able to continue as a going concern and it may be unable to
recover the carrying value of its assets.
Management believes that it will continue to be successful in raising the
necessary financing to fund the Company's operations through the 2005 calendar
year; however, there can be no assurances that such financing can be obtained.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
value and consist of the following:
(Unaudited) (Audited)
June 30, 2005 December 31, 2004
----------------- -----------------
(As Restated) (As Restated)
Raw materials $ 28,885 $ 19,867
Work in process 29,187 7,181
Finished goods 9,566 4,300
----------------- -----------------
$ 67,638 $ 31,348
================= =================
10
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
5. INCOME TAXES
The Company has not calculated the tax benefits of its net operating losses as
of June 30, 2005 and December 31, 2004 since it does not have the required
information. The Company has not filed its federal and state corporate tax
returns for years ended December 31, 2004, 2003, 2002 and 2000. The tax return
filed for 2001 will need to be amended. Due to the uncertainty over the
Company's ability to utilize these operating losses, any deferred tax assets,
when determined, would be fully offset by a valuation allowance.
6. RELATED PARTY TRANSACTIONS
As of June 30, 2005 and December 31, 2004, a ten year note of $250,000 was
receivable from the Company's president, who is also a director and stockholder.
This full-recourse loan bears interest at a fixed rate of 5.05% and is due no
later than December 31, 2011. Interest on the loan is accrued quarterly and due
annually. No interest payments on such loan have been made to date. At June 30,
2005 and December 31, 2004, the Company owed the president $63,479 and $55,196,
respectively, in connection with advances made by him to the Company in prior
years. During the three-months and six-month periods ended June 30, 2005, he
made advances to the Company of $0 and $37,500, respectively and the Company
repaid $113,000 and $60,500, respectively, of the outstanding advances due.
During the three month period ended June 30, 2005, the Company's president also
personally assumed a portion of the long-term debt owed to a related party
($66,257) and an operating liability ($17,526). The assumptions of long-term
debt and operating liability have been credited to the president as if he had
advanced the Company the money. All such advances bear interest at the Internal
Revenue Service short term "Applicable Federal Rate," calculated and accrued
monthly.
During the three-month and six month periods ended June 30, 2005 and the year
ended December 31, 2004, the Company recognized interest income of $3,113, $
6,261 and $13,627, respectively, on the above note receivable and advances. As
of June 30, 2005 and December 31, 2004, net accrued interest was receivable from
the president of $44,081 and $38,750, respectively. In December 2004, the
principal stockholder advanced the Company $9,000 on a non-interest bearing
basis. The advance was repaid in January 2005.
OTHER NOTES - Other related party debt is described in Notes 7 and 9.
7. NOTES PAYABLE TO RELATED PARTY
In December 2002, the Company borrowed $50,000 from its largest stockholder
under a convertible demand promissory note, which bears interest at 8.00% and is
payable in full on demand within one year. The principal, if not paid within
thirty days of when due, bears interest at the rate of 10.00%. The note is
convertible into that number of shares of the Company's common stock determined
by dividing the unpaid principal amount, together with all accrued but unpaid
interest on the note, at the conversion date by $0.10, subject to certain
adjustments. At June 30, 2005 and December 31, 2004, $ 0 and $50,000,
respectively, was outstanding under this note and accrued interest of $0 and
$3,575, respectively, was due.
In early 2003, the Company issued a second convertible demand promissory note to
this stockholder to borrow up to an additional $55,000 with the same terms as
the $50,000 note, except that the interest rate on the note is a fixed 8.00%. At
June 30, 2005 and December 31, 2004, $ 0 and $50,000, respectively, was
outstanding under this note and accrued interest of $267 and $2,997,
respectively, was due.
8. COMMON STOCK AND NUMBER OF SHARES OF COMMON STOCK AUTHORIZED
Under the Company's charter, 100,000,000 shares of common stock are authorized.
As of March 31, 2005 and December 31, 2004, 100,000,000 shares of common stock
were issued and outstanding. On April 6, 2005, the Company entered into an
agreement with one of the Company's major stockholders allowing the Company to
11
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
8. COMMON STOCK AND NUMBER OF SHARES OF COMMON STOCK AUTHORIZED - continued
redeem 15,767,145 shares of common stock he held, in order to permit the Company
to issue a like number of shares of common stock to other investors who held
subscriptions for shares of common stock. Under the agreement, the major
stockholder is to receive no compensation for the redemption of his securities.
Upon the amendment of the Company's Articles of Incorporation, the Company will
reissue the exact number of shares redeemed from this stockholder for no
consideration.
ISSUANCES OF COMMON STOCK
On April 6, 2005, the Company issued 14,227,145 shares, which had previously
been subscribed.
9. LONG-TERM DEBT
As of June 30, 2005 and December 31, 2004, $97,641 and $166,491, respectively,
was outstanding in connection with an agreement entered into in 2002 with the
mother-in-law of the Company's president. This agreement provides for the
repayment of 2,000 Swiss francs of principal each January 1 and July 1, together
with accrued interest on the unpaid balance payable quarterly at the rate of
4.25% per annum. The Company recorded interest expense with respect to this
obligation for the three-month and six- month periods ended June 30, 2005 and
the year ended December 31, 2004 of $1,727, $2,656 and $7,562, respectively. At
each balance sheet date the outstanding debt is translated to U.S. dollars and
any required adjustment is recorded in the cumulative translation adjustment
account within the equity section of the balance sheet.
The maturities of long-term debt for the next five years and in the aggregate
are as follows:
Twelve Months Ended Amount
----------------------- --------------------
June 30, 2006 $ 4,698
June 30, 2007 3,132
June 30, 2008 3,132
June 30, 2009 3,132
June 30, 2010 3,132
Thereafter 80,415
--------------------
$ 97,641
====================
During the three-month period ended June 30, 2005, the Company's president
assumed $66,257 of the outstanding long-term debt. This amount was reclassified
in the "Advances to related party" account on the balance sheet.
10. LIABILITY FOR SHARES TO BE ISSUED
Liability for shares to be issued represents commitments to issue shares of
common stock in exchange for services provided or the settlement of debt. Such
shares remain unissued at June 30, 2005. As of March 31, 2005 and December 31,
2004, 3,330,000 shares with an aggregate value of $497,000 and 3,210,000 shares
with an aggregate value of $467,000, respectively, were committed but unissued.
On April 6, 2005, 1,540,000 shares were issued in satisfaction of liabilities
aggregating $189,000.
In April 2005, the Company entered into an agreement with Luminescent Europe
Technologies, BV (an affiliate of the Company by virtue of an existing equity
ownership position in the Company) pursuant to which the Company agreed to issue
100,000 shares of Common Stock, valued at $0.20 per share, in satisfaction of
indebtedness owed by the Company to Luminescent Europe Technologies, BV, in the
amount of $ 20,000.
As a result of the above transactions, 1,890,000 shares with an aggregate value
of $328,000 are committed but unissued as of June 30, 2005.
12
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
11. WARRANT LIABILITY
During the quarter ended June 30, 2005, the Company issued warrants initially
valued at $467,825 (see Note 14 - Liability for Stock Subscribed). As the
Company had already issued all of its shares of authorized common stock, the
value of the warrants had to be recognized as a liability pursuant to EITF
00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock. In addition, warrants valued at
$162,304 were exercised during the quarter. The Company is required to revalue
the warrants at the end of each reporting period with the change in value
reported on the statement of operations as "Gain (Loss) on Value of Derivative
Liabilities" in the period in which the change occurred. As of June 30, 2005,
the value of the remaining balance of outstanding warrants was $395,477. For the
three and six months ended June 30, 2005, the Company recognized a gain (loss)
on value of derivative liabilities of $72,348 and ($34,721), respectively.
The fair value of these warrants was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for the three
month period ended June 30, 2005: risk-free interest rate of 3.77%; no dividend
yield; an expected life of the options of 34 to 36 months; and a volatility
factor of 381.3% to 407.9%.
12. LIABILITY FOR STOCK SUBSCRIBED
Liability for stock subscribed represents amounts received for equity
investments for which shares of common stock remain unissued at June 30, 2005.
As of March 31, 2005 and December 31, 2004, 14,227,145 shares with an aggregate
purchase price of $1,262,000 and 10,107,145 shares with an aggregate purchase
price of $850,000, respectively, were subscribed but unissued.
As previously disclosed in Note 10 - Common Stock - Issuances of Common Stock,
14,227,145 shares were issued on April 6, 2005.
In April 2005, the Company issued to a stockholder a stock warrant for 3,600,000
shares of common stock as an inducement to exercise other stock warrants for
3,335,000 shares of common stock with an aggregate exercise price of $375,000.
The value of the new warrants was $467,825. As the value of the new warrants was
in excess of the amount received from the exercise of the older warrants, the
value of the new warrants was first applied to additional paid in capital with
the difference of $92,825 being charged as financing costs.
As a result of the above transactions, 3,335,000 shares with an aggregate
purchase price of $375,000 are subscribed but unissued as of June 30, 2005.
As discussed in Note 1, the Company has determined that subscriptions received
for the purchase of the Company's common stock should be classified as a
liability. When the Company received the stock subscriptions, it had already
issued all of its common shares authorized under its charter. When a contract
(the subscription agreement) is to be settled in shares of stock and the share
settlement is not within the control of the Company as a result of the Company
requiring stockholder approval to increase the number of authorized shares in
order to settle the contract, then liability classification is required.
13. LIABILITY TO STOCKHOLDERS FOR REDEEMED SHARES
In December 2004, the Company's president agreed to allow the Company to redeem
shares of his common stock in order to allow the Company to fulfill its
obligations to certain consultants and investors. This was as a result of the
Company having already issued all of its shares of authorized common stock. The
agreement states that the Company will reissue to its president/stockholder the
same number of shares redeemed as soon as is reasonable practical and that the
president/stockholder will receive no additional compensation beyond the
re-issuance of the number of shares of common stock redeemed. As of March 31,
2005, the value of those shares redeemed was $13,195. On April 6, 2005, another
stockholder/director entered into a similar agreement, allowing the Company to
redeem 15,767,145 shares of his common stock valued at $2,443,907.
As of June 30, 2005, the liability representing the Company's obligation to its
stockholders for the common stock shares redeemed was $2,457,102.
13
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
14. STOCK OPTIONS
On April 28, 2005, with stockholder approval, the Company granted, options at an
exercise price of $0.12 per share to purchase 12,000,000 shares of Common Stock
to Patrick Planche, president, chief executive officer and chief financial
officer, together with two additional options to two Company employees to
purchase an aggregate of 6,000,000 shares of the Company's Common Stock. The
Company also granted a non-qualified option to purchase 2,000,000 shares of the
Company's Common Stock at an exercise price of $0.12 per share to Francois
Planche, a former Director of the Company
On June 27, 2005, the Company granted a non-qualified option to a consultant to
purchase 500,000 shares of the Company's Common Stock at an exercise price of
$.001 per share for a period of ten years, but vesting only upon a change of
control of the Company. The options granted in 2004 and 2005 cannot be exercised
until such time as the Company increases the number shares of the Company's
authorized Common Stock.
In addition to the 1999 Plan, in the second quarter of 2005, the Company granted
to employees non-qualified options to purchase 20,000,000 shares of the
Company's common stock at an exercised price of $0.12 per share. These options
are fully vested and are exercisable for a period of ten years. The fair value
of these options was estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk-free interest rate of
4.16%; no dividend yield; an expected life of the options of ten years; and a
volatility factor of 16.5%.
The following table illustrates the pro forma effect on net loss and net loss
per share for the three months ended June 30, 2005 (the only interim period in
which employee stock options were granted) if the Company had applied the fair
value recognition provisions of SFAS No. 123 to stock-based employee
compensation:
(Unaudited) (Unaudited)
Three Months Six Months
Ended 6/30/2005 Ended 6/30/2005
----------------- -----------------
(As Restated) (As Restated)
Net loss for the period $ (263,310) $ (533,519)
Less: stock based employee compensation expense
determined under fair value based method for awards 336,000 336,000
----------------- -----------------
Proforma net loss $ (599,310) $ (869,519)
================= =================
Basic and diluted net income (loss) per share
As reported $ 0.00 $ (0.01)
================= =================
Proforma $ (0.01) $ (0.01)
================= =================
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Quarterly Report on Form
10-QSB/A and our Annual Report on Form 10-KSB and 10-KSB/A for the year ended
December 31, 2004. This Quarterly Report on Form 10-QSB/A contains
forward-looking statements based on our current expectations, assumptions,
estimates and projections about the Company and our industry. These
forward-looking statements are usually accompanied by words such as "believes",
"anticipates", "plans", "expects" and similar expressions. Forward-looking
statements involve risks and uncertainties and our actual results may differ
materially from the results anticipated in these forward-looking statements as a
result of certain factors, as more fully described in this section under the
caption "Risk Factors".
CRITICAL ACCOUNTING POLICIES
Certain of the Company's accounting policies are particularly important to the
portrayal and understanding of its financial position and results of operations
and require the application of significant judgment by management. As a result,
these policies are subject to an inherent degree of uncertainty. In applying
these policies, the Company uses its judgment in making certain assumption and
estimates. The Company's critical accounting policies, which consist of revenue
recognition, account receivable reserves and inventories, are described in the
Annual Report on Form 10-KSB for the year ended December 31, 2004. There have
been no material changes to the Company's critical accounting policies as of
June 30, 2005.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH THREE MONTHS AND
SIX MONTH ENDED JUNE 30, 2004
REVENUES:
In April 2005, the Company made its fifth commercial sale of its luminescent
product, which was sold to a major poster board marketer that introduced a
"Glow-in-the-Dark Sign Kit" that includes two sheets of Brightec's glow-in-the
dark paper in an 11"x14" poster board format. This "Glow-in-the-Dark Sign Kit"
was launched chain wide at approximately 1,000 stores of an office superstore.
The Company's revenue, net of returns, allowances and discounts, for the three
months ended June 30, 2005 was $48,916 compared to $41,965 for the comparable
three months of 2004. The Company's revenue, net of returns, allowances and
discounts, for the six months ended June 30, 2005 was $84,358 compared to
$218,181 for the comparable six months of 2004. The decrease in revenues in the
six months of 2005 is primarily due to the fact that in the comparable period of
2004 the Company had a major test market program for its inkjet paper with an
office superstore products retailer and no such test market in the six months of
2005.
GROSS PROFIT:
The Company's gross profit percentage was 23.72% and 15.34% for the three and
six months period ended June 30, 2005, compared to 35.16% and 9.94% for the same
periods in fiscal 2004. The level of the gross profit margin was primarily due
to the requirement of reducing its Luminescent product sale price to compete
favorably in the sign kit and poster board mass-retail market offset by some
initial improvements in its manufacturing costs. In order to increase its gross
profit percentage and compete favorably in the marketplace, the Company will
need to continue lower its manufacturing costs.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses increased by $29,732 for the three months
ended June 30, 2005 to $61,661 from $31,929 for the comparable three months of
2004 and decreased by $14,361 for the six months ended June 30, 2005 to $80,255
from $94,616 for the comparable six months of 2004. The increase in research and
development expenses in the second quarter of 2005 was primarily due to an
increase in the number of manufacturing trial runs towards qualifying raw
materials and working to reduce production costs for its luminescent products.
The overall decrease in research and development expenses for the six months
ended June 30, 2005 was primarily due to a decrease in the number of
manufacturing trial runs in the first quarter of 2005. In the second quarter of
2005 a former consultant was hired as a full time employee to oversee the
Company's Research and development in order to lower the manufacturing costs.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RESULTS OF OPERATIONS - continued
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH THREE MONTHS AND
SIX MONTH ENDED JUNE 30, 2004 - continued
SELLING AND MARKETING EXPENSES:
Selling and marketing expenses decreased by $123,164 for the three months ended
June 30, 2005 to $4,071 from $127,235 for the comparable three months of 2004
and decreased by $258,111 for the six months ended June 30, 2005 to $37,523 from
$295,634 for the comparable six months of 2004. The decrease in selling and
marketing expenses was primarily due to a decrease in professional fees and
consulting services, which consisted primarily of ending services for a
marketing consultant, a marketing and corporate branding consultant and a public
relation firm. Selling and marketing expenses included no non-cash charges
relating to commitments to issue shares of the Company's Common Stock in
exchange for consulting services for the three months ended June 30, 2005,
compared to $72,000 of such charges for the comparable three months of 2004.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses consisted primarily of the compensation of
the executive officer, and payments for rent and consultants, as well as legal
and accounting costs. General and administrative expenses increased by $3,539
for the three months ended June 30, 2005 to $189,153 from $185,614 for the
comparable three months of 2004 and decreased by $22,341 for the six months
ended June 30, 2005 to $301,448 from $323,789 for the comparable six months of
2004. The increase in the second quarter of 2005 from the comparable period in
2004 was primarily due to an increase in professional fees and the overall
decrease for the six months ended June 30, 2005 from the comparable period in
2004 was primarily due to a decrease in consulting fees and accounting fees.
General and administrative expenses include non-cash charges relating to
commitments to issue shares of the Company's Common Stock in exchange for
consulting services of $30,000 for the six months ended June 30, 2005, compared
to $144,000 of such charges for the comparable six months of 2004.
OTHER INCOME (EXPENSE):
For the three months ended June 30, 2005 and 2004, interest expense, net of
interest income was $448 and $578, respectively. For the three months ended June
30, 2004, Other Income (Expense) also included $904 from foreign currency
translation losses relating to the amount of U.S. dollars required to purchase
Swiss francs in order to pay its interest obligation on long-term debt, versus
the amount accrued in U.S. dollars when the interest was due.
For the six months ended June 30, 2005 and 2004, interest expense, net of
interest income was $181 and ($2,665), respectively. For the six months ended
June 30, 2005 and 2004, Other Income (Expense) also included $129 and ($904),
respectively, from foreign currency translation gains (losses) relating to the
amount of U.S. dollars required to purchase Swiss francs in order to pay its
interest obligation on long-term debt versus the amount accrued, in U.S.
dollars, when the interest was due.
Interest expense and interest income are dependent on the level of loans due to
and from affiliates parties.
GAIN (LOSS) ON VALUE OF DERIVATIVE LIABILITIES:
Gain (loss) on value of derivative liabilities of $(34,721) and $72,348 for the
six and three months ended June 30, 2005 relates to the warrant liability. Such
derivative liabilities are required to be marked-to-market under generally
accepted accounting principles. See a further discussion in Note 13 - Warrant
Liability.
FINANCING COSTS:
In April 2005, the Company issued to a stockholder a stock warrant for 3,600,000
shares of common stock as an inducement to exercise other stock warrants for
3,335,000 shares of common stock with an aggregate exercise price of $375,000.
The value of the new warrants was $467,825. As the value of the new warrants was
in excess of the amount received from the exercise of the older warrants, the
value of the new warrants was first applied to additional paid-in capital with
the difference of $92,825 being charged as financing costs. See Note 13 -
Warrant Liability and Note 14 - Liability for Stock Subscribed.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RESULTS OF OPERATIONS - continued
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH THREE MONTHS AND
SIX MONTH ENDED JUNE 30, 2004 - continued
INCOME TAXES:
The Company has not calculated the tax benefits of its net operating losses,
since it does not have the required information. Due to the uncertainty over the
Company's ability to utilize these operating losses, any deferred tax assets,
when determined, would be fully offset by a valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES AS OF JUNE 30, 2005:
Since inception, the Company's operations have not generated sufficient cash
flow to satisfy the Company's capital needs. The Company has financed its
operations primarily through the private sale of shares of its Common Stock,
warrants to purchase shares of the Company's Common Stock and debt securities.
The Company has generated, from inception through June 30, 2005, cumulative net
cash proceeds from the sale of its equity of approximately $4.7 million. The
Company's net working capital deficit at June 30, 2005 was $3,901,367 compared
to a deficit of $2,034,036 at December 31, 2004. The Company's authorized
capital stock consists of 100,000,000 shares of Common Stock, of which
100,000,000 were issued and outstanding at June 30, 2005. As of June 30, 2005,
the Company had also made commitments to issue an additional 21,069,765 shares
of Common Stock, none of which the Company can issue. The 21,069,765 additional
shares of Common Stock can be issued at such time as the Company is able to
increase the number of authorized shares of its Common Stock. The number of
shares committed excludes shares of Common Stock to be issued upon the exercise
of outstanding options and warrants.
Amounts received for these additional committed shares, which were purchased for
cash have been received by the Company and are reflected in the Company's
financial statements as Stock subscribed. Amounts received for these additional
committed shares that are to be issued in exchange for consulting services or in
exchange for settlement of obligations owed by the Company, are reflected in the
Company's financial statements as liability for shares to be issued. In December
2004, the Company's president agreed to allow the Company to redeem 77,620
shares of his common stock for no consideration in order to allow the Company to
fulfill its commitments to issue shares to certain consultants and investors in
the Company. In April 2005, the Company's principal stockholder agreed to allow
the Company to redeem 15,767,145 shares of his common stock for no consideration
in order to allow the Company to fulfill its commitments to issue shares to
certain consultants and investors in the Company. Upon the increase in the
number of authorized shares of its Common Stock, the Company will issue
15,844,765, replacement shares (adjusted for any re-capitalization transactions)
for no additional consideration.
Cash and cash equivalents increased to $47,148 at June 30, 2005 from $4,310 at
December 31, 2004. Net cash used for operating activities for the six months
ended June 30, 2005 was $573,229. Net cash provided by financing activities for
the six months ended June 30, 2005 was $617,433.
The net cash provided was the result of cash received of $787,000 from the sale
and subscription of common stock and the exercise of warrants, net of principal
payments on long-term debt ($2,593), principal payments on a note payable to a
related party ($100,000) and re-payment of advances to a related party
($66,974).
ABILITY TO CONTINUE AS A GOING CONCERN:
At June 30, 2005, the Company has generated minimal revenues from commercial
sales of the Company's products. To date, the Company's operations have
generated accumulated losses of $10,532,738. At June 30, 2005, the Company's
current liabilities exceed its current assets by $3,901,367. The Company's
ability to remedy this condition is uncertain due to the Company's current
financial condition. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The Company believes it has
the ability to obtain additional funds from its principal stockholders or by
raising additional debt or equity securities as described below. The Company is
continuing discussions with investors in its effort to obtain additional
financing. However, there can be no assurances that the Company will be able to
raise the funds it requires, or that if such funds are available, that they will
be available on commercially reasonable terms.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RESULTS OF OPERATIONS - continued
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH THREE MONTHS AND
SIX MONTH ENDED JUNE 30, 2004 - continued
ABILITY TO CONTINUE AS A GOING CONCERN - continued:
The ability of the Company to continue to operate as a going concern is
primarily dependent upon the ability of the Company to generate the necessary
financing to effectively market and produce Brightec products, to establish
profitable operations and to generate positive operating cash flows. If the
Company fails to raise funds or the Company is unable to generate operating
profits and positive cash flows, there are no assurances that the Company will
be able to continue as a going concern and it may be unable to recover the
carrying value of its assets. Management believes that it will be successful in
generating the necessary financing to fund the profitable operations and to
generate positive operating cash flows. If the Company fails to raise funds or
the Company is unable to generate operating profits and positive cash flows,
there are no assurances that the Company will be able to continue as a going
concern and it may be unable to recover the carrying value of its assets.
Management believes that it will be successful in generating the necessary
financing to fund the Company's operations through the 2005 calendar year.
Accordingly, management believes that no adjustments or reclassifications of
recorded assets and liabilities are necessary at this time.
CREDIT AVAILABILITY:
The Company had no line-of-credit facilities as of June 30, 2005.
COMMITMENTS:
The Company had no material capital expenditure commitments as of June 30, 2005.
EFFECTS OF INFLATION:
Management believes that financial results have not been significantly impacted
by inflation and price changes.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RISK FACTORS
THE COMPANY HAS A LIMITED OPERATING HISTORY UPON WHICH AN INVESTOR CAN EVALUATE
ITS POTENTIAL FOR FUTURE SUCCESS.
The Company has had five commercial sales of its Luminescent Products
aggregating a total of approximately $349,000. Therefore, there is limited
historical financial information about the Company upon which to base an
evaluation of the Company's performance or to make a decision regarding an
investment in shares of the Company's Common Stock. The Company has generated an
accumulated deficit of approximately $10.5 million through June 30, 2005. To
date, the Company's operations have largely been limited to its effort to
develop the manufacturing process for its Luminescent Product. Sales of the
Company's products may fail to achieve significant levels of market acceptance.
The Company's business will be subject to all the problems, expenses, delays and
risks inherent in the establishment of an early stage business enterprise,
including limited capital, delays in product development, manufacturing, costs
overruns, price increases in raw materials and unforeseen difficulties in
manufacturing, uncertain market acceptance and the absence of an operating
history. Therefore, the Company may never achieve or maintain profitable
operations, and the Company may encounter unforeseen difficulties that may
deplete its limited capital more rapidly than anticipated.
THE COMPANY WILL REQUIRE ADDITIONAL CAPITAL, AND IF ADDITIONAL CAPITAL IS NOT
AVAILABLE, THE COMPANY MAY HAVE TO CURTAIL OR CEASE OPERATIONS.
To become and remain competitive, the Company will be required to make
significant investments in the Company's infrastructure, including hiring
employees to provide sales, marketing, product development and financial
reporting services on an ongoing basis. The Company does not at this time have
any committed sources of financing. There can be no assurance that additional
necessary financing will be attainable on terms acceptable to the Company in the
future or at all. If financing is not available on satisfactory terms, the
Company may be unable to operate at its present level, market or sell its
products, establish or maintain a system of financial controls or develop and
expand its business, develop new products or develop new markets, and its
operating results may be adversely affected. Debt financing, if available,
increases expenses and must be repaid regardless of operating results. The
availability of debt or equity financing is uncertain, and successful equity
financing would result in additional dilution to existing stockholders. The
losses incurred to date, the uncertainty regarding the ability to raise
additional capital and questions concerning the Company's ability to generate
net income and positive cash flows from operations indicate that the Company may
be unable to continue as a going concern for a reasonable period of time. The
Company's report of independent registered public accounting firm, as of and for
the year ended December 31, 2004, also indicates that there is substantial doubt
about the Company's ability to continue as a going concern.
THE COMPANY HAS A LIMITED NUMBER OF EMPLOYEES TO CARRY ON ITS OPERATIONS. As of
June 30, 2005, the Company had only three full-time employees and several
part-time consultants. The Company has not had sufficient resources to hire
additional employees and the Company's continued inability to hire additional
employees will have a material adverse effect on the Company's ability to carry
on and expand its business operations.
THE COMPANY HAS LIMITED FINANCIAL AND OPERATIONAL CONTROLS.
The Company has been unable to attract additional directors and has no audit or
compensation committees. In addition, the Company's sole employee has limited
financial experience and the Company currently lacks an adequate system of
internal financial or management controls. The Company does not have an
accounting department but relies on outside bookkeeping services to record
financial activity and consultants to assist in the preparation with financial
statements. The Company has received a letter from its independent registered
public accountants indicating that the Company has material weaknesses with
respect to (1) accurately recording day-to-day transactions, (2) the lack of
segregation of duties, (3) the approval of significant transactions in a timely
manner by the Company's board of directors and (4) the preparation of its
financial statements in an accurate and timely fashion. If the Company is unable
to raise additional capital, it will not have sufficient resources to implement
an adequate system of internal management and financial controls and will be
unable to hire employees with adequate financial and accounting experience.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RISK FACTORS - continued
THERE EXISTS SIGNIFICANT CONCENTRATION OF OWNERSHIP OF THE COMPANY'S COMMON
STOCK.
One of the Company's stockholders, David Geffen, owns a significant percentage
of the Company's outstanding Common Stock. As a result, this stockholder may be
able to influence the outcome of matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership of the Company's Common Stock may
have the effect of impacting the probability and timing of a change in control
of the Company. This could deprive the Company's stockholders of an opportunity
to receive a premium for their Common Stock as part of a sale of the Company and
might otherwise affect the market price of the Company's Common Stock.
THE COMPANY'S PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET AND THE COMPANY HAS HAD
LIMITED PRODUCT SALES TO DATE.
The Company relies on a single product and has had limited product sales to
date. Because the Company has only commenced limited marketing of its
Luminescent Product, it can give no assurance that this product will be
commercially accepted in the marketplace or that the market for its product will
be as large as expected by the Company.
THE COMPANY RELIES ON THIRD-PARTY MANUFACTURERS TO PRODUCE ITS PRODUCTS. The
Company currently has no manufacturing facilities and relies on several third
party manufacturers to produce the Company's Luminescent Product. Loss of these
manufacturing facilities would have a significant adverse effect on the
Company's operations. There can be no assurance that the Company's third party
manufacturers will continue to manufacture the Company's products.
THE COMPANY RELIES ON PATENTS, LICENSES AND INTELLECTUAL PROPERTY RIGHTS TO
PROTECT ITS PROPRIETARY INTERESTS.
The Company's future success depends in part on its ability to maintain patents
and other intellectual property rights covering its Luminescent Products. There
can be no assurance that the Company's patents and patent applications are
sufficiently comprehensive to protect the Company's products. The process of
seeking further patent protection can be long and expensive and there can be no
assurance that the Company will have sufficient capital resources to cover the
expense of patent prosecution or maintenance for its applications or existing
patents or that all or even any patents will issue from currently pending or any
future patent applications or if any of the patents when issued will be of
sufficient scope or strength, provide meaningful protection or any commercial
advantage to the Company. The Company's limited financial resources may limit
the Company's ability to bring any action to enforce its current patents.
THE COMPANY IS DEPENDENT UPON A SOLE SOURCE FOR RAW MATERIALS TO MANUFACTURE IT
PRODUCTS.
The principal raw materials used by the Company, in connection with the
manufacturing of its Luminescent Product, are purchased from a sole source
supplier. The unavailability of such raw material or significant price increases
of such raw material would have a material adverse effect on the Company's
business. The Company currently has no secondary source for such raw material.
RIGHTS TO ACQUIRE SHARES OF THE COMPANY'S COMMON STOCK WILL RESULT IN
SIGNIFICANT DILUTION TO OTHER HOLDERS OF SHARES OF THE COMPANY'S COMMON STOCK.
As of June 30, 2005, warrants and options to acquire a total of 29,562,911
shares of the Company's Common Stock were outstanding. As of such date, the
Company had also made commitments to issue an additional 21,069,765 shares of
Common Stock to investors in the Company at such time as the Company is able to
increase the number of shares of the Company's authorized Common Stock, which
require the approval of the Company's stockholders. The existence of such stock
options, warrants, and commitments could adversely affect the price at which
shares of the Company's Common Stock may be sold or the ability of the market to
absorb such additional shares of Common Stock if such investors decide to sell
such shares and the terms on which the Company can obtain additional financing.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RISK FACTORS - continued
THERE IS A LIMITED MARKET FOR THE COMPANY'S COMMON STOCK.
The Company's Common Stock is thinly traded and may experience price volatility,
which could affect a stockholders ability to sell the Company's Common Stock or
the price at which it may be sold. There has been and may continue to be a
limited public market for the Common Stock of the Company. The shares of the
Company's Common Stock are not traded on any established market and the
Company's Common Stock was de-listed from the NASDAQ small cap market in 2001
due to non-compliance with certain continuing listing requirements. The
Company's Common Stock is currently quoted on the "pink sheets" under the symbol
"ADLU.PK".
THE COMPANY'S FAILURE TO COMPETE EFFECTIVELY MAY LIMIT ITS ABILITY TO ACHIEVE
PROFITABILITY.
Competition in the area in which the Company expects to market the Luminescent
Products is intense, and the Company's competitors have substantially greater
resources than the Company.
THE COMPANY IS DEPENDENT ON ITS FOUNDER AND KEY EMPLOYEE.
The success of the Company is dependent upon the continued availability of its
founder, Patrick Planche. The unavailability of Patrick Planche or the Company's
inability to attract and retain other key employees could severely affect the
ability of the Company's current and proposed conduct of its business.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2005 and December 31, 2004, the Company did not participate in
any derivative financial instruments or other financial and commodity
instruments for which fair value disclosure would be required under SFAS No.
107, "Disclosures About Fair Value of Financial Instruments". Our investments
are primarily cash in financial institutions and short-term money market
accounts that are carried on the Company's books at cost.
The functional currency of the Company is the U.S. dollar, with the Swiss franc
being the functional currency of Brightec SA. Foreign currency denominated
assets and liabilities are translated into U.S. dollar equivalents based on
exchange rates prevailing at the end of each period. Revenues and expenses are
translated at average exchange rates during the period. Aggregate foreign
exchange gains and losses arising from the translation of foreign currency
denominated assets and liabilities are included as a component of comprehensive
loss. Foreign exchanges gains and losses arising from transactions are included
in the current year net loss.
22
ITEM 4. CONTROLS AND PROCEDURES
During the last five years, the Company did not have an accounting department,
but instead relied on outside bookkeeping services to record financial activity
and consultants to assist in the preparation of its financial statements. Upon
the completion of audit of the December 31, 2004 financial statements, the
Company received a letter from its independent registered public accounting firm
indicating that the Company has material weaknesses with respect to (1)
accurately recording day-to-day transactions, (2) the lack of segregation of
duties, (3) the approval of significant transactions in a timely manner by the
Company's Board of Directors and (4) the preparation of its financial
statements, in an accurate and timely fashion. The Company's management agrees
with the assessment of the Company's independent registered public accounting
firm and is developing a plan to address these material weaknesses.
As of June 30, 2006, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer, Chief Financial Officer and Treasurer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-14 under the Securities and
Exchange of 1934, as amended.
During the calendar years ended December 31, 2004 and 2005, as well as during
the three- and six month periods ended June 30, 2005, the Company had
insufficient numbers of internal personnel possessing the appropriate knowledge,
experience and training in applying accounting principles generally accepted in
the United State and reporting financial information in accordance with the
requirements of the Commission. The evaluation found insufficient controls over
dissemination of information regarding non-routine and complex transactions,
which resulted in incorrect treatment and lack of proper analysis of such
transactions by accounting staff. This weakness resulted in material adjustments
proposed by our independent registered accountants with respect to our financial
statements for our calendar years ended December 31, 2005 and 2004. As a result,
the figures for the three- and six month periods ended June 30, 2005, which are
presented in this document, required restatement from their previous filing.
Management believes this issue to be material and therefore, deemed the design
and operation of internal control in place at December 31, 2004 and 2005 and for
the three- and six month period ended June 30, 2005, to be ineffective.
In late 2005, the Company hired a CPA to oversee the accounting department and
coordinate the efforts of analysis and dissemination. These efforts include
design changes and related monitoring of the internal control system. While
there has been a tremendous improvement in the internal control system in the
first six months of 2006, the system is still undergoing change in order to
satisfy the requirements of appropriate internal controls. It is management's
intention to address accounting issues on a timely basis, and prevent
misstatement based on errors and/or lack of understanding.
The Company's management and board of directors are fully committed to the
review and evaluation of the procedures and policies designed to assure
effective internal control over financial reporting. It is management's opinion
that this new addition to the internal accounting staff will assist in the
establishment of an effective design and operation of the internal control
system and therefore, improve the quality of future period financial reporting.
23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company is a party
or to which any of its properties are subject.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following equity transactions occurred during the period April 1, 2005 to
June 30, 2005 and were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
On April 20, 2005, the Company entered into an agreement with Luminescent Europe
Technologies, BV (an affiliate of the Company by virtue of an existing equity
ownership position in the Company) pursuant to which the Company agrees to issue
100,000 shares of Common Stock, valued at $0.20 per share, in satisfaction of
indebtedness owed by the Company to Luminescent Europe Technologies, BV, in the
amount of $20,000.
On April 28, 2005, the Company issued to the Jeffrey Stern Revocable Trust a new
stock warrant for 3,600,000 shares of Common Stock in exchange for exercising
other stock warrants for 3,335,000 shares of Common Stock with an aggregate
exercise price of $375,000.
On April 6, 2005, the Company entered into an agreement with David Geffen, one
of the Company's major stockholders, allowing the Company to borrow 15,767,145
shares of Common Stock he held, in order to issue shares of Common Stock to
other investors that held subscriptions for shares of Common Stock, which could
not be issued since the Company had sold the maximum number of shares of Common
Stock authorized under it Article of Incorporation. Under the agreement, Mr.
Geffen is to receive no additional compensation, beyond the reimbursement of the
shares borrowed, for the redemption of his securities. Upon the amendment of the
Company's Articles of Incorporation, the Company will reissue the exact number
of shares borrowed from Mr. Geffen.
All shares of Common Stock issued by the Company were issued without
registration pursuant to the exemption from registration contained in Section
4(2) of the Securities Act of 1933, as amended. All purchasers of shares of the
Company's Common Stock who purchased such shares of Common Stock for cash
represented that they were acquiring the securities for investment and for their
own account. All purchasers of the Company's Common Stock who are United States
residents and purchased such securities for cash also represented to the Company
that they were accredited investors as of the date of such investment. A legend
was placed on the stock certificates representing all securities purchased
stating that the securities have not been registered under the Securities Act
and cannot be sold or otherwise transferred without an effective registration or
an exemption there from.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
24
ITEM 6. EXHIBITS
Number Description of Exhibit
- ------ ----------------------
31 Certification of Patrick Planche, President and Chief Executive
Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended.
32 Certification of Patrick Planche, President and Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED LUMITECH, INC.
Date: February 28, 2007 By: /s/ PATRICK PLANCHE
-------------------------------------
Patrick Planche
President and Chief Executive Officer
26
EXHIBIT INDEX
Number Description of Exhibit
- ------ ----------------------
31 Certification of Chief Executive and Financial Officer
Pursuant to 18 U.S.C Section 1850, As Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. (filed
herewith) E-1
32 Certification of Chief Executive and Financial Officer
Pursuant to Rule 13a-14(b) of the Exchange Act and 18
U.S.C. Section 1850, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (filed herewith) E-2
27